In a rules-based world, or in a world where soft power has currency, India matters. It has the largest population. It has a sizeable economy. It is a democracy. It has the accumulated wisdom of an ancient civilisation. However, in a world stripped of rules and run on the basis of hard power alone, India goes from being an important middle power to a rather more middling power. Donald Trump has changed the rules of the global game. A previously confidently rising India has found itself in a spot.
In Trump’s new world, there is only one superpower. America’s strength is underwritten by its massive economy, cutting-edge technological prowess, awesome military might and self-sufficiency in energy. China, its only near rival, is catching up in terms of economy and technology. Its military capability is further behind. Crucially, it lacks energy self-sufficiency. Around 70 per cent of its oil and gas requirement is imported. That is a chip in the armour in the world of hard power. It isn’t surprising, therefore, that in the matter of exercising hard power, China continues to bide its time. Incredibly, Russia is able to fight a protracted war against Ukraine, a country which has considerable support from the US. It doesn’t have the strongest economy or huge technological prowess. But it has plenty of home-grown defence equipment and is blessed with tremendous reserves of oil and gas. The latter two give it the muscle to exercise hard power and defy America.
India has a huge dependency in both arms and energy sectors. We are the second-largest importer of weapons in the world. The Air Force is still ordering fighter jets from another country. Transport jets too. And a lot of other equipment across our armed forces, including sophisticated air defences. We are massive importers of oil and gas. Our import dependency is almost at 90 per cent. It costs the country around $170 billion a year, and it leaves the entire economy—the current account deficit, fiscal deficit, value of the rupee and inflation—at the mercy of a sharp rise in oil prices. In the absence of self-sufficiency or anywhere near self-sufficiency in weapons and energy, it will be impossible to be a global player in a hard power world.
India’s dependencies run deeper. Consider the fact that India is the world’s largest receiver of remittances, which come mostly from its diaspora in the US and the Gulf. By one estimate, the remittances from the Gulf States alone are over $50 billion a year. These are effectively labour exports from India and help to finance India’s large current account deficit. A conflict in the Middle East, which raises oil prices and threatens remittances, is a double vulnerability in the macroeconomy.
In the end, it becomes very difficult for India to take a position or influence events in Iran; it is dependent on that country, which has the world’s third-largest reserves, for oil and gas. It is dependent on the Gulf States for remittances and oil and gas. It is dependent on Israel for weapons and strategic support in defence.
Also read: A quick end to Iran war is in India’s interest. But Modi has no influence over US or Israel
Invest in hard power
Trump’s actions have revealed India’s vulnerabilities before, too. During Trump’s tariff tantrum, India was not in a position to retaliate or take a strong position against the dismantling of the global trade order. Again, this was because it was in a vulnerable position. It had nothing much to leverage vis-à-vis (Rare Earths, semiconductor chips or oil and gas) and had much to lose. India’s one major export, IT, worth over $250 billion a year, more than half of which goes to the US, was not subject to tariffs but might have been the subject of punitive action if India attempted retaliation. IT exports alone account for 25 per cent of India’s total exports of goods and services. In an age when economic policy is weaponised, dependence on a few sectors for exports is a vulnerability.
None of this should necessarily rattle India. The large domestic market provides an economic cushion. But it should nudge us to grow our economy more rapidly, diversify exports and build domestic production and capability in defence and natural resources. The world may or may not return to a rules-based order at some point, but hard power will never go away. It is wise to invest heavily in its ingredients.
The author is Chief Economist, Vedanta. He tweets @nayyardhiraj. Views are personal.
(Edited by Theres Sudeep)