Geopolitical churn fails to impede India’s trade surge

Subir Roy

Senior economic analyst

A new Cold War began two years ago between Western powers and Russia when the latter invaded Ukraine, with China being a key player as well. Though India has been caught up in the conflict, it has managed to keep making economic gains despite being unable to distance itself from the global tensions.

Even though there has been a prolonged standoff between India and China in eastern Ladakh, the two countries continue doing a good bit of trading. Imports from China to India crossed over $100 billion in FY24. It goes without saying that the merchandise that India procured from China made sound economic sense. Electronics, chemicals, machinery and plastics have spurred considerable economic growth.

But since most Indians hold a very negative view of China, the two countries remain as far away from each other as possible. Since the US, France, Japan and Australia also have a bad perception of China, India has, along with the others, sought to discourage Chinese apps, investments and startups. India has also frowned upon the Dragon’s Belt and Road Initiative, even as it has reached an agreement with Iran for developing the Chabahar port.

One of the most important decisions India has taken is to agree with the Western powers to join the ‘China Plus One’ bandwagon. Leading global companies that have elaborate manufacturing factories in China are being asked to take those units out of the country and into India and Southeast Asia. A global company, Apple, has decided to set up a manufacturing base in India to make iPhone 14, and Foxconn is manufacturing on its behalf.

However, a degree of caution is called for. Even as New Delhi is seeking to continue doing business with Beijing and bringing in huge imports, mostly through intermediates, it is also attempting to create big manufacturing ventures that are largely self-reliant and able to export across the world. There is now an attempt to make a success of production-linked incentive (PLI) schemes that allow subsidies to go in for large production so that, at the end of the day, major production units become globally competitive.

This is part of the need for India to become self-reliant or atmanirbhar. But PLI units have not made much progress over the years. So, the feeling is that such units will not become robust globally. Hence, there is a need to identify industries to boost, not who their promoters should be. Manufacturing units, small or large, should be allowed to survive — and if they are not good enough, perish. Manufacturing, thus, will do its own thing instead of trying to find large winners.

Now, we need to take up a key point — the conflicting nature of the actions of the US and India over business with Russia. The US has used sanctions to make it difficult for Russia to trade with much of the rest of the world. But even as India is aligned with Western diplomatic aims, it continues to heavily import oil from Russia, managing different ways to pay for the oil without using dollars from the main financial centres. Not just India, north European nations also continue to import gas from Russia, notwithstanding the strict sanctions that seek to rein in Russian exports.

India defies the US by continuing to trade with countries like China and Russia. The bilateral trade between India and the US was estimated to be $118.28 billion in 2023-24. Additionally, Washington was the top trading partner of New Delhi during 2021-22 and 2022-23. Indian IT companies have played a key role in earning dollars from the West. But the US authorities are trying to hike H-1B visa rates so that there are fewer immigrants from India and the locals have more jobs. But Indian IT companies are still sending engineers to the US, despite having to bear the sky-high visa expenses. So, though New Delhi and Washington keep quarrelling, they continue to profit off each other.

As a Cold War of sorts is sweeping the world, it is impossible not to recall how the original Cold War played out when communist countries and free nations barely spoke to each other and stopped just short of going to war (not counting some proxy wars). The Cold War lasted over four decades, ending when the Soviet Union collapsed in 1991. All said and done, that Cold War was marked by a little more integrity. In today’s Cold War, economic interests are easily allowed to prevail.

In the post-1945 Cold War, India swore by non-alignment and depended on the Soviet Union to get steel and fertiliser factories. Then PM Jawaharlal Nehru befriended Cuban leader Fidel Castro, who was an open enemy of the US. Indira Gandhi, too, went along with Castro, but eventually had to beg then US President Lyndon Johnson for wheat to stave off a famine.

Today, a different kind of Cold War is on. India freely does business with Russia and China, despite being clearly aligned with Western powers. There is no integrity in politics or geopolitics. And India makes money wherever it can. Just recently, the US read India the riot act over the latter’s engagement with Iran with regard to the Chabahar port. But Washington stopped short of slapping sanctions on New Delhi. This reflects India’s growing economic heft. 

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