China-Pakistan: Beijing to "Further Deepen and Expand" Ties, Support Pak "Financial Stability"

[Riaz Haq]

Top Chinese officials have committed to “further deepen and expand” ties with Pakistan at meetings at the highest levels between the military and civilian leaderships of the two nations.  Chinese Prime Minister Li Qiang assured  Prime Minister Shehbaz Sharif of his country's support for Pakistan's "financial stability".  Also in the news this week is a Chinese government commission report recommending the construction of a 3,000 kilometer long railway link between China and Pakistan at an estimated cost of $57.7 billion, making it the most expensive infrastructure project in the Chinese-sponsored Belt and Road Initiative (BRI) to date.  The railroad will connect Pakistan's Gwadar Port on the Arabian Sea with the western Chinese city of Kashgar in Xinjiang province. This appears to be a part of the Chinese response to the US-led Indo-Pacific strategy which Beijing sees threatening its interests in the region. Will India allow itself be used as a US proxy against China? Will the US-China rivalry force India and Pakistan to choose sides as it plays out in South Asia? Will China's assistance now push Pakistan further into the Chinese camp? 

US-India Ties:

US President Joseph R. Biden is pursuing close strategic ties with Indian Prime Minister Modi. The false rhetoric of "democracy" and "shared values" is often used to disguise Washington's true intent to use India to counter China's rise as a global superpower. Meanwhile, China with its long land border with India has warned New Delhi that it "will be the biggest victim" of the US proxy war against China.  In a recent Op Ed in Global Times, considered a mouthpiece of the Beijing government, Professor Guo Bingyun  has wrote as follows: 

"Inducing some countries to become US' proxies has been Washington's tactic to maintain its world hegemony since the end of WWII. It does not care about the gains and losses of these proxies. The Russia-Ukraine conflict is a proxy war instigated by the US. The US ignores Ukraine's ultimate fate, but by doing so, the US can realize the expansion of NATO, further control the EU, erode the strategic advantages of Western European countries in climate politics and safeguard the interests of US energy groups. It is killing four birds with one stone......If another armed conflict between China and India over the border issue breaks out, the US and its allies will be the biggest beneficiaries, while India will be the biggest victim. Since the Cold War, proxies have always been the biggest victims in the end". 

US-Pakistan Ties: 

After assuming office as President of the United States, Joe Biden called many world leaders. But he did not bother to call then Pakistani Prime Minister Imran Khan, nor has he made a call to the current Prime Minister Shehbaz Sharif. This has sent a clear signal to Islamabad that Washington doesn't see it as important.  This prompted Brookings' Bruce Reidel and Madiha Afzal to write: "Biden did not call Khan while he was prime minister. Last fall, we argued he should. Khan in turn declined to attend Biden’s Summit for Democracy. The White House should call Shahbaz Sharif". 

Madiha Afzal of Brookings Institution again reminded Biden this year that "Pakistan, the fifth-largest country in the world and a nuclear-armed nation, ought to be seen by the United States on its own terms and not through the prism of its neighbors. A cold shoulder risks pushing Pakistan further toward China — which is neither an inevitable nor desirable outcome for the United States".  

CPEC and BRI

CPEC Transforming Pakistan: 

Back in 2018, former US Ambassador to Pakistan Richard G. Olson wrote in  a New York Times Op Ed titled "How Not to Engage With Pakistan" that "(CPEC's) magnitude and its transformation of parts of Pakistan dwarf anything the United States has ever undertaken".  Olson went on to warn the Trump Administration that "Without Pakistani cooperation, our (US) army in Afghanistan risks becoming a beached whale". Among the parts of Pakistan transformed by China Pakistan Economic Corridor (CPEC) are some of the least developed regions in Balochistan and Sindh, specifically Gwadar and Thar Desert. 

Source: China Daily

Pakistan's Economic Crisis:

Some blame Pakistan's current balance of payments crisis on Chinese debt taken on to fund CPEC projects. The evidence does not support this. The fact is that Pakistan failed to grow its exports while its imports boomed for over 5 years on Prime Minister Nawaz Sharif's watch from 2013-2018. It forced Pakistan to seek an IMF bailout which came with its own tough conditions to compel economic reforms and greater fiscal discipline. Geopolitics has also played a role in it. The Ukraine War pushed the energy and other commodity prices higher, exacerbating Pakistan's trade deficits. At the same time, the Biden administration has shown little support for Pakistan's bailout by the IMF.  China's latest commitment to support "Pakistan's financial stability" will help, pushing Pakistan further into the Chinese camp. 

Here's a Wall Street Journal video on US-China Rivalry and Pakistan:

https://youtu.be/wvw-85CC1t4

https://www.youtube.com/embed/wvw-85CC1t4"; title="YouTube video player" width="560"></iframe>" height="315" src="https://img1.blogblog.com/img/video_object.png" width="560" style="cursor: move; background-color: #b2b2b2;" />

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[Riaz Haq]

Key nations sit out U.S. standoff with Russia, China, leaks show - The Washington Post

THE DISCORD LEAKS | Documents illustrate how emerging nations’ bid to duck the great power showdown have put Biden’s global agenda at risk


https://www.washingtonpost.com/national-security/2023/04/29/biden-f...

The documents, among a trove of U.S. secrets leaked online through the Discord messaging platform, provide a rare glimpse into the private calculations by key emerging powers, including India, Brazil, Pakistan and Egypt, as they attempt to straddle allegiances in an era when America is no longer the world’s unchallenged superpower.

This is apparent in Pakistan, which received billions of dollars in U.S. economic and security aid following 9/11 but now is heavily reliant on Chinese investment and loans. According to one of the leaked documents, Hina Rabbani Khar, Pakistan’s minister of state for foreign affairs, argued in March that her country can “no longer try to maintain a middle ground between China and the United States.”


In an internal memo she titled “Pakistan’s Difficult Choices,” Khar, who previously served as Pakistan’s foreign minister, cautioned that Islamabad should avoid giving the appearance of appeasing the West, and said the instinct to preserve Pakistan’s partnership with the United States would ultimately sacrifice the full benefits of what she deemed the country’s “real strategic” partnership with China. The undated intelligence document does not detail how the United States gained access to Khar’s memo.

Another document, dated Feb. 17, describes Pakistani Prime Minister Shehbaz Sharif’s deliberations with a subordinate about an upcoming U.N. vote on the Ukraine conflict, and what the government anticipated would be renewed Western pressure to back a resolution condemning Russia’s invasion.

The aide advised Sharif that support for the measure would signal a shift in Pakistan’s position following its earlier abstention on a similar resolution, the intelligence document says. Pakistan had the ability to negotiate trade and energy deals with Russia, and backing the Western-backed resolution could jeopardize those ties, the aide noted.

When the U.N. General Assembly voted Feb. 23, Pakistan was among 32 countries that abstained.

Pakistani officials and those from other countries named in the leaked documents declined to comment.

While core U.S. allies in Europe and East Asia have come together to back Biden’s Ukraine campaign, providing an ever-increasing array of weapons and weaning themselves off Russian energy, Washington has encountered resistance elsewhere.

The Biden administration has told those countries that it is not asking them to pick sides between the United States on one hand and China and Russia on the other, a message that Secretary of State Antony Blinken has stressed in his travels. But nations including South Africa and Colombia bridle at what they see as an implicit choice.

[Riaz Haq]

India is sliding into Putin’s hands
Story by Angela Barnes


https://www.msn.com/en-us/news/world/india-is-sliding-into-putin-s-...

India is now the largest country in the world by population, having surpassed China in the latest UN figures. It’s also now the biggest buyer of Russian crude oil in the world, and its armed forces are largely equipped with Russian weapons.


The West has traditionally seen India as a friend, but when it comes to actions rather than words the world’s fifth biggest economy pays more attention to what Vladimir Putin wants than it does to the desires of Washington or London.

Karan Mehrishi, Indian economics commentator, tells the Telegraph that Russian imports have saved India around $3bn in the past year, compared to its total annual oil import bill of nearly $120bn. Russia has even knocked the Organization of the Petroleum Exporting Countries (OPEC) off the top spot for supplying India, since Western nations rejected Kremlin-supplied black gold following Putin’s invasion of Ukraine.

India will probably find, like Germany and other European nations before it, that becoming dependent on Putin for critical energy supplies is to place oneself far too much under his control. Indian Prime Minister Narendra Modi, however, seems to believe that India is simply seizing the opportunity to snap up cheap crude to meet its rising demand.

In March, for example, Indian fuel requirements jumped by 5 per cent year-on-year to 4.83 million barrels per day (bpd).

“The Indian economy is the fastest growing on Earth and is expected to become the world’s third largest by 2025. It will attain the $10tn GDP threshold by 2031,” says Mehrishi.

An economy that big needs huge amounts of energy, and India is heavily dependent on imports.

“Inflation worries rather than geopolitical concerns have taken centre stage, leading New Delhi to brush away Western reprobation about increasing economic ties with Moscow,” comments Susannah Streeter, head of money and markets at Hargreaves Lansdown. “The approach appears to be working, with India’s headline inflation rate going in the right direction, helped also by lower food prices. But the price spiral is still not unwinding fast enough to meet the central bank’s target.”

Osama Rizvi, energy analyst at Primary Vision, describes the relationship between Russia and India as a marriage of convenience.

“They are interdependent: India, which imports more than 85 per cent of its oil, and Russia, which depends on the proceeds from oil and gas for almost 50 per cent of its revenue,” he told the Telegraph.

India’s appetite for Russian crude has resulted in Moscow overtaking Iraq for the first time to emerge as its top oil supplier, pushing Saudi Arabia down to third place in the last fiscal year.

“Refinitiv Oil Research analysis forecasts that India will import 1.94 million barrels per day from Russia, more than doubling since last July and exceeding total imports from the Middle East region,” Streeter says.

As a result, Russia has been able to escape the worst effect of the penalties imposed by the West to isolate it. Non-sanctioning countries like India have propped up the crude oil export sales which are one of the main factors preventing Russia from going bankrupt.

India’s close ties to Russia might seem more obvious since the war in Ukraine started in February last year, but good relations between the two countries go back a long way. A positive relationship between the two countries has existed since the 18th century reign of Tsar Paul – albeit interrupted by the period of British rule, when Russia was seen as a threat by the colonial government. Following independence from Britain, India once again established firm diplomatic ties, beginning with Nehru’s 1955 visit to the Soviet Union.

“Apart from getting oil at below market rates, India could have also been obligated to buy Russian oil to help a friend,” Mehrishi says.

[Riaz Haq]

India is sliding into Putin’s hands
Story by Angela Barnes


https://www.msn.com/en-us/news/world/india-is-sliding-into-putin-s-...

Since the 1960s, the Soviet Union has supplied the Indian military with advanced weaponry that it would have had difficulty obtaining elsewhere: and India has in fact often looked to the Soviets and then Russia as a potential ally against the West. Perhaps the strongest example of Soviet Union military support came during the 1971 Bangladesh Liberation War, when the Kremlin deployed nuclear submarines to the Indian Ocean to ward off any Western meddling with Indian interests.

That long-standing supply of weapons to India continues. Russian state news agencies in February set arms exports to India at around $13bn over the past five years. New Delhi has placed further orders with Moscow for military equipment and weapons exceeding $10bn.


Tellingly, prime minister Narendra Modi has never condemned Russia's invasion of Ukraine. Meanwhile, relations between India and Russia are only set to strengthen with the two countries in advanced negotiations on establishing a free trade agreement – a move that will further stoke tensions with the West.

“Pushing down energy prices will be the priority of the Modi administration, so maintaining good trade relations with Moscow will continue to be seen as in the national interest, despite sharp disapproval behind diplomatic doors,” Streeter adds.

A lot of Westerners think of India as a benign, neutral democracy which should naturally align with liberal values against the bloody-handed tyranny of modern Russia. But the Indians don’t see it that way: and the blunt truth is, they are keeping Vladimir Putin in business for no better reason than slightly cheaper oil.

[Riaz Haq]

#UNSC says #Taliban Foreign Minister can meet #Pakistan, #China ministers. #Chinese & #Pakistani officials have said in the past that they would welcome Taliban-led #Afghanistan into the multibillion-dollar China-Pakistan Economic Corridor (#CPEC).
https://www.reuters.com/world/asia-pacific/un-says-taliban-envoy-ca...


Afghanistan sits as a key geographical trade and transit route between South and Central Asia and has billions of dollars of untapped mineral resources. The Taliban seized power in August 2021 as U.S.-led forces withdrew after 20 years of war.



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UNITED NATIONS, May 1 (Reuters) - A U.N. Security Council committee on Monday agreed to allow the Taliban administration's foreign minister Amir Khan Muttaqi to travel to Pakistan from Afghanistan next week to meet with the foreign ministers of Pakistan and China, diplomats said.

Muttaqi has long been subjected to a travel ban, asset freeze and arms embargo under Security Council sanctions.

According to a letter to the 15-member Security Council Taliban sanctions committee, Pakistan's U.N. mission requested an exemption for Muttaqi was to travel between May 6-9 "for a meeting with the foreign ministers of Pakistan and China."

It did not say what the ministers would discuss. It said Pakistan would cover all costs associated with Muttaqi's trip.

Chinese and Pakistani officials have both said in the past that they would welcome Taliban-led Afghanistan into the multibillion-dollar China-Pakistan Economic Corridor (CPEC) infrastructure project, part of the Belt and Road Initiative.

Afghanistan sits as a key geographical trade and transit route between South and Central Asia and has billions of dollars of untapped mineral resources. The Taliban seized power in August 2021 as U.S.-led forces withdrew after 20 years of war.

The Security Council committee allowed Muttaqi to travel to Uzbekistan last month for a meeting of the foreign ministers of neighboring countries of Afghanistan to discuss urgent peace, security, and stability matters.

U.N. Secretary-General Antonio Guterres began a two day meeting on Monday in Doha with special envoys on Afghanistan from various countries that aims "to achieve a common understanding within the international community on how to engage with the Taliban," U.N. spokesman Stephane Dujarric said.

Dujarric said the closed-door meeting would discuss key issues key issues, such as human rights - in particular women's and girls' rights - inclusive governance, countering terrorism and drug trafficking.

Taking part are China, France, Germany, India, Indonesia, Iran, Japan, Kazakhstan, Kyrgyzstan, Norway, Pakistan, Qatar, Russia, Saudi Arabia, Tajikistan, Turkey, Turkmenistan, United Arab Emirates, Britain, the United States, Uzbekistan, the European Union and the Organisation of Islamic Cooperation.

[Riaz Haq]

#America’s Bad Bet on #Modi.
#Delhi Won’t Side With #Washington Against #Beijing. #India’s significant weaknesses versus #China, & its inescapable proximity to it, guarantee that Delhi will never involve itself in any #US confrontation with Beijing. #BJP https://www.foreignaffairs.com/india/americas-bad-bet-india-modi

by Ashley Tellis

For the past two decades, Washington has made an enormous bet in the Indo-Pacific—that treating India as a key partner will help the United States in its geopolitical rivalry with China. From George W. Bush onward, successive U.S. presidents have bolstered India’s capabilities on the assumption that doing so automatically strengthens the forces that favor freedom in Asia.

The administration of President Joe Biden has enthusiastically embraced this playbook. In fact, it has taken it one step further: the administration has launched an ambitious new initiative to expand India’s access to cutting-edge technologies, further deepened defense cooperation, and made the Quad (Quadrilateral Security Dialogue), which includes Australia, India, Japan, and the United States, a pillar of its regional strategy. It has also overlooked India’s democratic erosion and its unhelpful foreign policy choices, such as its refusal to condemn Moscow’s ongoing aggression in Ukraine. It has done all of this on the presumption that New Delhi will respond favorably when Washington calls in a favor during a regional crisis involving China.

------


India’s priority has been to receive American assistance in building up its own national capabilities so it can deal with threats independently. The two sides have come a long way on this by, for example, bolstering India’s intelligence capabilities about Chinese military activities along the Himalayan border and in the Indian Ocean region. The existing arrangements for intelligence sharing are formally structured for reciprocity, and New Delhi does share whatever it believes to be useful. But because U.S. collection capabilities are so superior, the flow of usable information often ends up being one way.



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The fundamental problem is that the United States and India have divergent ambitions for their security partnership. As it has done with allies across the globe, Washington has sought to strengthen India’s standing within the liberal international order and, when necessary, solicit its contributions toward coalition defense. Yet New Delhi sees things differently. It does not harbor any innate allegiance toward preserving the liberal international order and retains an enduring aversion toward participating in mutual defense. It seeks to acquire advanced technologies from the United States to bolster its own economic and military capabilities and thus facilitate its rise as a great power capable of balancing China independently, but it does not presume that American assistance imposes any further obligations on itself.

As the Biden administration proceeds to expand its investment in India, it should base its policies on a realistic assessment of Indian strategy and not on any delusions of New Delhi becoming a comrade-in-arms during some future crisis with Beijing.

[Riaz Haq]

#India's ties with #Russia remain steady. But #Moscow's tighter embrace of #China makes it wary. It appears “this (#Delhi-Moscow) relationship is going down from being a very high-value strategic partnership to a transactional one" #Modi #US #Ukraine https://cnb.cx/3NxQLX7

India’s relationship with Russia remains steadfast as both sides seek to deepen their economic engagements.

But Moscow has also grown close to Beijing since invading Ukraine, and that raises critical national security concerns for New Delhi, say observers.

India’s leaders are “carefully watching” as Russia becomes more isolated and moves closer to “China’s corner,” said Harsh V. Pant, vice president for studies and foreign policy at Observer Research Foundation, a New Delhi-based think tank.

It appears “this relationship is going down from being a very high-value strategic partnership to a transactional one,” said Sreeram Chaulia, dean of the Jindal School of International Affairs, adding Moscow’s “tighter embrace of China” doesn’t bode well for India’s national security needs.


India’s relationship with Russia remains steadfast as both sides seek to deepen their economic ties. But Moscow has also grown close to Beijing since invading Ukraine, and that raises critical national security concerns for New Delhi.

Indian external affairs minister S. Jaishankar recently said the country was ready to restart free trade negotiations with Russia.

“Our partnership today is a subject of attention and comment, not because it has changed, but because it has not,” he said, describing the relationship as “among the steadiest” in the world.

Russia also wants to “intensify” free trade discussions with India, Deputy Prime Minister Denis Manturov said during a visit to Delhi. Manturov is also Moscow’s trade minister.

Despite the display of economic cooperation, India’s leaders are “carefully watching” as Russia becomes more isolated and moves closer to “China’s corner,” said Harsh V. Pant, vice president for studies and foreign policy at Observer Research Foundation, a New Delhi-based think tank.

Russia’s “weak and vulnerable position” and growing reliance on China for economic and strategic reasons, will definitely be worrying for India, he told CNBC.


It’s becoming “more difficult with every passing day because of the closeness that we are witnessing between Beijing and Moscow,” Pant noted. “The pressure on India is increasing, it certainly would not like to see that happen.”

New Delhi will try as much as possible to avoid a potential “Russia-China alliance or axis,” Pant added. “As that will have far reaching consequences and will fundamentally alter India’s foreign policy and strategic calculation.”

There are national interest reasons “why India continues to buy cheap Russian oil and trade with them, this FTA is part of that,” said Sreeram Chaulia, dean of the Jindal School of International Affairs in New Delhi.

But it appears “this relationship is going down from being a very high-value strategic partnership to a transactional one,” he noted, adding Moscow’s “tighter embrace of China” doesn’t bode well for India’s national security needs.

India, which holds the current G-20 presidency, still hasn’t condemned Russia over its invasion of Ukraine.

[Riaz Haq]

#China's Role Growing in #SouthAsia Region as Foreign Minister Qin Gang heads to #Pakistan with #Afghanistan talks high on agenda. China also hopes to use the visit to further strengthen ties with Pakistan, one of its most important strategic partners. https://www.scmp.com/news/china/diplomacy/article/3219411/chinese-f...

Chinese Foreign Minister Qin Gang will visit Pakistan on Friday with efforts to resolve the crisis in Afghanistan high on the agenda.
During his two-day stopover, Qin will meet Prime Minister Shehbaz Sharif and Foreign Minister Bilawal Bhutto Zardari, and will also join in three-way talks with the Taliban’s interim foreign minister, Amir Khan Mutaqi.
Mutaqi, who is the subject of a travel ban under United Nations Security Council sanctions, was granted an exemption to travel to Pakistan for the meeting.
“China hopes that this visit will follow through on the important common understandings between the leaders of the two countries,” the Chinese foreign ministry said on Thursday, referring to a phone call between Sharif and Premier Li Qiang last week, as well as the Pakistani leader’s meeting with President Xi Jinping in Beijing in November.
During the November visit, Xi pledged further collaboration in the development of the China-Pakistan Economic Corridor – a US$60 billion transport infrastructure project – and support for efforts to stabilise the Pakistani economy.

Qin’s trip also aims to “further deepen strategic communication and practical cooperation, promote the building of an ever closer China-Pakistan community with a shared future in the new era, and contribute positive energy to the region and the wider world”, according to the Chinese statement.
The statement also used Beijing’s preferred formulations to describe the relationship between the two countries, alluding to their “ironclad friendship” and “all-weather strategic partnership”.
Qin will travel to Pakistan after attending the Shanghai Cooperation Organisation’s (SCO) foreign ministers’ meeting in Panaji, the capital of the Indian state of Goa. His tour also included two days in Myanmar where he became the most senior Chinese official to meet junta leader Min Aung Hlaing since the 2021 coup that brought him to power.

[Riaz Haq]

Russia Says It Has Billions of #Indian #Rupees That It Can’t Use. Unlike #China, #India doesn't make products/services Russia can buy in #INR. Lavrov says #Russia needs rupees changed into another currency (#Yuan) . #trade #makeinindia #Modi #BJP https://www.bloomberg.com/news/articles/2023-05-05/russia-says-it-h...

Russia has accumulated billions of rupees that are sitting in Indian banks.

But Moscow acknowledged that it's a problem and is looking to convert the rupees to another currency.

Russia has a trade imbalance with India, which has been a top buyer of Russian energy.

Russia has billions of rupees sitting in Indian banks but acknowledged there's a problem as it looks for ways to convert that currency.

Foreign Minister Sergei Lavrov noted the widening trade deficit with India, which has been a top buyer of Russian oil since Moscow launched its war on Ukraine last year.

"As for rupees, this is a problem because there are billions of rupees accumulated in accounts at Indian banks and we need to use this money," Lavrov told reporters in India on Friday. "For this, rupees should be converted into other currencies. This is being discussed."

The comments come a day after Reuters reported that Russia and India have suspended negotiations over using rupees for trade between the two countries.

Russia prefers to be paid in Chinese yuan, which has become the most-used foreign currency in Russia. Meanwhile, Moscow has reportedly been hesitant about using the rupee due to exchange-rate volatility.

After Russia invaded Ukraine and was essentially ousted from the global financial system, Russia initially encouraged the use of national currencies instead of the US dollar, which is the primary currency for commodities and trade.

Some Indian importers of Russian oil have tried using the UAE's dirhams and rubles to facilitate transactions.

Still, Russia and India remain deadlocked in a currency dispute that has also frozen weapons sales between the two countries.

India won't pay Russia in US dollars over concerns that it may face secondary sanctions and won't pay in rubles because of worries about obtaining Russia's currency on global markets at a fair rate, sources told Bloomberg last month.

Meanwhile, Russia won't take Indian rupees because of exchange-rate volatility, the report added. Moscow has also rejected an idea from New Delhi for the Kremlin to invest rupees from arms payments back into Indian capital markets so the currency doesn't pile up.

Currency concerns with Russia's currency have also plagued its other trade relations. Recently, it agreed to use the yuan to for payments on a nuclear-power plant deal with Bangladesh, after previously insisting on using its ruble.

[Riaz Haq]

Russia and India reportedly halt talks over using rupees for trade, with Moscow preferring to be paid in Chinese yuan

https://ca.sports.yahoo.com/news/russia-india-reportedly-halt-talks...

Russia and India have suspended negotiations over using rupees for trade, Reuters reported.

Moscow, with a high trade gap in its favor, believes accumulating rupee is "not desirable."

China prefers to be paid in Chinese yuan or other currencies.

Russia and India have suspended negotiations over using rupees for trade between the two countries, with Moscow reluctant to keep the Indian currency on hand, Reuters reported Thursday.

The halt in talks deals a blow to Indian importers of cheap Russian oil and coal who were looking forward to a permanent rupee payment mechanism that would help bring down costs for currency conversion.

Russia, with a high trade gap in its favor, believed it would have an annual rupee surplus of more than $40 billion if a mechanism were enacted. Moscow felt that accumulating rupee is "not desirable," the report said, citing an unnamed official with the Indian government.

India's finance ministry, the Reserve Bank of India and Russian authorities did not immediately respond to requests from Reuters for comment.

Russia wants to be paid in Chinese yuan or other currencies, a second Indian government official involved in the discussions told Reuters. Moscow has increasingly turned to the yuan to move away from the US dollar after Russia was hit with Western sanctions for invading Ukraine in February 2022.

India began exploring a rupee settlement mechanism with Russia soon after Moscow launched war against the former Soviet state. No reported deals have been conducted using rupees, Reuters reported.

A currency dispute between Russia and India left deliveries of Russian weapons to India on hold, Bloomberg reported last month. The stalemate froze more than $2 billion in payments from India.

One factor that contributes to some countries not needing to hold rupees is India's share of global exports of goods, which runs at about 2%, the Reuters report said.

[Riaz Haq]

#India-#Russia Ties ‘Nose Dive’; After S-400 Shipments, Russia Could Now Suspend #Oil #Exports To India. @vkthakur. In Goa at #SCO2023 , Lavrov bluntly implied that in its dealings with Russia, India wants to eat the cake and have it too. #China #US https://eurasiantimes.com/india-russia-ties-nose-dive-after-suspend...

India, which has been lapping up cheap Russian oil for domestic consumption as well as export as refined commodities, hasn’t been compensating Russia for its oil imports.

Lavrov pointed out that Russia has accumulated billions of rupees in Indian banks that Russia cannot use.

“This is a problem. We need to use this money. But for this, Rupees must be converted to another currency, and this is now being discussed.”

India and Russia have been exploring options for settling their trade in rupees or rubles since the start of the Russian Special Operation (SMO) in Ukraine in February 2022, but they have made little headway even after more than a year.

Trade Imbalance Between India & Russia
The problem is – India’s imports from Russia far exceed its exports. As a result, Indian rupee payments to Russian bank Vostro accounts in Indian banks are of no use to Russia.

The obvious solution is for India to step up its exports to Russia. Unfortunately, Indian exports are severely constrained by the lackluster quality of Indian goods. Also, Russia is a resource-rich country, so India doesn’t have the option to export commodities to Russia.

India could pay the accumulated billions of rupees to Russia by converting them to a currency like the Chinese Yuan, however, that would entail bearing the cost of conversion. China’s massive trade surplus with India makes the rupee particularly weak against the Yuan.

Suspension of Rupee-Rouble Trade
According to Reuters, rupee-rouble trade between India and Russia has now been suspended. The suspension will likely restrict, if not end, the import of cheap Russian oil since the start of the Ukraine war.

The Imperative To Increase Exports
Nations become economic powerhouses by increasing their exports. To do so, they need to manufacture quality goods in demand across the world.

For example, Russia has the ability to make for itself just about everything that it needs, but that doesn’t make Russia an economic powerhouse. Russian exports are also constrained by quality when compared to goods manufactured by China, Japan, and many European countries.

Russia’s pivot towards Asia is a historic opportunity for the Indian private sector to increase exports to Russia. Our response to the crisis in Ukraine so far has been akin to a trader’s response, not the response of an entrepreneur. India can easily carve a niche for itself with the export of consumer goods to Russia.

Impact On Defence Relationship
India’s deep-rooted defense relationship with Russia, which has stood India in good stead for decades, has been threatened for some years now by US CAATSA sanctions. The suspension of Rupee trade with Russia will seriously impact India’s defense capability, possibly at a time when India can least afford enfeeblement.

It’s likely that Russia held back the supply of an additional two S-400 regiments to India earlier because of India’s inability to compensate Moscow. Russia could continue to supply oil to India because Russia has surplus oil, but it couldn’t continue supplying S-400 because it doesn’t have surplus S-400 regiments. Not now, at least, when it’s fighting a war.

Willing Make-In-India Partner
Russia has expressed its enthusiasm for participating in Make-in-India defense projects through industry-to-industry collaboration.

India’s defense minister Rajnath Singh held a bilateral meeting with the Minister of Defence of Russia, Army General Sergei K Shoigu, on the sidelines of the Shanghai Cooperation Organisation (SCO) Defence Ministers’ meeting in New Delhi on April 28, 2023.