In the whole game, the elephant in the room is neither Russia nor any individual member of NATO. Instead, it’s China.
The fears have come true. Russia has gone ballistic on Ukraine and called it Special Military Operation. It is war, and unless carefully handled, could spin into a global fight.
Bombing a nuclear plant is the latest update which endangers mass public health and poses serious concern for the environment.
The dreadful unfolding in Ukraine is probably the most extensive disruption to the security order in Europe in the post World War era. A military superpower invading another country, and with the US and NATO imposing sanctions, the fight is happening right in front of our eyes and is ominous.
No one is clear about how the situation will pan out in the end. Like all wars, the current standoff manifests issues compounded over the years. This article does not seek to look at the right and wrong of Russia but will focus on the repercussions on the Indian economy. In the whole game, the elephant in the room is neither Russia nor any individual member of NATO. Instead, it’s China.
The Indian position of trying to stay neutral appears to have received more appreciation than criticism. The rhetoric from the US was pretty much expected and devoid of significance as passing resolutions may not be enough when NATO is not able to come in direct confrontation with Russia.
And now a sneak peek into India’s trade relations with Russia and Ukraine.
Trade between India and Russia is $9.4 billion so far this fiscal. It’s already about 20% up from the previous year. India imports from Russia fuels, mineral oils, nuclear reactors, boilers, machinery and mechanical appliances, electrical equipment, and fertilizers. Its major exports include pharmaceutical products, electrical machinery and equipment, organic chemicals, and vehicles. Little wonder, in its own interest of trade, India has chosen not to take sides.
India’s trade with Ukraine is $2.3 billion this fiscal and is down by 10%.
Regarding the size of the bilateral trade alone, Russia is almost three times a bigger trade partner, and if one looks at the composition, it beats Ukraine. Historically, Russia assumed a weighty place in India’s foreign policy, notwithstanding recent geopolitical and economic equations.
However, the present war has had a severe adverse effect on our foreign trade. Talking trade instead of humanity appears fair play as this war is over trade and ego.
This war will impact India’s trade in that region.
If the military operations continue for a long time, it will have severe implications for exports and imports from that region. Oil and gas prices will also zoom, there could be payment delays for traders, leading to inflationary pressure. The pressure on oil prices will make India vulnerable to oil shocks. There is a view emerging that if India and Russia enter into the rupee trade business due to sanctions, it can boost exports of value-added plastics and imports of polymers. This assumes significance, setting aside climate cause, traditionally plastic trade is sizable with Russia.
It’s only natural. We could expect shyness on the part of the exporters’ community to ship out consignments till the situation eases out. Of course, the quantity of impact on trade will depend on the duration of the war. For sure, this is a significant setback to trade as it was recovering from the COVID-19 pandemic. Besides, even Russia is ambushed by the sanctions from the West—how potent to deter the former could be hard to bet, but will affect the exports to that region. One must wait for the implications of counter-sanctions by Russia, if any. However, it’s too early to assess the impact of financial sanctions as Russia is used to such actions, yet it remains relatively stable. This occasion reminds the American sanctions against us in 1998 when we aspired to build nuclear capability. Sanctions have not even worked against tiny North Korea or rogue Pakistan; hence their potency in a context like such may be a narrative for another day.
REACTIONS
In terms of immediate reaction, the Indian stock market already witnessed a bloodbath on the day Russia declared war, albeit it recovered partially in subsequent trading sessions. Not just the stock markets were awash in red even the Indian currency slumped against the dollar as an immediate reaction to Russia’s attack on Ukraine, pushing investors to seek refuge in safe-haven assets.
India’s current neutral stand on the Russia-Ukraine dispute should not be surprising due to certain inevitable factors. First, the deep bonded relation between India and Russia encapsulating political ideology and economic policies goes back to the early days of post-Independence. Integration of the Soviet model to the socialism adopted by Nehru remains a convincing testimony in that regard. Even today, that legacy continues. A substantial share of India’s defence equipment bears a Russian stamp. And not just a fair-weather friend, Russia has consistently voted in favour of India to support India’s permanent membership in the UNSC. Second, bilateral affairs must be dealt with between the counterparties, has been an overt article of faith for India. As such, India’s reluctance towards any involvement outside persuasion in favour of constructive diplomacy looks quite ordinary and fully aligned to our conviction on such affairs. Third, the newfound romance between Russia and China emerges as an essential factor in the geopolitical space of the Asia region. Yet, it makes no strong case for India’s immediate course change if it does not directly conflict with its national interest.
Fourth, carrying out a so-called special military operation in the current instance may not be viewed as if, for the first time ever, it is being experimented on the planet. Fifth, at the same time, India’s partnership with the US to prevent Chinese misadventures may be seriously undermined as such the global community understands well enough India’s calculated move. Sixth, Ukraine has been on the opposite side of the fence at the UN regarding India’s interest, which is not what predominately drives India’s position, though there are no permanent friends or foes in the long run. Last but not the least, evacuation of Indian nationals tops the priority list for Indian administration, which is well received by domestic constituents.
Like any other major economy, India may face short- and medium-term difficulties. Even in some areas, long-term consequences may follow.
War has immediate consequences for global trade, capital flows, financial markets, and access to technology. Considering the fact the world today is far more globalised than in the 1950s, the impact is expected to be far more significant. Sanctions may not dissuade Russia from stopping its aggression under duress. There is also a dominating view that China will benefit the most even without firing a single shot.
Considering our much-accentuated defence dependency on the US and Russia, India may have little option but to tread carefully. Every word being uttered as the official voice must be well-calibrated and measured to avoid the task of avoidable reconciliations to cement our ties. At the same time, it’s a gentle reminder for us to reaffirm our commitment towards Aatmanirbhar’s “self-reliance” agenda in a comprehensive framework, including energy, defence, and agriculture.
Sabyasachee Dash is a columnist in various media outlets.