In Russia-Ukraine conflict, an opportunity for India

The invasion of Ukraine by Russia may not end abruptly, though diplomatic and economic sanctions are being strongly applied. The sanctions are working as major Russian business sectors find themselves severely affected. The sanctions have been applied with a great deal of precision and sophistication, much more than those that were applied on Iraq, Afghanistan, or Iran earlier. For instance, the airline industry in Russia will have to remain largely grounded, since the aircraft are in lease arrangements which can be suspended, or insurance cover is stopped. Besides, a bulk of the commercial aircraft are from Boeing and Airbus, whose home countries are bent on making the sanctions hurt. Inbound tourism is bound to take a dip. A large part of the foreign assets of Moscow’s elite billionaires are being frozen (such as those in the UK or Germany). That is sure to hurt. All dollar clearing transactions based on SWIFT will face a hurdle. Commodities being exported out of Russia will face some backlash or boycott. Energy exports (oil and gas) might continue, especially to Europe, but that too will be brought under sanctions as the war drags on. American companies are closing operations. MacDonald’s has decided to shut down, and so will Starbucks and Disney. Apart from sanctions, the resistance from Ukraine is unexpectedly stiff. How long that will last is an open question. The Russians seem to be keen to lay siege to the cities of Ukraine and are not using their airpower to bomb the cities.

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The US has managed to get most countries on its side, and the United Nations resolution condemning the Russian invasion has been supported by many countries. Countries like India chose to abstain from the vote due to a strong and continuing linkage with Russia, and due to considerations of what such a vote will imply to the geopolitics of the region. India cannot choose its neighbours, but it can choose to abstain from a UN vote, especially on a country with which it has historic, diplomatic and military ties.

China, too, has not only abstained but used the language of sovereignty and territorial integrity to indirectly support Russia. The two countries have very strong mutual agreements on energy sales, as well as trade and investment connectivity. But China is in an awkward position since it would not like to have the global image of a country supporting an invasion. It is difficult for the Russians to justify their actions or make it sound like a case of victims defending their rights. This places China in a difficult situation, as the country may not like to be on the side of action that is facing an outcry by America-led western powers.

This brings us to what could be India’s likely geopolitical positioning in the years to come. The immediate impact is, of course, adverse due to high oil prices and investor nervousness. India has a very large oil deficit and also a current account deficit. The latter needs a continuous supply of foreign investor dollars to plug that deficit. This has happened for the past three decades, thanks mostly to investors from the West (not from China). On food security, India is on a strong footing. Its military capabilities are significantly inferior to China, mainly due to a resource constraint. But the level of preparedness and the advantage of terrain means that the asymmetry is considerably reduced.

The US courted China as a foil against the Soviet Union during the Cold War. The historic visit of Nixon to meet Mao brought about a major paradigm shift, initiated by a conventionally hawkish, Republican President. The Sino-US embrace (if one can call it that) not only helped the Americans against the Soviets but led to a very strong trade and investment linkage between the two. Even after President Trump’s high tariffs against Chinese imports, the bilateral Sino-US trade is nearly $800 billion, and shows no sign of abatement.

The decade of the 1990s that followed the break-up of the Soviet Union was a golden period for the US, since it experienced disinflation, thanks to cheap imports from China, and high profitability as US corporations reaped profits by relocating manufacturing operations into the special economic zones of China. This was roughly the Deng era and lasted till the Lehman crash and the global financial crisis. The Xi Jinping era is quite different from the Deng era. There is much more centralisation, global aggression and assertion, and a conscious consolidation of the power of the Communist Party. So much so that even Chinese tech giants like Alibaba, Tencent and Didi have not been spared, and have learnt where the power centre lies. China, of course, is a formidable economic power, but any hegemonic tendencies will not be acceptable to the US.

Russia is a declining great power, with its population shrinking, and economic size too going down in relative size. It might continue to challenge NATO and even succeed in a complete takeover of Ukraine (although that is unlikely). The most likely outcome is an unconditional assurance of the neutrality of Ukraine (like Austria or Finland), ensuring that it does not join NATO, which is what Russia has been vocal about.

But the US will soon have to think about the more important geopolitical alignment and strategy around its bigger rival, China. So far, the Quad formation (with the US, India, Japan and Australia) has not delivered any tangible benefits to India. But the strategic importance of India could grow. It is conceivable that in a new configuration, the Americans will value an alignment with India more than the reverse. India, too, has a strong trade and investment relationship already. If its domestic economy shows steady and consistent high growth, it can become important to the US when dealing with a strong China.

Fifty years after Nixon met Mao, we could have America look at greater levels of cooperation with India. Regardless of how that plays out, India will need to deal with the situation from a position of economic strength, which is possible with the right kind of policies, reforms, and institutional strengthening. It can be argued that India is well-positioned to play the role of a pivotal swing State. It is left to India to choose its strategies and actions carefully.

(The writer is a noted economist)

(Syndicate: The Billion Press)

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