In the latest edition of Delhi Dialogues, Dammu Ravi, secretary (economic relations), Ministry of External Affairs, discusses the emerging international challenges for India in the face of increasing tensions involving global powers. Ravi is also India’s BRICS sherpa.
Excerpts:
Santwana Bhattacharya: Give us an omniverse idea summing up BRICS appearing to change the axis of world order, the primacy of Bretton Woods, Trump’s likely new tariff regime and its unprecedented effect, Europe staring at a gradual eclipse and West Asia in turmoil.
The BRICS summit in Kazan was successfully pulled off by Putin. He used the occasion to project his profile, given that there are tensions around the world in which he is directly involved, including in Ukraine. Four of the new BRICS members are very close to the West Asian crisis. In the first close session in Kazan, political and strategic issues were discussed. The open session was on industry and business. A lot of economic issues, including the issue of currency came up, including de-dollarization.
But purely in terms of BRICS and its weight, my view is that BRICS will have a role. At least 34 more countries across Latin America, Africa and Asia have expressed interest to be members of the BRICS. Out of 34, 13 have now become partner countries.
Many doubts have been raised about the stature of BRICS -- there is G20, and G7. The BRICS is seen to be a China-Russia-led group. BRICS is not in competition with G20 and G7. An attraction for many countries (to join BRICS) is the NDB (National Development Bank). Since the time the Bretton Woods institutions created the multilateral development banks, and the conditionalities that are attached to providing assistance to countries, countries are even more indebted. So, they are looking at alternatives. The NDB is a good attraction.
One of the other interesting discussions happening in BRICS is the trade settlement in national currencies. It’s already happening -- China is doing most of its trade in the Yuan.
Shahid Faridi: How strong is our position as far as trade in local currency is concerned, especially when rupee is not fully convertible?
The PM has already announced that our long-term objective is full convertibility of rupee at some stage. But that’s still a long way to go. We have taken some steps -- in the past one year, out of 35 countries we had proposed to trade in national currencies, we have done so with 22 successfully.
Preetha Nair : The LAC thaw and icebreaker between Modi and Xi Jinping at Kazan couldn’t have come at a better time for the two Asian powers. Will this have any positive impact on bilateral trade dynamics?
It is a larger question in the context of Indo-China. We don’t have an FTA with China, but our trade is $130 billion and overwhelmingly in favour of China. Our imports from China are $100 billion and we export about $30 billion. When your industry is growing, it needs those components and it will source it from wherever. But this kind of an imbalance in the trade relationship is a concern. There is a concentration of the global supply chains. China is almost like the world’s factory, manufacturing almost everything that the world wants. But that’s a risk because then you are actually forfeiting your sovereign right and your autonomy to one particular country or one particular region. To address this challenge, we have to develop our supply chains.
Dipak Mondal: Recently, the Niti Aayog CEO said that not joining RCEP (Regional Comprehensive Economic Partnership) was a mistake. What is your view on that as you played a key role in the negotiations?
Let me tell you honestly, the deal was good. We had all the good intentions, but you have to understand the government changed in between. So, when we took the decision to join RCEP, UPA was in power and a significant part of the negotiations happened during that time. So, there was a disconnect in the understanding of the merits of it. There were also doubts if it is going to yield us any benefit. It’s a political call.
Monika Yadav: What is the update on the India Middle East Economic Corridor?
This is a decision taken during the G20 meet. The Prime Minister himself took the lead and it was a very good initiative because it’s also connecting many countries within the region, including Israel and the Middle East. The discussions went off very well until the West Asia crisis impacted it. We are hopping, India and UAE, the two countries not affected so much by those tensions, to keep working towards it.
Dipak Mondal: With Trump becoming the President, how do you think it will impact India’s economic and trade relations with the US?
Let me take up Trump’s tariff’s issue first. Trump introduced tariffs on steel and aluminium -- he did 25% on the steel and 10% on aluminum across the board. Separately, he raised the tariff on Chinese products as well. He gave some concessions to a few countries, but most countries were affected by it, including India. Biden also did not relax (the tariffs). He also introduced high levels of tariff walls. Statistically speaking, the revenue collection as a consequence of the tariff increase was only $233 billion over eight years. For an economy which is in trillions of dollars, it’s peanuts.
For China to survive, the industry has to survive; it has to export 30% of the goods produced in China for the economy to remain competitive. China enjoys a significant trade surplus with the US with $425 billion exports.
When you suddenly introduce tariff walls, it is a violation of the WTO’s most favoured nation (MFN) norms. But the Americans have made WTO dispute settlement dysfunctional. Now, let’s look at Trump 2.0. He’s already declared India as a Tariff King, so we will have to be disciplined with tariffs. But he has also said 60% tariff on Chinese imports and 10% on imports from other countries.
My view is that big nations generally tend to settle the differences. If tariffs by Trump are going to be significantly high for us, then we have to negotiate with Trump.
Santwana Bhattacharya: Can you really explain how we are going to deal with the Trump administration, given his anti-globalisation stance? Also, how are we going to deal with China?
Whether Trump believes in globalization or not, it is his view. So, I will not challenge that. But I feel the world is increasingly getting closer thanks to technology. As far as bilateral relations between India and the US are concerned, we have a very strong relationship. We have close ties, not only through trade and investments, but also through technology. A lot of innovations in the US are driven by the Indian brainpower.
Now, let’s come to the China question. Till now we do not know why China did what it did in Galwan in 2020. China is a big economy, it is going to impact the world in many ways. And whatever it does, it will impact the neighbourhood. But you cannot open up your economy if you don’t have peace on the border.
Shahid Faridi: BRICS countries have decided to conduct their trade in local currencies. Do you think it can challenge the dominance of the dollar in international trade?
Let’s look at the global trade architecture and the financial architecture. The global financial reserves that countries hold -- 60% is in dollars. Then you have the next 15-20% in euro. Then you have the yen. Around 80% of the global merchandise trade is in dollars, Euro and other currencies account for only 20% of business. The weightage of dollars for the West is overwhelmingly high. To influence de-dollarization is not even remotely possible today.
Santwana Bhattacharya: We have very deep trade relations with Russia and Iran. How do you think this trade situation gets balanced out and since Russia has raised a few issues, how do you think the West Asia conflict is going to impact our neighbourhood equations and trade?
The West always perceives that India buying oil (from Russia) is fuelling the Ukrainian war. But I think we have to put this in perspective in bringing the truth out. Our dependence on defence imports from Russia is also very high -- at 65%. You can’t overnight shift it. So, you have to see the overall situation evolving around us and take calls pragmatically.
As for Iran, it is in a deep crisis. We’ll have to wait and watch because for us, Iran has another significant value -- the Chabahar Port and the connection from Iran to the central Asian republics.