All entries for April 2005

April 26, 2005

India beckons Land of the Rising Sun

Asia Times, 26.04.2005

After Chinese Prime Minister Wen Jiabao conducted his "most important trip of the year" to India, Delhi awaits yet another high-profile guest, set to arrive this Thursday. Japanese Prime Minister Junichiro Koizumi's visit will add a new dimension to India's "Look East" policy, one that offers more long-term opportunities for India than the "Middle Kingdom".

The visit comes at a time when the Indian economy is enjoying a sustainable growth rate of 7%, poverty down by 24.9% and buoyant stock markets – the time is ripe for Prime Minister Manmohan Singh to grasp the hand that has long been extended at Delhi by Tokyo, and long ignored. As with his much-anticipated handshake with Wen, the world will be watching.

The poorly defined political relationship has hampered trade between the two countries. Japan-India trade stood at about US$4 billion at the end of the 2003–04 financial year. Worryingly, the figure has stayed almost stagnant since 1997–98, and has even dipped on occasions. Contrast that with China-India trade, which grew almost 79% to $14 billion at the end of 2004. Japanese Defense Minister Shigeru Ishiba summed it up aptly at the seventh Asia Security Conference, "India is an invaluable ally. But economic ties are far lower than full potential."

This amounts to no more than an utter failure of Indian policymakers to realize the potential Japan offers. In fact, with typical foresight, it is Japan that has taken the first step to rectify this mistake. It has made a conscious effort to boost the poor infrastructure in India, to make it easier for its own companies to invest in the country. Already, India is Japan's largest overseas aid receiver, and on March 31 it announced another $1.3 billion as a "soft loan" for eight projects, varying from the Delhi Metro to building flyovers in Kolkata to irrigation projects in Rajasthan.

Although India-Japan joint ventures, such as Hero-Honda, Maruti-Suzuki and Toyota-Kirloskar, have been successful, actual inflow of direct investment from Japan to India is abysmally low.

While Delhi contemplates "the mother of all free-trade agreements" with China, a far better option for an FTA is Japan. Although India does enjoy a trade surplus with China, that may change soon after the Olympics in Beijing are held in 2008: the bulk of Indian exports to China are raw materials such as steel, which it needs for its soaring construction sector. Companies operating in "sexy" sectors such as software development and information-technology services have their most important client bases in the Western world, and such companies as TCS, Satyam, Infosys, etc are setting up in China to add to its export kitty.

Contrast this with Japan, which offers a vast and wealthy market for Indian companies to export to. Moreover, Indian manufacturing is still relatively heavily protected vis-a-vis the Association of Southeast Asian Nations and the US/European Union. With an FTA, Chinese manufactured goods will beat their Indian counterparts on prices, and because India is mostly a price-elastic market, the fate of Indian companies might be grim.

With Japan, the goods imported would compete with the quality tag rather than the price tag, thus providing some leeway to Indian firms. Moreover, if India manages to create a conducive investment environment with good infrastructure, generous tax breaks and flexible labor regulation, we might have a scenario on our hands where Japanese companies flock to India to set up base.

With FTAs, the most common fatalist cries are about foreign companies steamrolling into the Indian market. These arguments have some validity when applied to China, but fall flat if we study prospects of India-Japan trade, especially in the manufacturing sector. A vast majority of Japan's nearly $400 billion imports appeal to sectors with strong export prospects in India – machinery and components, metals, textiles and chemicals. In textiles, little needs to be said about India's prospects in the post-Multifiber Agreement world. Even going by conservative estimates, it should boost to $50 billion by 2009–10. In chemicals, Japan's Mitsubishi Chemicals has already recognized India's potential by erecting a massive plant in Haldia, West Bengal. In a recent report by McKinsey, it was stated that India had the potential to raise its exports in just four sectors from $10 billion currently to $90 billion by 2015. These were identified as textiles, automobile components, chemicals and electronic products, all high on Tokyo's import list.

Even Japanese investment into India is likely to be in sectors in most need of such a boost. Studying Japanese investment in China, we see that 31.5% of all investment has been in transportation and telecommunications. India's pathetic infrastructure and tele-density are well known; Japanese investment already is making a difference in transportation – with a higher dose, the effects can only be positive.

Putting aside all rhetoric of "Chindia", it seems that the economies of Japan and India are far more complementary. Thus should begin a "Japindia" story.

In fact, where Chindia falls short, Japindia could work in politics. The two countries share similar democratic ideals and have similar aspirations in the world. Japan is a member of the Group of Four (G4), along with India, and they are actively backing one another's bid for a permanent membership of the United Nations Security Council. China is opposed to the inclusion of both.

Indeed, China-Japan relations have been a lot frostier compared with Sino-Indian ones. Not to forget the ballistic missiles that remain aimed at Tokyo, the recent vehement protests and attacks on Japanese companies from Beijing to Guangdong in view of Japan's history books, and aspirations to enter the Security Council, Tokyo must be getting wary of keeping nearly 170 billion of her golden eggs (read dollars) in the China basket. India and China offer similar attractions – abundance of cheap skilled and unskilled labor and a huge domestic market. China has one up on India when it comes to its investment climate – something India has been trying to rectify, yet progress should be much faster.

By collaborating with Japan, India has a chance of cornering China it its own back yard, a trick China has played quite successfully on India over the years by cozying up with Pakistan and Bangladesh. Both Japan and India have long-standing border issues with China, and both view the latter's rise as a potential threat to stability in the region.

Going one step further, a paper submitted to Yale University last November by Shyam Sunder mentioned a possible "India-Japan-Taiwan Trialogue" to boost trade, investment and political relations. Interestingly, India is yet to show explicit support for China's Anti-Secession Law against Taiwan. Taiwan faces a similar dilemma as Japan – while its economic relationship with China is growing rapidly, politically the two are drifting apart. With US support increasingly uncertain in any dispute with China, Taiwan may well want to channel its investment elsewhere. India would be the natural substitute destination for redirected Japanese and Taiwanese investment.

The cadres in Beijing will be watching carefully as Koizumi lands in Delhi. They would be concerned with the prospects of a Japindia – the juxtaposition of two of its arch rivals in Asia and the world. The visit will put the ball in Delhi's court nicely. For decades, it has let other countries dictate and pace the direction of bilateral relations. Now it has a grand opportunity to seize the initiative and firmly entrench ties with Japan, a far more profitable bet for India than China. After all, why go for the second-largest economy in Asia when the largest is ready at hand?

Running after Ruin

The Telegraph, 26.04.2005

Ashok Mitra considers India to be awash with money (“A cynic on cricket”, April 18). While lashing out against the commercials on television during cricket telecasts, he forgets that money is not a crop which you can easily grow in a field. If everything were to be “doled” out by the state, then soon the state would have nothing left. Mitra asks readers to wake up to the damage economic liberalization has done to India. It is he, it seems, who is yet to wake up. As far as cricket telecast goes, until the mid-Nineties, we had to endure the terrible telecasts by Doordarshan. Sure there were less commercials, but cricket-watching is hardly fun if you cannot follow the ball on the screen. Where does the money to invest in better technology and hiring of competent commentators come from? Not from the fields in the author’s imagination. Even today, if a cricket match is being parallely shown on ESPN or Star Sports and Doordarshan, most people would prefer the “foreign” channels despite the greater abundance of adverts. Doordarshan has poor camera-work, second-string commentary and no pre- and post-match analysis worth speaking of.

The author is also utterly disdainful of India’s middle classes who, according to him, “hanker” for consumer goods. But it is the middle class which is the moving force of India. Mitra also seems to have issues with the corporatization of cricket. What is wrong with that, I say? It is only because cricket has been converted to an industry that we see sponsors coming forth, ensuring a better fare for viewers, setting up coaching centres and sponsoring aspiring players. And who can deny that India has improved its standing in international cricket in the past 10–15 years? I remember the times when loss was what people expected when India was playing. Today, our anger at India’s defeat shows how much we are winning of late. The same model should be applied to every single sport in India. Perhaps that will help India win some medals at the Olympics at last.

April 24, 2005

Breach of Trust

The Telegraph, 24.04.2005

Dipankar Dasgupta has used an isolated incident to make sweeping generalizations about the market economy. First, a market economy creates a dynamic society in which companies compete to deliver better results. In a free market, a consumer can choose from a wide range of goods and services, and a supplier also endeavours to provide the best at the cheapest possible rates.

Problem may arise in a free market when the regulatory framework is not vigilant enough — there is nothing wrong with the concept per se. Even if we concede Dasgupta’s point about markets breeding corruption, a more relevant criticism could be that in India, it is more expensive to adhere to rules than to break them. Doing business in India is a costly affair, which forces firms to cheat their way out. The real solution lies in making compliance cheaper and evasion expensive.

April 15, 2005

On a Smoother Plane

The Telegraph, 15.04.2005

China’s, and increasingly India’s, attitude towards the boundary issue would be to shelve it in favour of trade. The agreement over Sikkim shows that there has already been a change in attitude. However, one should remember that the problems over Arunachal and northern Kashmir or the Tibet-Xinjiang highway, which cuts through Indian territory near Aksai Chin, are far from over.

China was looking for certain definite objectives from this visit — India’s support for the recent anti-secession law against Taiwan; sidelining the border disputes in Kashmir and Aksai Chin but trying to change the Indian position over Arunachal, which would greatly boost its manufacturing exports; preventing India from going over to the American camp and joining any future Asian Nato; attracting considerable investment from Indian MNCs. India, in turn, was primarily hoping to get some sort of a positive vibe from Beijing about its inclusion in the security council, apart from solving some of the border disputes. Both the nations have managed to get one or more of their objectives fulfilled. What is most encouraging is that both have agreed to give a massive boost to bilateral trade which will open up new horizons.

April 11, 2005

Inside the Velvet Glove

The Telegraph, 11.04.2005

Swapan Dasgupta provides the reality check so needed in the midst of all the optimism preceding the visit of the Chinese premier, Wen Jiabao (“Of Actual Control”, April 8). As Dasgupta points out, bilateral relations may be at an all-time high, but it is the cadre in Beijing and not in New Delhi who set the pace. Even as we rush to sign a free-trade agreement with China, we need to consider the effect of Chinese dumping on Indian industry. China’s recent engagement of India should be seen in the context of its strengthening of ties with Pakistan, Nepal and Bangladesh. There is a real possibility that China wants to tie down India between a range of banana republics and rogue states, while it reaches for global glory. Panchsheel gave us 1962, Atal Bihari Vajpayee’s 2003 China visit cost us Tibet. Will Jiabao lose us our economic sovereignty, Aksai Chin and Arunachal Pradesh in 2005?

April 09, 2005

Speech Therapy

The Telegraph, 09.04.2005

André Béteille points to certain obvious points, without qualifying them. There is no doubt that Indians are poor listeners. This habit in part stems from an ostrich mentality — that is to be in a perpetual denial mode so that one’s fallacies are not pointed out. There is also the not-so-well-concealed arrogance. Most Indians claim to be patriots, and their love for the country is displayed by criticizing and ridiculing foreigners. Not once is the criticism directed at oneself. But if we do not keep our eyes and ears open to learn from the mistakes of others and improve upon the successes of others while acknowledging our own drawbacks, how do we progress? Perhaps we need to recall what Mahatma Gandhi said, “I do not want my house to be walled in on all sides and my windows to be stuffed. I want the cultures of all lands to be blown about my house as freely as possible.”

April 07, 2005

Waiting for Wen: Avoid High Expectations

SAAG Paper 1326, 07.04.2005

The annual edition of The Economist The World in 2005 contained a term that will become extremely popular in political circles in the near future. It referred to a “Chindia” taking shape- an economic and political juxtaposition of the world’s two most populous nations. Even as bilateral trade rocketed by 79% to $14bn at the end of 2004, the sailing may not be so smooth when it comes to resolving the political issues between India and China. But this time it seems that both countries are realising more opportunities in each other than threats, and better relations seem inevitable.

The long standing border dispute is likely to be the major obstacle to giving a decisive positive thrust to Sino-Indian relations when Chinese Premier Wen Jiabao visits his Indian counterpart in Delhi next week. On his ‘most important visit of the calendar’, Mr. Jiabao would definitely like to return to Beijing with concrete treaties or at least a definite roadmap, economic and/or political, in his pocket. Last year at an ASEAN summit in Bangkok, he told Manmohan Singh, “When we shake hands, the whole world will be watching.” He need not be reminded that the world will not stop gazing merely after the handshake- its eyes will be fixed on what goodies exchanged hands. An empty palm would pour cold water over all the hype that is surrounding his visit. Yet he need not be overtly worried either, for the possibility of him returning empty handed to Hu Jintao are next to none.

First, it is of significance that Mr. Jiabao is landing in Bangalore, and not Delhi. He is scheduled to hold meetings with CEOs of Indian software and information technology firms such as Infosys and Wipro, and these will undoubtedly be to offer them incentives to increase their already growing presence in China.

Second, and more importantly, last week China’s envoy to Delhi Sun Yuxi declared that China was in favour of a free trade area between India and itself. If successful, this accord would realise the ‘ASEAN plus three’ image. He also indicated that this is way past the conceptual stage by insisting that he had ‘received support from all relevant departments’. So, the ball is in India’s court.

Third, China’s (and increasingly India’s too) attitude towards the boundary issue would be to shelve it in favour of trade. A few major clarifications were made by the Chinese ambassador in his recent announcement regarding the status of the dispute. He mentioned that Tibet is no longer an ‘issue’ between India and China. This fitted in very well with India’s declaration in 2003, recognising Tibet to be an integral part of the People’s Republic. On Sikkim, he said, “It’s completely solved”. However, he did mention that Arunachal was still a stumbling block, but also indicated that the status of northern Kashmir (which China currently holds) will also be on the table. Curiously, nothing was mentioned about the Tibet-Xinjiang highway, which cuts through Indian territory near Aksai Chin. India must be careful that this issue is not sidestepped, since Aksai Chin is strategically very important.

But this time petty politics will not affect strategic vision and economic rationale. Wen Jiabao and Manmohan Singh would probably agree on a ‘guiding principle’ to solve the border dispute, setting out a firm commitment to a peaceful resolution. The details will be left to Shyam Saran and Tang Jiaxun to sort out in the China-India Joint Work Group.

Put simply China is looking for five things from this visit-

1. India’s support for the recent anti-secession law against Taiwan.
2. Sidelining of the border disputes in Kashmir and Aksai Chin but trying to change the Indian position over Arunachal
3. A FTA with India which would greatly boost its manufacturing exports.
4. Preventing India from going over to the US camp and joining any future Asian NATO.
5. Attracting considerable investment from Indian MNCs.

India, in its turn would hope to try and change the current Chinese position on UN reform and getting some sort of a positive vibe from Beijing about the inclusion of India into the UN Security Council as a veto holding member. It would try to be non-committal on the Taiwan issue, and make sure that it does not lose ground over Arunachal Pradesh and Aksai Chin in the border talks. On the economic front, India would like to sign an accord which would gradually phase out duties and other tariffs over a period of time rather than instantaneously. This is because Chinese manufactured goods are sure to hurt Indian industry. However, if given lead time, they can be prepared for Chinese competition in a few years.

There is a constant buzz in the global media about Premier Wen’s visit being a second new era in Sino-Indian relationships, the first being the 2003 visit to Beijing by Prime Minister Vajpayee. And a historic event it may well turn out to be. However, the issues on the table have a nuance of complexity about them- both countries will attempt to play a very delicate balancing and bargaining game. The dynamics of the India-China story are intrinsically complicating, and this is just the start. But for both countries, one common ground has been found at least. Both are in favour of giving a massive boost to bilateral trade which is predicted to grow by leaps and bounds in the coming years. It will open up new horizons for companies on both sides of the border, and it will change the lives of a considerable number of the 2.4 billion people these two countries encompass.

April 05, 2005

Engaging India’s Truant Neighbours

SAAG Paper 1322, 05.04.2005

India has always found it frustrating to maintain friendly relations with most of its neighbours. Some analysts attribute this to the failure of Indian diplomacy to deal with its neighbours as equals, implying that India is all too ready to throw her weight around. Others have pointed at complex relations India’s neighbours share with third parties who are strategic competitors of India in the region. In any case, the crisis continuing in Nepal should be a cause for utmost concern to Delhi, and India needs to act now if it does not want to lose the world’s only Hindu kingdom from its list of supposed friends.

India has been facing a dilemma for years- whether to support the King who keeps wriggling out of his promises on establishing democracy in the kingdom, or risk having a Maoist republic next door which could link up with India’s own far left separatists. India has been facing a severe Maoist insurgency in more than a third of all her districts, and the prospects of their brethren controlling the government coffers in Nepal does not spell well for India, given the porous nature of her border with Nepal, leaving open the prospects of arms smuggling wide open.

This dilemma has led India to be very hesitant in its attitude towards the latest crisis in Nepal. Immediately upon the King’s declaration of emergency in Kathmandu, a foreign office spokesperson described the situation being ‘of great concern to India’ and a ‘setback for democracy’. More importantly, India and Britain immediately froze all military aid to Nepal, hitting it where it hurts most. However, this makes the Indian position even more unclear. Unfortunately, while Delhi remains muddled in her self-created dilemma, it is the Maoists who are gaining the upper hand.

But the real concern for India lies elsewhere. While Nepal was cold shouldered by its traditional ally India, Pakistan and China immediately cosied up to the King during the aftermath of the royal coup. On March 11, Pakistan’s Ambassador Zamir Akram said, “We are ready to provide arms if that is required by Nepal.” While Pakistan can only offer military and economic aid on an ad hoc basis given the shambles its own economy is in, that cannot possibly be said of China, Asia’s second largest economy. Beijing’s dispatching of Foreign Minister Li Zhaoxing to Kathmandu n amidst all the chaos the country is in because of the royal clampdown on dissent should be of utmost concern to India. Delhi should view this as a concerned effort on behalf of China to bring Nepal in its camp by making it dependent on economic and military aid. While Indo-Nepalese economic relations run deep, China can make a severe dent in this relationship by flexing its own economic muscle.

The worst fear running in Indian diplomatic circles is that of being encircled in the sub-continent with hostile neighbours, and it feels that is precisely what China is sincerely working towards. There are reasons to believe that Beijing is overtly friendly to Pakistan and Bangladesh for a reason- both these countries have been accused by India of harbouring cross border terrorism within its territory. When India supported Aung San Suu Kyi and the democratic movement in Myanmar and China nipped it in the bud by supporting the military junta (which eventually won the struggle), it was viewed in Delhi, perhaps not mistakenly, as another victory for China’s agenda of cornering India into the dustbin of Asia. Incidentally, Foreign Minister Natwar Singh was in Myanmar last week, trying to notch up a gas pipeline deal. He also described Myanmar as a valued neighbour and a friendly nation. But has India been too late yet again?

The composite dialogue with Pakistan was well on track until the recent US announcement to allow the sale of F-16 fighters to the country. Although that might not be enough to derail the process, it might well breed new seeds of suspicion- something that is so easy to do between India and Pakistan. Wen Jiabao, on his next week visit to the sub-continent will be spending an extended period in Pakistan, and is sure to issue statements renewing Beijing’s ‘all weather’ friendship with Islamabad, something which will antagonise India further. India’s relations with Bangladesh are not at their highest point after Delhi cancelled on Dhaka for the recent SAARC meet and is refusing to commit on a Bangladesh-Myanmar gas pipeline due to security concerns. Sri Lanka might soon sign an FTA with China wiping off the slight advantage India held there. India’s Nepal policy is in a mess. Has India landed itself in an unrecoverable position?

Not quite it seems. India still holds more clout than any other power in King Gyanendra’s court. It needs to make it crystal clear to the King that an armed solution to Nepal’s problems is not possible. A constitutional assembly needs to be set up, and India should offer to mediate in such an effort. Such a move would not only increase Indian influence in Nepal, but also might change its perception among the Maoists. As a broader policy for the region, India needs to make a sincere effort in speeding up the South Asian Free Trade Area process. Currently, the countries have made provisional commitments ‘in principle’ to reduce tariffs by 2009–10. Bangladesh and Pakistan are continuously torpedoing the process due to their fears of an Indian take-over of their industries. India needs to alter their mindset, perhaps even by conceding to their demands in the shorter term, with a commitment to complete free trade in the medium term.

It seems India has options, but does it have the will?

Watch they Neighbour

The Telegraph, 05.04.2005

Pratap Bhanu Mehta hits the nail on its head when he talks about the China factor in the crisis that has gripped Nepal (“Losing Kathmandu”, March 30). It is evident that one of China’s prime motives behind cosying up to King Gyanendra is to somehow establish a decisive foothold in Nepali politics, and to replace the clout Delhi currently holds in the king’s court. Beijing’s sole aim is to encircle India with hostile banana republics, and as Mehta points out, we are too slow to react to the threat.

The author also talks about the hegemonic image India has projected of itself in the subcontinent. However, he is mistaken when he suggests that India needs to look at its neighbours as equals, rather than subordinate to its interests. A comparable situation exists in North America — while the Mexicans and Canadians look at the United States of America as an overbearing force, there is little they can do. For there exists a complex economic relation between these countries and the US, which they cannot afford to disrupt. For our long-term interest, we need to develop a similar trading network. A sincere boost to the South Asian Free Trade Association would be a good starting point. As far as Nepal is concerned, Mehta is right that we need to maintain a reasonable distance from both parties (while ensuring there is no infiltration into Indian territory) and make it crystal clear that any government will have to unveil a constitutional council and establish friendly relations with India.

April 2005

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