Former RBI Gov. Raghuram Rajan: Don't think India gains a lot by buying Russian oil

Key Concepts:

• US-India relationship
• US tariffs on Indian goods
• India's purchase of Russian oil
• India-China-Russia relations
• Geopolitics and diplomacy
• China plus one strategy
• Backchannel diplomacy

US-India Relationship and Tariffs

• The US has imposed a 50% tariff on India, consisting of a 25% tariff on all goods (above the Asian norm) and an additional 25% for trading oil with Russia.
• Raghuram Rajan suggests India is "confused" as it believed it had a strong relationship with the US, especially between President Trump and Prime Minister Modi.
• The tariffs are perceived as a signal that the US is not a reliable partner, pushing India to explore alternatives like strengthening ties with China.
• Rajan emphasizes that India doesn't necessarily prefer China over the US in the long run, but the Indian leadership wants the US to clarify its stance.

India's Stance on Russian Oil

• Before the war, Russian oil accounted for only about 2% of India's purchases.
• India was seemingly buying Russian oil with the understanding that the US wanted someone to take it to prevent a global oil price hike.
• The global restriction was primarily on buying Russian oil above $60 a barrel, which India has mostly adhered to.
• Rajan believes India would be willing to stop buying Russian oil if the US requested it through "backdoor channels."
• Imposing tariffs and directly demanding India to stop is seen as a challenge to India's sovereignty.
• Direct demands would force the Indian government to answer difficult questions in Parliament about being influenced by the US.

Diplomacy and Potential Solutions

• Rajan hopes that backchannel discussions are still ongoing to resolve the issue.
• He points out that China, Turkey, and even Europe purchase Russian energy without facing tariffs.
• If the primary goal is to stop Russia from selling energy, resolving the issue through back channels could de-escalate the situation.
• There is "enormous angst" in India due to the perceived shift in the US-India relationship.

Tariffs on China and India's Position

• India may have expected a more favorable tariff rate compared to China.
• A deal with China is expected to be complex and involve issues like intellectual property, making it a long-term process.
• High tariffs on India could harm poor farmers, shrimp farmers, and textile manufacturers, causing lasting damage.
• A short-term deal with India would be beneficial and signal India as a "China plus one" destination, offering manufacturers an alternative to China.
• Rajan suggests a quick deal where the US removes the 25% tariff, India agrees to slow down/terminate Russian oil purchases, and tariffs on Indian goods are reduced to the Asian norm (around 18-19%).

Notable Quotes:

• "India is confused. It thought it had a wonderful relationship with the United States... And then suddenly India gets slapped with... tariffs." - Raghuram Rajan
• "Modi going to Shanghai is basically saying, look, we're going to look for alternatives. If you can't be reliable." - Raghuram Rajan
• "If the United States, you know, through a backdoor channel, ask, please stop buying Russian oil, India would be pretty happy to do that." - Raghuram Rajan

Technical Terms:

• Tariffs: Taxes imposed on imported goods.
• Sovereignty: The authority of a state to govern itself.
• Backchannel diplomacy: Unofficial communication channels used for negotiation.
• China plus one: A business strategy to avoid over-reliance on China by diversifying manufacturing to other countries, like India.
• Favored nation status: Granting a country the best trade terms, such as low tariffs.

Logical Connections:

The discussion flows from the upcoming Modi-Xi-Putin meeting to the underlying reasons for India's participation, which are rooted in the changing US-India relationship due to the imposed tariffs. The tariffs are then linked to India's purchase of Russian oil and the perceived lack of diplomatic sensitivity from the US. Finally, the conversation shifts to the broader context of US-China trade relations and the potential for India to benefit as a "China plus one" destination if a more favorable trade agreement can be reached.

Synthesis/Conclusion:

The US-India relationship is facing strain due to recently imposed tariffs, particularly related to India's purchase of Russian oil. India feels misunderstood and is exploring alternative partnerships, including strengthening ties with China. While India doesn't necessarily prefer China over the US, it seeks a more reliable and diplomatically sensitive relationship. A quick resolution involving tariff reductions and backchannel communication regarding Russian oil purchases could restore trust and position India as a strategic alternative to China for manufacturers.