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Since February 24, 2022, when President Putin began to demilitarize Ukraine with massive airstrikes, Western countries (US and Europe) began to impose unprecedented economic sanctions on it. Will they really work? This article attempts to analyze the controversial issue and examine the Indian approach at work.
According to a recent study by SIPRI, India imports 85% of its arms from Russia. The rest comes from the United States, France, etc. Therefore, India has to walk a tightrope with regard to the current Ukrainian crisis. In fact, Russia has also proven to be a reliable energy partner as well as a crucial political support to the UNSC in the past (Kashmir).
After the breakup of the USSR under the Alma Ata declaration in December 1991, Russia had an external debt of 66 billion dollars and a few billion dollars of foreign exchange reserves. Thus, during the Yeltsin years (1991-1999), the economy was in ruins. However, with the advent of Putin to the presidency in 2000, things gradually took a better and stronger economic shape. After the annexation of Crimea in 2014, Russian economic growth was severely strained due to the imposition of Western sanctions. Despite this, Russia has created a fortress by continuing the process of insulating its economy against future aggressive sanctions.
Putin has therefore skilfully managed it well, especially after 2014. With a new wave of sanctions by Western countries, the large Russian foreign exchange reserves (estimated at more than 500 billion dollars) will be of great help. A small part of these foreign exchange reserves can be converted into sovereign wealth funds (about 10%) which can help Russia finance its domestic economic growth. He would have difficulty accessing these reserves because of these sanctions, but it is not impossible.
In fact, food security would be a bigger concern for Russia. Since 2012, it has doubled cereal production. Thus, the Russians have become the largest grain exporter in the world. This is essential to sustain any long-term military campaign that requires grain and energy stocks. Similarly, the exclusion of Russian banks from the SWIFT messaging system may also only have a symbolic effect, as Russia has an alternative SBSF system operated by the Russian Central Bank. It is designed primarily for Eurasian countries. Thus, other banks around the world can easily connect to SBSF. However, the freezing of the assets of the Russian Central Bank would have an impact as evidenced by the free fall of the Russian financial markets. However, again, Russians are not as dependent on financial markets as people in Western countries. Thus, Putin can still maneuver around it.
As for the Russian people, the sanctions won’t hurt them much because their life is simple and they don’t have much savings. This could have a big impact on the business of wealthy Russians. As evidenced by the financial markets, the Rubel fell dramatically with the entry into force of the sanctions and in a drastic step; key interest rates were raised from 9.5% to 20%. Russian Central Bank official Elvira said the parameters of the Russian economy have fundamentally changed. She also said that the latest sanctions have led to a drastic correction in exchange rates and access to financial reserves has been restricted.
These drastic measures pose the risk that a rise in rates to 20% could become a heavy burden on businesses, lead to rising unemployment and trigger a catastrophic economic crisis. For the Russians to manage this unprecedented crisis, Putin would have to act smart by leveraging their vast natural resources, large gold reserves, and expanding the use of cryptocurrency. Moreover, India’s economy is twice the size of Russia’s economy, so India should help Russia in the best way possible, such as by boosting the current amount of bilateral trade to $10 billion. . For India, the import of 85% of armaments can only continue in the long term if there is a strong Russia. China is facing the Malacca dilemma for its energy imports and therefore would like to have more Russian oil and gas (especially because the Americans have canceled all these Russian imports). This will benefit Putin immensely. Russia must move forward relying on the Chinese currency and the cross-border interbank payment system. Russia will also benefit due to the current low external debt.
In 2020, when the PLA created a war-like situation against the CLA, Indian Defense Minister Rajnath Singh visited Moscow to quickly get some armaments to bolster Indian defense. India has to walk a tightrope and the time-tested non-aligned politics is useful in all forums as India’s voting pattern shows. It best serves Indian national interests.
These articles are published as received – they have not been edited/verified by ThePrint.
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