Mirage or oasis?

India could drink sustainably from the spring-wells of development

Western media, including an unusually favourable report in The Economist dated May 14, 2022, has extensively covered the flurry of high-level visits to and from India since the Russian invasion of Ukraine on February 24. The implication is that the ongoing undeclared war between Russia and the North Atlantic Treaty Organisation (Nato) countries, with the fighting taking place in Ukraine, has thrown up opportunities for India. Namely, India could seek greater accommodation of its strategic and economic interests with the West since this bloc would like a swing state such as India to move definitively towards its side. This article examines the extent to which there is substance in this line of thinking.

Crimea was incorporated into the Russian empire by Catherine the Great towards the end of the 18th century and was a part of the Soviet Union. To that extent Vladimir Putin had relatively sound historical, strategic and economic reasons to take back Crimea in 2014.  Comparatively, Russia’s invasion of Ukraine does not have sufficient rationale from economic or military points of view. Even the Russian take-over of Ukraine’s Mariupol port on May 18 was an overkill.

On May 18, Finland and Sweden applied formally for membership of Nato and despite Turkey’s objections it is likely that these two countries would eventually become Nato members. Two days earlier on May 16, Mr Putin’s reaction at a meeting of the leaders of the Russia-led Collective Security Treaty Organisation was muted. All Mr Putin said was that Russia does not want any Nato military infrastructure to be set up in these two countries.

Taking a step back to reflect, as Russia is a highly sophisticated military and nuclear weapon power, there could be no credible threat to its territorial integrity or security from Ukraine joining Nato. The Union of Soviet Socialist Republics (USSR) did not break up because of any armed intervention. Of course, the US led West used all manner of stratagems to reduce the size of the Soviet empire. On balance, two important reasons why the USSR was dissolved were that those who were politically significant in that grouping of socialist republics wanted greater freedom from Moscow and higher standards of living. One out of several drivers for this Russian misadventure in Ukraine could be to divert attention from a potential threat to Mr Putin and the coterie around him from Russians who are dissatisfied that their country is not at the same average per capita income as the European Union (EU) countries.

China’s economic and supply-chain linkages with G7 and Nato countries are way more extensive than those of Russia. Yet, although China has made significant advances economically, the leadership of one-party China may share some of Mr Putin’s concerns about the West. For instance, the US-EU-UK would like multiparty democracy to emerge in China, which is more in line with the West’s economic and strategic priorities. In this context, the West’s political-military establishment would probably try to drive a wedge between Russia and China and not take them on together.

The undeclared war in Ukraine has brought the larger economies in Europe — Germany, France, the UK and the Netherlands closer together in their opposition to Russia. China is a far more important trade and investment partner for the EU than Russia. However, there seems to be a rethink in the larger EU economies about longer term trends in their overall relationship with China. A symptom of that change is that the EU-China Investment Agreement of December 2020 has been bogged down in the European Parliament till now.

Turning to India’s economic prospects, a number of factors are still in its favour. For instance, increasing numbers of youth are familiar with using and creating information technology applications. India may yet get its act together to take advantage of higher US tariffs on Chinese goods to promote exports just as Vietnam has done and increase production of renewable energy including nuclear power. The West may now be prepared to nudge its private sector to share technologies that were hitherto unaffordable or inaccessible. Further, India could increase the share of the formal sector in the overall economy and sharply raise the collection of direct and indirect taxes. Among the more difficult changes that India needs to make are the competitive offers by Indian political parties to provide unsustainable power and food subsidies and job-education quotas.

Nothing is new about any of these economic challenges for India. What is different is a net improvement in the external environment due to the recent strategic shifts in India’s favour. India needs to take advantage of the relatively favourable climate in its relations with the West to cobble together trade, investment and particularly technology-related agreements. India should be able to manage its divergences with the US-EU-UK on Russia without unsettling either side.

China’s implacable hostility towards India continues. It was glaringly evident following India’s nuclear tests in May 1998, and again within the Nuclear Suppliers’ Group in the context of the India-US nuclear deal of October 2008. The US despite its extensive economic linkages with China now views that nation as a serious challenge to the West. In this context, at a heads of government meeting of the Quad (USA, India, Japan, Australia) in Tokyo on May 23-24, the formation of an Indo-Pacific Economic Framework for Prosperity (IPEF), including all major Asean economies, South Korea and New Zealand, was announced. A few days earlier, the US disregarded China’s anticipated annoyance when US Under Secretary and Special Coordinator for Tibetan issues Uzra Zeya met the Dalai Lama in Dharamshala on May 19.

People travelling through hot deserts often perceive water in the distance, which is usually a mirage. Unlike such mirages, if India plays its cards right it could embark on sustained high economic growth and reduce its territorial and other vulnerabilities via-a-vis China.

j.bhagwati@gmail.com. The author is a former Indian Ambassador, World Bank finance specialist and currently Distinguished Fellow at the Centre for Social and Economic Progress