Russia-Ukraine conflict has opportunities for India, writes Ajit Ranade

Ajit RanadeUpdated: Monday, March 14, 2022, 08:34 AM IST

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 to Iraq, Afghanistan, or Iran earlier.

For instance, the airline industry in Russia will have to remain largely grounded, since the aircrafts are in lease arrangements that can be suspended, or insurance cover is stopped. Besides a bulk of the commercial aircrafts 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 United Kingdom 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. McDonald’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 air power to bomb the cities.

The United States 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 can choose to abstain from a UN vote, especially with 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 supporting an invasion. It may be 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 which 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 United States courted China as a foil against the Soviet Union during the Cold War. The historic visit of Nixon to meet Mao was 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 very strong trade and investment linkages between the two.

Even after President Trump’s high tariffs against Chinese imports,the bilateral is nearly 800 billion dollars and shows no sign of abatement. The decade of the 1990s that followed the breakup of the Soviet Union was a golden period for the U.S. since it experienced disinflation, thanks to cheap imports from China, and high profitability as U.S. 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 learned where the power centre lies. China, of course, is a formidable economic power, and any hegemonic tendencies will not be acceptable to the United States. Russia is a declining great power, with its population shrinking, and economic size 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) and its non-NATO membership which is what the Russians have 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 U.S., India, Japan, and Australia) has not delivered any tangible benefits to India. But the strategic importance of India could grow.Itis 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 U.S. 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.

(Dr. Ajit Ranade is a noted economist)

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