India’s foreign and economic policies are looking like China’s
- New Delhi wants its own rupee-rouble trade, just like that between Russia and China using their own currencies. Despite being a member of the Quad, India may have as much incentive to see the dethroning of the dollar dominance in international trade and its weaponisation
Since the start of Russia’s invasion of Ukraine, India’s policy response, or non-response, has been remarkably similar to that of China. The Chinese, as you would expect, get all the bad press. India, as usual, gets a free pass. But, no less than China’s, the reasons behind India’s (in)actions are crucial to understanding the geopolitics and geoeconomics in the Indo-Pacific region. This is rather different from the narrative being peddled by Washington and its key Western allies. All this goes well beyond India and China’s common abstention in the United Nations vote against Russia.
New Delhi is pushing to protect the country’s bilateral trade with Russia using the rupee and rouble. This comes after the outbreak of hostilities to bypass Western-led sanctions. China and Russia have been expanding bilateral trade using the yuan and rouble long before the current conflict in Ukraine. The Chinese-Russian trade using currency swaps dates back to an agreement between the central banks of the two countries as early as 2014, but has expanded recently.
Now, especially facing pressure stemming from Western sanctions against Russia, India is considering ways to protect crucial trade in commodities, fertilisers and weapons with Russia.
According to the Hindustan Times, “As the Ukraine conflict deepens, India has stepped up efforts to secure critical imports from Russia, particularly potassium chloride (popularly known as muriate of potash), a key fertiliser, and sunflower (edible) oil.
“Led by economic affairs secretary Ajay Seth, the high-level panel also includes top bureaucrats of the ministries of food and consumer affairs, fertilisers, commerce, external affairs, agriculture and petroleum. The panel is scouring for avenues to set up a rupee-rouble bilateral payment system to escape a wave of unprecedented sanctions on Russia, which have crippled the former Soviet state’s financial system.”
India mulls buying discounted Russian oil and commodities, say officials
In the short terms, both India and China face food security problems. That’s why China has lifted all wheat-import restrictions on Russia. Likewise, India is deeply worried about disruption to supplies of muriate of potash ahead of the kharif-sowing season in the summer. The Indian farm sector is the major source of income for half of the country’s population.
Quoting government data, the same Hindustan Times report said that “11-11.5 per cent of total imports of edible oils and fertilisers are sourced from Russia-Ukraine region. The two countries also account for over 90 per cent of sunflower oil imports. Within a basket of fertilisers [that] India imports, Russia accounts for over 17 per cent of MOP (muriate of potash) and 60 per cent of NPK (nitrogen, phosphorus and potassium).”
So much for geoeconomics. In the longer term, both China and India in fact share a similar geopolitical outlook when it comes to so-called de-dollarisation. Both countries want to see the erosion of the dollar dominance in the international trade system and its weaponisation by Washington when it comes to the use of sanctions. But for India, there is the added factor of America’s unreliability as a security partner.
The government of Prime Minister Narendra Modi is reportedly having second thoughts about its pro-American tilt. After the disastrous US withdrawal from Afghanistan, External Affairs Minister Subrahmanyam Jaishankar openly questioned the value of American security guarantees. Nor is New Delhi especially impressed that the US has been pushing Ukraine to fight while refusing to commit its own military or Nato.
But the bigger picture is what may be called the Aukus betrayal. India had assumed the Quad, of the US, Australia, India, and Japan, would be the principal counterweight to China in the Indo-Pacific. But now, it looks like when push comes to shove, the English-speaking Britain, the US and Australia prefer its own kind in the nuclear-armed alliance of Aukus.
The Modi government may not want to bet the ranch on US beneficence and prefer a more balanced approach with Moscow, despite the Ukraine crisis. This is very different from the song that the Biden White House has been singing since India abstained from the UN vote.
“The good news is that they are in a multi-year process of diversifying their arms purchases away from Russia,” US Assistant Secretary of Defence for Indo-Pacific Security Affairs Ely Ratner said. “That’s going to take some time, but they are clearly committed to doing that, including increasing the indigenisation of their own defence industry.
“That’s something we should support. So, I think in terms of their relations with Russia, the trend lines are moving in the right direction.”
Voices coming out of India sound rather different. An opinion piece from last week’s The Northlines, an Indian web news site, makes for interesting reading. Titled “Crisis as an opportunity: Rupee-Rouble trade should become template to break US hegemony”, it could just have been an op-ed from a Chinese state-owned newspaper.
How long can India stay above the fray amid Ukraine-Russia war?
It argues: “A crisis too can play a catalytic role in ending dithering and full-scale adoption of a system – Rupee-Rouble trade – hitherto embraced half-heartedly and sporadically.
“Russia is now in the doghouse, what with the USA and Euro nations ousting it from the Swift international money transfer messaging system, throwing its international trade pell-mell. It is for Russia to seize the moment because it has a point to prove … [But] it is not as if Russia alone has been chafing at the US dollar hegemony which many in the know aver is vastly undeserved …”
The writer then argues nations around the world should use their own currencies to trade as a matter of enlightened self-interest.
He continues: “By institutionalising INR-Rouble trade we would be sending a strong signal that the US dollar need not be invincible and unavoidable in international trade and payments. If more and more such agreements are signed between nation states, the world could well one day break free at least partially from the vice-like grip of the greenback on fortunes of other nations.
“The Indo-Russian initiative should by no means be construed as acquiescence by India in the Russian expansionism and condonation of its warmongering. Rather it should be seen as pursuit of enlightened self-interest, both short-term and long-term.”
Americans may think they are “the indispensable nation”, especially in the Indo-Pacific. But by creating the most economically dynamic region in the world today, Asians have proved they can take better care of their own peace, stability and prosperity. It may take decades, but for the rest of the century, there is no reason why US dominance should not be replaced by a balance of power between a rising India and China, along with Japan, and perhaps South Korea and Australia, which can still serve as proxies for US interests in the region. This is enlightened self-interest, with Asian characteristics.
