Be ready for adverse winds
Despite its apparent Trans-Atlantic unity in the face of Russia’s war in Ukraine, the US and the European Union (EU) are wobbling dangerously because of domestic political infighting in most countries. And, this rising instability is likely to force Prime Minister Narendra Modi’s new administration out of its foreign and trade policy comfort zones towards the West, honed during the past decade. The time is rapidly approaching when External Affairs minister S. Jaishankar’s bold assertions of ‘multi-alignment’ run their course because American and European promises, including declarations of strategic partnerships with India, will no longer be reliable.
Modi invented multi-alignment primarily as a method of acquiring policy space for India to affirm its own national interests. It is a method of obtaining military, technological and financial support particularly from Washington without having to compromise India’s sovereign right to always act in its own favour.
Modi’s slant towards America and the West through multi-alignment is a right-minded process. It is essential for carving out major world power status for India to compete with China’s ambitions to be the Asian hegemon and push Delhi to regional status confined to South Asia.
But it needs reliable relationships with the major Western countries, especially the White House and Washington, including bipartisan political support in US Congress, and beneficial relations at least with Germany, France and Britain. In effect, these four countries come as a package because they deeply coordinate their decisions on handling security, financial and trade relations with India, China, Russia and the Middle East. They jointly fight global terrorism, disinformation and cyber interference.
Regrettably, the domestic politics of each is a monumental mess and voters are literally being torn apart by fundamental questions of national identity, attitudes towards Islam, and openness to non-white immigrants. Citizens are also rebelling against lowered living standards because of the rise of China, India and other major emerging economies.
The risks for Indian business should not be underestimated. US President Joe Biden has based almost all his security, trade, financial and foreign policies as an existential conflict between democracies and authoritarian countries. Yet, his own country is now the world leader of greater militarization, more nuclear arms, weaponised foreign trade and finance, and the dollar’s use as a tool of political coercion.
Hurdles arising from these domestic western political wars may be navigable for Indian businesses and Delhi’s foreign policy if they were limited in scope. But the core problem is that American legislators are imposing ever-increasing financial penalties on doing business with the growing number of countries declared as rivals of America or hostile to it. Some 65 countries are under some kind of sanctions at this time, in particular China and Russia which are major trading partners for India.
All of that is because US voters are floundering in cultural wars about what it means to be American, including differences among Whites, Blacks, Latinos, Far Eastern Asians, South Asians and, above all, differences among the sects of Christian beliefs and the place of Muslims in society. France, Britain and Germany are enmeshed in similar domestic political wars.
For example, France’s panicked Emmanuel Macron has called snap Parliamentary elections on 30 June and 7 July, halfway through his presidential term. The hard right is leading polls with 34 per cent, the hard left has 22 per cent and Macron’s centrists have only 19 per cent. Such a giant lurch to the far right could throw the entire EU in disarray by blocking Europe’s economic integration and slowing Europe’s military and other aid to Ukraine.
Britain will hold early national elections on 4 July, expected to end in route for the ruling Conservative party. Labour, which spent 14 years in the wilderness, is forecast a historic victory with 425 seats out of 650 in the House of Commons, followed by Conservatives with 108. That could sharply disrupt London’s financial markets, which are Britain’s mainstay and the world’s second largest after New York.
Elections in Germany are more than a year away but Chancellor Olaf Scholz has abysmal approval ratings and his centrist party polls below the rising far right, while the left is crumbling. He looks weak because of persistent disagreements within his ruling coalition on vital issues like paying for the war in Ukraine, Germany’s exploding budget and the green transition.
Indian companies should prepare for significant adverse winds stemming from popular anger against many EU governments and stumbling European economies until end 2025.