The bigger picture

Prime Minister Modi invited the heads of the members of South Asian Association for Regional Cooperation (SAARC) to his swearing in ceremony. His Pakistani counterpart, Prime Minister Sharif attended the ceremony, which lead to a series of media debates on how the new government is giving out signals of restarting the relationship with Pakistan. Influential journalists from the English media even coined phrases like “sari/shawl diplomacy”, in response to PM Modi sending a shawl to PM Sharif’s mother and the latter reciprocating it with a sari to PM Modi’s mother.

But as always the hype was short lived and there were a series of ceasefire violation along the Line of Control and the international border in Jammu and Kashmir. There was another deliberate attempt by the Pakistani High Commissioner Mr Abdul Basit to annoy the Indian government. The High Commissioner met Mr Sayed Ali Shah Geelani, leader of the All Party Hurriyet Conference, a secessionist group operating from the Kashmir valley. The response from India was to call off the secretary level talks scheduled for 25^th August.

Such incidents have happened in the past. India tried to talk peace and was reciprocated with ceasefire violations and even localized war (Kargil 1999). The main reason why all the past attempts to establish peace have failed, is the absence of a unified command in Pakistan. There are three states acting within the country. The elected government, the sundry terrorist groups in the tribal areas and Baluchistan and the all-powerful Pakistani army-ISI nexus. The civilian government has no real power and is always dictated by the army-ISI nexus. The “khaki capitalism” that previous Pakistani generals created has become too big and it only makes sense for the army to keep things under its control. A 2007 book by Ayesha Siddiqa, “Military Inc. - Inside Pakistan's Military Economy” suggests that the total assets under the army control are USD 20 billion, half of it land holdings. An article on Guardian covering the book can be read here. With such huge stakes at hand the Pakistani military will never want peace with India. That would eventually mean no money for weapon stockpiling and hence no source of income.

The relations between India and Pakistan have been at a stage where India should take a step back and look at the larger picture. It is time to shed the obsession with Pakistan and work on others. The new government appears to have done that by engaging with its neighbours. The PM chose Bhutan for his maiden visit followed by Nepal. The response to his visit in both the countries was exceptionally warm. After a long time there are no Indian fishermen in the Sri Lankan prisons. Foreign minister Sushma Swaraj recently concluded her four day multilateral visit to Myanmar. This is a clear departure from the previous government’s stand on foreign engagement.

To put it bluntly, there is no need to go the extra mile to make friends with Pakistan. The country is constantly on the list of failed states, is rife with terrorist and secessionist groups, the economy is in tatters and there is no “real” government to talk to. India would do much better by focusing its energy on the countries which want to work with India and share the fruits of its economic growth.

Lets broaden the road of friendship

The biggest untapped potential is Myanmar. There are two reasons why the country is important. First it was until recently a closed economy run by the military junta. That has changed. Aung Sang Su Kyi has been released from house arrest and is most likely to run for president in the next elections. Second, it is a member of the Association of South East Asian Nations (ASEAN). Indian Affairs has in its previous posts stressed the need to capture the ASEAN market. The prime focus should be on connectivity between the two countries and cross border trade. The much talked about India, Myanmar, Thailand trilateral highway should be put on a priority. Not only will it help Indian businesses but the biggest beneficiary would be the much neglected North East India.

The trilateral highway will also provide much needed market access to land locked Nepal and Bhutan. Private business should take advantage of the resource rich Myanmar and set up manufacturing units, which can supply the products to the ASEAN countries. India’s auto sector, particularly the two-wheeler segment has huge potential in Myanmar and other ASEAN countries. TVS started its manufacturing plant in Indonesia in 2007 and the venture is expected to breakeven this year. Myanmar has its problems, mainly infrastructure, but a first mover advantage might just compensate for the lack of infrastructure, which will be in place, eventually.

With the new government there is a fresh chance to act rationally than emotionally on India’s foreign policy matters. PM Modi was born after India’s independence and has no personal relationship with Pakistan, unlike the previous PM, Mr Singh. The business minded approach of PM Modi and lack of emotional baggage will help him in dealing objectively with our neighbours. Let us see whether the new government seizes the opportunity or repeats the mistakes of the previous governments.

  

Indo – Russian tango

Freezing cold Soviet Union was India’s best friend during the Cold War. India imported a lot from Moscow, from wheat to fighter jets. Times changed, Cold War came to an end with the collapse of the Soviet Union, India ushered into green revolution and later into an economic revolution. What remained unchanged all along was the love between India and Russia. There are many reasons why the cosy relations never soured. Bitter experiences with the western countries (especially America) in the past and common strategic interest in the region were the two main forces behind the strong bonding in the past. In recent years, India’s growing defense market and booming economy are the main reasons for the Russians to maintain status quo. Some where the shared values of clinging on to power and big ticket state corruption too bind the two countries together.

Mr. Singh at the Kremlin

The doors are open, but what is on offer?

December witnessed yet another flurry of activities in the South Block secretariat (where the ministry of external affairs is based). Prime Minister Singh was on a three day state visit to Moscow. The visit did not generate much interest in Indian media due to lack of any significant development or announcements. The 36 point joint statement on Ministry of External Affiars’ website is bland. Most of the points talk about “expressing satisfaction” on status quo. The only thing worth a mention is the deal offering licensed production of 42 Sukhoi – MKI 30 jets by Hindustan Aeronautics Limited in India.

Prime Minister Singh also assured his counterpart about starting operations at the Kudankulam nuclear power plant in a couple of weeks. The power plant is being built with Russian collaboration. Ironically, Mr. Singh also congratulated Mr Putin (president in waiting) on winning the Duma elections by his United Russia Party. The election results (widely believed to be heavily rigged) prompted widespread protests by Russians in Moscow and other major cities. Mr Putin ordered the army into the main city square to stop the protests. International observers have complained of widespread fraud in the elections, which gave just under 50% of the votes to the ruling United Russia Party. Observes say that the figures may be inflated by as much as 20%. Mr Singh has undoubtedly embarrassed the Indian democratic values by his gesture.  

The other things the tow countries discussed were of mere ornamental value. Russia’s support to India’s candidature of permanent membership of the United Nations Security Council, countering terrorism, encouraging people to people contact, space collaboration, etc were reiterated for the umpteenth time. In the context of the situation in the Middle East and North Africa, the countries reaffirmed their commitment to the principles of searching the way to overcome crises in the region in compliance with law, exclusively through peaceful means, avoiding violence and outside intervention, through broad, inclusive national dialogue on democratic reforms, taking into account the legitimate rights and aspirations of the peoples of the region. This effectively means being a bystander and watching from the sidelines, without contributing to the cause.

Opportunities passing by

What India should focus on apart from the ornamental details are some serious issues like finding synergies post Russia’s entry into WTO, leveraging the Shanghai Cooperation Organisation (SCO) to get a strong hold in the fast emerging Central Asian market and closer cooperation in filed of energy. Kazakhstan has suddenly found itself flush with unexpected oil and gas reserves in the North Western oil field of Karachaganak and yet to be commissioned offshore oil field Kashagan in north Caspian Sea. The proposed comprehensive economic cooperation agreement between India and Belarus-Kazakhstan-Russia Custom Union will greatly help the Indian energy needs for its growing economy. The SCO in recent years has gained importance in Central Asian business and strategic affairs. China’s undying hunger for natural resources and energy has got the countries in the region closer to it. Oil pipelines now traverse the harsh terrain to enter China and trade has increased seven folds in as many years. China is aggressively pushing for a free trade agreement for the six member trade bloc.

It is time India revived its own Regional trade bloc, the South Asian Association for Regional Cooperation and aggressively look for a foothold in activities in its near abroad.

Too much on my plate

Train tracks in Persia

Afghanistan’s recently rediscovered mineral wealth has attracted many eyes on this restive region for altogether a different purpose. Companies from west and east have bid for the mining rights in Hajigak region. Of the twenty two companies shortlisted fourteen are Indian, including a consortium of a state run company, Steel Authority of India Limited. The mineral wealth of Afghanistan is valued at between 1 – 3 trillion US dollars, more than the valuation of Indian economy at 1.6 trillion US dollars (at nominal prices). The situation looks rosy, with many Indian companies lining up for the contracts a few would definitely get lucky. India’s appetite for commodities will only rise in the future and a source so close to the country will only make things easy. However, on ground the picture is rather bleak.

Proposed train connection between Afghanistan and Iran

Though Kabul is just around 600 km from the Indian border, transporting minerals from Afghanistan to India is a tough task. With no transit agreement in place with Pakistan and Afghanistan being sandwiched between Iran and Pakistan, with no access to the shipping lanes, the only way out is using Iran’s sea ports. India has embarked upon an ambitious plan to link Hajigak with the port of Chabahar in southern Iran by a rail link. This train track will by-pass Pakistan completely and give India the advantage of easy access to Afghanistan. This arrangement will also help Afghanistan reduce its dependence on Pakistan for supplies and trade. However, the track record of Indian state owned companies building large scale infrastructure projects abroad have not been impressive. Construction of a power plant in Sri Lanka has finally started after many years of agreement. It will be interesting to see how quickly things move on this project.

On a multi lateral level the Istanbul conference concluded in Istanbul on 2 November 2011. The joint declaration did not come up with any strategic plan and merely reiterated what every one has been saying so far. However, mockingly though the declaration calls for promoting of tourism activities in the country. India was part of the process this year. Pressure from India and the US has worked and Turkey extended the invitation to India. Still the Istanbul process remains only one of many in a string of conferences being organised across the world.

Pakistan’s Yes – No – Maybe and Iran’s dirty bomb

Pakistan has decided to bestow India with the long pending “Most Favoured Nation” (MFN) status. This is mandatory under the SAFTA (South Asian Free Trade Agreement). The MFN status helps the countries to open up trade and shift to a state of “negative list” from that of a “positive list”. This essentially means that trade under MFN status will restrict only a small number of items mentioned in the negative list, as compared to the positive list system which only allows trade in a few items in positive list. The going has not been easy for Pakistan. It took Pakistan almost fifteen years to reciprocate the status after India granted it in 1996. The recent announcement has lead to a frenzy of activities in the Pakistani defence establishment and there has been going back and forth on the commitment from the civilian government. It is believed that Pakistani military is against any kind of close cooperation with India.

The MFN status in itself will not be enough; it calls for a major overhaul and coordination between the eight member states of SAARC (South Asian Association for Regional Cooperation). A possible integration of roadways, waterways and railways in the SAARC region is being discussed. This might prove to be a path breaking move to boost regional integration and development.

Where will this lead?

With the Afghanistan – Iran rail link and the MFN status offered Pakistan, things should look bright on the bilateral trade front. However, the growing concerns over Iran’s nuclear programme and safety of Pakistan’s nuclear weapons it will be a tough task to achieve all this. A report by the UN agency IAEA (International Atomic Energy Agency) is expected within days this week (7 – 13 Nov, 2011). It is widely believed that the report will say that Iran has reached the critical stage where it can acquire capabilities to induce nuclear chain reaction required for a nuclear weapon. There have been reports of both the US and Israel warning Iran to stay away from developing its nuclear capabilities. It is difficult to guess the outcome of the report, however what is plausible is even stricter UN sanctions on Iran. Given such a situation India will be in a tight spot with its ambitious Afghan – Iran rail link. Getting itself involved in the project might be counted as violation of the UN mandated sanctions and would definitely upset the Indo – US relationships.

Will Jasmine blossom in China?

Another growing concern lies across the eastern borders of India in China. A string of reports suggest that China is undergoing a sort of social movement. In the past China managed to gag media and stop unwanted news items from being shared with people. In recent years that trend has changed. Internet has proved to be much more difficult to control than the traditional media. Micro blogging sites like Weibo have made flow of information swifter. Taking a cue from the Arab spring the Chinese tried to organise a Jasmine uprising, which was brutally crushed before it could blossom. Internet proved to be a handy tool in organising the scattered jasmine protests in the country (despite strict control by the government). State owned media too has started pointing fingers at the government with editorials and news stories in Xinhua (the largest state owned English language daily) and other dailies. Other reports in international media paint a grim economic picture of China. Rising interest rates, increasing labour cost, fleeing entrepreneurs, unpaid construction workers, slumping property prices, crack down on dissidents and forceful land acquisitions by the government are widely talked and discussed.

Ai Weiwei, a celebrity dissident kept in illegal detention,
is now being slapped with a tax fine of 2 million US dollars 

India needs to take some time out to think about the possible fall outs of a revolution in China (which is not unlikely given the situation). Bilateral trade between India and China is expected to reach 100 billion US dollars in the next four years. China is already India’s largest trading partner and any upheaval in China might have serious consequences for Indian business environment.

With too much on the plate the fear is always that some tasty food will get ignored. The current situation might be a little overwhelming for Indian foreign affairs ministry, given the lack of personnel. The way events are developing in India’s neighbourhood, one thing it can not afford is lack of focus. This is a situation where every thing comes at the top of the priority list.

SAARC – The untapped potential

The poor cousin

The year 2011 marked thirty years* of existence of SAARC (South Asian Association for Regional Cooperation). After all these years, SAARC has little to show to its flourishing cousins like the ASEAN (Association of South East Asian Nations) or the SCO (Shanghai Cooperation Organization). Both regional associations have transformed themselves into globally respected trade blocs and are far more active compared to their South Asian cousin. SAARC on the other hand has proved no more than an alternate (and perhaps less controversial) venue for Indian and Pakistani ministers and bureaucrats to talk. So what really went wrong? 

Partly the timing of the association is to be blamed. The idea was mooted in late 70s by Sheikh Mujibur Rehman, the first Prime Minister of Bangladesh. However, the formal incorporation of the association did not happen till 1981, when the heads of the states of seven countries (Afghanistan joined in 2007) met in Colombo. This was the time when India witnessed a tide of insurgency in Punjab which later transformed into a full blown terrorist movement. The insurgency in Punjab was followed by a similar unrest in the northern most Indian state of Jammu & Kashmir. India blamed Pakistan for the terrorist activities in both the states. India’s involvement in Sri Lanka’s civil war and the subsequent fall out was another reason for India to go slow on SAARC. Domestic politics in the respective countries prevented them from actively engaging in trade dialogues with India.

As a result intra SAARC relationship went into a deep freeze even before it could mature into a meaningful dialogue. The very fact that the SAARC has barely met for sixteen times during its thirty years of existence is a proof of it being neglected by the member states. Meanwhile India, the largest member in terms of population, size and economy was looking at off shore forums like the ASEAN and SCO where domestic politics played little role and economic dividends were substantial. Regional politics had taken its toll, reducing SAARC to the status of a poor cousin among the Asian trade blocs.

Spring cleaning

Much has changed in the past couple of years, especially on the security front. The twenty six year old civil war in Sri Lanka has come to an end, militancy in the Indian state of Punjab has faded away from public memory, Jammu & Kashmir is witnessing lowest level of terrorist activities in two decades and India – Bangladesh are making tremendous progress to mend their relationships. However, Pakistan is still shrouded by the war against terrorism and its complex domestic politics. It will be some time before Pakistan returns on the path of growth.

Time has come when India should take the initiative to resurrect SAARC. According to 2009 estimates the SAARC region has a total population of 1.6 billion in an area of 5.1 million sq km and the total GDP amounts to USD 4.3 trillion (PPP). These statistics are exciting for any organisation looking at a business venture in the region. Sadly intra SAARC trade reached USD 687 million in 2009, a fraction of its global trade. On the other hand other regional organisation registered significantly high trade volumes among their member countries. ASEAN registered total intra regional trade to the tune of USD 387 billion in 2009 and SCO registered USD 8.4 billion in 2010. For a region which accounts for almost a quarter of the global population, the trade figures come as a shame. The proposed India – Bangladesh transit agreement will be a major step towards cleaning the mess hindering SAARC integration.

The extra mile

Will SAARC move beyond a photo opportunity?

Various global agencies including the European Union, Asian Development Bank, the World Bank, etc and countries like the United States show active interest in SAARC. These organisations publish working papers & statistical analysis to gauge the progress. However, the real job has to be done by the member countries. India being the largest country in the region should walk that extra mile to revive SAARC. Other SAARC members too should shed their inhibitions and take some bold steps (as Bangladesh has taken) to address concerns of India and enter into a relationship on equal footing.

SAARC needs a giant step forward. That would mean significant changes in current tariff regulations. Despite SAFTA (South Asian Free Trade Area) being in force since 2006, no substantial trade movements have happened with in the region (though intra SAARC trade jumped from USD 14 million to USD 687 million in 2009, it still remains dwarfed by its rivals like ASEAN and SCO). The member countries fail to understand the benefits of a real free trade area where goods and services can be exchanged without tariff or non tariff barriers. Such arrangements have immensely helped countries of ASEAN. India as a country too benefited from liberalisation of its economy. These are living examples of modern day economies harnessing benefits of increasingly globalised trade.

Lesson should be learnt from India – Bangladesh transit agreement which will help not just India but Bangladesh, Nepal and Bhutan to better their international trade by using Indian and Bangladeshi roads and ports. Physical integration of infrastructure of the region will pave way for smooth transit of goods across borders and will save time and wastage during transit. The challenge will be to integrate the two unstable western members in the folds of SAARC.

*The foreign secretaries of the seven founding countries met in 1981 in Colombo, Sri Lanka for the first time

Of encirclement and counter-encirclement

Look! the dragon is coming

In the past few years India has constantly expressed its deep concern for what is termed as the “string of pearls”. A term coined by the US defence department with reference to China’s active involvement in ports across the Indian maritime borders. China has engaged in developing ports in Sittwe in Myanmar, Chittagong in Bangladesh, Hambantota in Sri Lanka and Gwadar in Pakistan. This has given China access to India’s maritime boundaries and a future where China might have its naval bases at these ports. This is indeed alarming for India, especially when China is also building up its military capabilities with Intercontinental ballistic missiles and a refurbished aircraft carrier. China’s cosy relationship with Pakistan is another eye sore.

China is also becoming aggressive in the South China Sea with maritime disputes with all its neighbours (and in East China Sea with Japan). If all the disputes were to be resolved to China’s satisfaction it will virtually claim sovereignty over the entire South China Sea, hence controlling the shipping lanes vital for trade among South East Asian countries and between South East Asia, Far East and India.  Western countries including America have shown their concern over the increasing China presence in Asian region.

And look what the elephant was up to

This all looks extremely serious and at times worrying. But if seen from a neutral point of view, there is nothing alarming in the present situation. China is the second largest economy of the world (although a distant second to America), is a permanent member of the United Nations Security Council and has grown in the global pecking order in last few decades. It is only natural for an emerging country (and in some areas emerged) to expand its influence in its neighbourhood and near abroad. America has done this after the second world war, the UK did it till it came under sever financial strain after the two world wars and India is doing its bit post liberalisation.

Stop encircling me

While India’s concerns may sound valid, a deeper look reveals that most of this is self inflicted. India has played cold to the opportunities arising in its immediate neighbourhood. The state owned enterprises of India are inefficient and struggle to perform on the home front (barring a few like ONGC, an oil exploration firm). Expecting them perform abroad will be naïve. India after months of delay and going back and forth on a joint venture power plant in Northern Sri Lankan city of Trincomalee, has finally agreed on the terms and conditions of an agreement which it intends to sing later this month. The first power plant went to China.

Hambantota, the much talked about strategic foothold of China was initially offered to India. Lack of interest by India proved to be China’s gain and it is now developing an integrated project including a sea port, an airport, a city centre, a stadium and a convention centre. If every thing goes well Hambantota will welcome its first ship six months before the deadline. Meanwhile a USD 300 million project of Colombo port expansion has been awarded to another Chinese company (no Indian company bid for the project). Given all the inefficiencies the Indian system has and does little to eradicate, can China really be blamed for encircling India?

The counter circle

Across the border, China too has its own concerns about India trying to encircle it, especially in its strategic neighbourhood. The first and oldest issue is of Tibet. India has given refuge to Dalai Lama ever since he fled to India following the Chinese annexation of the kingdom. India has also allowed Dalai Lama to establish a Tibetan government in exile, which virtually undermines Chinese sovereignty (however India officially maintains one China policy). More recently India has become extremely active in Afghanistan by means of its non military aid to rebuild the country. This has upset Pakistan, which sees Indian presence as an attempt to encircle it. Deep running friendship between China and Pakistan has prompted China to share Pakistan’s vision on Indian involvement in Afghanistan.

In the past decade India has refreshed its Look East Policy and has forged closer relationships with its South East Asian neighbours. The most important regional force in the region is the Association of South East Asian Nations (ASEAN). India has rapidly risen to a summit level partner in 2002 from a sectoral dialogue partner in 1992. India’s bilateral trade with ASEAN has increased dramatically from a paltry USD 2.9 billion in 1993 to USD 40 billion in 2009 (ASEAN forecasts bilateral trade to cross USD 70 billion by 2012). India also entered into a free trade agreement with ASEAN in 2009, giving it greater economic access in the region.

In 2000 India along with five other South East Asian countries (Myanmar, Thailand, Laos and Vietnam) formed the Mekong Ganga Cooperation (MGC). MGC was formed as a group of six countries, focusing on tourism, culture, education and transportation. The bloc failed to take off and in 2003 was replaced by Thailand initiated Ayeyawady-Chao Phraya-Mekong Economic Cooperation Strategy or ACMECS, essentially the same countries as in MGC minus India. Not withstanding the fact, China might still see it as Indian entry into its backyard.

India has improved its bilateral relationships with Japan and South Korea in the past few years. India is increasing its naval footprint by conducting joint exercises with Japan, South Korea, Singapore, Vietnam, The Philippines, New Zealand, etc. It also carried out an exercise with America and Japan in the Pacific in 2007. In 2008, India and Japan signed an agreement on joint patrolling of the Asia – Pacific region.

Whose circle is it anyways?

The situation might look worrying when seen through the patriotic lenses; however both India and China seem to do their bit to secure their economic and strategic interest in the region. On 25^th August Times of India (http://timesofindia.indiatimes.com/india/India-develops-cold-feet-on-talks-with-Japan-US/opinions/9726482.cms) reported that India has developed cold feet on a planned joint naval exercise with Japan and America. Undisclosed officials in the establishment say that India does not want to antagonise China. However, China has not lodged a formal protest regarding the planned exercise. Such an approach by India can be interpreted as being intimidated by a superior military neighbour.

Pre empting a non existent crisis should be replaced by confidence building measures. Both India and china are a growing power in their own right and have significant interest in each other’s affairs. Imagining a conventional war between the two is far fetched, if not hysterical. Both countries are busy fighting domestic problems and expanding their business interests. A war will set both countries back by a few decades. India and China should shed some of their fears (more in case of India) and enter into closer relationship by more people to people contact. In 2010 a paltry 600,000 tourists were exchanged between India and China. It is a shame for neighbours whose combined population is above 2 billion.