Sanctions on Russia: Analysing Long Term Impact on Russia, India and the World Order
A TPF fireside chat on “Sanctions on Russia: Analysing Long Term Impact on Russia, India and the World Order” with Prof. Arun Kumar, Malcolm S Adiseshiah Chair Professor, Institute of Social Sciences, New Delhi.
Event Summary:
The Peninsula Foundation (TPF) conducted an online fireside chat on the topic “Sanctions on Russia: Analysing Long Term Impact on Russia, India and the World Order”. The distinguished Speaker was Prof. Arun Kumar, Malcolm Adiseshiah Chair Professor at the Institute of Social Sciences, New Delhi. He is an expert in the areas of development economics, macro economics, public finance and public policy and an awardee of the National Autonomous University of Mexico’s (UNAM) Ricardo Prize in Economics for his contribution to development economics. He was formerly a professor of economics at Jawaharlal Nehru University (JNU). He has a PhD in Economics from JNU. His recent book, Indian Economy’s Greatest Crisis: Impact of The Coronavirus and The Road Ahead, has generated great interest and discussion. The discussion was chaired by Air Marshal M. Matheswaran AVSM VSM PhD (Retd.), President of TPF.
Air Marshal Matheswaran initiated the talk by giving a brief overview of the topic, touching upon the historical context of the war and sanctions by invoking theories on the world and its economic order. Prof. Kumar, in his introductory comment, made a reference to the World Wars, elucidating how the current conflict in Europe was similar to it in terms of strategic dominance. He pointed out the increasing strategic problems of Russia with an ever encroaching NATO that the country has been wary of since quite some time now. He opined that the sanctions imposed on Russia by the West won’t be able to halt the war, but it remains to be seen whether they will hurt the country enough that it regrets the war or not.
The Speaker laid out the structure of the talk which he divided into 4 parts dealing with the long term and short term impacts of sanctions on Russia and the world. Sanctioning Russia, the speaker pointed out, is much more consequential than sanctioning Iran, simply due to the former’s large economy and technological advancement. Since sanctions convert a relatively open economy to a relatively closed one, he added, the Russian economy is poised to behave like a much more closed economy, which would be like a ‘shock’. He went on to explain how severe the sanctions on Russia are and what can be domestic consequences in the long run. The sanctions, he explains, target its exports- mainly oil and gas, and some critical raw materials, have international implications, especially for Europe, India and China, aggravating the already beleaguered world economy. He highlighted already existing alternatives to SWIFT and how these can bypass the sanctions. He further elucidated the impact of financial sanctions on the economy, which would destabilise its economy in the short run, but would have little impact in the long run. The speaker also expressed his fears of a Cold War between the Eastern Bloc of Russia and China on the one hand, and the rich nations on the other hand.
The speaker believes that, in the long run, the impact of sanctions will depend upon Russia’s relations with China. China, he explains, would supply Russia with all manufactured goods in return for essential technology, thus emerging as the primary benefactor of the sanctions. He fears that this would lead to the emergence of two blocs- one consisting of the western nations and the other of Russia, China and others, with two different circles of trade, technology development and capital and financial flows. However, if the sanctions do not show the intended results, he added, the Western nations will come under great pressure to do more, further antagonising Russia.
Internationally, in the short run, he points out, energy, commodity and food prices will rise with purchasing power hitting low. The international capital flow, he added, is also in a decline, resulting in decreasing private investment. A major consequence of the sanctions will be a swift rise in military spending throughout the world. Also, the priority to pandemic control would decrease, leading to a rise in vaccine inequity throughout the world. He further stated that trust between key global nations will be shattered, since the rich nations will be viewed as unreliable, having recently deserted Afghanistan, and left Ukraine to its own, resulting in an increase in the competition between the two blocs for influence on different countries and a “different kind of globalisation”. He predicted an increase in poverty across the globe due to decrease in social spending. As per him, authoritarianism is set to grow with people across the world choosing strong leaders to defend their territory. Towards the end, he made a case for strategic independence of India in case the rivalry of the two blocs flares up.
With the above note, the floor was open for discussion. The chair asked the speaker for his opinion on how the tussle between the financial architectures of the two blocs would play out for India and the World. The guest, in his response, agreed that the financial architecture will change when the two blocs form. He is apprehensive of the cryptocurrency substantially replacing the US dollar and impacting global trade in future, thus rendering the sanctions ineffective. When asked about whether the Dollar as World’s reserve currency could be virtually removed or diluted?, the speaker responded that Cryptocurrency, coupled with a combination of Chinese Yuan and Russian Ruble, has the potential to dilute dollar’s hegemony.
The chair further asked about the impact of the Belt and Road Initiative on the future of financial flows, to which the speaker replied that one of the major purported aims of the BRI initiative is to create an alternative Eurasian financial system. He further explains how the competition between the two blocs would destabilise the global political order. When asked about the prospect of the return of the gold standard, replacing the dollar as global currency, he said that chances of cryptocurrency occupying the space currently held by the Dollar is far more than gold. When asked about the options for India in a second cold war, the speaker acknowledged the lack of choices the south asian giant would have, saying that “we are very badly stuck”. India, he anticipated, is set to come under pressure from both the blocs regarding trade and purchases of sophisticated defence equipment. Our best hope is that the rivalry ends soon, he added.
Ambassador R. Rajagopalan commented on the European rivalry that was given ample time- almost thirty years- to be solved. However, he opined, India need not take a stand on the new rivalry emerging, and it should continue with a neutral approach. Prof. Kumar, in his concluding remarks, anticipated a new global architecture that would disturb the stability of the current order. Hence, he cautioned the Indian leadership to be prepared for it in the long run. He advised them to focus on technological development to eliminate the need of dependency upon other countries. The event then came to an end with a note of thanks to the distinguished speaker by Air Marshal Matheswaran.
About the Speaker:
Prof. Arun Kumar
Professor Arun Kumar is the Malcolm Adisheshiah Chair Professor at the Institute of Social Sciences, New Delhi. He was formerly a professor of economics at Jawaharlal Nehru University. He has an MA (Physics) from Princeton University, USA and PhD (Economics) from JNU. His recent book (published in Dec 2020), Indian Economy’s Greatest Crisis: Impact of The Corona Virus and The road Ahead, has generated great interest and discussion.
About the Chair:
Air Marshal M Matheswaran AVSM VM PhD (Retd)
Air Marshal M Matheswaran is an Indian Air Force veteran with 39 years of active service. He is the founder- President of The Peninsula Foundation. He is the former Deputy Chief of Integrated Defence Staff responsible for Policy, Plans, and Force Development. The Air Marshal is a recipient of Presidential Awards – AVSM (Ati Vishisht Seva Medal) and VM (Vayu Sena Medal) and a Commendation by the Chief of Air Staff. He has a PhD from the University of Madras, Chennai, an alumni of the National Defence College, New Delhi and is a Senior Fellow in International and National Security from the Harvard Kennedy School.