Downstream from the Ukraine war

by Gautam Bambawale and Ajay Shah in the Business Standard, 8 August 2022

Before the war, India was navigating a difficult geopolitical landscape with the Chinese threat. Russia has been a source of strength in Indian military and foreign policy, but the war in Ukraine has diminished Russia. It has brought China and Russia closer, which is problematic for India. While there are pathways to shore up India's position, the basic fact is that the problems on the border have worsened. We are ordinarily extremely cautious in proposing government expenditure, but we suggest that this is a time for India to increase defence expenditure for a couple of years, perhaps by a percentage point of GDP each year.

The war in Ukraine has important consequences for India in the spheres of foreign policy, technology, military affairs and economics. On 1 August in Pune, a conference on this subject was organised by Pune International Centre, Takshashila Institution and XKDR Forum. This featured vigorous and frank debates on these important questions, and it made us think.

Russia has been an important partner to India in the spheres of foreign policy and weapons. A facet of this that is not widely acknowledged is that this dependence has helped to keep military expenses down, as Russian equipment is cheaper. Russia has consistently supported India when faced with difficulties at the UN Security Council and other forums.

The war in Ukraine has weakened India's position in three ways.

  1. The first problem is that of military equipment. Sanctions against Russian organisations hamper their access to global technology. The poor performance of Russian weapons in Ukraine would tend to diminish their export market, and thus their economies of scale and resources for R&D and manufacturing. For India, Russian weapons may now have inferior technological capabilities, prices and quantities.
  2. The second problem concerns foreign policy. A weakened Russia will be less effective when India faces foreign policy difficulties. There are potential situations in the future where Russian support for India might be more circumspect or muted.
  3. The third problem concerns China. The most important geo-strategic challenge that India faces is that of military aggression at Chinese hands. While faced with united opposition from most important countries on the Ukraine war, Russia has found much rhetorical and some material support from China. There is the possibility of a greater partnership between Russia and China developing in the future, e.g. responding to the European phasing out of gas purchases by building gas pipelines into China. This partnership ultimately plays against India's interests.

In the short term, the traditional Indian sources of strength are, then, attenuated. How do we assess the threat from China? China's economy is faring badly and the population is restive. The one-party regime cannot attack a country like Taiwan, which is well ensconced in the Western alliance. Could India be a more feasible target? The regime might try to quell internal distress by directing nationalism and militarism against India.

India is, thus, adversely affected by the war. These developments reiterate key messages of our 2021 book (Rising to the China challenge, by Bambawale et. al., Rupa Publications). India needs to get back to high GDP growth, and India needs to grow roots in deep engagement with about 20 coalition partners. Foreign policy is the art of building a network of inter-dependence, where each country modifies domestic policies in ways that are desired by the other. Such a coalition is the best pathway for India. But reshaping policy and growing deep ties with 20 countries -- cultural, economic, diplomatic and military -- will take time.

We fear that recent developments call for a substantial response in military strategy. The prioritisation of defence has to go up. There is a need for the well-understood reforms in terms of military modernisation, including theatreisation, and moving towards a lower headcount with better equipment and training. There is much to learn from Ukraine's military strategy when faced with superior numbers. Greater readiness is required to respond to Chinese aggression all along the 3,488 kilometre border. The strategy of naval domination in the Indian ocean cannot be neglected. All this has to be done while simultaneously shifting gears in favour of more expensive Western defence hardware. A new level of state capacity in defence procurement and defence economics is now urgently required.

This will require money.

We do not say this lightly. In our entire careers, we have not proposed more government expenditure. There is much wisdom in being tight-fisted on spending, on first demanding the reforms through which we stop `putting money down leaky pipes'. Until February 2022, we emphasised the need to first undertake military institutional reforms and only then push more money through a reformed institutional apparatus.

This luxury of sound sequencing in defence reforms may no longer available to us, given recent events. We now need something more difficult: to repair the engine while the plane is flying. India needs to simultaneously undertake defence reforms, induct expensive Western equipment, and establish superior deterrence all along the northern border.

Many decades of wise foreign policy and military management has delivered a low level of Indian defence spending today at 1.3 per cent of GDP. This has supported the core project of India's development, where the savings of the people are best deployed by the people towards private investment, which induces GDP growth. But in the present situation, there is a case for enhanced military expenditure for a few years, by perhaps one percentage point of GDP each year.

Where will this money come from, in the context of the substantial fiscal stress? A fiscal correction of perhaps 2 percentage points of GDP is required to stabilise the debt/GDP ratio. Tax rates in India are rather high and should not be raised. The way to make space for this increased defence spending, then, is to reduce subsidy expenditures.

Back up to Ajay Shah's 2022 media page
Back up to Ajay Shah's home page