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. Last Updated: 07/27/2016

India and Russia Adapt Tea Trade to a New Era

In August, it seemed like Russians would have to spend the cold winter without their comforting cup of tea. Indian tea sales to the Russian government collapsed when India, complaining that Russia was not sending back promised amounts of oil, froze credits for the purchase of 60 million kilograms of tea.

This could have been another example of the breakdown of Russia's economic ties with its former trading partners, but Indian tea is still flowing into Russia.

While the traditional government-to-government trade has dropped sharply, private businesses are making use of new, liberal trade regulations to fill part of that gap.

By the end of this year, an Indian embassy official said, Russian-Indian trade may be worth $1. 8 to $2 billion. Although that would still be a 20 to 30 percent drop from previous years, it could have been worse.

The new relationship is an example of how the two countries, both of which relied heavily on state-controlled trade have opened up trade to the private sector and, in the process, succeeded in restoring some of what was lost.

Much of the Indian credit line was frozen by the Reserve Bank of India in August, because Russia had delivered only 60, 000 tons of the 4 million tons of oil it had agreed to send to India in 1992. By that time, India had shipped one quarter of the 60 million kilograms of tea it had promised to send to Russia.

But tea sales continued at auctions as private Indian firms jumped in to fill the gap and offered tea in exchange for hard currency or bartered products on the Russian market.

They could do this thanks to a new Russian-Indian trade agreement, signed in February, that allowed both regulated trade -- in rupees and rubles -- and free trade, in hard currency or barter.

With the former Soviet Union traditionally consuming over half of India's exported tea, these businesses were assured of a market. "After all", one exporter said, "people have to drink tea! "

In October, India further liberalized its exports with the former Soviet Union and replaced a list of goods that could be exported with a smaller list of goods that could not. "By opening all this, I think we have been able to prevent a substantial decline in trade", said Nirupam Sen, economic minister at the Indian Embassy.

In the first six months of the year, total trade between the two countries equalled $947 million, which is about on track to meet Sen's expected figure of $1. 8 to $2 billion of annual trade.

Indian trade "was extremely centralized and strictly planned, based on fixed targets", Sen said. Guided by the Indian government, all Indian firms had to do was sign an annual contract, with Soviet officials in New Delhi. "It was easier", said Sen, "but it was not fun".

For A. Tosh & Sons Ltd. , it used to be easier too. Since the late 1950s, Tosh had been one of only five Indian suppliers of tea to the Soviet Union, with a guaranteed 20 million kilograms a year in government-sponsored sales. This year, according to Raju Nambiar, Tosh's business development manager in Moscow, its tea exports to Russia have crashed to less than 3 million kilograms.

Taking advantage of the opening up of private trade, however, Tosh set up a small office in Moscow and now sells tea directly to processing plants and other customers in Russia for hard currency.

But keener competition and higher marketing expenses have cut into Tosh's profits.

The drop of the ruble also complicates sales, because agreed payments in U. S. dollars have to be adjusted every time the ruble drops.

"It'll be tough till the end of 1993", Nambiar said, expecting Indian tea exports to Russia to stay well below 50 million kilograms this year, from an average of 120 million kilograms in previous years. "But the prospect of business here looks good".

Even the state-run business is not dead yet.

This week, said Sen, India will reopen part of its credit line on government-to-government trade, part of which will be for tea. India will re-open general credit lines of $75 million this month.

In the February trade agreement, India had promised a total of $285 million in credits. Russian promised $830 million in arms sales and deliveries of oil, petroleum products and newsprint to India.

According to Sen, the Indian credits are short-term, and may be crossed off against India's debts to Russia.