Are sanctions a lawful mechanism to enforce global norms, or do they inflict undue harm on nations uninvolved in the disputes they address? Can they effectively deter geopolitical misconduct, or do they destabilize economies far beyond their intended targets?
As the United States and European Union tighten restrictions on countries like Russia, Iran, and Venezuela, the repercussions ripple across emerging markets, disrupting commerce, fueling price surges, and forcing nations like India to navigate a complex geopolitical terrain. This commentary examines the economic, financial, and geopolitical risks these measures pose for countries like India and proposes strategies to mitigate their impact while fostering resilience.
Global sanctions disrupt trade networks, disproportionately affecting emerging markets reliant on exports and foreign capital. A 2023 International Monetary Fund (IMF) study estimated that geopolitical fragmentation could reduce global GDP by up to 7% in a highly fragmented scenario. For economies like India, with a GDP of $3.57 trillion in 2023, the effects are both complex and significant.
India’s trade with Russia illustrates this dynamic. Following Western restrictions on Moscow after its 2022 invasion of Ukraine, bilateral trade surged from $13 billion in 2021-2022 to over $65 billion in 2023-2024 (Ministry of Commerce and Industry, GoI). A fivefold increase in discounted Russian oil imports helped India cushion global energy price volatility.
Yet, risks persisted. The IMF noted that supply chain disruptions and commodity price shocks reduced emerging markets’ GDP growth by an average of 0.3% in 2022. In India, interruptions in fertilizer and metal supplies from Russia and Ukraine—essential for agriculture and industry—contributed to a GDP growth decline from 8.7% in 2021-2022 to 7% in 2022-2023, as per data from the Reserve Bank of India (RBI).
Global trade realignments further threaten India’s export markets. The European Union, a key trading partner, cut Russian energy imports by 35% in 2022, shifting toward geopolitically aligned suppliers. If “friend-shoring” sidelines India, export-driven GDP growth could fall by 1-2% (McKinsey, 2024). Why must economies bear the economic fallout of conflicts they did not provoke?
By constricting supply chains, sanctions amplify inflationary pressures, particularly for commodities like energy and food. The IMF projected that trade restrictions could increase global inflation by 5% in a single year. In India, these pressures have tangible impacts. Global food and oil price surges, driven by Russia-Ukraine-related measures, pushed India’s Consumer Price Index inflation to 6.7% in 2022, exceeding the RBI’s 4% target. A household spending INR 100 on essentials in 2021 faced a 26% cost increase by 2024 (ORF, 2023 Inflation Projections).
Agriculture, a cornerstone of India’s economy, faced severe challenges. Reduced fertilizer availability from Russia, a major supplier, drove prices up 50-60% in 2022 (Ministry of Agriculture, GoI). This squeezed farmers’ margins and fueled food inflation, which hit 8.7% in mid-2022, prompting export bans on wheat and rice.
For India’s 1.4 billion citizens, these measures translate into a higher cost of living, highlighting their broader consequences.
Trade disruptions linked to sanctions threaten jobs, especially in export-driven sectors. In 2023, the International Labour Organization (ILO) warned that geopolitical tensions could lead to 10-15 million job losses globally in trade-dependent economies over the next decade. In India, textiles and manufacturing, employing over 50 million workers, are at risk.
A 2024 report by the Confederation of Indian Industry indicated that a 10% decline in exports to the EU and US, spurred by supply chain shifts, could endanger 1.5 million jobs.
Foreign direct investment (FDI), a vital job creator, faces uncertainty. India attracted $83 billion in FDI in 2021-2022 (Department for Promotion of Industry and Internal Trade, GoI), but geopolitical risks could deter investors. The IMF reported a 15% drop in cross-border portfolio investments in emerging markets during periods of heightened tension. Such trends could stall India’s industrial expansion and employment growth.
Geopolitical shocks, including sanctions, destabilize financial systems in emerging markets. The IMF found that such events increase capital flow volatility by 20%, with currencies depreciating by 5-10%. In India, the rupee hit a record low of ₹83.5 against the US dollar in December 2023, partly due to global risk aversion. This depreciation raises import costs, exacerbating inflation and straining India’s $650 billion foreign exchange reserves.
India’s Rupee-Rouble trade mechanism with Russia reduces reliance on dollar-based systems but introduces risks. In May 2023, the US designated two Indian entities for aiding Russia’s evasion of restrictions (Control Risks, 2023), signaling potential secondary measures. Such actions could disrupt India’s financial stability, raising questions about the fairness of penalizing nations for their trade choices.
Emerging markets face pressure to realign geopolitically amid sanctions. India’s multi-alignment strategy—balancing ties with the US, Russia, and China—is increasingly tested. The US and EU, key economic partners, expect alignment against Russia, yet India’s trade with Moscow, exceeding $15 billion (Valdai Club, 2022), and reliance on Russian military equipment (around 60% of its inventory) complicate this stance. An approx. $90 billion trade deficit with China (Ministry of Commerce and Industry, 2023, GoI) further sharpens strategic challenges.
Missteps could isolate India from Western economic frameworks or draw it closer to a China-Russia axis, both with long-term consequences. Escalating tensions with Pakistan or China could destabilize the region (Atlantic Council, 2023). Emerging economies like India must question whether such measures unduly constrain their sovereignty.
To mitigate these risks, India must adopt forward-looking strategies. Diversifying trade partnerships is critical. Free-trade agreements with the UK, EU, and Australia, projected to boost exports by $100 billion by 2030 (Confederation of Indian Industry, 2024), can offset losses. Strengthening domestic production, such as increasing fertilizer output by 25% since 2022, reduces import dependence.
Financially, bolstering reserves and expanding alternative payment systems, like rupee-based trade, can insulate India from currency volatility. The RBI’s decision to maintain the repo rate at 6.5% in 2024 reflects a cautious approach to balancing inflation control with economic growth.
Diplomatically, deepening ties through frameworks like the Quad (India, Australia, USA and Japan) can diversify India’s economic and security partnerships without full alignment.
Technological advancements offer further opportunities. Blockchain and artificial intelligence can enhance supply chain resilience, while India’s goal of 500 GW in renewable energy by 2030 (Ministry of New and Renewable Energy, GoI) can mitigate energy disruptions. These measures, though costly, position India to transform challenges into opportunities.
Global sanctions reshape economic landscapes, posing complex challenges for emerging markets like India: constrained growth, rising costs, job vulnerabilities, and geopolitical pressures. Through strategic diversification, domestic capacity-building, and diplomatic finesse, India can navigate these risks and emerge stronger. The broader question remains—do sanctions achieve their objectives, or do they unfairly burden nations like India? With foresight and innovation, India can secure stability and prosperity in a fragmented global order.