How Vulnerable is India's Economy to Foreign Sanctions?

TL;DR

This paper models the global supply chain to evaluate India's economic vulnerability to foreign sanctions, identifying China and the UAE as the most significant risks based on sector-specific restrictions.

Contribution

It introduces a simple supply chain model calibrated with OECD data to quantify India's vulnerability to sanctions from different countries and sectors.

Findings

India's greatest vulnerability is to China

Vulnerability to the UAE is half that of China

Sector-specific restrictions significantly impact India's economy

Abstract

This paper develops a simple model of the world supply chain to estimate the effects of sanctions that restrict the flow of inputs from one country to another. Such restrictions operate through changes in the weights of the global production network: the sanctioning country ceases supplying certain inputs to the target country and reallocates its production to other destinations. Using the OECD Inter-Country Input--Output tables, we calibrate the model to assess the vulnerability of the Indian economy. We consider two classes of counterfactuals: restrictions on a single sector of a foreign country supplying India, and restrictions on all sectors of a foreign country supplying India. We then rank foreign countries and foreign country-sectors by the risk that their supply restrictions pose to economic activity in India. Our results show that India's greatest country-level vulnerability is to China, followed by the United Arab Emirates, the United States, Saudi Arabi and Russia, with the vulnerability to China being twice as much that to the UAE.