US Iran crisis - the India angle

The latest edition of the gulf crisis between Iran and America has put India in a spot. At the best of times,  a very delicate balance needed to be maintained when dealing with any country in the region. India has had to play a balancing act with Saudi Arabia, Iraq and Qatar on one side, and Iran on the other. It cannot afford to take sides in this conflict. It has to watch from the sidelines and hope the crisis does not spill over into the rest of the region. It’s a complex chessboard and with many players. Maintaining diplomatic relations with all the players in the region is like walking on thin ice at the best of times.

Iran is India’s largest supplier of crude oil. India also purchases considerable amount of crude from Saudi Arabia, Kuwait and Oman. So India’s crude basket is well spread in the region. Iraq is a recent supplier which came into the picture after India stopped buying from Iran due to American sanctions. Recently the USA has also become a supplier of crude. This has diversified India’s oil purchases which may or may not be strategically significant, but it is said, that this purchase is a consolation for the Trump administration in order to play down its refrain against India regarding the balance of payments between the two countries.

India has been developing the Chabahar port in Iran as a gateway to landlocked Afghanistan, as Pakistan is  not considered to be a dependable conduit for passage of goods. The project got delayed due American sanctions on Iran on account of its nuclear program. Recently however, the US was willing to exclude this port from the sanctions on the condition that the Revolutionary Guards of Iran are in no way connected to the project. This port is in direct competition to the Gwadar port in Pakistan’s Balochistan province, which is being developed by China as a part of their CPEC project (China Pakistan Economic Corridor), and which China wants to continue into Central Asia and Europe. The current crisis has cast a shadow over the Chabahar project. This project is crucial for India, both as a corridor to central Asia and as an alternative trade route to what China is building in Pakistan. Now India’s apple cart will certainly be affected if matters get out of hand. An encouraging development is  that the call President Trump made to PM Modi to discuss the situation. It shows that the US is sensitized to the concerns of its allies in the region. It knows that India is directly affected by any disruptions in the gulf region. 

There are other more subtle factors which have had their effect on Indo Iran relations. Iran is not happy as India has taken a long time to develop the Chabahar port. This happened due to American sanctions on Iran. No international company was ready to invest in the port or even provide equipment for the project as that would bring US retaliatory action. Work on the project started only after the US and Iran signed their treaty which constituted a delay of several years. The Trump administration recently had shown its readiness to exclude the port from the the re-imposed sanctions. But after the US drone strike which killed the Iranian General Suleimani, the project has come under the shadow of war clouds again. Iran has indicated that if India is unable to take up the project work expeditiously, it will consider handing it over to China for completion. This does not fit anywhere into India’s plans, as it would thwart India’s primary objective of a trading route with Afghanistan and central Asia. The region is throwing new challenges and it remains to be seen how Indian foreign policy deals with them. The recent news that Iran has pulled its punches and pared down its attack on US bases in Iraq should come as a relief to all in the region. Since this retaliatory attack by Iran on American assets did not kill any personnel, but only damaged some structures, it can be reasonably assumed that the leadership in Iran is taking action to vent public anger, and that it is fully aware of the consequences of escalating tensions. There is too much at stake here for any country to take unilateral action.  War is simply not an option.

The tension in the region appears to be subsiding but the situation is fluid and there are new developments happening everyday. It would not be wise or prudent to try to predict anything, however obvious it may look. Hence this article may have to have a sequel, as and when the turn of events merit.

Indian economy – the focus on reforms

The slow down in the Indian economy has been debated endlessly for the last four months or so. Ever since the growth slipped from a peak of around 7 percent in 2016-17 to less than 5 percent in December 2019. The picture that is being painted is rather bleak.  The economic parameters are predicted to get even worse.  While there is no telling when the cyclical graph will swing up, it would do good to take a look at some of the good things that have been happening. In the din of the naysayers, we have been missing some positives affecting the big picture. While they may not be a remedy for the, situation at hand, it could be a silver lining to an otherwise grey cloud.

There is now more clarity regarding the bankruptcy laws. Earlier any big business group finding itself in trouble  had just to call some high level secretary in the finance ministry and get its problems solved. A company facing financial difficulties would take the help of minister or a senior secretary in the ministry and try to get some conditions waived for the benefit of its troubled business. But after the introduction of the bankruptcy rules, this is no more possible.  No politician or any person holding public office can give succor to an ailing business, however big it may be.  Case in point is the Essar Steel company owned by the Ruias.  Having piled up debt due to operating losses the company is about to be taken over by the Arcelor Mittal group. No political interference has been allowed in this deal. All the heavy political connections of the Ruias have not helped them to keep the ownership of their business. This game is now played by the rules.

The sales figures of Automotive sector has seen some growth for three consecutive months, ending December.  This growth is attributed to the heavy discounts given by various manufacturers during the festive season. Not all the manufacturers have managed to sell more but the overall growth of the sector has been positive.  This sector is considered the bell weather of the economy. Not too much should be read into this trend but the feel good factor definitely gets a boost here.  

One more positive is that the inflation in the economy has been largely controlled. The government has not given in to the temptation of increasing the money supply in the economy in order to kick start spending. Oil prices have been largely favourable for the country and that has helped to keep overall  prices in check.

All is not well in the economy, that is obvious. Indian economy needs structural changes. The government has to sell off its loss making businesses.  One good example is the BPCL sale. This is a profit making PSU. The fact that the government has put it on the anvil shows the commitment of the government to get out of running businesses.  

Another positive is that the accuracy of economic data is being questioned. An overhaul was needed in the  methodology adopted by the various government agencies to gather economic data. A new expert panel will pave the way to improve accuracy in the whole process.   

Job creation is still not happening at the rate it is expected to. But there are indirect forces at work here. The world economy is sluggish and there is uncertainty regarding future investments. The US China trade war is affecting markets in no small measure.

The Indian economy will not be out of the woods in the short term considering that the world economy finds itself in a cyclical trough. But it is encouraging to know that the government has not lost sight of the reforms that it set out to implement. This bodes well for the country in the future.