Subject: Bilateral Relations

Context

Europe and its key Indo-Pacific partners are joining forces to deliver a positive agenda for the region at the ministerial Forum to be held in Paris.

Importance of Indo-Pacific for EU

• The issues at stake in this crucial region, including security challenges, are of concern to all EU countries.
• EU unveiled EU Strategy for Cooperation in the Indo-Pacific,  in September 2021.
•  Europe can offer the countries of the region a sustainable, transparent model for preserving their sovereignty, and an alternative to other models, such as China’s.
• Addressing the connectivity and infrastructure need: There are immense connectivity and infrastructure needs in the Indo-Pacific.
• But these needs should not force the countries of the region into unsustainable dependencies.
• The EU’s Global Gateway initiative unveiled in December 2021 hopes to address this by pooling the resources of the EU’s institutions and its 27 member states to raise 300 billion euros to build sustainable links.
• India’s role: The EU and India have already concluded a Connectivity Partnership (last May in Porto), which can be a pillar of this wider initiative.
• The Indo-Pacific is a crucial region for tackling global challenges such as climate change, biodiversity protection and health resilience. 
• At the Forum, the EU will present the support it can provide to countries of the region, including in terms of green finance, to achieve their ecological transitions in a just manner.
• The ministers will also discuss concrete steps to strengthen health sovereignty and promote the “One Health” approach to the pandemic response.

Role of France and India in the region

• France, itself a nation of the Indo-Pacific, has a long-standing commitment to upholding the law of the sea in the region, particularly through our permanent naval presence and joint exercises, such as our annual “Varuna” drills with India.
• In the fields of biodiversity protection and plastic pollution, France and India can act together to spur multilateral action, as exemplified by India’s decision to join the France-initiated international coalition to protect 30 per cent of the land and seas by 2030 (High Ambition Coalition for Nature and People).
• Cooperation between France and India on protected areas and national parks can also be expanded at the Indo-Pacific scale.
• At the forum, France will propose the creation of an Indo-Pacific health campus, to be established in India, to bring together India’s pharmaceutical prowess and Europe’s technological capacity for the benefit of the region.

Conclusion

In a world of growing tensions, the core goal of France’s EU Presidency is to strengthen Europe’s sovereignty and its ability to decide its own fate. This endeavour matches India’s fundamental aspiration for strategic autonomy.

Context

Late last week, India abstained from a United Nations Security Council (UNSC) resolution which called for condemning the Russian military action against Ukraine.

Understanding India’s position on the Ukraine issue

•  New Delhi has taken a subtle pro-Moscow position on the question of Russian attacks against Ukraine.
• A geopolitical necessity: India’s Russia tilt should be seen not just as a product of its time-tested friendship with Moscow but also as a geopolitical necessity.
• There are understandable reasons for India’s (subtle) pro-Russia position: an aggressive Russia is a problem for the U.S. and the West, not for India.
•  North Atlantic Treaty Organization (NATO) expansion is Russia’s problem, not India’s.
• China problem: India’s problem is China, and it needs both the U.S./the West and Russia to deal with the “China problem”.
• Neighbouring China as the rising superpower and Russia as its strategic ally challenging the U.S.-led global order at a time when China has time and again acted on its aggressive intentions vis-à-vis India, and when India is closest to the U.S. than ever before in its history, throws up a unique and unprecedented challenge for India.
• There is an emerging dualism in contemporary Indian strategic Weltanschauung: the predicament of a continental space that is reeling under immense pressure from China, Pakistan and Taliban-led Afghanistan adding to its strategic claustrophobia; and, the emergence of a maritime sphere which presents an opportunity to break out of the same.

Why India needs to balance relations with Russia and the US

• Relations with Russia to manage continental challenges: New Delhi needs Moscow’s assistance to manage its continental difficulties be it through defence supplies, helping it ‘return’ to central Asia, working together at the Shanghai Cooperation Organization (SCO) or exploring opportunities for collaboration in Afghanistan.
• Relations with US to manage maritime challenges: When it comes to the vast maritime sphere, the Indo-Pacific to be precise, Russia is not of great consequence to India.
• That is where its American and western partners come into play. India is simply not in a position to address the China challenge in the maritime space without the active support of American and western navies and, of course, the Quad.
• This unavoidable dualism in the contemporary Indian strategic landscape necessitates that India balances the two sides.

Implications of war on Ukraine for India

• 1] It will embolden China: Russian action in Ukraine dismissing the concerns of the rest of the international community including the U.S. will no doubt embolden China and its territorial ambitions.
• 2] Sanctions on Russia will impact India’s defence cooperation: The new sanctions regime may have implications for India’s defence cooperation with Moscow.
• 3] Russia-China axis: The longer the standoff lasts, the closer China and Russia could become, which certainly does not help India.
• 4] Focus will move away from Indo-Pacific: The more severe the U.S.-Russia rivalry becomes, the less focus there would be on the Indo-Pacific and China, which is where India’s interests lie.

Foreign policy challenge for India

• Position of geopolitical vulnerability: India’s responses to the Russian aggression on Ukraine underline the fact that India is operating from a position of geopolitical vulnerability.
• Going forward, India’s ability to be a “swing state”, “major power” or a “leading power” stands diminished.
• There will be more middle-of-the-road behaviour from New Delhi rather than resolute positions on global strategic developments.
• Interests over principles: India’s position also shows the unmistakable indication that when it comes to geopolitics, New Delhi will choose interests over principles.
• A careful reading of India’s statements and positions taken over the past few days also demonstrates a certain amount of discomfort in having to choose interests over principles.
• There is perhaps a realisation in New Delhi that a dog-eat-dog world, where rules and good behaviour do not matter, does not help India in the long run either.
• Mastering the art of balancing extremes: Going forward, if tensions between Russia and the West persist, balancing extremes will be a key feature of Indian diplomacy.
• Even though New Delhi abstained from voting on it (thereby siding with Moscow), it made its unhappiness about the Russian action clear in the written note.
• Sticking to the principle of strategic autonomy: New Delhi’s response to the recent crisis, especially its “explanation of vote” at the UNSC indicates a careful recourse to the principle of strategic autonomy: India will make caveated statements and will not be pressured by either party.

Conclusion

India’s indirect support to the Russian position is not a product of Russian pressure but the result of a desire to safeguard its own interests.

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The U.S., Europe and several other western nations are moving to exclude Russia from SWIFT, an international network for banks worldwide to facilitate smooth money transactions globally.

What is SWIFT?

• SWIFT is an international network for banks worldwide to facilitate smooth money transactions globally.
• It is basically a messaging network used by banks and financial institutions globally for quick and faultless exchange of information pertaining to financial transactions.
• The Belgium-headquartered SWIFT connects more than 11,000 banking and securities organizations in over 200 countries and territories.
• First used in 1973, it went live in 1977 with 518 institutions from 22 countries, its website states.

What exactly is it?

• SWIFT is merely a platform that sends messages and does not hold any securities or money.
• It facilitates standardized and reliable communication to facilitate the transaction.

How does it facilitate banking?

• Each participant on the platform is assigned a unique eight-digit SWIFT code or a bank identification code (BIC).
• If a person, say, in New York with a Citibank account, wants to send money to someone with an HSBC account in London, the payee would have to submit to his bank the London-based beneficiary’s account number along with the eight-digit SWIFT code of the latter’s bank.
• Citibank would then send a SWIFT message to HSBC. Once that is received and approved, the money would be credited to the required account.

How is the organization governed?

• SWIFT claims to be neutral. Its shareholders, consisting of 3,500 firms across the globe, elect the 25-member board, which is responsible for oversight and management of the company.
• It is regulated by G-10 central banks from Belgium, Canada, France, Germany, Italy, Japan, The Netherlands, the UK, the US, Switzerland, and Sweden, alongside the European Central Bank.
• Its lead overseer is the National Bank of Belgium.
• The SWIFT oversight forum was established in 2012.
• The G-10 participants were joined by the central banks of India, Australia, Russia, South Korea, Saudi Arabia, Singapore, South Africa, the Republic of Turkey, and the People’s Republic of China.
• Europe, Middle East, and Africa are highest contributors to SWIFT.

What happens if one is excluded from SWIFT?

• US excluding Russia from SWIFT could have serious repercussions on how Russian banks carry out international financial transactions.
• If a country is excluded from the most participatory financial facilitating platform, its foreign funding would take a hit, making it entirely reliant on domestic investors.
• This is particularly troublesome when institutional investors are constantly seeking new markets in newer territories.
• An alternative system would be cumbersome to build and even more difficult to integrate with an already expansive system.

Are any countries excluded from SWIFT?

• Iranian banks were ousted from the system in 2018 despite resistance from several countries in Europe.
• This step, while regrettable, was taken in the interest of the stability and integrity of the wider global financial system, and based on an assessment of the economic situation.

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Context

On February 24, Russian President Vladimir Putin launched “special military operations” with the objective of “demilitarising Ukraine” but not “occupying” it.

Why it was a crisis in the making?

• Redrawing national boundaries by force: After 1945, this is the second time that national boundaries are being redrawn by force; the first was the 1999 North Atlantic Treaty Organization (NATO) air strikes on Serbian forces that led to the creation of Kosovo.
• Russian and Chinese protests about NATO undertaking “out of area operations” without United Nations Security Council approval carried little weight.
• After the fall of the Berlin Wall in late-1989, then U.S. Secretary Of State had assured the Soviet President that “there would be no extension of NATO’s jurisdiction one inch to the east”.
• Rather than look for a new European security framework, the newly independent Baltic and central European states sought security in a U.S.-led NATO.
• Beginning in 1999, NATO has added 14 new members in stages.
• At the NATO summit in 2008, at U.S. President George Bush’s urging, an in-principle opening for Ukraine and Georgia was announced, though France and Germany, conscious of Russian concerns, successfully opposed defining a time frame.
• Later that year, Russia intervened in Georgia on the grounds of protecting the Russian minorities and took over the northern provinces of Abkhazia and South Ossetia.
• Annexation of Crimea:  In 2014 Mr. Putin annexed Crimea.
• For Russia, Crimea is vital as the peninsula hosts Russia’s Black Sea fleet, providing it access to the Mediterranean and its bases at Latakia and Tartus in Syria.
• Despite no timeline for membership, Ukraine was made a NATO Enhanced Opportunity Partner in 2020.
• The presence of British and U.S. warships in the Black Sea began to increase.
• In 2019, the U.K. entered into a cooperation agreement with Ukraine to develop two new naval ports, Ochakiv on the Black Sea and Berdyansk on the Sea of Azov, a move that Russia saw as potentially threatening.
• Beginning with NATO’s bombing of Serbia in 1999, interventions in Afghanistan, Iraq and Libya and colour revolutions to engineer regime changes, the U.S.’ unilateral withdrawal from the Anti-Ballistic Missile (ABM) Treaty in 2002 coupled with missile defence deployments in Poland and Romania, Russia’s grievances were accumulating.

Faltering diplomacy

• France and Germany initiated talks between Ukraine and Russia under the Normandy format leading to the Minsk agreements, in 2014 and 2015.
• The first was for a ceasefire between Ukraine and the Russian-backed separatists and the second was between Ukraine, Russia, the two separatist regions of Luhansk and Donetsk and the Organization for Security and Co-operation in Europe (OSCE).
• Supportive declarations by France and Germany were intended to address Russian security concerns.
• Ukraine undertook to introduce certain constitutional amendments to provide a degree of autonomy to the two provinces and Russia was to assist in withdrawal of all foreign forces.
• However, neither side implemented and positions have only hardened since.
• Russia’s threatening moves made NATO members, especially the Baltic states (Estonia, Latvia and Lithuania) and the central Europeans like Poland and Romania, especially nervous.
• Finally, NATO remained united but unable to provide an off-ramps solution.

Implications for Russia

• NATO has been rejuvenated, the trans-Atlantic unity strengthened and Russia’s economic ties with Europe have been adversely impacted.
• Given Russia’s considerable foreign exchange reserves, of nearly $640 billion, sanctions imposed by the U.S. and EU may not hurt immediately but eventually will begin to bite both the oligarchs and the common people.
• Worse, Russia will become more dependent on China — for political support as well as a market for its energy exports. 
• This will eventually weaken its hand in central Asia.

Conclusion

For Mr Putin challenge is to constrain the adversary’s options while increasing one’s own options and space for manoeuvre. His actions this week may yield tactical gains but hardly pass the test for strategic victory.

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