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G-20 spotlights India’s tangle of relations with the US, China and Europe

Narendra Modi

The Group of 20 meeting in New Delhi spotlighted the angst in Brussels, Beijing and Washington toward India as the imperatives of diversifying away from single-source manufacturers in China clash with the difficulties of supporting the mercurial authoritarian government of Prime Minister Narendra Modi.

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For Modi, as the G-20 president, the discussions tested his leverage as leader of the world’s most populous country with tantalizing growth prospects, a nation viewed by the West as a significant geostrategic asset to contain China. He demonstrated his clout by scuttling language condemning Russia’s invasion of Ukraine in the G-20 joint communiqué. He also secured permanent membership of the African Union, signaling his leadership of the Global South.

The significance of India to China, Europe and the U.S. has soared since Modi’s rule began in 2014. The world’s fifth-largest economy is outperforming all advanced and emerging market countries this year. First-quarter GDP expanded 6.1 percent year-on-year, with full-year growth estimated to come in at 7.2 percent, compared with 9.1 percent growth in the 2021-2022 fiscal year.

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India is China’s sixth most important export market but accounts for only one-quarter of the amount that the U.S. imports from China. Electronics imports by India from China have been the fastest growing sector this year, prompting New Delhi to ban such imports so it can nurture domestic manufacturers. For India, China is its fourth most important export market, but only one-fifth the size of what the U.S. buys from India.

The European Union (EU) is India’s third largest trading partner, accounting for $94 billion-worth of trade in goods in 2021 or one-tenth of total Indian trade, after the U.S. and China. The EU is the second-largest destination for India’s exports (14.9 percent of the total) after the U.S. India’s exports to the EU rose from $41 billion in 2020-21 to $67 billion during April-February 2022-23 and imports from $40 billion to $54 billion, yielding India a $13 billion surplus during this period.

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The U.S., EU and China have all been aggressively courting India as each deepens relations with the Global South as a counterweight to rivals’ ambitions. The U.S. and the EU signed an agreement with India and Middle Eastern countries to build a network of railways and sea routes that could increase the speed of trade between India and Europe by 40 percent. In a private meeting, Modi and President Biden affirmed deeper ties in defense cooperation, building on their agreement in June for the U.S. to supply fighter jets. Their camaraderie was amplified by Chinese President Xi Jinping skipping the G-20. UK Prime Minister Rishi Sunak also eagerly courted Modi. He stressed his family’s heritage while pressing for a free trade agreement, which seems likely by year-end.

China has used its 10-year-old global infrastructure-building plan, the Belt and Road initiative, to strengthen its influence over a wide swath of countries from the Asia-Pacific region through to Africa and across Central and Eastern Europe. But India has refused to participate because the China-Pakistan Economic Corridor passes through Indian territories in Gilgit Baltistan occupied illegally by Pakistan.

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India’s frictions with China are many. Chinese and Indian troops clash along the 2,100-mile-long Himalayan border between the two nuclear-armed countries. As a consequence, both are rapidly building up infrastructure in the region. Satellite images show new villages and military installations sprouting up in China along the border. India is building a highway to move troops and equipment to the contested area. These tensions occur as India lures companies to leave China with encouragement from the U.S. and the EU as part of their “friendshoring” agenda.  

India insists rapprochement between the two cannot continue until the border dispute is resolved. Xi’s “no show” at the G-20 underscores how relations are frozen for the time being. Another irritant: China objected to Modi’s use of Sanskrit scripture to communicate the conference’s theme. Yet, China knows India will find it hard to turn its back completely, given the interdependencies. India’s pharmaceutical industry, for example, needs China to source 70 percent of needed ingredients. Promises were made to “intensify efforts.”

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Modi is maneuvering to deepen ties with the U.S. and Europe, but that is fraught with challenges, too. India is the third-largest oil consumer in the world. Its refineries continue to guzzle discounted Russian crude, with arrivals in July estimated at an all-time high of 2.08 million barrels per day. That angers Brussels and Washington, who are using a wide, complex regimen of bans to constrain Russia’s ability to finance its protracted invasion of Ukraine. India is also continuing ties with Vladimir Putin — a “no show” at the G-20 — to curb his alignment with China and Pakistan, another sticking point for the U.S. and the EU. Insisting on neutrality and resisting formal alliances, Modi refuses to condemn Russia’s attacks. The G-20 communiqué reflected his views. Yet, India has diversified its defense imports away from Russia. In addition to the U.S. deals, Germany is pursuing a $5.2-billion deal to build six submarines in India.

Europe and India are wrangling over EU’s upcoming Carbon Border Adjustment Mechanism, which would force all importers starting in 2026 to pay a tax equivalent to the carbon price paid by European companies as part of the bloc’s carbon emissions trading scheme. India has the world’s third largest carbon footprint.  

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The proliferation of agreements shows that the approach for the U.S. and Europe, as a European diplomat put it, is to acknowledge that there doesn’t need to be “eye to eye” agreement on everything to cooperate in some areas. That has meant looking away from Modi’s authoritarian rule limiting political freedoms and being intolerant of non-Hindus. The G-20 demonstrated Modi’s commitment to moving forward with the West where common ground seems most likely, in defense, collaboration in technology, and alleviating poverty in the Global South.  

Upward momentum is building. Concerns about India’s democracy backsliding are relegated to the sidelines. The West and India are anxious for greater cooperation. So, too, is China eager to deepen ties with India, but in its own way in alignment with its own views of world order through global frameworks that China builds free of Western biases.

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