An important aspect of the response to the Russian invasion of Ukraine has been the use of co-ordinated sanctions of a comprehensive nature by the western countries. The west has clearly opted to pursue war through sanctions instead of military means. And I'm inclined to think that's the right way to respond to what clearly appears as a senseless and deplorable adventurism by President Vladimir Putin.
But the use of sanctions, especially their wide range, raises important questions for countries like India. Once sanctions become the norm as an instrument of war, we're on a slippery slope. What actions can India take to mitigate, to the extent possible, from potential sanctions, especially of the economic kind?
First some data. The NYT has an excellent feature highlighting the findings of a Drexel University database on sanctions across the world. There are 1100 sanctions of various kinds currently in place.
The United States is responsible for the most sanctions cases, accounting for 42 percent of those in place since 1950, according to Drexel’s data. Next is the European Union, with 12 percent, and the United Nations, 7 percent.
While they cause definite pain and suffering, sanctions have had a mixed impact in realising their stated objectives. They find that about half the stated goals were at least partly achieved and about 35% completely achieved.
Financial sanctions have emerged as the primary type of sanctions, thereby validating the view that sanctions are a new means to pursue war. US in particular has accelerated its use of such sanctions in the last twenty years.
This is another database at University of North Carolina at Chapel Hill on actual and threatened sanctions.
The emergence of sanctions should be an important concern for large countries like India whose interlinkages with the world are too many, deep and salient, and which face potential conflicts with the western world on issues like economic policy, labour mobility, and the environment. India will often need to chart out its own specific paths on important economic and social policy issues which will conflict with those of the western countries, thereby become vulnerable to being sanctioned by them. Therefore, given its prominence and widespread use, it's time for India's foreign policy establishment to take serious note.
The weaponisation of SWIFT is in particular a matter to be noticed. It's a red line which has now been crossed, and therefore the threshold for its use henceforth will be lower. It virtually shuts a country off from transacting with the outside world through any mainstream approach or channel. In this context, India's near completely foreign owned private banking system should in particular be a matter of concern. It's time we put in place ownership restrictions on important plumbing financial institutions like banks.
In the years ahead sanctions could likely to increase as a tool of economic policy management too. For example, as climate change hastens and we are faced with existential challenges, it's not inconceivable that developed countries force targets on the developing countries. Labour mobility too is an area where India's vulnerability is high.
The deepening economic linkages with China, especially in terms of dependency on critical minerals and intermediate inputs in manufacturing, should be the matter of the greatest and the most immediate concern. The Ministry of External Affairs and the Department of Commerce in Government of India should put in place a continuous market surveillance mechanism (with granular industry-wise information on trade trends) to consolidate a list of all such trade-related vulnerabilities, especially with China. It should then engage with the industry by putting out quarterly (or some periodic) trade advisories, stakeholder meetings and consultations, facilitation and co-ordination with other GoI Ministries and State government to support industry, and policy advisories to central and state governments. Finally, trade policy should be tailored to respond to these advisories.
The biggest problem with this strategy is the bootlegger and baptist risk of falling back into the clutches of vested interests and protectionism. The national interest safeguarding baptist policy maker could be used and captured by the protectionism seeking bootleggers to create and perpetuate vested interests.
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