Sunday, August 31, 2014

China's interest in India's infrastructure is both an opportunity and a challenge

The Brics decision to give all its members an equal stake in the New Development Bank should be welcomed. But let's not have any illusion about what this means. China remains far ahead of all its Brics peers. The size of its economy is larger than that of all the other Brics members combined, and it continues to grow at a healthy clop.
At over $14.5 trillion in purchasing power parity terms, the Chinese economy is more than two and a half times larger than India's. In 1990, we were roughly equal. Such disparities with, say, Japan or Germany may not matter. But China is not only a neighbour with whom our border is disputed, but also one who contests our primacy in South Asia and seeks to displace the US as the dominant Asia-Pacific power.
In the past two years, we have been witnessing a new Chinese policy towards India. One manifestation of this has been calls by Chinese leaders like President Xi Jinping and foreign minister Wang Yi to declare that they want a border settlement "as soon as possible". What they haven't indicated is the nature of the solution.
Most people would assume that this could be a straightforward swap of claims, such as the one Zhou Enlai and Deng Xiaoping proposed in 1960 and 1981. But officials say that since 1986-87, China has made a settlement contingent on Indian concessions in the eastern sector, which they have indicated means the Tawang tract.
The other is the enhanced Chinese interest in economic engagement with India. Since the 2000s, China has been wooing India's South Asian neighbours with aid focusing on infrastructure development. Now China says it wants to significantly step up infrastructure investment in India. This is both an opportunity and a challenge for us.
It would, at one level, facilitate the increased integration of the South Asian economies. On another level, it would provide India the wherewithal to replace Beijing as the largest trading power in the region.
This is the baseline position with which the Modi government must conduct its foreign policy towards China. So what should be the features of a new China policy?
First, a need to reinforce India's periphery. The government decision to go easy on environmental concerns on issues relating to national security is a good augury for India's border infrastructure construction.
Our northern border is facing considerable pressure from China. The events in Pakistan and Afghanistan are creating an uncertain environment that could be exploited by Beijing.
The raising of the two new divisions, the mountain strike corps and its ancillary formations, will mean little if there is no infrastructure in place. The importance of border road construction can't be underestimated. Plans made in the 1960s remain unfulfilled. Daulat Beg Oldi, for instance, close to the Depsang Plains, still requires a march of several days to reach and is supplied by air.
The second challenge is in shoring up our positions with our neighbours. In the last few years, India has shown in Nepal that it can draw a line in the sand to prevent Chinese influence from undermining our interests. But it needs to reinforce this lesson in Sri Lanka and the Maldives. New Delhi needs to equip itself with policy options that will make it both feared and respected in the neighbourhood.
The third challenge relates to India's position in Asia. The two countries are already engaged in negotiations in the Regional Economic Cooperation Partnership that could shape the emerging Asian economy. China will clearly be its main driver, but India could well emerge as a significant second pole.
The bigger challenges are in China's larger political goals. India has a view of itself as a regional power that would seek to offset any Chinese efforts to establish its hegemony in South Asia. The current imbalance requires India to get on to a path of sustained high economic growth and simultaneously develop linkages with countries like Japan, Asean countries and the US.
Sino-Indian relations will feature both competition and cooperation. How we fare depends on the policy choices we make and the skill with which we employ them.
The Economic Times July 30, 2014

The PM's vision for the nation

It has now been two months, to the day, since Prime Minister Narendra Modi and his cabinet took the oath of office in the forecourt of Rashtrapati Bhavan. The BJP-led NDA government took office amidst extraordinary expectations.
Yet, two months later, there is a sense of bewilderment as to just when we will hear that Big Bang which will translate his election promises into policy and outcomes. In all fairness, new decisions have been made and directions indicated, yet, the sense of excitement that greeted the Modi government's accession to office seems to have dwindled.
Arun Jaitley's workmanlike budget, Prime Minister Modi's foreign outings, cabinet decisions and pronouncements, do indicate that the government is working. The strategic signalling in the Union Budget – the decision to hike FDI in insurance and defence to 49 per cent, the significant increase in aid to neighbours like Bhutan, the sharp hike for the North-east and infrastructure spending – point to the direction the government is going. But it does not quite live up to the expectations of the government which had promised to turn things inside out and bring ache din (good days) to the country. 

Arun Jaitley's Budget suggests the Centre is on the right track. But Prime
Minister Modi has to work hard to live up to the promise of 'ache din'
Arun Jaitley's Budget suggests the Centre is on the right track. But Prime Minister Modi has to work hard to live up to the promise of 'ache din'


The impression you get is that yes, things are happening, but outcomes will only be visible in the fullness of time and fitness of things. For the people who voted in droves for Modi, there is a perceptible sense of let down, deepened by the gloom accompanying a failing monsoon and high food prices. Yet, there does seem to be a strategy behind all this. Whether it is the best strategy, only time will tell. But it is the one which the Modi team appears to be working on.
The elements of this strategy are first: the importance of consolidation. All said and done, Modi was an outlier in the system. He was not part of the BJP's succession plan, it's safe to say that he gate-crashed the party. Having done so successfully, his priority is to assume control of the party, a process begun by the appointment of his closest aide, Amit Shah as the BJP president.
This is a process which involves him in consultation and competition with the RSS and we only get hints of it, such as the announcement, later retracted, that the BJP would have to go in for the Maharashtra elections minus RSS support.
The second goal is to build on the spectacular success of the party and expand its hold beyond its current core of western states. The target states are the ones going in for elections soon – Maharashtra, Haryana, Jammu & Kashmir, Jharkhand and possibly Delhi, as well as Uttar Pradesh which appears ripe for plucking, except that the assembly election is still four years away.
The second aspect of the strategy appears to be Modi's caution in undertaking deep restructuring and reform without first getting an adequate grasp of the problems that confront him. The first lesson he has learnt as Prime Minister is that it is very different from being the chief minister of Gujarat. According to sources, Modi has decided to go through key files in detail and get an understanding of the problems that he confronts through briefings by the various ministry officials.


Modi's other problem is a shortage of talent. In part this is an outcome of his decision to keep a tight control over his government. The result is that Jaitley has to deal with two heavyweight portfolios, Ravi Shankar Prasad is Minister for Communications, Information Technology and Law and Justice, Nirmala Sitharaman is Minister for Commerce and Industry, as well as Finance and Corporate Affairs and Jitendra Singh is Minister for Science and Technology, Earth Sciences, PMO, Personnel and Public Grievances, Department of Atomic Energy and Space.
Essentially, all this indicates Modi is playing for the long run. But, in the process, he could be making a tactical error which can have strategic consequences. In the Westminster system, it is well known the best time to take tough decisions is at the beginning of a term. Maggie Thatcher launched her deflationary strategy almost immediately after assuming office in 1979 which defeated inflation, but led to huge unemployment which was necessary for the longer-term prosperity of UK. And immediately after she was re-elected in 1983, she took on and defeated the powerful trade unions.


Likewise, Prime Minister Narasimha Rao and Finance Minister Manmohan Singh launched the liberalisation of the Indian economy within the first two months of taking power in 1991 opening up the Indian economy for international trade and investment, deregulation, initiating privatisation, tax reforms etc. A hallmark of their success, and the failure of subsequent governments, has been that the second generation reforms to take on powerful lobbies of rich farmers and public sector trade unions have not been undertaken, leave alone those to reform labour practices, agricultural subsidies and so on.
Experience would suggest the best time for Modi to take tough decisions is now when his popularity is at an all time high and his adversaries, both within his party and without, are still shellshocked. If he can stake out the key elements of the long-awaited second generation reforms, he can spend the balance of his tenure working to implement them. The alternative is that he waits too long and finds that he lacks sufficient political capital to even introduce them.
Mail Today July 29, 2014

China shows its military strength

Earlier this month, this writer travelled to China as part of a media delegation invited by the All-China Journalists Association (ACJA). An engaging feature of the trip was the visit to two Chinese military facilities, and a briefing by China’s top military spokesman, Senior Colonel Yang Yujun, and a team of military officers.
There were other meetings, with think tanks, Ministry of Foreign Affairs officials and, of course, sightseeing. But, the military component was striking because it was new. Beijing- based journalists were first invited to visit the People’s Liberation Army’s (PLA) 4th Helicopter Regiment in 2012. But, the visit by journalists from India in July 2014 was a first, and the unit stationed in the Tongzhou suburb of the capital was clearly putting its best foot forward.
Its commander, Senior Colonel Zhang Zhilin, told us that this 900- man unit was the first armed helicopter regiment of the army and was formed in June of 1988. It has 72 aircraft — 39 Z9WZ attack helicopters, 27 Mi 17 I and 6 fixed- wing Yuan 7 and 8 aircraft. So, clearly, its functions were both for war- fighting, as well as battlefield support.
Equally fascinating was the visit to the Shanghai Naval Garrison, which involved a briefing by Senior Captain Wei Xiaodong, the chief of staff of the garrison, at his main office at the Shanghai naval base at the mouth of the Whangpu river, as well as a ship- board visit to the Type 056 corvette Ji’an. What was striking for an Indian viewer was that the spanking new ship, which was commissioned earlier this year, took a year and a half to build. Indian public sector yards take years to build a similar ship. The Bangladesh Navy is expected to get some of these type of ships as well.
The briefing at the Ministry of Defence was interesting because the Chinese spokespersons took on all the questions that were thrown at them, ranging from the China- Pakistan connection, the reasons for the Depsang incursions and other incursions on the LAC, to issues arising from the fact that the PLA’s Second Artillery Force holds both nuclear and conventional missiles.
Not all the answers were clear or satisfactory, but the Chinese intention to engage was.
The question that obviously arises from this is: Why? In my view there are two reasons for this. First, as China becomes an economic and military power, it is gaining in selfconfidence.
The openness is a measure of the fact that it now has a well- equipped and well- led military and, in engaging Indian journalists, the Chinese are attempting to respond to the charge that their military doctrine and policy is opaque.
The other reason is more complex.
It has to do with deterrence. In many instances in India, the armed forces are secretive about their facilities and capabilities because they feel a need to hide the fact of their weakness. For years, the Indian Army has bravely soldiered on with a defective personnel weapon — the INSAS assault rifle. Yet, only now has the army made a fuss and insisted that they cannot carry on with the deception and would like to get a replacement. There are several other such areas which are shielded from public knowledge and are often revealed inadvertently, as was done when General V K Singh’s 2012 letter complained that the state of artillery, air defence, and infantry as “ alarming”, and that the Army’s tanks were “ devoid of critical ammunition to defeat enemy tanks” and air defence was “ 97% obsolete”. What the PLA is seeking to do is to show the world, through such media interactions, that it is now a confident, well- equipped military and you mess with it only at your own peril. In the past thirty years, the PLA has undertaken a great deal of restructuring and reform, and the quality of equipment has become better. There was a time when its shoddy products had to be hidden from public view; now, through a strategy of incremental innovation of imported products, it has developed a pretty impressive array of attack helicopters, frigates, tanks, fighter aircraft and so on.
According to a report of the US President’s National Science Board, China’s research and development ( R&D) activity is growing in a range of areas, and its share of global high- technology economic output has risen sharply from 8% in 2003 to 24% in 2012. In the area of defence, China has used an array of tactics — better civil- military integration, stepped up R& D, technology imports and cyber theft — to come up with a range of products like the WU 14 hypersonic vehicle, the DF- 21 anti- ship missile, the J- 20 and J- 31 stealth fighters.
Back in the 1990s, the Chinese opened up their nuclear weapons complex to an American nuclear scientist, Danny Stillman, who was Director Technical Intelligence at the US nuclear weapons complex at Los Alamos. The Chinese convinced him, and presumably the US leadership, that the Chinese had an extensive nuclear programme, which was technologically at par with that of the US. The goal was obvious — to leave the US with no illusions about China’s deterrence capabilities.
In the case of India, China is reluctantly coming around to the view that New Delhi has its own ambitions of emerging as a power centre of sorts. While the size of its economy is well behind that of China, it is still huge. More germane is the fact that Indian military capabilities are being enhanced with respect to China, both in the conventional and nuclear fields.
China sees its primary focus as on neutralising the US- Japan challenge on its eastern seaboard. To that end, maintaining an even keel in its relationship with India makes good sense.
Mid Day July 22, 2014

China seeks rekindling of Indian ties

Despite its economic problems, or perhaps, because of them, India is in a geopolitical sweet spot these days. Countries like Japan, China, the US and the European Union look at India and see a country which is on the threshold of something big economically.
Inevitably, given New Delhi's inclination, this will translate into greater political and diplomatic heft within the South Asian region and beyond.
An element at play here is that India has a new government, one that wants to make a break with the pas sive restraint of the UPA years.
Underscoring this is the fact that it has a leader who is billed as a strong and decisive figure. 

China's Foreign Minister Wang Yi's
visit to Delhi shows how keen the
Chinese are to do business with Modi
China's Foreign Minister Wang Yi's visit to Delhi shows how keen the Chinese are to do business with Modi

Just what is not clear as yet is the direction that India will take. The initial moves of the Modi government have given some indicators, such as that it will anchor its foreign policy on strong regional moorings. But there is, as yet, nothing beyond that.

The Union budget presented by Finance Minister Arun Jaitley has not provided any substantial hint as to whether the government intends to provide the overhaul that the system needs, or will be content to just tinker with it till it establishes itself within the country by consolidating itself politically in key states where it made a breakthrough in the Lok Sabha elections – Maharashtra and Uttar Pradesh.
Meanwhile New Delhi has not lacked for suitors. We have had the Chinese, the Americans and the Europeans calling. The initial contacts are by way of feeling out the lay of the land.
For many of his foreign interlocutors, Modi is an unknown quantity, as are his colleagues in the Union Cabinet. He has promised change, and displayed the ability to deliver it as the Chief Minister of Gujarat.
Still, the chief ministership, albeit of an important state, cannot quite reveal the flavour of the man who is now the prime minister of India.
For the present, Chinese president Xi Jinping will have the advantage over other leaders. Having sent his foreign minister Wang Yi to New Delhi within weeks of the new government taking over, he will meet Modi on the sidelines of the BRICS summit and later, this year, he will visit New Delhi.
After brooding over the Indo-US nuclear deal, the Chinese seem to have veered around to the view that India has an autonomous foreign policy and it has no inclination of becoming part of a US-led containment of China.
Last week in China, this writer had the opportunity to meet a cross-section of policy-makers, think tank-wallahs and officials. The uniform impression was that Beijing senses an opportunity with Modi, in that he does not have the "historical baggage" of either the Congress or the BJP establishment.
However, the invitation to Lobsang Sangay, the head of Tibetan government-in-exile for his swearing in has definitely jarred. Characteristically, officials steered cleared of this issue, but some think tank scholars did raise it.
Just as no US-led balance of power system to check China will work minus India, likewise no Chinese effort to keep the US at an arms length in Asia will work minus India's cooperation.
But the one problem that the Chinese have is the unsettled border between China and India which limits the relationship that can be forged. No matter how many agreements and codes of conduct are worked out, an undemarcated border provides for multiple points of friction.
The repeated emphasis of many Chinese officials was on the need to strengthen "strategic communications" between the two countries and to reduce the "misperceptions and mistrust".
But the Chinese know well that it is not the mistrust that matters, but the political will and ability on both sides to push the relations in a desired direction.
After all in the 1970s there was no lack of mistrust between the US and China, but what they did have was the political will to push on with the rapprochement because of a perceived common threat from the Soviet Union.
So, the question is: What can drive the Sino-Indian entente? Economic growth? A desire to rework the global order?
As it is, there is a lot to keep them apart. The disputed border is an obvious problem area, but so are Beijing's activities in our South Asian neighbourhood.

China has its own goals in South Asia which go beyond ties with New Delhi. It is part of its vision of an America-mukt Asia where by virtue of its economic and military might, it will be number one.
China would be happy to provide investments in India and tap into the huge Indian market, but it is unlikely to cede the South Asian strategic space because that is part of its building blocks that link with Central Asia, Persian Gulf region and South-east Asia, and eventually to primacy in Asia.
There is a lot of sloganeering about how there is enough room in the world to accommodate a rising China and India.
But a realistic perspective of international relations would reveal that eventually it is about being number one.
Currently, China is seeking to displace the US in the regions adjacent to itself. Look at a map, and you will see that India, too, must figure in that strategy. The big question that everyone is pondering about is: What does India want?
As of now, as we noted, that is not clear. So far New Delhi's strategy of passive restraint matched its poor economic performance. But if its economy begins to take off and it is able to overhaul its dysfunctional military system, it can emerge as a formidable second pole of the Asia-Pacific region, maybe just a shade inferior to China.
But for the present all this is speculation, India refuses to reveal its hand, and thereby the sweet spot. 
Mail Today July 15, 2014

Strong ties with Uncle Sam in India's interest

Ever since he became prime minister, there has been speculation about the relationship between Narendra Modi's government and the US. Modi's personal relationship with the US has not been happy. In 2005, not only was he denied a diplomatic visa to the US, but the normal B1/B2 visa issued to him earlier was also withdrawn under a 1998 US law which bars entry to foreigners who have committed "particularly severe violations of religious freedom". This was done at the behest of a number of US Congress members and NGOs who campaigned against him because of the issues arising from the massacre of Muslims in Gujarat following the Godhra killings.

But in the months leading up to his historic sweep of the Lok Sabha, Modi made several statements indicating that he would put national interest ahead of any supposed personal pique in relation to the US. In one interview he termed India and the US "natural allies", in a formulation that had been first made during the prime ministership of Atal Bihari Vajpayee. Modi also noted that it was Vajpayee who laid the foundation for a new era of partnership with the US, so "we will build upon that and take it forward".
Given his personality, no matter what he says, Modi is not likely to forget the slight of the US visa denial easily. But, no matter what he may feel or believe, it would be difficult for Modi to ignore the US. As of now, it remains the world's most formidable military and economic power - one that can harm us, if it chooses, but also help us, if it wants to.
Actually, Modi's personal issue is just one aspect of the poor relations between India and the US in the past couple of years. A lot of work needs to be done in Washington and New Delhi to undo the era of bad feelings.
The process seems to have begun in right earnest in a succession of American visits, beginning with that of influential Senator John McCain, followed by that of Deputy Secretary of State William Burns. There have been a number of other visits by lower-level delegations from the departments of defence and commerce, as well as a slew of think tanks. Now, Modi has accepted an invitation by US President Barack Obama for an official visit to Washington in September. Officials are emphasising that this is a special event and not a byproduct of his visit to New York to attend the UN General Assembly.
Like China did in the early 1980s, India needs to exploit the opportunity of good relations with the US to become a stronger economic and military power. Indeed, as a decisive leader, Modi could well transform the relationship with the US and enable it to reach its full potential. The Chinese are also aware of this and are wooing New Delhi frantically. But as long as the border dispute between the two countries remains unresolved, there is a limit to which Sino-Indian relations can grow.
Mail Today July 15, 2014

Thursday, August 21, 2014

How central planning has groomed China

Traveling to China is always a somewhat depressing experience for an Indian of my generation. That is because till my middle-age, both were what was unfashionably called underdeveloped countries and today it would seem that China is another planet.
In 1990, China’s GDP was roughly the same as India’s and parts of its infrastructure, such as its railway system, were considered inferior. Today, China’s GDP is around $9 trillion and India’s is $2 trillion.
Last week when I rode the high speed train travelling at 300 kph from Shanghai to Beijing, the extent to which China had pulled away from India hit home again.

While China is evolving with central planning, the Modi govt is planning to do away with the Planning Commission. Pic/PTIWhile China is evolving with central planning, the Modi govt is planning to do away with the Planning Commission. Pic/PTI

The railway station was little different from the Shanghai Hongqiao International Airport terminal next door. The train was, of course anything beyond what you get in India. On the 1,500 km track from Shanghai to Beijing there were no signs of the distressing poverty an urban squalor you see in India.
This brings me to the main subject of this column which is the talk about how the new Modi government is planning to do away with the Planning Commission. The body is viewed as being archaic talking shop used to park loyalists.
But just what sophisticated central planning can do is visible in China. Despite talk of increasing marketisation of the Chinese economy, there should be no doubt that the Chinese miracle is a product of careful and sophisticated central planning.
The Shanghai-Beijing train or the modern terminal are not a stand-along prestigious project, but part of a system that covers or will cover most of China. Indeed, the ambitious Chinese want to build high-speed trains around the world.
Planning is afoot for trains connecting China with Europe via Central Asia, Iran, Turkey and Bulgaria and to Singapore via Laos, Thailand and Malaysia. A proposal to fund a line in India was turned down by the Planning Commission last year because it would not be economical. Already there is regular freight train service between China and Europe.
The railway technology was acquired in the 1980s and early 1990s from France, Japan and Germany and “indigenised”. Being relatively unsophisticated, the Chinese quickly mastered it and are now major players in the high-speed train markets, displacing those very countries that initially supplied it technology.
But it is not just by the metrics of railway construction that China is defined. With just 2/3 the arable land as compared to India, China is by far the larger agricultural output. China was not an exporter of fruit in 1990, whereas today, it is the largest producer and exporter of apples.
Indeed, the Chinese variety of the Fuji apple is the super-star of Indian markets, outpricing the products coming from the US or New Zealand and our own Himachal and Kashmir. China may not be an innovator in the scale of the US, Germany or Japan, but it is getting there.
In the area of IT, China has produced companies like Alibaba and its rival Tencent which are world class. Alibaba is bigger than Amazon as an online retailer. Indeed, in Internet, the Chinese have created their own universe and are now blocking western companies like Google.
As a result I could neither access Gmail, nor use the search engine in my week in China. Reports are that the next target is Microsoft. Chinese products like instant messaging app WeChat have now gained popularity abroad.
All this has come through central planning, not of the stodgy Soviet/Indian style, but a sophisticated and agile one that China has pioneered. A lot of this has its origins in a plan drawn up based on a letter received by the Chinese supremo, Deng Xiaoping on March 3, 1986. This plan, called 863 Program (in the Chinese style, 86 is for the year and 3 for the date).
The gist of the letter from top nuclear weapons and missile scientists was that China risked being left behind if it allowed its science and technology to be overly focused on military issues. What it needed was a broad thrust across several key science and technology fields.
As a result of this, big money, in terms of billons of dollars was pumped into laboratories, universities and research institutes in fields ranging from biotechnology, information and communications technology, to deep sea research, lasers and robotics. In 2001, clean energy was added to the list.
The programme, reviewed periodically not only by Chinese, but also foreign experts, has provided China with its space capsule Shenzhou, the deep submersible Jiaolong, Longson processor and thousands of patents. In addition to this, there have been important spinoffs for the military like the hyper technology vehicle.
Of course, these efforts have been supplemented by cyber-theft and espionage on a grand scale, but that should not diminish the effort and investment that has gone in projects that aim to make China a high-tech power.
In this period, India also sought to do what China did. In the Rajiv Gandhi government (1984-1989), mission areas were selected and fields like supercomputers and telecom were targeted through agencies like CDAC and C-DOT, and mission areas identified for oilseeds, water, immunisation, literacy and so on. But these programmes imploded with the Rajiv government.
An important difference has been the political stability and continuity provided by the authoritarian Chinese system, and the lack of focus of the Indian one. The difference is actually less with regard to the system, but more the leadership that was provided, both at the political, as well as the mission level.
Most of India’s S&T bureaucrats have proved to be as shoddy as the politicians who led us. I need not take names, some are still around.
There were important exceptions like Verghese Kurian, who enabled India to become a “milk” power. But in most other areas we have lost our way because of the inability of the political system to provide the right kind of leadership to the country.
Mid Day July 8, 2014