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Will Sanctions Again Imperil India-US Relations? – Analysis


By Uma Purushothaman

Sanctions have the annoying habit of popping up every now and then in the tapestry of India-US relations and putting strain on the relationship. Cases in point are the post 1974 sanctions and post 1998 sanctions.

This time, it is with a triple whammy of US sanctions/trade tariffs that India will have to deal with. The three set of punitive measures are: the fresh sanctions on Russia, new sanctions on Iran now that the US has withdrawn from the JCPOA and finally, trade tariffs imposed by the US on imports from other countries. Each of this will affect India’s policy choices and will have to involve deft maneuvering from decision makers.

The most significant of these sanctions are those under the Countering America’s Adversaries Through Sanctions Act (CAATSA), an Act which was passed in August last year and came into effect from January this year. The Act does not target India specifically, but targets countries doing business with Iran, Russia and North Korea, making India collateral damage particularly with regard to its relations with Russia and Iran. The sanctions on North Korea will not have much of an impact due to India’s limited economic ties with that country and with the Kim-Trump Summit coming up, some relief might be expected.

It could affect other deals and also joint defence projects. Moreover, given the fact that around 70% of India’s defence equipment is still of Russian origin, India needs to keep its defence relationship with Russia going for maintenance, service and upgrading its equipment. Though US Defence Secretary Jim Mattis and Secretary of State Mike Pompeo and other senior officials have appealed to the Congress to give India the national security waiver, arguing that imposing sanctions on India under would only harm the US, so far, no progress has been made. However, this waiver will have to be added to the legislation because the Act as it stands does not have a provision for a national security waiver. More importantly, since CAATSA is congressionally mandated, it would be difficult for India to get a waiver unlike in the case of the pre-JCPOA US sanctions on Iran. So, a waiver seems a remote possibility in the immediate term. However, the way ahead would be for India to intensify lobbying on Capitol Hill through the India Caucuses in both houses.

India has so far not shown any sign of backing out of any defence deal with Russia and Prime Minister Modi’s Summit with President Putin at Sochi can be construed as a signal to the Americans that the India-Russia relationship stands strong and that India will not bow to American pressure. India is not alone in this. Turkey and Indonesia, for instance, are going ahead with their defence purchases from Russia and these are countries which are far weaker than India.

Now that the US has withdrawn from the JCPOA, in addition to CAATSA, fresh unilateral sanctions have been imposed on Iran. These will affect India’s oil trade with Iran, its third biggest source of oil in 2017. It will also affect the progress of the International North South Transport Corridor, which could have become an alternative to China’s Belt Road Initiative. Key to the success of the INSTC is the Chabhahar port in Iran. Moreover, for India, the Chabhahar port is important even otherwise because it has road links to the road India has built i.e. the Zaranj-Delaram Road, which India sees as a gateway to Afghanistan and Central Asia, allowing it to bypass Pakistan. Again, if the US wants to support stability and economic growth in Afghanistan and wants India to play a bigger role there, what better way than this?

The third set of punitive measures are the trade tariffs imposed on imports to the US. These will affect India’s steel and aluminum exports to the US. Given that India is ninth on the list of countries with large trade surpluses with the US, tariffs on more products can be expected, affecting India’s economic growth. New Delhi and Washington seem to be on different pages on economic relations and this is evident from their jousting at the WTO. While the US has challenged India’s export subsidy programmes, India has approached the WTO’s dispute settlement mechanism over the imposition of import duties on steel and aluminum. At the recent Shangri La Dialogue, Modi spoke out strongly against protectionism, saying that India wants an “open and stable trade regime”, clearly referring to Trump’s protectionist measures.

So, the three sets of punitive measures imposed by the US will only drive a wedge between India and the US. India has a long held policy of only following UN sanctions. The US cannot expect India to abdicate this policy or forget its national interest merely because the US Congress needs to pander to domestic constituencies. The US needs to realise that these sanctions will slow down India’s military and economic growth. An economically and militarily weak India will be of no use to Washington in defending and strengthening the liberal order in the Indo Pacific. If Washington wants a strong India, it will need to work out ways in which these sanctions have little impact on India. Otherwise, India might well be justified in thinking that Washington only wants to use India as a cat’s paw for containing China without really being invested or interested in the country’s rise in the long term.

The Wuhan and Sochi Summits and India’s sudden tepidness towards the Quad could just be the beginning of another drift in Indo-US relations and of a sea change in India’s foreign policy.

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ORF was established on 5 September 1990 as a private, not for profit, ’think tank’ to influence public policy formulation. The Foundation brought together, for the first time, leading Indian economists and policymakers to present An Agenda for Economic Reforms in India. The idea was to help develop a consensus in favour of economic reforms.

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