Trade, economic interests drive India's foreign policy

How the oil price cap will actually play out is not clear, but our government remains unfazed because the cost of crude is anyway on a downward trend

This year, trade and economic interests influenced the government’s foreign policy significantly, unlike earlier times when it was the other way around.

During the cold war, it was the foreign policy that influenced the decision to have a rupee payment mechanism with the eastern bloc led by the Soviet Union, an arrangement that was dismantled when the Soviet Union collapsed. Later, the dominant United States goaded us to sign up to multilateral trading arrangements, especially the Doha Development Round of the World Trade Organization. 

More recently, the Centre imposed 200 per cent Customs duty on goods from Pakistan due to political reasons.

When Russia invaded Ukraine, however, the government took into consideration our heavy dependence on Russia for imports of equipment and spares essential for defence preparedness and decided not to condemn Russia at the United Nations.

Later, the global crude oil prices shot up but as India could buy this commodity from Russia at discounted prices, the government decided not to condemn Russia even when evidence of Russian atrocities on civilians emerged or when Russia annexed four provinces of Ukraine or when Russia repeatedly attacked civilian infrastructure leaving most Ukrainians without power, heating, or water.

When criticism emerged from various quarters in the West that India is putting money before morality and helping Russia finance its unjustified war against Ukraine, the government highlighted its primary obligation to defend its national security interests and keep prices under control at home. The government also responded to European exasperation with the rhetoric that India is importing only a fraction of what Europe imports from Russia, conveniently ignoring the fact that Europe was reducing its imports of oil and gas from Russia whereas India was increasing its crude oil imports from Russia.

As matters stand now, Europe has stopped its purchase of natural gas and seaborne oil from Russia. It is likely that even supplies of some quantity of crude oil from Russia to some European countries through pipelines may be phased out and the western countries may consider imposition of secondary sanctions the way they were imposed against Iran. But, the government has prepared for such an eventuality by opening a window for settlement of payments in non-convertible Indian rupees.

In July, the Reserve Bank of India allowed foreign banks to open Special Vostro Accounts with banks in India for settling trade transactions in rupees and deploying the surplus balances in specified government securities. If Indian entities start paying for imports from Russia through these accounts, exports to Russia may go up and fetch better prices for the simple reason that for the Russian entities the avenues to utilise the payments received in rupees are woefully limited.

The western countries have also imposed a price cap of US $60 per barrel meaning thereby that the entities in western countries cannot transport Russian oil or extend marine insurance to vessels carrying Russian oil when sold above that price. 

How these price caps will actually play out is not clear, but our government remains unfazed because the cost of crude is anyway on a downward trend and Indian entities are getting oil from Russia at about the same price 

as the cap. 

Thus, at least some principles that guided our foreign policy over many decades have given way toself-interest of sorts.

email: tncrajagopalan@gmail.com