Caught in a Bind

The much-hyped Indo-US bilateral trade agreement (BTA), initiated during the Indian Prime Minister’s visit to Washington in February 2025, when the two countries had agreed to begin talks aiming to conclude a trade agreement by the end of the year, has hit the road block. On Tuesday, the US President Donald Trump, in an interview to CNBC, alleged that India is ‘not a good‘ trading partner and raised tariffs on India by another 25 per cent within the next 24 hours. “India is not only buying massive amounts of Russian oil, they are then, for much of the oil purchased, selling it on the open market for big profits,” Donald Trump posted on Truth Social. Citing New Delhi’s levies on US products and purchases of Russian oil and military equipment, last week, the USA imposed a tariff at the rate of 25 per cent on Indian exports to the USA, which would be effective from August 7.

Almost a week after the US allegation, the Indian Ministry of External Affairs (MEA) has hit back on Monday, saying the targeting of India was “unjustified and unreasonable”, and the country would take “all necessary measures” to safeguard its “national interests and economic security”. Meanwhile, addressing an event in New Delhi earlier in the day, External Affairs Minister S Jaishankar spoke of the desire for a “fair global order”, and not one “dominated by a few”. The MEA spokesman rightly mentioned that India began importing from Russia since traditional oil supplies were diverted to Europe after the Russia-Ukraine conflict started.

The US President’s threat of additional tariff is a major blow to the Modi government’s decade-long accommodative policy towards the USA. Analysts have condemned it as another instance of foreign policy failure of the Indian Prime Minister and his trusted team. Trump’s demand that India must stop buying Russian oil has put Modi in a quandary. Now, Prime Minister Modi faces a choice between high tariffs or giving up cheap oil, putting New Delhi’s balancing policy between the USA led developed nations (G7) and China led BRICS alliance of emerging nations, under severe strain.

Although India has refrained from endorsing any sweeping move away from the dollar within the BRICS framework, it appears that on Russian oil, India and China are responding in a strikingly similar fashion: with defiance. Facing mounting pressure from the Trump administration to cut off what Washington calls “Putin’s war machine,” both countries are choosing energy security over compliance. Despite potential tariffs and diplomatic friction, they continue to purchase Russian oil. This defiance reflects a broader trend of countries resisting Western economic dominance. BRICS nations are also seeking alternatives to the US dollar, observes the Economic Times. In this crucial period, Prime Minister Modi’s scheduled visit to China on August 31, is very significant.

Modi’s Foreign Policy

In May 2014, Walter Andersen-an expert on BJP who led the South Asia Program at the School of Advanced International Studies of Johns Hopkins University, while commenting on the newly elected Prime Minister Narendra Modi’s foreign policy agenda, used the well-known aphorism of an American politician: “It’s the economy, stupid!” According to him ‘economic growth’ and ‘nationalism’ would almost certainly be the two major drivers of Indian foreign policy under Modi who swept to power on the slogan of 'development first'.

Political tensions notwithstanding, the Indian corporate houses rely on Chinese imports for critical industrial inputs and cheaper products to sustain their production and trade. The rapid expansion of India-China bilateral trade during 2014-2025 has propelled China to emerge as India’s largest goods trading partner in recent years. Refer to Table.

Source: Government of India, https://eoibeijing.gov.in/eoibejing_pages/MjQ, https://www.pib.gov.in/newsite/printrelease.aspx?relid=108614

Studies reveal that while common citizens and small businesses are urged to avoid Chinese products, India’s biggest corporate players continue to import at scale. These imports are driven by gaps in Indian manufacturing, price advantage, and global supply chains. The top 3 Indian corporate houses which significantly rely on Chinese imports are: Reliance Industries Limited (RIL),Tata Group and Adani Group.

Reliance Industries Ltd is among the major gainers of cheap Russian crude imported by India, observes the Business Standard. A European think tank, the Centre for Research on Energy and Clean Air (CREA), said in a report that "From January 2024 to the end of January 2025, the US imported EUR 2.8 billion of refined oil from six refineries in India and Turkey that process Russian crude. An estimated EUR 1.3 billion of this was refined from Russian crude”. US imports of fuels such as petrol and diesel from Jamnagar in Gujarat, where Reliance's twin oil refineries are located, were EUR 2 billion. Of this, "EUR 724 million (is) estimated to be refined from Russian crude," it said.

Modi tried to integrate nationalism in Indian foreign policy by connecting with Indian diaspora — mainly Gujarati Diaspora. Non-Resident Gujaratis (NRGs) maintain active links with the homeland in the form of business, remittance, philanthropy, and through their political contributions. Globally, Gujaratis are estimated to constitute around 33 per cent of the Indian diaspora worldwide.

It may be recalled that the then Chief Minister Narendra Modi had to change his travel plans due to denial of US visa in 2005, as an American advocacy group—Coalition Against Genocide (CAG)—campaigned against granting visa to him due to his “campaign of extremism targeting religious minorities in Gujarat" in 2002. The Gujarati diaspora immediately organised its own mobilisations to oppose CAG's campaign to block Modi's visit. A group of prominent Gujarati Americans—the Association of Indian Americans in North America (AIANA)—was formed. On March 20, 2005, AIANA was scheduled to organise an extravagant event in honour of Modi’s visit. Undeterred by the last minute visa revocation, AIANA refused to cancel the event. Instead, it decided to turn its show of support for Modi into a public spectacle of protest against the US administration's visa denial. The event's venue was the famous Madison Square Garden Theatre in New York City. The organisers decided to screen Modi's speech live via satellite from Gujarat to the heart of Manhattan. An empty chair that towered above all others was prominently placed in the middle of the stage. The audience soon learned that the chair was meant to resemble a king's throne.

Again in spring 2008, Gujarati American organisations hosted "Gujarat Day" celebrations in a prosperous Chicago suburb. Modi's speech—the event's central attraction—was transmitted across North America where similar celebrations had been organised in Atlanta, Houston, Los Angeles, and Toronto. Chicago was the chosen location as Swami Vivekananda had given his historic "Chicago Address" before the World Parliament of Religions in 1893. It was declared that the Gujarat Day celebration symbolised a historic journey from Narendranath (Swami Vivekananda) to Narendra Modi, writes Mehta, Mona G (2015).

As the Prime Minister, Modi's diaspora connections started with his 2014 US visit when nearly 20,000 NRIs gathered at the same New York's Madison Square Garden to listen to him. This diaspora diplomacy continued. The ‘Howdy Modi’ event — a community summit held on September 22, 2019, at the NRG Stadium in Houston — was jointly addressed by Narendra Modi and Donald Trump. After all this, Trump and Modi’s friendship has failed to protect India during this ‘trade war’.

Unfortunately, for India, even after repeated fiascos, Prime Minister Narendra Modi’s foreign policy still remains Gujarat-centric, as two strong groups — Gujarati crony capitalists and Non-Resident Gujaratis (NRGs) — influence India’s foreign policy for their own benefit. The Gujarat model of foreign policy has miserably failed.

The writer is a professor of Business Administration who primarily writes on political economy, global trade, and sustainable development. Views expressed are personal