India Risks Being Caught in the Crossfire Between the West and Russia

India's Prime Minister Narendra Modi's recent visit to Moscow, which is also his first official trip abroad following his re-election, has stirred significant geopolitical discussions and concerns. This visit, marked by warm interactions and strategic discussions, has amplified the complexities of India's foreign policy. Historically rooted in the principles of the Non-Aligned Movement, India finds itself walking a tightrope between two superpowers: Russia and the United States.

India, under the leadership of its first Prime Minister Jawaharlal Nehru, played a pivotal role in the establishment of the Non-Aligned Movement (NAM) during the Cold War. NAM sought to provide an independent path for developing nations, avoiding alignment with either the Western bloc led by the United States or the Eastern bloc led by the Soviet Union. This policy allowed India to maintain flexible foreign relations and avoid the dichotomy of the Cold War era.

Despite the end of the Cold War, India still aims to maximize strategic autonomy and avoid entanglement in power blocs. Nevertheless, Indian representatives have repeatedly spoken about plans to strengthen the country's international ties.

Prime Minister Modi's visit to Moscow underscores the enduring strategic partnership between India and Russia. During the visit, Modi and President Vladimir Putin engaged in discussions that highlighted the mutual benefits, including defense cooperation, energy collaboration, and geopolitical support.

Some experts have noted that choosing Russia as the first country for an official visit after Prime Minister Modi's re-election signals a further strengthening of Russia-India relations. The warmth of the meeting has not gone unnoticed on the global stage.

The United States immediately expressed concern over the development of India’s relations with Russia. State Department spokesman Matthew Miller urged Modi to use his Moscow visit to advocate for Ukraine's territorial integrity.

Ukrainian President Volodymyr Zelensky also expressed sharp criticism, describing the visit as ‘a devastating blow to peace efforts’ and lamenting the optics of ‘the leader of the world's largest democracy embracing the world's bloodiest criminal in Moscow.’

During his visit, the Indian Prime Minister told President Putin that India is ready to assist in establishing peace in Ukraine, stating that war is never ‘the solution’. Nevertheless, since the beginning of the Ukrainian conflict, New Delhi has refused to impose sanctions against Russia and condemn its special operation on Ukrainian territory, thereby attracting additional pressure from the West.

However, despite this pressure, two issues—diaspora and democracy—continue to play a significant role in bilateral diplomatic relations. The United States also recognizes India's strategic importance, particularly in counterbalancing China's influence in the region.

As for India-Russia relations, their strengthening could potentially trigger new sanctions against India, similar to those imposed on other nations for engaging with sanctioned Russian entities. Already, some Indian firms have faced warnings and potential consequences for flouting Russian sanctions.

However, the benefits of cooperation with Russia are substantial for India. The defense sector, in particular, remains heavily reliant on Russian technology and equipment. Additionally, Russia is a key energy supplier, providing crucial resources for India's growing economy. Geopolitically, its support is valuable in multilateral forums where India seeks to assert its influence.

India's foreign policy is at a crossroads, needing to balance its long-standing relationship with Russia and its growing partnership with the West. In turn, this brings both significant risks and advantages to doing business in India.

Talking about risks:

(1) Businesses in India engaging with Russian firms might face heightened scrutiny and potential penalties from Western authorities. For instance, companies dealing in defense, energy, and technology sectors may need to navigate complex sanctions regimes, risking fines and restrictions. Hence, businesses must stay informed about evolving sanctions and compliance requirements to avoid inadvertent violations, which could incur significant costs.

(2) Strengthening ties with Russia could lead to Western sanctions that restrict market access for Indian products and services. This could impact export-oriented businesses reliant on markets in the U.S. and Europe. Conversely, Russian markets may offer new opportunities for Indian businesses, but these are tempered by the risk of secondary sanctions from the West.

(3) Perceived geopolitical risks might make foreign investors wary of committing capital to India, fearing instability or sudden policy shifts. This could lead to a slowdown in FDI inflows.

(4) Sanctions on Russia can disrupt global supply chains, affecting Indian industries dependent on Russian raw materials or components. Businesses may need to seek alternative suppliers, potentially at higher costs. Indian businesses exporting to Russia could face logistical challenges due to restrictions on shipping, banking, and insurance services.

However, India remains an attractive destination for businesses due to its large and growing consumer market, skilled workforce, and strategic location in Asia. India's nuanced position between Russia and the West can also offer several strategic advantages for business owners within the country.

Global companies may view India as a vital part of their strategy to diversify production and reduce dependence on China. The geopolitical tensions involving Russia could amplify this trend, as businesses seek stable environments for their operations. India's relatively neutral stance may offer a buffer against the full brunt of geopolitical conflicts, providing a stable business environment. Indian businesses can capitalise on opportunities in Russia and other sanctioned markets where Western companies might face restrictions. This can lead to less competition and potentially more favourable business terms.

The Indian government offers various incentives for foreign businesses, including tax breaks, subsidies, and support for technology and innovation. These measures are part of India's broader strategy to attract foreign investment and boost economic growth. Initiatives like ‘Make in India’ and production-linked incentives (PLI) schemes aim to attract manufacturers and boost domestic production capabilities.

Continued cooperation with Russia, a major energy supplier, can help ensure stable and possibly cost-effective energy supplies for Indian industries. This can be crucial for sectors reliant on energy inputs. Financial arrangements with diverse global partners can provide more robust support systems and financial products, enhancing business resilience.

In conclusion, India's foreign policy is at a crossroads, needing to balance its long-standing relationship with Russia and its growing partnership with the West. The decreasing enthusiasm for the Ukraine war in both the U.S. and Europe might offer some respite, allowing India to navigate its diplomatic challenges with more flexibility. Nevertheless, the geopolitical landscape demands astute diplomacy.

While India cannot abandon cooperation with either Russia or the West, receiving vital benefits from both sides, it is likely that soon the Indian government will have to make a final choice, designating only one side as an ally, while the other will obviously become adversarial.

Prime Minister Modi's visit to Moscow has highlighted the intricate dynamics of India's foreign policy. As India seeks to balance its historical ties with Russia and its burgeoning relationship with the West, it faces a complex and potentially volatile international environment. The strategic benefits of engaging with Russia are clear, but so are the risks of potential sanctions and diplomatic fallout.