Question- 1. The West must give due consideration to economic importance of bilateral trade before demanding cutting of trade ties. Explain in context of India’s trade with Russia.
Answer: The Ukraine war started an economic boycott of Russia by Western powers led by USA. The economic sanctions imposed on Russia have had devastating effects on countries depending on Russian supplies such as food grains, energy and fertilizers.
Importance of India’s trade with Russia
- Defence technology
Russia is the biggest source for defence equipment and technology for India. This not only includes new equipment but also replacing components from existing equipment.
- Cheaper fuel
Indian buyers are receiving discounts on crude oil and thermal coal as a result of global situation. In absence of Russian supply, India was at the mercy of Gulf oil cartel.
Importance of trade diversification for world
- Reduce inflation
As supply chain diversified, the demand and supply for goods stabilised. In absence of diversification, the demand would have exceeded supply, causing high inflation.
- Competitive pricing
Multiple suppliers keep prices competitive so as to give a better deal. This will benefit buyers as they can save money on same quality of goods.
- Currency stability
Higher prices will increase trade deficit. Increasing trade deficit will put pressure on stability of domestic currency, making it depreciate.
Thus, the Russian alternative supply chain turned into a boon for high consuming developing countries such as India and China. Western powers must understand the sensitivity of the issue before undertaking unilateral decisions.
Tags: GS 2 (International relations)