First Year: Modi Invigorates Indian Economy and Foreign Policy

Lisa Curtis

Marking one year in office this week, Indian Prime Minister Narendra Modi gets high marks for reviving India’s foundering economy and energizing foreign relations with global powers and regional neighbors. The government has experienced some setbacks in implementing its ambitious agenda, like failure (so far) to pass the land acquisition and GST bills, but overall the scales tip toward a largely successful first year. This is good news for the U.S., which is rooting for India to develop a more robust economic, political, and military role in the region and beyond.

With the growth rate projected at 7.5 percent (outpacing China for the first time in 15 years), inflation down, and the current account deficit shrinking, Prime Minister Modi has stuck to his campaign pledge to revive the Indian economy. The opening of the insurance and defense markets and aggressive push of the “Make in India” campaign is generating optimism that the government is moving in the right direction on the economy.

Equally impressive have been Modi’s foreign policy accomplishments. Logging 19 foreign trips, Modi has reasserted India’s role as a regional and global power. While prioritizing moving the U.S.-India relationship on a firmer footing, he also has methodically built up ties with Asian partners like Japan and Australia and tended to relationships with neighbors, Sri Lanka, Bangladesh, and Nepal.

Remarkably, PM Modi and U.S. President Barack Obama held two rounds of meetings within a five-month period, including Obama making the first-ever U.S. appearance as Chief Guest at India’s Republic Day parade. The two sides made progress on military cooperation, agreeing to renew the 10-year Framework for the U.S.-India Defense Relationship and announcing joint projects, including the co-production of unmanned aerial vehicles (UAVs) and specialized equipment for military transport aircraft and establishment of contact groups to explore co-development of aircraft carrier and jet engine technology.

Although characterized as a “breakthrough in understanding,” the two sides made less progress than meets the eye on the Indo-U.S. civil nuclear deal. U.S. companies are still wary about investing in India’s civil nuclear sector, indicating there remain serious sticking points on the liability issue.

Forming the backdrop of progress on Indo-U.S. defense and strategic ties is undoubtedly the military and economic rise of China. One of the most striking aspects of Obama’s India visit was their joint statement on cooperation in the Asia Pacific, including a reference to the South China Sea, an unambiguous upbraiding of China’s increasingly assertive posture on its maritime claims.

Modi’s highly productive visit to Japan last fall was an elaboration of his strategy to strengthen India’s hand with regard to the China challenge. During that visit, PM Modi and Japanese Prime Minister Shinzo Abe agreed to elevate their dialogue to a “Special Strategic and Global Partnership” and Japan committed to investing $35 billion in Indian projects over the next five years.

He also was the first Indian prime minister to visit Australia in 30 years, a further example of his bold foreign policy agenda. He addressed the Australian parliament and talked about the two countries being natural partners who both depended on the oceans as “lifelines.”

Modi’s successful visit to China earlier this month can be viewed as a vindication of his tougher policy on their border disputes. While speaking candidly about their unresolved border issues, Modi also courted Chinese trade and investment. The two countries signed 24 agreements and nearly $30 billion in business deals. He stopped short of accepting China's invitation to join its “One Belt, One Road” initiative, however, demonstrating they will continue to compete for regional influence.

The Modi government has made some headway on the goal to modernize and bolster the military. It raised defense spending by 11 percent to around $40 billion for the Indian fiscal year beginning April 1st, although defense analysts generally view this figure as still too low, especially when compared to the $140 billion China spends annually on its defense. The finalizing of the fighter jet deal with France accomplished during Modi's visit there last month will help India in its modernization push. Raising FDI caps in the defense sector could eventually help to indigenize Indian defense production, but poor infrastructure, continued bureaucratic obstacles, and failure to allow the private sector to lead the way on research and technological innovation will hinder significant progress and guarantee India continues to rely primarily on imports for its defense requirements.

Backtracks on Pakistan and Religious Freedom

Relations with Pakistan have been on a downward trajectory ever since Modi called off Foreign-Secretary level talks last summer due to a Pakistani official’s meeting with Kashmiri separatists. There has been an uptick in cross-border firing with Pakistani forces along the Line of Control and a slight increase in terrorist activity in Kashmir over the last several months.

Pakistan has done its part to contribute to the downward spiral in relations by releasing from jail in April the mastermind of the 2008 Mumbai attacks, Zakiur Rehman Lakhvi.

A crisis with Pakistan would distract Modi from his broader foreign policy agenda. But New Delhi would also likely win international sympathy, particularly if Pakistan-based terrorists precipitated the crisis as in the three-day terrorist siege of Mumbai in 2008.

Another issue on which there has been some disappointment with Modi is that of religious freedom. He was late in reining in some of the hardcore Hindutva elements of his party when they pursued mass conversion ceremonies in which Muslims and Christians are converted to Hinduism. The so-called “reconversion” ceremonies and a spate of desecrations of churches in New Delhi last December put Modi on the spot.

He responded by reaffirming his government’s commitment to religious freedom during a speech to Christian leaders in February and has apparently quietly discouraged the reconversion ceremonies. But he must find more opportunities to demonstrate he has left communal politics behind for good and will focus instead on protecting religious minorities.

Ready to Assert Influence

U.S. officials look to India to project power and influence in the Asia Pacific to help promote free trade and a stable, democratic order. An assessment of the Modi government’s first year on the job indicates India is beginning to take on this role more readily.

The author is Senior Research Fellow at The Heritage Foundation.

(The Heritage Foundation, United States & VIF have a collaboration on matters of mutual interest)

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Published Date: 28^th May 2015, Image Source: http://www.thepoliticalindian.com

PM's Visit to China

Amb Kanwal Sibal, 

Dean, Centre for International Relations and Diplomacy, VIF

The challenge facing India is the degree to which it should separate economic and security issues. China has huge financial resources and sectoral expertise that could be mobilised for India’s development. The CII has identified 18 sectors in which Chinese companies could invest and 5 areas in which we seek more openings for Indian products in the Chinese market. As against this, it should be noted that we have been discussing the opening of these 5 sectors with China for 10 years without success. We will not get a level playing field in China for our companies because of of the role of the State Owned Enterprises (SOEs). China, besides, has appetite for projects, not investments. Most of the so-called investments announced during President Xi’s visit to Pakistan relate to projects ($38 billion). China uses methods for project implementation (Chinese labour etc) that will not work in India. The SEZ model, that has been successful in China, will not work in India either. The proposed Chinese investments in Industrial Parks in India is unlikely to materialise as expected. The Chinese Law Minister has spoken of studying the legal framework in India, no doubt with the SOEs in mind. The Chinese premier, just before PM’s visit to China has spoken of preferential policies and investment facilitation for its businesses, which suggests that he is looking for special and not competitive conditions.

India has to take a position on the One Belt One Road (OBOR) initiative of China as this will be raised during PM’s visit. In this context it should be noted that China has announced this initiative unilaterally and talked of partnership later. It has already established oil and gas connectivity with Kazakhstan, Turkmenistan and Russia, besides the Eurasian transport corridor linking Shanghai with Lisbon. Even the China-Pakistan Economic Corridor (CPEC) has been discussed between the two countries before the OBOR was unveiled. The OBOR is a cover of what they have been already doing, the principal objective of which is to use their excess capacity in the infrastructure sectors to generate external demand. The argument that if India did not join OBOR it will be isolated has no merit. Pakistan has not allowed SAARC to develop its true potential and resists connectivity between India and Afghanistan and onto Central Asia India does bot need the OBOR for economic cooperation either with Pakistan, Afghanistan or the Gulf. In any case, the One Belt excludes India and the One Road includes Kolkata only.

The 1993, 1996, 2005, 2011 and 2013 border agreements are in the nature of CBMs and not settlement of the border issue. India has accommodated itself to the Chinese strategy of focusing on border management and not border settlement, As a defensive argument, some in India argue that we may not actually be politically and institutionally ready for a border settlement through a compromise as it will entail some territorial give and take, which will require a constitutional amendment. India also abandoned the LAC clarification process, abruptly ended by China, in favour of the Special Representatives (SR) mechanism, which after 18 rounds has not produced any notable result either. The lack of progress on the border issue is the root cause of the deep distrust of China’s intentions, aggravated by Chinese policies in our neighbourhood, especially Pakistan. China will have no interest in settling the border till the Dalai Lama is alive. We should also address the possibility that during PM’s visit or soon thereafter China could create an incident. China is also fomenting Tibetan sub-nationalism as an instrument for use against India on the border issue.

The Chinese economy is in trouble, with slower growth, excess capacity and huge internal debt, with possible consequences for political stability. China seeks openings in the India which at present is the fastest growing economy. We should not get into a psychological situation where we see Chinese investments in India as a favour. Our approach to China should not be that of a “loser”. We should, where it suits our interest, move forward with economic cooperation, but within strict parameters. For example, in the Railways sector we can cooperate but not in signalling and routing equipment. On the whole, our strategy should be not to strengthen the Chinese economy when it is in trouble. We have also to keep in mind that more market openings for China could destroy parts of our industry, as has already happened. Unlike in the case of China, there are no strategic costs in economic cooperation with Japan, US, Korea or Europe. This is not to say that increased economic cooperation with China should not be pursued as an option. Our approach should be calibrated, win-win, with security considerations in mind, and not pushed by commercial lobbies in india and other interests which have been assiduously cultivated by China, an opportunity that is not available to us in China because of its state-controlled system, linguistic barriers and the opaque nature of power in China. The example of the massive US-China and Japan-China economic ties despite security issues does not apply in the India-China case because the disparity of power that exists in the US-China relationship and Japan’s capacity to defend itself and its alliance relationship with the US, the kind of security nets that do not exist in India’s case where the need for China to be cautious is much less than in the other two cases.

We have to decide the extent to which we should separate security issues from economic ones. We should seek a quid pro quo from China for opening our market to them, but this should not be in the economic domain only. It should be also in the political and security domains. It has to be conveyed to China that border incidents, increasingly assertive claims on Arunachal and stridently worded protests work against a stronger economic relationship. In a democracy, economic issues cannot be delinked from the security atmosphere. Till such time as the border issue is settled, China should refrain from pronouncing aggressively on the border issue and avoid incremental nibbling away in areas where perceptions over the LAC differ.

We should press for the LAC clarification process, as already publicly proposed by PM during President Xi’s visit. We should not be advocating “out of the box solutions”, as such suggestions will be used against us. The Chinese will expect India to think out of the box, while they adhere to their long held “principled” position.

PM could state publicly during his visit to China where we want the India-China relationship to go. On the border issue, he may affirm our position in public. He may express concern that LAC clarification/ border settlement discussions are proceeding too slowly. Because the Chinese leadership in India does not hesitate to talk in public in India about the border issue in dilatory terms, unmindful of Indian concerns, it would be appropriate for PM to express Indian impatience at Chinese procrastination. It would also signal that the expansion of ties in general, including economic, are linked in our mind to a constructive and honest Chinese approach to the border issue and not a bullying one. The occasion to do this might be the public speech planned at Shanghai.

The CPEC has to traverse POK. We should convey our serious concern to China on this. In this connection it may be recalled that both Pakistan and China accepted in their 1963 Sino-Pakistan Agreement that the territory was not legally Pakistan’s. This Agreement throughout refers to China’s Sinkiang and “the contiguous areas the defence of which is under the actual control of Pakistan”. Article 6 of the Agreement states that “The two parties have agreed that after the settlement of the Kashmir dispute between Pakistan and India, the sovereign authority concerned will reopen negotiations with the Government of the People's Republic of China on the boundary as described in Article Two of the present agreement, so as to sign a formal boundary treaty to replace the present agreement, provided that in the event of the sovereign authority being Pakistan, the provisions of the present agreement and of the aforesaid protocol shall be maintained in the formal boundary treaty to be signed between the People’s Republic of China and the Islamic Republic of Pakistan”. China would still go ahead with the project but we would have obtained a pressure point on China which we could use in our border negotiations.

The CPEC gives us good ground to distance ourselves from the OBOR initiative which is a geo-strategic one to extend Chinese power in Asia and the Indian Ocean. China’s strategic goal is to push back US power in the western Pacific and in Central and Southwest Asia. Gwadar will allow extension of China’s economic and political and eventually security influence in Afghanistan, Central Asia and the Gulf at the cost of the US. We can reasonably say that we need more information and more studies on how India fits in. We can take the position that we can effectively deal with connectivity issues bilaterally with countries of interest to us, including with China. We can proceed with the Chabahar link to Afghanistan and Central Asia as well as the North-South corridor through Iran to Russia and Central Asia outside the OBOR. In fact these projects predate the OBOR by many years.

India should not proceed with the BCIM corridor as this will expose our inadequately integrated northeast to greater Chinese influence. Allowing this part of India to enter into the Chinese economic orbit will lead to increased Chinese political influence in the region and will aggravate our problems. We should work on northeast connectivity to Myanmar and Thailand and then on to Southeast Asia. We should favour Japan’s involvement in developing our northeast.

So long as China gives stapled visas to Kashmiris and Arunachalis, we should not extend the e-visa facility to the Chinese. There should be a clear bargain on this point. The arguments being given by our side that e-visas are being offered on a non-reciprocal basis and the aim is to encourage Chinese tourism to India misses the point that we have a serious territorial issue with China that we do not have with other countries and that well over 90% of Chinese tourists, as per Chinese statistics, go to developed countries and not developing countries like India which may have great historical and cultural sites to offer. The other argument that there is no clear cut Chinese policy on stapled visas and that this is done “conveniently”, largely in the case of officials and sportspeople etc, seems an artificial plea in China’s favour in order to justify a controversial step.

We had ceased including statements about the Tibetan Autonomous Region (TAR) being part of the PRC because of China’s aggressive statements on Arunachal Pradesh during the tenure of the previous government. In the joint statement issued during Xi’s visit to India we had thanked the government of TAR of the PRC for permitting an alternative route to Mansarovar, thus reversing our position. This has been followed up by China now asserting aggressively its sovereignty over Arunachal Pradesh on the occasion of PMs recent visit to Arunachal Pradesh. Consequently, we should revert to our earlier position and exclude any mention of TAR in the joint statement.

We should during the visit seek a better understanding on China’s plans for Afghanistan during PM’s visit. China is now pursuing a connected Pakistan-Afghanistan policy, which Afghan President Ghani too seems to favour, and this has implications for our security.

We do not have enough scholarship and understanding of China. We should send more students to China and encourage more Chinese language studies in India.

On the positive side, we would no doubt highlight points of convergence during PM’s visit on BRICS issues, the BRICS Development bank, AIIB, the reform of international financial and political institutions, G20 issues, energy and climate change issues.

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Published Date: 14^th May 2015, Image Source: http://blogs.wsj.com

Playing hardball with China

Nitin A Gokhale, 

Editor & Senior Fellow, VIF

In the midst of a rather euphoric narrative about Prime Minister Narendra Modi's three-day China visit starting 14 May, two factors must serve as a reality check.

One was the revelation by the Ministry of External Affairs (MEA) that the Chinese Envoy in New Delhi was summoned and conveyed India's protest against the 46 billion dollar worth China-Pakistan Economic Corridor (CPEC) running through the Pak-Occupied Kashmir (PoK) and two, a rather abrasive comment by a Chinese scholar in a semi-official newspaper that Prime Minister Modi is "“playing little tricks” over border disputes and security issues, hoping to boost his domestic prestige and increase his leverage in negotiations with China."

Both these developments remind us that no matter how much progress India and China make in economic and cultural fields, the contentious border issue and China's efforts to promote Pakistan as a cat's paw in South Asia, will always cast a large shadow over Sino-India relations. Prime Minister Modi's national security team would be well aware of the Chinese tendency to be two faced in its dealings with neighbours.

Twice in recent past, China has sought to up the ante on the border on eve of two important visits. In April-May 2013, days ahead of Chinese Premier Li Keqiang's visit to Delhi, a platoon of Chinese PLA soldiers walked across the Line of Actual Control (LAC) at Depsang in Ladakh and camped there for three weeks before a diplomatic compromise end the mini-crisis. It was no different when President Xi Jingping came to India last year. In less than six hours after his arrival, 1000 Chinese soldiers tried to repeat Depsang at Chumur, again in Ladakh. However, a robust and swift response in 2014 (India mobilised a brigade plus--3,000 soldiers-- in next to no time) forced the Chinese to back down. Although President Xi tried to play down the incident, it was clear the operation was planned well in advance and with full knowledge of the top leadership.

Given India's decisive response at Chumur and New Delhi's growing bonhomie with US and Japan, a similar border incident again looks unlikely but the pinpricks on the border issue will continue in the form of acerbic comments and belligerent utterances by scholars and analysts working for various think-tanks in China. Thus the commentary in Global Times, the hawkish English newspaper published from Beijing is in keeping with the trend and should not come as a surprise to discerning China watchers. New Delhi on the other hand has used official channels to register its stand vis-a-vis increasing Chinese presence in PoK and the decision on CPEC.

Chinese interlocutors have surely noticed a subtle but firm shift in India's approach to China. When needed, Prime Minister Modi has not hesitated to use strong words to convey India's displeasure on Chinese. India has also been upfront about stitching together informal alliances that are designed to keep China guessing. Two examples will suffice. Speaking to business leaders in Tokyo during his official visit to Japan in September 2014, the Prime Minister said: “The world is divided in two camps. One camp believes in expansionist policies, while the other believes in development. We have to decide whether the world should get caught in the grip of expansionist policies or we should lead it on the path of development and create opportunities that take it to greater heights.” While he did not mention China by name, the signal was loud and clear. Beijing is seen by Asian nations, especially those around the East China Sea and South China Sea as an expansionist power. Then in January his year, India and the US went a step further in specifically commenting on the situation in South China Sea. The Joint India-US Strategic Vision document noted that “regional prosperity depends on security. We affirm the importance of safeguarding maritime security and ensuring freedom of navigation and over flight throughout the region, especially in the South China Sea.” In a clear signal to Beijing, the same statement added that the two countries “call on all parties to avoid the threat or use of force and pursue resolution of territorial and maritime disputes through all peaceful means, in accordance with universally recognized principles of international law, including the United Nations Convention on the Law of the Sea.”

The current Chinese leadership is surely aware of India’s recent efforts to re-calibrate its relationship with the United States and Japan. The attempt in Beijing would therefore be to ensure that India does not fully migrate into the anti-China camp. India will be offered lucrative economic investments and will be assured about reducing the burgeoning bilateral trade deficit between the two countries but no major breakthrough is expected on the boundary issue, notwithstanding External Affairs Minister Sushma Swaraj’s pronouncement in Beijing in February this year that an “out of the box” solution is still possible. The boundary issue is complex and is rooted in many historical developments. Through the decades, Beijing has played a dexterous game on the border issue, pretending to be friendly and accommodation some time, reiterating its claims by aggressive moves on the other, keeping the pot boiling.

In this context it is instructive to take a peep into what happened in the late 1950s in Ladakh. When India accidentally discovered China’s road building activity in Aksai Chin, it was assured that the road was only meant as a link to Singkiang.

On December 26, 1959 Peking (as Beijing was then known) sent a note to India talking about Aksai Chin. It said: "This area is the only traffic artery linking Singkiang to Western Tibet because to its north-east lies the great Gobi of Sinkiang through which direct traffic with Tibet is practically impossible...the area all along belonged to China." Now, nearly 55 years later when India confronts Beijing on its CPEC passing through PoK (which India claims as its own territory), China is likely take a similar stand—‘it’s just an economic compulsion; ‘not meant as a strategic encirclement of India,’ etc etc.

Clearly, the Chinese tendency of bullying weaker neighbours and its policy to keep redefining 'core' interests according to circumstances continues. Policy making in China is one continuous process. In India on the other hand, it has varied according to personalities and political parties in power.

While the military in India has overcome the trauma of the 1962 defeat, civilian policy makers appear to be still bogged down by the burdens of the past in dealing with China. Of course, these mandarins get their act together only under pressure of a crisis like they did post-1986 Sumdorong Chu face off. The 2009 sanction for additional forces and speeding up of infrastructure development projects also came after increasing reports of Chinese belligerence along the LAC.

It is therefore essential to push for another round of capability-enhancing drive. Simultaneously, India must re-look and re-tweak its China policy. For instance:

• Insist with Beijing the need for exchanging maps for all sectors immediately so that each side knows the other's claimed LAC and border negotiations can resume
• Bring the Indo-Tibetan Border Police (ITBP) under the operational control of the Army to ensure uniformity in border management
• Ensure timely and effective information sharing mechanism with Indian media and through them the Indian people rather than let different stake holders speak in different and sometimes discordant voices during times of crisis
• Educate and prepare the Indian people on the need for give and take on border negotiations in the future

Policy makers in India must be mindful of the fact that military preparedness and trying to improve diplomatic relations are not necessarily mutually exclusive. By stating India's concern over continuing support to Pakistan in no uncertain terms, Prime Minister Modi has sent a signal that that while his desire to deepen economic ties with Beijing and taking the relationship to the next level is paramount, New Delhi cannot be ignoring the developments in its neighbourhood. Hopefully, as he lands in Beijing in the next 24 hours, Prime Minister Modi's Chinese hosts would have got that message very clearly.

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Published Date: 13^th May 2015, Image Source: http://www.dnaindia.com