The US Senate has put forward a new bill to increase economic pressure on Russia. This proposal states that if a country uses its local currency, such as Rupee-Ruble, instead of US Dollar to trade with Russia or tries to circumvent US sanctions, then America can impose up to 100% tariff on goods coming from that country. However, this bill has not yet become law. Before it can be implemented, it is necessary to get the approval of the US House of Representatives and the President. Despite this, this proposal has increased the concern of many countries including India, which also include China, Slovakia, Hungary and Azerbaijan.
After the Ukraine war, America and Western countries imposed many economic sanctions on Russia. In response to this, Russia, China, India and many BRICS countries started increasing the use of local currencies instead of dollars in mutual trade. America considers this a challenge to the global power and financial influence of the dollar. Therefore, it is preparing to increase economic pressure on such countries which are doing business with Russia in other currencies instead of dollars.
Why could India be most affected?
India and Russia have long had strong strategic and economic relations. Therefore, this proposal can become a challenge for India on three big fronts.
1. Cheaper crude oil from Russia
After the Ukraine war, India started buying large quantities of Russian crude oil at concessional rates. Today India imports about 35 to 40% of its crude oil requirement from Russia. This has helped in keeping energy costs low. But if America takes strict action on this basis, then it may become expensive for India to buy oil from Russia.
2. Rupee-Ruble Payment System
After Russia was excluded from the SWIFT international payment system, India and Russia made a system of payment in rupees and rubles through Vostro account. The new proposal of the US Senate targets such non-dollar payment mechanisms. This may affect trade between the two countries.
3. Defense deals
About 60 to 70% of the military equipment available with the Indian Army is of Russian origin. There are many major defense agreements with Russia, including the S-400 air defense system. If restrictions are tightened, there may be difficulties in payments, maintenance and future defense deals.
4. The biggest challenge before India
Both Russia and America are very important partners for India. India’s bilateral trade with America is about 120-130 billion dollars, in which India has a trade surplus of 34.41 billion dollars. At the same time, trade with Russia is about 60-65 billion dollars, a large part of which is related to the import of crude oil.
If America imposes 100% tariff on Indian products, then India’s export sectors like IT, pharma, textile, engineering and gems and jewelery may face a big blow. Indian goods will become expensive in the American market, due to which demand may decrease.
Test of strategic autonomy
Experts believe that this is not just a question of trade but also of India’s strategic autonomy. Earlier also, America had warned of imposing sanctions on India under CAATSA law regarding defense purchases from Russia, but in view of India’s strategic importance, strict steps were not taken. This time the matter is also related to global efforts to find alternatives to the dollar, hence India will have to strike a balance between energy security and trade relations with America.
What could happen next?
At present this is just a proposed bill and there are still many steps left for it to become a law. But this has raised a big question before India that how should it maintain a balance between buying cheap oil from Russia and dealing with America, its biggest export market. The biggest test of Indian diplomacy in the times to come will be how it protects its national interests with both Moscow and Washington.
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