India: Kneeling or Not Kneeling—Both Are a Dilemma

Currently, U.S. tariffs on Indian goods have reached as high as 50%—an extremely high level. So, can India negotiate to lower these tariffs? In theory, this is possible—but only if India meets Trump’s demands. What are Trump’s demands? Two points: First, halt imports of Russian oil. Second, open its market to U.S. agricultural products. Frankly, for Modi, both demands are virtually impossible to fulfill. On one hand, India simply cannot stop importing Russian oil anymore. In truth, India has been buying Russian oil for years—so why wasn’t this an issue before, and why is it suddenly forbidden now? Because during the Biden administration, the U.S. adopted a permissive stance toward India’s purchases. For instance, in November 2022, U.S. Treasury Secretary Janet Yellen stated: ‘As long as India avoids Western insurance, financial, and shipping services subject to the G7 price cap, we welcome India continuing to purchase as much Russian oil as possible.’ In May 2024, Eric Garcetti, U.S. Ambassador to India, stated even more explicitly: ‘The U.S. permits India to buy Russian oil precisely to prevent further global oil price hikes—and India has fulfilled that mission.’ Frankly, without such U.S. tolerance—motivated by efforts to woo India—India could never have smoothly purchased such massive volumes of Russian oil. In 2021, India imported just 68,000 barrels of crude oil per day from Russia—only 2% of its annual crude imports. By 2022, that share approached 20%. By May 2023, India was importing 2.15 million barrels of Russian oil per day—making it Russia’s largest oil buyer! In just three years, imports surged over 30-fold. India not only buys Russian oil for domestic consumption but also resells it for profit. For example, India’s three state-owned oil companies—Indian Oil Corporation (IOCL), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL)—recorded combined standalone profits of ₹825 billion in FY2023, 71 times higher than the previous fiscal year. As for Adani Group—the ‘white glove’ of Modi—their oil business profited even more. Conservative estimates suggest India earned $50 billion in foreign exchange over the past three years solely from arbitraging Russian oil. But while making money felt great, the pain hit hard when U.S. policy shifted. Yes, the U.S. tolerated India’s Russian oil purchases—but that was under the previous administration. Trump doesn’t recognize that. Trump is counting on tightening oil sanctions to force Russia to end the war; how could he possibly tolerate India continuously funneling revenue to Moscow? Thus, India must stop importing Russian oil. Note: Trump’s aggressive pressure on India also carries implicit messaging toward China—after all, besides India, China is the other major buyer of Russian oil. Yet China’s stance remains unyielding; due to various factors—including potential diplomatic considerations like an upcoming visit to China—Trump currently dares not directly provoke China. But here lies the crux: Can India actually stop? On one hand, India has grown rich off Russian oil over recent years, creating entrenched interest groups across government and industry. If Russian oil suddenly vanishes, how will these groups sustain their profits? On the other hand, cutting off Russian oil means turning to expensive Middle Eastern or U.S. oil. But here’s the problem: those purchases require dollars (whereas Russian oil can be paid for in rupees). With India’s foreign exchange reserves already stretched thin, how could it possibly afford tens of billions of dollars in annual oil expenditures?

India’s Federal Finance Report, February 6, 2024—The U.S. Leans on India’s Pharmaceutical Industry to Sideline China

II. India’s Federal Finance Report 1. According to the Annual Survey of Industries, factory employment in India rose by 7% in FY 2021–22, surpassing pre-pandemic levels. Investment and output also increased, indicating the country’s recovery from the pandemic. Following the adverse impacts of the pandemic, manufacturing demonstrated resilience—even though employment dipped slightly in FY 2020–21. 2. The Indian government has approved amendments to the Food Safety and Standards Regulations, requiring food businesses to obtain certification from only one regulatory body—the Food Safety and Standards Authority of India (FSSAI). FSSAI will release a draft notification and solicit stakeholder feedback before finalizing the amendments. This move aims to improve ease of doing business through the principle of ‘One Nation, One Commodity, One Regulator.’ 3. On Tuesday, the Indian government launched a subsidized ‘Bharat Rice’ scheme priced at ₹29 per kilogram to counteract a 15% retail price surge in rice over the past year. Subsidized rice will be available in 5 kg and 10 kg packs. In the first phase, the Food Corporation of India will supply 500,000 metric tons of rice to two cooperative bodies—the National Agricultural Cooperative Marketing Federation of India (NAFED) and the National Cooperative Consumers’ Federation of India (NCCF)—as well as to the retail chain Kendriya Bhandar. 4. India’s Goods and Services Tax (GST) officials are deploying data analytics and artificial intelligence tools—including NETRA, BIFA, and ADVAIT—to identify taxpayers suspected of falsely claiming input tax credits. Between April and December 2023, 14,597 GST evasion cases were registered, with Maharashtra reporting the highest number (2,716 cases). These AI tools helped uncover fraudulent income tax filings worth ₹180 billion and led to the arrest of 98 fraudsters. 5. Even without large-scale spectrum auctions, the Indian government expects to meet its revenue target of ₹1.2 trillion from the telecom sector in the next fiscal year. Improving financial health across the telecom industry—reflected in rising license fees and spectrum charges—alongside substantial payments made by state-owned Bharat Sanchar Nigam Limited (BSNL) for its 5G spectrum, is expected to support this target. Although spectrum auctions are planned, demand is likely to be muted, as operators acquired sufficient spectrum in the August 2022 auction to meet their 5G rollout needs. 6. Indian Oil Corporation (IOCL), Bharat Petroleum Corporation (BPCL), and Hindustan Petroleum Corporation (HPCL) reported combined profits exceeding ₹690 billion in the first nine months of the current fiscal year—surpassing their annual revenues prior to the oil crisis. Their net profit total for April–December FY24 outperformed the ₹393.56 billion annual revenue recorded in the pre-oil-crisis year. Retailers have held gasoline, diesel, and cooking LPG prices unchanged for nearly two years—leading to losses when input costs rise and profits when raw material prices fall. These three companies posted record earnings in the first two quarters of this fiscal year—when international oil prices halved—but remain highly profitable overall. 7. On Monday, India’s Minister of State for Finance, Vivek Joshi, convened an assessment meeting to review banking- and insurance-related challenges faced by exporters and importers. In a statement, the Ministry of Finance noted: ‘To ensure seamless processes, banks are advised to proactively engage with customers to expedite resolution, while appropriately reviewing compliance requirements.’ The Ministry has directed banks to liaise closely with exporters and importers to resolve issues swiftly, while ensuring appropriate compliance reviews. The Ministry further stated that banks will collaborate closely with the Ministry of Commerce and Industry and Export Promotion Councils to facilitate trade and resolve issues promptly. 8. The Indian government announced plans to partner with international toy giants including Snapdeal and Walmart. At the five-day International Toy Fair held in Germany, Indian toy manufacturers secured orders exceeding $10 million. India’s toy industry is growing robustly and increasingly competing on the global stage.

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