Introduction: A Strategic Pivot in a Fragmenting Global Order
As global trade architecture fractures along geopolitical fault lines, the December 2025 announcement of negotiations toward a free trade zone between India and the Eurasian Economic Union represents more than routine commercial diplomacy. Speaking alongside Indian Prime Minister Narendra Modi following their December 5 meeting in New Delhi, Russian President Vladimir Putin framed the initiative as essential to “the growth of Russian-Indian commercial ties,” while emphasizing parallel development of alternative transport corridors that bypass traditional Western-controlled maritime chokepoints.
This initiative arrives at an inflection point in international economic relations. Western sanctions targeting Russia, growing U.S.-China tensions, and India’s pursuit of strategic autonomy have created conditions where alternative trading blocs gain unprecedented relevance. The proposed free trade agreement (FTA) between India and the five-member EAEU—comprising Russia, Belarus, Kazakhstan, Armenia, and Kyrgyzstan—signals a fundamental reconfiguration of Eurasian commerce, with implications extending far beyond the bilateral India-Russia relationship.
Historical Context: From Soviet-Era Ties to Modern Economic Partnership
The Evolution of India-Russia Economic Relations
India and Russia share economic ties dating to the Soviet period, when Moscow supplied critical defense equipment and industrial technology to New Delhi. Following the Soviet Union’s 1991 collapse, bilateral trade plummeted from $5.6 billion in 1990 to just $1.4 billion by 1995, according to India’s Ministry of External Affairs. The relationship remained predominantly defense-focused through the 1990s and early 2000s, with limited commercial diversification.
The past five years have witnessed dramatic transformation. Bilateral trade between India and Russia surged from approximately $12 billion in 2021 to approximately $68-70 billion in 2024 (with figures varying between $68 billion reported by India’s External Affairs Minister and $70.6 billion cited by some sources), marking a nearly sixfold increase. This growth accelerated sharply after February 2022, when Western sanctions on Russian energy exports created opportunities for Indian refiners to purchase discounted crude oil.
Russia’s exports to India reached $65.7 billion in 2024, representing 93% of total bilateral trade, while Indian exports to Russia stood at $4.84 billion, according to UN COMTRADE data. This severe trade imbalance—with India running a deficit exceeding $60 billion—underscores a relationship still heavily skewed toward hydrocarbon imports. Energy products, particularly crude oil, account for the overwhelming majority of Russian exports to India, while pharmaceuticals, textiles, agricultural products, and machinery dominate India’s exports to Russia.
Both nations have set an ambitious target of $100 billion in bilateral trade by 2030, as reaffirmed during Modi’s July 2024 visit to Moscow. Achieving this goal will require substantial diversification beyond energy trade—a challenge the proposed EAEU free trade agreement aims to address.
The Eurasian Economic Union: Structure and Economic Weight
The EAEU, established January 1, 2015, comprises Russia, Belarus, Kazakhstan, Armenia, and Kyrgyzstan—a market of 183 million people with combined GDP of $2.4 trillion (PPP). However, the union remains dramatically asymmetric: Russia accounts for roughly 85% of the bloc’s total GDP and population, creating an inherently Russia-centric dynamic. Despite provisions for free movement of goods, services, capital, and labor, integration remains incomplete—services trade covers only 15% of UN-classified sectors and financial markets remain fragmented. While the EAEU has pursued external agreements with Iran, Vietnam, Singapore, and Serbia, the proposed India deal would represent its most significant external trade agreement by far, given India’s economic scale and growth trajectory.
Current State of India-EAEU Trade Relations
Existing Trade Volumes and Composition
Beyond the dominant India-Russia bilateral relationship, India’s trade with other EAEU members remains modest. During 2022-2023, India’s bilateral trade included approximately $134 million with Armenia, $111 million with Belarus, $641 million with Kazakhstan, and $56 million with Kyrgyzstan, according to reports from Al Majalla. These figures pale beside the $68-70 billion India-Russia trade relationship, suggesting enormous untapped potential within the broader EAEU framework.
The partnership has gained considerable traction. In August 2024, India and the EAEU signed Terms of Reference to launch formal FTA negotiations. Total India-EAEU trade (essentially India-Russia plus approximately $1 billion from the other four members) reached approximately $69-71 billion in 2024, reflecting the dominant role of the India-Russia bilateral relationship within the broader union framework.
The Infrastructural Foundation: Transport Corridors
Critical to understanding this trade relationship is the parallel development of multimodal transport corridors that Putin referenced in his December announcement. Two projects warrant particular attention:
The International North-South Transport Corridor (INSTC): Originally conceived in 2000 and signed by Russia, Iran, and India, the INSTC languished for two decades due to infrastructure deficiencies, bureaucratic obstacles, and geopolitical complications. The corridor has experienced dramatic revitalization since 2022. Trade between India and Russia using the INSTC doubled in 2024, according to The Economic Times. The eastern route of the corridor—running through Kazakhstan and Turkmenistan—currently handles approximately 1.8-2 million tonnes of goods annually to Iran, nearly triple the previous year’s volume, with theoretical capacity reaching 15 million tonnes.
The INSTC offers compelling economic advantages. Studies by India’s Federation of Freight Forwarders Associations found the route is “30% cheaper and 40% shorter than the current traditional route” via the Suez Canal. Transit time drops from 40-45 days on the maritime Suez route to approximately 20-25 days via the INSTC, with some optimal connections achieving delivery from Mumbai to Moscow in just 19-20 days.
The Northern Sea Route (NSR): Russia’s Arctic shipping corridor presents longer-term opportunities but faces substantial infrastructure challenges. The NSR is approximately 40% shorter than the Suez Canal route for Europe-to-Far East shipping, reducing the journey from about 21,000 km to 13,000 km and potentially cutting transit time from 30-45 days to 12-15 days. During Modi’s July 2024 Moscow visit, both nations agreed to establish a joint working group on NSR cooperation, with India showing interest in Arctic shipbuilding, training seafarers for polar navigation, and accessing Russia’s energy-rich Arctic regions where Indian state company ONGC Videsh already holds a 10% stake in the Arctic LNG II project.
However, the NSR requires specialized icebreaker fleets, dedicated port infrastructure, and substantial capital investment before becoming commercially viable for India-EAEU trade at scale. Russia aims to increase NSR cargo volume to over 200 million tonnes annually by 2030, up from 37.9 million tonnes in 2024 (which exceeded the previous year’s record by 1.6 million tonnes), but achieving this target depends on infrastructure development and geopolitical stability.
Analyzing the Free Trade Agreement: Components and Implications
Economic Rationale and Potential Benefits
The proposed India-EAEU FTA pursues multiple economic objectives:
Market Access Expansion: With a combined GDP approaching $6.5 trillion (including India’s approximately $4 trillion economy), the FTA creates a vast integrated market spanning from Eastern Europe to South Asia. For Indian exporters—particularly in pharmaceuticals, textiles, agriculture, information technology services, and machinery—the agreement promises reduced tariffs and simplified market access across Central Asia and into European Russia.
Sectoral Diversification: Both sides recognize the urgent need to diversify beyond energy-dominated trade. Russia’s agricultural exports to India grew nearly threefold in 2024 to 3.4 million tonnes, according to preliminary estimates by Russia’s Agroexport federal center, with pea exports soaring 10.4-fold to 896,800 tonnes worth $424.9 million, making Russia India’s second-largest supplier of pulses after Canada. Sunflower oil exports grew 2.4-fold. This agricultural dimension suggests pathways for more balanced trade.
MSME Support: Both governments emphasize the agreement’s potential to benefit micro, small, and medium enterprises. With simplified customs procedures, harmonized technical standards, and improved payment mechanisms, smaller exporters could access markets previously dominated by large commodity traders.
Trade Deficit Mitigation: For India, expanding exports to EAEU markets offers one avenue to address its massive trade deficit with Russia. The deficit surged from $6.6 billion in 2021 to approximately $58.9 billion in 2024-25, driven overwhelmingly by hydrocarbon imports. Without substantial export growth, this imbalance threatens the long-term sustainability of the economic relationship.
Geopolitical and Strategic Dimensions
The proposed FTA carries significance extending well beyond tariff schedules and trade statistics:
Strategic Autonomy: India’s engagement with the EAEU aligns with its longstanding policy of strategic autonomy—maintaining diverse partnerships while avoiding exclusive alignment with any single power bloc. As New Delhi navigates tensions between the United States and China while preserving ties with Russia, the EAEU relationship provides economic diversification that reinforces diplomatic independence.
De-dollarization Efforts: Both India and Russia face challenges with dollar-denominated trade: Russia due to sanctions restricting access to dollar clearing systems; India due to concerns about dollar hegemony and transaction costs. The FTA framework includes discussions on bilateral currency settlement mechanisms. However, rupee-ruble trade faces significant obstacles, including limited liquidity, lack of deep financial markets for currency hedging, and the massive trade imbalance that creates excess rupee balances in Russia with limited investment opportunities.
Counterbalancing Chinese Influence: For both Russia and India, the EAEU framework offers mechanisms to manage Chinese economic dominance in Central Asia. While Russia relies heavily on China economically—particularly after Western sanctions—Moscow seeks to balance Beijing’s influence by strengthening ties with India. New Delhi, meanwhile, views deeper Central Asian engagement as part of its “Connect Central Asia” policy and broader Indo-Pacific strategy.
Sanctions Circumvention Architecture: While neither government explicitly frames the FTA as sanctions circumvention, the timing and structure inevitably serve this function. By creating alternative trade routes, payment mechanisms, and supply chains through EAEU countries, the agreement provides workarounds for Western sanctions targeting Russia while offering India insurance against potential secondary sanctions risks.
Challenges, Risks, and Structural Obstacles
Despite the strategic logic, the India-EAEU FTA faces formidable challenges:
Economic and Trade-Related Challenges
Low FTA Utilization Rates: India’s historical record with free trade agreements reveals significant underutilization. Indian businesses typically utilize only about 25% of available FTA benefits, far below the 70-80% rates seen in developed economies, according to government studies. This reflects limited awareness among SMEs, complex rules of origin requirements, and documentation burdens that often make paying standard tariffs simpler than claiming preferential access.
Infrastructure Deficits: Despite recent progress, the INSTC and other connecting infrastructure remain incomplete. Iran’s Rasht-Astara railway section—critical for the INSTC’s western route—faces construction delays, with completion now expected in 2028 rather than the originally planned 2024. Underdeveloped rail networks in Central Asia, insufficient transshipment capacity in Caspian Sea ports, and limited containerization infrastructure create persistent bottlenecks.
Payment System Complications: Russia’s exclusion from SWIFT complicates financial settlements. While alternative mechanisms exist—including correspondent banking relationships, Chinese payment systems, and bilateral currency arrangements—these remain slower, more expensive, and less reliable than conventional channels. Indian exporters report payment delays, currency conversion losses, and limited hedging options as persistent frustrations.
Domestic Industry Concerns: In India, there are anxieties about cheap imports from Russia and other EAEU countries—particularly in metals, fertilizers, and manufactured goods—potentially undercutting domestic producers. Indian industry associations will likely lobby for carve-outs, safeguard provisions, and sensitive product lists that could substantially limit the agreement’s liberalization scope.
Geopolitical Risks and Complications
Western Pressure and Secondary Sanctions: The United States and European Union may view deeper India-EAEU economic integration as undermining their sanctions regime against Russia. While India has thus far avoided secondary sanctions due to its strategic importance, exponentially growing trade volumes and institutionalized economic ties through an FTA could test Western tolerance. The incoming Trump administration’s unpredictable approach to sanctions and trade policy adds uncertainty.
Dependence on Russia: Given Russia’s dominance within the EAEU, the free trade agreement risks deepening India’s economic dependence on Moscow rather than genuinely diversifying ties across Eurasia. If the India-Russia bilateral relationship encounters turbulence—whether due to geopolitical shifts, energy price volatility, or diplomatic tensions—the broader EAEU framework could prove less resilient than hoped.
Central Asian Dynamics: Several EAEU members, particularly Kazakhstan, maintain significant economic ties with China and carefully balance relationships with Russia, China, Western powers, and regional neighbors. Kazakhstan explicitly ruled out political integration within the EAEU at its formation, insisting on purely economic cooperation. India’s ability to develop independent economic relationships with these nations—as opposed to simply accessing them through Russian mediation—remains uncertain.
Iran Factor: The INSTC’s viability depends heavily on Iran, which is not an EAEU member (though it recently gained observer status and signed a free trade agreement with the union). Iran faces its own sanctions regime, internal political volatility, and complex regional relationships. Donald Trump’s return to the U.S. presidency and promises to reinstate “maximum pressure” on Iran could severely complicate INSTC development.
Negotiation Complexities
Regulatory Harmonization: Achieving meaningful market integration requires harmonizing technical standards, sanitary and phytosanitary measures, customs procedures, and professional qualifications. The EAEU itself has struggled with this among its members—for instance, only one barrier is officially recognized in the EAEU’s system: Belarus’s veterinary requirements for Russian animal products. Extending harmonization to India presents exponentially greater challenges given different development levels, regulatory philosophies, and industrial structures.
Services and Investment: While goods trade receives primary attention, comprehensive economic integration requires liberalization of services trade and investment protections. India’s historical FTA negotiations reveal sensitivity around professional services, financial sector access, and visa regimes for temporary workers—all areas where meaningful EAEU integration would prove difficult.
Timeline Realism: Both sides committed to “early conclusion” of the agreement, but realistic timelines remain unclear. India’s FTA with the European Free Trade Association took 16 years from initial negotiations to signature. The EU-India FTA, relaunched in 2022 after suspension in 2014, aims for completion by year-end 2025 but faces substantial obstacles. Given the EAEU’s internal complexity, Russia’s international isolation, and India’s cautious negotiating approach, a comprehensive agreement likely requires several years.
Forward-Looking Analysis: Scenarios and Implications
Short-Term Impacts (2025-2027)
In the near term, the announcement itself carries symbolic value, signaling India’s commitment to diversifying economic partnerships beyond traditional Western markets. The formal negotiation process will likely focus on:
- Low-hanging fruit sectors where tariff reductions face minimal domestic opposition—certain agricultural products, minerals, and manufactured goods with limited import sensitivity.
- Customs modernization and trade facilitation measures that reduce non-tariff barriers without requiring controversial liberalization—electronic documentation, single-window clearances, and streamlined procedures.
- Institutional mechanisms for ongoing dialogue—working groups, dispute resolution frameworks, and regular ministerial consultations.
Actual trade flows will continue growing primarily through the India-Russia bilateral channel, particularly energy trade, while INSTC infrastructure development proceeds. Expect incremental improvements in connectivity and logistics rather than transformative change.
Medium-Term Outlook (2028-2030)
Assuming successful negotiation completion by 2027-2028, the agreement’s implementation phase would extend through this period. Key developments might include:
Transport Infrastructure Maturation: The INSTC’s eastern route could reach 10-15 million tonnes annual capacity if investment continues. Iran’s Rasht-Astara railway completion (scheduled 2028) would activate the western route’s full potential. These developments could reduce India-Russia transport costs by 20-30% and delivery times by 15-20 days, making non-energy trade commercially viable.
Trade Diversification: If the agreement succeeds, India’s exports to EAEU countries could grow from current levels of approximately $5 billion to $15-20 billion by 2030, though still dwarfed by energy imports from Russia. Pharmaceuticals, agricultural products, textiles, and information technology services represent the most promising export sectors.
Financial Infrastructure Development: Progress on bilateral currency settlement, correspondent banking relationships, and potentially a multilateral EAEU-India payment platform could reduce transaction costs and delays. However, full de-dollarization remains unlikely given the dollar’s network effects and the lack of deep, liquid alternative currency markets.
Long-Term Implications (Beyond 2030)
The agreement’s ultimate significance depends on broader geopolitical trajectories:
Scenario 1: Successful Integration – If Western sanctions on Russia eventually ease (whether through Ukraine conflict resolution or Western policy shifts), and if India-China relations stabilize, the EAEU framework could evolve into a genuine Eurasian economic integration platform. This would require:
- Substantial infrastructure investment in transport corridors
- Deep regulatory harmonization beyond initial FTA provisions
- Development of intra-EAEU supply chains incorporating Indian manufacturing
- Expansion of services and investment liberalization beyond goods trade
Under this optimistic scenario, India-EAEU trade could reach $150 billion by 2035, with India playing a significant role in Central Asian development while maintaining strategic autonomy between major powers.
Scenario 2: Modest Achievements – More realistically, the agreement delivers incremental benefits without transforming the economic geography. India-Russia trade continues growing, reaching the $100 billion target by 2030-2032, but remains energy-dominated. Trade with other EAEU members expands modestly to $10-15 billion. Infrastructure improvements reduce costs and times but don’t fundamentally alter trade patterns. Payment system complications persist. The agreement functions as one element of India’s diversified partnership portfolio rather than a cornerstone of economic strategy.
Scenario 3: Strategic Complications – If U.S.-Russia tensions escalate, secondary sanctions target third parties more aggressively, or the Ukraine conflict expands, India may face difficult choices between EAEU engagement and Western economic relationships. The agreement could become a political liability, forcing India to navigate between conflicting pressures. Trade growth stalls or reverses, infrastructure projects freeze, and the initiative becomes largely symbolic.
Conclusion: Reconfiguring Eurasian Economic Space
The proposed India-EAEU free trade agreement represents an ambitious attempt to reconfigure Eurasian economic relations at a time of global flux. With bilateral India-Russia trade having grown nearly sixfold in five years to reach approximately $68-70 billion, momentum exists for institutionalizing and expanding this relationship through a broader multilateral framework.
Yet realism tempers enthusiasm. The EAEU remains a Russia-centric organization with incomplete internal integration. India faces a massive trade deficit with Russia, skepticism about free trade agreements, and competing priorities across multiple potential partnership frameworks. Infrastructure deficits, payment system complications, and geopolitical risks create substantial obstacles.
Most fundamentally, the initiative’s success depends on factors beyond the negotiators’ control: the trajectory of the Ukraine conflict and Western sanctions, India-China relations, U.S. trade policy, oil prices, and the broader evolution of global economic governance. The agreement should be understood not as a static commercial treaty but as a dynamic framework that will adapt to shifting geopolitical realities.
For India, the EAEU engagement exemplifies strategic autonomy in action—maintaining diverse partnerships, accessing Russian energy resources at competitive prices, developing Central Asian economic ties, and creating alternatives to China-dominated supply chains and Western-controlled trade routes. For Russia, the partnership offers crucial economic diversification away from excessive China dependence while maintaining great power status through Eurasian leadership.
Whether this shared strategic logic translates into sustained economic integration or merely diplomatic symbolism will become clear over the next five years. The December 2025 announcement marks not an endpoint but the beginning of a complex, multi-year process whose ultimate shape remains uncertain. What is certain is that the India-EAEU economic relationship will serve as a key indicator of whether alternative trading blocs can genuinely reshape global commerce or whether economic gravity continues pulling nations toward established Western and Chinese-centered networks.
