RThe ongoing military clashes between China and Ukraine since February 24, 2022 have also paved the way for a parallel US dollar — Chinese yuan clash. For the United States, these two confrontations are formidable challenges, not only as separate threats but also as a combined threat. If the military challenge has political dimensions, the dollar-yuan confrontation is a challenge that could lead to serious economic consequences. The challenge posed by the yuan has made it difficult for the dollar to continue its dominance in global markets. The dollar’s invincibility as a global reserve currency has been challenged by the yuan.
Today the dollar’s invincibility has grown beyond question. Therefore, no matter how much the Chinese currency, the yuan, rises, it will be difficult to dislodge the dollar. It is only with such a background in mind that a final decision can be made as to what the Indian rupee’s global linkages should be.
Global credit rating agencies such as Standard and Poor’s and Fitch are showing excessive optimism about the future growth potential of the Indian economy. But it must be acknowledged that the global credibility that the dollar has been able to maintain gives the American administration the strength and energy to maintain its status as a global power. The Chinese government recognizes this reality. That is why the Beijing leadership has come to the conclusion that it is possible to stop the American hegemony only by weakening the dollar. It is with a similar goal in mind that China is eager to establish more friendships with other countries.
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The Chinese leadership will also try to involve India in linking trade deals with the yuan. It is also impossible for the Chinese economy to advance rapidly without creating a new global monetary system, an alternative to the dollar. For India, the main obstacle to befriending China is the ongoing border dispute between the two countries. The dispute has reached the brink of a military confrontation during the Covid era. Until recently, there has been no change in the anti-India stance of the Chinese government. However, it can be seen that the Indian government has slightly deviated from this policy approach. In fact, this change reflects the short-sightedness of the government’s geo-economic-diplomatic outlook.
The BJP government has actually sacrificed national interests by allowing the Indian national currency to be further pegged to the Chinese currency, the yuan. The Modi administration has recently made a ‘twist’ in foreign policy, deviating not only from the non-aligned foreign policy pursued by the previous Congress-UPA governments and the BJP’s Vajpayee government, but also from the non-aggression policy of not engaging militarily in violation of the political sovereignty of another independent country. Following the military attack by the Putin regime in Russia without any provocation against Ukraine, the Modi government took a stand against it when countries including NATO powers imposed economic trade sanctions against Russia. It became clear that India only considered economic interest behind this decision.
The aim was to facilitate the import of crude oil from Russia at low prices. About 80 percent of crude oil for domestic consumption is imported. People naturally felt that they could get petrol, diesel and gas at low prices and keep inflation under control to some extent. In the post-war period, imports from Russia more than 15 times that of petroleum. Petroleum worth a total of 44 billion dollars. Common Indians did not know that through this Russia would get a huge amount of money from India and all of it would be used for war.
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There is another side to this. Instead of imported petroleum, India will have to pay US dollars to Russia. This will be the mechanism for almost all imports. But Russia could not agree to this method. Because of the economic sanctions imposed by the US against Russia during the war in Ukraine. Otherwise the chances of paying in ruble rates were slim. Because currency exchange transactions were difficult to conduct in the atmosphere of war. One solution to this crisis was to reach a bilateral agreement on the exchange rate between the rupee and the ruble. However, this system also has practical drawbacks. Due to the policy of liberalization, multilateral basic trade prevails.
Exchange in Indian currency will not be acceptable to Russia. Despite what the Modi government and Finance Minister Nirmala Sitharaman may claim, the Indian rupee is not an internationally recognized medium of exchange. It is also an undeniable fact that the demonetization announced by Prime Minister Narendra Modi himself led to a heavy fall in the rupee. While the yuan can be used as a medium of exchange for Russian oil import transactions, it is also conceivable why the same cannot be used for India-China trade transactions.
The strangest thing is that the average Indian does not benefit at all from policy changes related to foreign exchange media. The price of petrol, diesel or cooking gas continues to rise. It does not show any downward trend. Experience has shown that inflation and the cost of living are increasing at an average of 5-10 per cent at a time, while the situation in which tariff hikes on consumer goods remain unchanged or rise. The central government’s corporate favor policy is paving the way for such a trend.
Private refiners Reliance and Naira Energy account for half of India’s cheaply imported petroleum. These companies also receive a portion of India’s domestically produced crude oil. These companies are exporting the refined petroleum products to foreign markets and reaping profits. The Modi government is pretending that it has not seen or heard any of this.
Whenever Prime Minister Narendra Modi mentions trade relations with China, he cites the security threat along the India-China border and the India-Pak border. Kind of a distraction tactic. Modi is completely silent on the profits of India’s two private monopoly corporations through the new exchange. The fact that the Ukraine war has set the stage for this is also ignored. Because if that happens, it will be interpreted as an anti-Russian stance.
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A 13-fold increase in petroleum imports from Russia was recorded in 2022-23 as compared to 2021-22. That is from 2.5 billion dollars to 3.1 billion dollars. Russia has overtaken Iraq, Saudi Arabia and the UAE to take the top spot. Now Russia has reduced the discount allowed to India. The reason is that there has been an increase in demand from China. The fact is that efforts made by the Modi government to switch to rupee-dollar exchange to solve this crisis have not met with success. It is far-fetched to think that the Putin administration would be willing to go back to the rupee system instead of the dollar.
There are many reasons for this. First, there is uncertainty in the rupee-ruble exchange rate. Valuation in the ruble is not through the intervention of market forces, but through capital controls. This is different from the valuation style of reserved currencies. Two is that there is no stability in the value of the rupee according to Russia’s calculations. It is not trivial to determine the exchange rate with such a currency. The third reason is the sharp increase in the trade deficit. In 2022-23, the gap was up to $43 billion. By the end of the current financial year, it is estimated that the exports will be limited to only 3.14 billion dollars, while it will reach 49.35 billion dollars. In addition to this Indian rupees pile up in Russian banks, they cannot use them for war purposes. Naturally, in such a situation, it would be beneficial for Russia to go through the process of ‘de-dollarization’ – replacing the US dollar with some other currency medium of exchange. All this should be taken into account to assess India’s future trade development potential.
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2023-08-10 23:00:47
