India’s dependencies run deeper. Consider the fact that India is the world’s largest receiver of remittances, which come mostly from its diaspora in the US and the Gulf. By one estimate, the from the Gulf States alone are over $50 billion a year. These are effectively labour exports from India and help to finance India’s large current account deficit. A conflict in the Middle East, which raises oil prices and threatens remittances, is a double vulnerability in the macroeconomy.
In the end, it becomes very difficult for India to take a position or influence events in Iran; it is dependent on that country, which has the world’s third-largest reserves, for oil and gas. It is dependent on the Gulf States for remittances and oil and gas. It is dependent on Israel for weapons and strategic support in defence.
Trump’s actions have revealed India’s vulnerabilities before, too. During Trump’s tariff tantrum, India was not in a position to retaliate or take a strong position against the dismantling of the global trade order. Again, this was because it was in a vulnerable position. It had nothing much to leverage vis-à-vis (Rare Earths, semiconductor chips or oil and gas) and had much to lose. India’s one major export, IT, worth over $250 billion a year, more than half of which goes to the US, was not subject to tariffs but might have been the subject of punitive action if India attempted retaliation. IT exports alone account for 25 per cent of India’s total exports of goods and services. In an age when economic policy is weaponised, dependence on a few sectors for exports is a vulnerability.
None of this should necessarily rattle India. The large domestic market provides an economic cushion. But it should nudge us to grow our economy more rapidly, diversify exports and build domestic production and capability in defence and natural resources. The world may or may not return to a rules-based order at some point, but hard power will never go away. It is wise to invest heavily in its ingredients.
(Edited by Theres Sudeep)
