India drills tariff wall for elephant to pass

Narendra Modi’s meeting with Xi Jinping could mark a turning point in India’s regional strategy and global positioning.

On August 25, Prime Minister Narendra Modi told a gathering in Ahmedabad before the 50 per cent US tariffs were supposed to take effect on August 27, that the welfare of small entrepreneurs, shopkeepers, farmers and cattle-rearers is his government’s topmost priority. 

Modi said, “Today, everyone is witnessing the kind of politics driven by economic self-interest... I want to tell my small entrepreneurs… shopkeepers… farmers and cattle rearers… your welfare is the top priority. My government will never allow any harm to come to you,” adding that “no matter how much pressure is put on us”, India will prevail. 

For the first time, United States President Donald Trump’s Make America Great Again (MAGA) movement is in Indian crosshairs ever since his ‘America First’ doctrine appeared in his first presidential term. Modi derives the raison d’être of his government’s platform of economic nationalism by flagging the pressure Trump imposes on India, and gives the clarion call for resistance. 

That said, Modi sidestepped Trump’s imposition of penalty tariff via an executive order in response to India ‘directly or indirectly’ importing oil from Russia — over and above the 25 per cent tariff announced on July 31. Modi is not seeking a collision course vis-a-vis Trump. Conceivably, there is nothing to explain, either, although from the foreign policy perspective, how the India-Russia oil mathematics works will remain important.

As Washington sees it, India’s actual dependence on Russian oil for its energy security is opportunistic insofar as it has, in effect, become a massive refining hub and clearing house for discounted Russian oil. Arguably, India’s refining trade is largely amounting to exports of more than a million barrels per day in refined petroleum products (equivalent to over half the volume of imported Russian crude).

Who stands to gain? The Indian economy, of course! Americans allege that the proceeds of the trade in petroleum products are split between India’s ‘politically connected energy titans’ and the Russian budget. Trump threatens India with punitive tariffs to compel India to stop the perceived ‘money laundering’ on an industrial scale, estimated to be in the region of $16 billion. 

Unsurprisingly, External Affairs Minister S Jaishankar has on the table a long-term perspective in systemic terms. During the 26th Session of the India-Russia Inter-Governmental Commission for Trade, Economic, Scientific, Technological and Cultural Cooperation in Moscow on August 26, he called for “early conclusion” of a Free Trade Agreement among India and the countries of the Eurasian region. India was dragging its feet in the negotiations, but feels an urgency to regulate its free flow of goods and (financial) services between the EAEU region without having to route through the Western banking system or orbit of US surveillance. Russia and India feel the imperative to introduce a payments system in bilateral trade without the use of the dollar. The unthinkable seems to be happening. If the negotiations proceed successfully, BRICS as a grouping takes a big leap forward in non-dollar trade.

The point is, within BRICS, Russia and China already avoid the use of dollars in almost all of their trade operations, which amounted to a record high of $245 billion last year. In May, Russian President Vladimir Putin said following talks with Chinese President Xi Jinping that “The deepening of commercial ties is also facilitated by the timely coordinated steps taken in Russia and China to transfer settlements between our countries to national currencies. As a result, almost all Russian-Chinese foreign trade operations are carried out in rubles and yuan. In fact, a stable system of mutual trade has been built, which is reliably protected from the influence of third countries and negative trends in world markets.”

China ranks first in trade turnover with Russia. Putin stressed, “Investment cooperation is actively developing, about 90 priority Russian-Chinese projects worth about $200 billion are being implemented or are being prepared for implementation in such areas as industrial production, transport, logistics, agriculture and mining.”  

Significantly, Jaishankar, upon his return from Moscow, where he was received by Putin, went on the offensive to recall that the US had encouraged India to trade in Russian oil for keeping oil prices low in the world market, and pointed out that Western countries are under no obligation to buy petroleum products from India; commodity trade is driven by market conditions. 

The Modi government refuses to be brow-beaten even when top officials like US Treasury Secretary Scott Bessent and White House senior counsellor for trade and manufacturing Peter Navarro waded in to bully India. Jaishankar threw the ball back at their court, saying the government is "perplexed" by the US threats, as Washington itself had asked New Delhi to help stabilise global energy markets by buying Russian oil.  

The prominent Russian daily Izvestia reported on August 21 that in an interview, the Indian ambassador to Russia Vinay Kumar assertively stated, “No, India buys what is best for itself… The question is not whether to ban or not. This is a question of its security, the economic and energy interests of the country, in particular the energy needs of its people. Therefore, we will continue to buy your oil depending on the financial benefit. Our government has made it clear that India will take all measures to protect its national interests. And this national interest is the energy security of 1.4 billion people of India.”

The ambassador added that India is very sensitive to any measures and actions of those who “encroach on the sovereignty of India.” The Western media reported on August 20 that Indian refineries purchased several batches of Russian Urals oil with deliveries slated for September and October. According to Izvestia, this might be due to the fact that on August 18, Putin and Modi had a telephone conversation where the two leaders discussed the strengthening of the privileged strategic partnership between the two countries. 

Russia and China have put a hole in Trump’s tariff wall through which the bear and dragon passed — it is the turn of the bear and elephant now. BRICS can galvanise India’s journey toward a new global financial architecture liberated from Western clutches. Equally, a return to the RCEP membership negotiations is a must to gain strategic depth. Modi’s forthcoming meeting with Xi will be of epochal significance.

(M K Bhadrakumar is a former diplomat)