An Ethical View of the Current Geopolitics Behind the War on Ukraine

The current ideas floating around can take some insight from the bilateral clearing arrangements set up in the 1950s during the Cold War years.

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Russia’s aggressive advances in Ukraine have generated different types and scales of responses in the world economy. Western Europe, supported by the US as a NATO ally, has imposed various financial sanctions on Russia.

The sanctions include discontinuation of SWIFT facilities, embargoes on trade with Russia and freezing of Russian assets or banking activities. In addition, a resolution has been passed in the Security Council of the United Nations by the same group of countries urging an end to Russia’s aggression in Ukraine. While the resolution has yet to yield results, the sanctions can have a perceptible impact on the Russian economy in the medium run.

Russia, however, has continued to remain defiant with official assertions that the country would follow the path of self-reliance it treaded as part of the Soviet Union during the Cold War years.

India’s responses to the ongoing crisis in Ukraine has been quite different. Carefully taking a position which India considers a neutral one, the country has refrained from supporting various resolutions at the United Nations, even though it has called for an end to violence. The move, as held officially, follows the path of non-alignment which the country emulated in earlier years, largely in the context of the Cold War.

China and the UAE also chose the same move, but obviously not on the same logic.

UN Ambassadors vote during a United Nations Security Council meeting, on a resolution regarding Russia’s actions toward Ukraine, at the United Nations Headquarters in New York City, February 25, 2022. Photo: Reuters/Carlo Allegri

A page from the 1950s

The other measure which India is considering taking up includes the working out of an alternate route for trading with Russia in the face of the sanctions faced by the country. The plan intends to avoid the use of the US dollar as the currency for settlement of trade and all payments. Ideas that are currently floating include the use of bilateral clearing arrangements which happened to be a major vehicle for India’s trade with the Soviet Union and some Commonwealth of Independent States back in the early 1950s. The arrangement was similar to the clearing arrangements the European countries tried during the Interwar years as a major tool to contain trade within the region.

The arrangement between India and the Soviet Union entailed the setting-up of a closed account to handle all merchandise as well as credit-related transactions between the two, with the rupee as the medium of all such dealings. It was, of course, an elaborate arrangement that did work to expand the volume of trade between the countries, often by making use of the export surplus, if any, in favour of one partner to be used to provide additional demand for imports from the other.

In addition to this, all loans, largely provided by the Soviet Union, created the space for India’s industrialisation. Collaboration of the socialist state in the Soviet Union matched the prevailing interests of India. It even worked in framing a draft of India’s second five-year plan by India’s economist Mahalanobis, who followed the model framed by the Soviet economist G. Feldman. One can mention here the impressive steel plant which was set up as a public sector unit in Bhilai.

The use of the clearing arrangement made it easy for India to arrange for debt servicing as well as repayments, by exporting to the Soviet Union. This created an added sphere for trade expansion. On the whole, the arrangement worked well, and in the face of the reluctance of the West to accept any virtue in such deviations from the market principles of efficiency.

Changes taking place in the Indian economy, slowly in the direction of the market, started creating problems in the smooth running of the arrangements. The devaluation of the Indian rupee in 1966 was a major factor creating further troubles to the smooth functioning of those agreements. The end came naturally with the complete break-up of the Soviet Union in 1991.

Also Read: Will India Roll Out Ingenious Measures to Bypass Sanctions Imposed on Russia?

Future course

Dwelling on India’s current position on the Russian war, one hears about some ongoing talks for reviving the bilateral agreements India used to have with the Soviet Union till its breakdown. The idea is to revive the Rouble-Rupee link of local currencies as in the past rather than the US dollar as the unit of transaction as well as settlements. It is argued that the use of such a clearing account will help Indian exporters to get paid against their export revenue, currently amounting to $600 million, which Russia finds difficult to settle in absence of SWIFT facilities at banks. It is also argued that the move will both push the current level of $10.8 billion Indo-Russian trade and help to settle India’s trade deficit of $5 billion. At the back-stage of course there are arguments that such arrangements would help India in continuing with her imports of oil as well as the defence equipment from Russia. Counting on further advantages, ideas are currently floated that a flexible rouble rate for the Rupee would bring in further advantages for India as the Russian currency goes through further depreciation.

While the talks are not yet finalised and the situation on the war-front continues as devastating, one can offer some re-thinking on the matter.

First, it is a misnomer that such agreements will bring back the modality as well as the mutual interest prevailing in the earlier arrangements. Russia today is not what it was in the days of the Soviets – both in political as well as in economic terms. There is no question of using Russia’s trade surpluses to meet India’s payments deficits by funding public sector infrastructures or otherwise. Nor is India, under extensive liberalisation, ready for such adjustments to help out the disappearing public sector units.  That a clearing account may not work between the countries in the BRICS group has been abundantly clear from experience. However, saving Indo-Russian trade by using the bilateral trade route may help India in continuing its procurements of the strategic items of defence equipment and energy sources from Russia.

There is another point that extends beyond economic issues. Is India obliged to continue economic relations with Russia in the face of one of the most barbaric attacks launched on another country in recent times? Can India not open up alternate sources for those items, of course, without getting entrapped in the US-West European geopolitical circuit? The move, at least, will fetch India a dividend of seeking an end to this devastating war on ethical grounds. Incidentally, the resolution by the West in the Security Council contradicts itself when it fails to provide any concrete step towards that. Can ethics be left behind completely in the current juncture of aggressive geopolitics?

Sunanda Sen has been a professor at Jawaharlal Nehru University, New Delhi.