Country Risk & Threat Advisory Briefing: India

A foul wind blows India some good – Maybe

India finds itself on the brink of becoming a world superpower, potentially. It was perhaps Modi’s decisive action against China’s intrusions into the Eastern Ladakh’s Galwan River Valley in April/May/June 2020, that marked the country’s first real opportunity to be considered in such rarefied air. Yet even the value of that massive PR victory for Prime Minister, Narendra Modi, could perhaps have faded by now had it not been for the world crises of COVID and Russia’s invasion into the Ukraine which were to follow, and his responses to them.

These two world-changing events have provided the increasingly popular Indian leader greater opportunity to project India’s strength and enable his Bhartiya Janata Party (BJP) to win back five state assembly elections from opposition parties this March, thereby growing his and his country’s image yet further on the international stage. So far, Modi’s political positions have worked in the country’s favour. Yet, there is still one rather large hurdle for India to negotiate, the handling of which will determine whether the country remains just a regional power or takes a seat at the superpower table – the balancing act between the West and the China/Russia partnership.

For India it was vital to ignore the threat of US sanctions

India had managed to maintain good and friendly relations with both Russia and the US for many decades, skirting various disputes between the two power blocs to remain in favour with both, for the most part. But in doing so, the cost to India’s own geopolitical image has been high over the years, certainly when viewed in the context of the US/India relationship.

However, while Modi’s confidence as PM has grown during his time in office, his confidence in the current US administration has been deeply disturbed as a result of Biden’s stance during the QUAD alliance virtual conferences, when the world’s main threat was seen as coming from China – a longstanding adversary for India. Modi, as with his predecessors, had relied on US support to help keep China in check, but it was clear from those conferences the US administration was no longer prepared to take such a hard line against Xi Jingping and the CCP. India, as a result, has had to face its difficulties with China directly and, by extension, move away from the shadow of the American sphere of influence.

In public, Modi continues to talk up the QUAD and the need for it to counter China’s influence in the Indo-Pacific, yet one gets the impression the Indian government is merely paying lip service to delay possible sanctions coming from the US while it negotiates with the CCP in the background.

While some analysts now accept it has been the continual threats against Russia from nearly every US administration for decades (regardless of political colour) that inevitably forced Russia and China to become a full-blown partnership, India’s relationship with China has been extremely fractious for almost as long. Instead of striking a strong tone of support for India, the US administration has ignored the same warning signs seen between Russia and China that are now beginning to develop between China and India. It should be noted that the US threatened to sanction both India and China in a bid to force them to toe the U.S line. Certainly, these threats suggest that the US does not believe tensions could in anyway thaw between these two countries, even as a consequence of the sanctions (or the threats of them) it continues to throw into the current world chaos.

However, the world has now changed dramatically. While the Indian government is not capitulating over its territorial disputes with China, in light of recent events, they might just reach an accord of some kind, given that the political storm between the US and Russia over the latter’s decision to invade Ukraine, has already had far reaching effects across the globe and has, through no fault of its own, pulled India into opposition with the US.

Modi remains in contact with the leadership in both Russia and Ukraine, continues to call for the cessation of violence and the need for a peaceful resolution, has given some 90 tonnes of assistance to Ukraine, including food and medicine, and cancelled purchase orders with Russia for MiG 29 and SU 30 fighter aircraft, T-90 tanks, Ka-226 T helicopters and anti-tank weaponry.

For the US administration, which does not appear to recognise the self-inflicted damage it is causing in its attempt to halt Russian action in Ukraine through sanctions, India’s response had not gone far enough. Biden’s initial response to India’s reticence in condemning Russia outright was to threaten India with its own sanctions (one of which focussed specifically on India’s purchase of the S-400 surface-to-air missile system from Russia back in 2018) if it continues to purchase oil from Putin. This while, rather hypocritically, ignoring the fact the major EU countries have actually increased their gas and oil purchases from Russia since the war began and moreover, as pointed out by India’s External Affairs Minister, Subrahmanyam Jaishankar, after the US and EU both accused India of funding Russia’s war on Ukraine, “What India pays Russia for oil in one month, the EU pays in an afternoon.”

Offer India more than it can get from both Russia and China combined?

Fortunately, wiser heads would appear to have prevailed over the use of sanctions against India (for the moment) and a major charm offensive has begun in earnest. The West desperately needs India to counter China in the Indo-pacific. With the best will in the world, there is no way the US and Europe can do that alone. Perhaps out of panic that Biden’s sanctions threat had pushed India too far, first Boris Johnson, followed closely by the head of the EU Commission, Ursula Von der Leyen, visited Modi offering all kinds of free trade deals and defence contracts.

These high-level visits could essentially mark the anointing of India’s new geo-political position, and Modi, seeing how many benefits he can gain having played the ‘see who blinks first’ game over the oil from Russia threats, has now gone on a whirlwind visit to Germany, Denmark, and France. Only time will tell what deals he has secured and what he had to give up in exchange for them. Yet, it is doubtful he has had to compromise much at all. India’s history is replete with examples where Western powers have promised India the earth but in fact, taken everything, and Modi knows his bargaining position is exceptionally strong.

India is the world’s 3rd biggest oil consumer (behind only the US and China). It is also the world’s 3rd largest importer, and this is expected to grow over the next couple of years. Importing around 85% of its oil needs currently, the country has continually had to juggle its oil purchases for years in order to obtain the most favourable terms it can after US oil sanctions were placed on both Venezuela and Iran, costing it dearly.

With inflation already affecting world costs greatly prior to the Russian invasion, the Middle Eastern oil producing countries refusing to step up production, coupled with so many countries scrabbling to find alternative oil sources serving only to increase costs still further, there is no real way for Modi to meet Biden’s demands without throttling India’s industry and, by extension, its future economy.

In addition, India knows that, as of this year, it represents the largest oil export destination for the US and, as a result, Modi’s finance ministry clearly determined it was therefore worth calling the US government’s bluff over the 1% oil imports from Russia. Despite the US sanctions threat, India announced that it could potentially purchase even more oil from Russia, as the discounts being offered will be needed to absorb the economic shock on the Indian public. Going forward, India, now identified as a ‘friendly nation’ by Russia, will buy Russian oil using an agreed Ruble/Rupee exchange and Putin has offered to pay for both the shipping and insurance. The currency exchange mechanism was already worked out and has been used traditionally between the two countries over previous weapons purchases.

Under these circumstances, on the cusp of superpower status, India’s ignoring of US sanctions threat has worked in its favour. If (and it remains a big ‘if’) Modi’s government can begin to work with China to develop a working relationship that allows the creation of a financial trading mechanism outside of the western financial system for the three countries to trade, they will be able to shield themselves from any further sanctions that are likely to come, which in turn would neuter what little value there is left in US/EU sanctions.

Sources suggested recently that Sergey Lavrov, Russia’s Foreign Affairs Minister, was working in the background to help address the territorial dispute between India and China. Despite having 15 rounds of border talks with China over the issue previously, neither side has budged as of yet. Nevertheless, China’s Foreign Minister, Wang Yi, has now met with India’s External Affairs Minister, Subrahmanyam Jaishankar, on Indian soil – the first real meeting between the two countries since the skirmishes in 2020. This, in itself, is an indication that change could be on the horizon.

While nothing has been agreed at the time of writing, and the Indian government will require a lot of guarantees that there will be no further incursions from the CCP (India also demands the border position return to the 1993 and 1996 India-China agreements with a massive de-escalation of military deployments), the US administration can only hope its mainstream propaganda will work on the Indian population as well as it has on the West.

If Modi were to accept terms and work with China, his fellow countrymen might well present a big problem. He would no doubt have to expend a lot of hard-earnt political capital to get them on side, if he could. Nerves are still raw over the events of just two years ago. Nevertheless, Modi can afford (at least for the moment) to do this if China becomes more flexible. The opposition parties in the country are exceptionally weak and still reeling over their recent political losses. Whether he should or not, is another matter.

Nevertheless, were Modi to achieve this, far from stopping Russia through force of sanctions, it is feasible that the Biden administration’s actions might just unintentionally, create the largest group of superpower allies the modern world would have ever seen.

The tools required to craft such a fundamental world power shift are present albeit idle in relation to their wider political potential. The BRICS bloc of countries (Brazil, Russia, India, China, and South Africa) appear to be sticking together in favour of Russia. This massive trading bloc is a thorny issue for Biden’s government. The combined population of the bloc is believed to be 3.21 billion, which is somewhere around 42% of the world’s total population. In contrast, the EU’s total population in 2021, is estimated to be around 447 million.

Some estimates have the combined nominal GDP of the BRICS bloc at around US$19.6 trillion, the EU’s in 2020, was around US$15,192 billion. The BRICS bloc represents huge numbers and to put them into perspective, that’s just north of 23% of the world. The bloc is also believed to hold a combined US$4.46 trillion in foreign reserves. That is certainly enough financial firepower to move world markets.

As the balance of world power lurches eastward and away from a divided and collapsing West, Modi has clearly seen the weakness and imbalance of the current US administration and chosen his moment to stop towing the US policy line. This could just be India’s time, but whichever way it turns, the risks are huge in today’s geopolitical chaos. Is the country able to maintain its new-found image while keeping one eye on US machinations and the other on China’s? Only time will tell.

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