Saturday, July 08, 2017

Between opportunities and challenges

Prime Minister Narendra Modi’s recent visit to Europe and to Kazakhstan has taken  place at an important conjuncture in global geopolitics. The withdrawal of the US from the Paris Climate Accord and the tensions in its ties with its allies like Germany have made the global geopolitical situation very fluid. The recent election outcome in UK has only added to this fluidity. Countries like China see this as an opportunity to fill the vacuum. India cannot compete with China across the board, but it needs to sharply upgrade its game to ensure that it does not lose out in the world order that is emerging. In this context, joining the Shanghai Cooperation Organisation is a positive move which enables India to play from the front foot.

India’s SCO membership rests upon the support India received from Russia and that it why the  most important leg of Modi’s European visit was the two day visit to Russia which followed upon his visits to Spain and Germany. Thereafter, he went to France. Russia is no ordinary country, it has been one of India’s steadfast friends in the past 70 years. And considering that there are really no contentious issues between the two countries and actual congruence on issues like terrorism, relations with Afghanistan and Iran, this relationship promises to deliver more in the coming decades.
Statements and declarations in all four  countries pressed the usual buttons—support for India candidature to the UN Security Council, strong criticism of terrorism and the conclusion of negotiations on a Comprehensive Convention on International Terrorism. These indicate that they are issues that are being pursued by India.

Then there are issues that Russia will not sign on such as  the support for the freedom of navigation and the UNCLOS, an oblique criticism of China and the South China Sea. Germany agreed to a general reference, while Spain took the step of agreeing with India that the South China sea issue needed to be resolved through peaceful means and avoidance of “unilateral actions that raise tensions.”

Spain and Germany are also important in the context of its recent accession to the Missile Technology Control Regime (MTCR),   and the Wassenaar Arrangement, NSG and Australia Group which it is seeking to join.  All three countries are supportive on India on these issues.
But Russian views on Pakistan are nuanced.  While it is a strong friend of India and has strongly condemned terrorism, it has not endorsed India’s tough stand on Pakistan. In an interview with PTI, President Putin said that the assessment of whether Pakistan is fuelling terrorism is “up to you [India]” and added that Pakistan was taking “immense steps to stabilize the situation in the[ir] country.”

Visits to Russia usually have practical outcomes. And so it was with the present visit which led to the two countries to sign an agreement to build two new reactors in Kudankulam and a loan of $ 4.2 billion to build them. In his interview with PTI Putin referred to “deep cooperation in delicate areas such as missiles,” something Russia has with no other country. He noted that Indo-Russian defence cooperation is at an “unprecedented level in its volume and quality.” Hopefully the visit would have given a push to stalled projects such as the manufacture in India of the Kamov 226T helicopter and  the fifth generation fighter. India’s ongoing cooperation on the second nuclear propelled submarine and the extended range Brahmos are of great strategic importance.

Despite all the political hype surrounding the visit, the fact is that India’s economic engagement with all three countries is below par. India total trade with Germany is just Euro 18 billion and its FDI in India is just about Euro 1 billion and India’s investment in Germany ae around Euro 7 billion.  Trade with Spain is just about $ 5 billion, though surprisingly, Spain’s FDI in India at $ 2.32 billion, though low, is double that of Germany’s. Indo-French trade was Euro 8.58 billion in 2016, French investments in India are around Euro 6 billion and India’s investment there is Euro 188 million.

The biggest underperformance in economic ties is with our friend Russia. Total trade last year was just $ 7.71 billion which was actually a decline of 1.5 per cent over 2015. Russian investments in India are of the order of $ 16 billion and Indian investments in Russia are about $ 13 billion, mainly in the energy sector. Of course, this does not take into account the money spent by India in buying defence equipment and spares.

One big problem India has with Germany and Russia is the lack of a free trade agreement. Talks with Germany on an FTA stalled in 2013 after 16 rounds  and since then bilateral treaties with Germany and other European countries have also lapsed. FTA talks with the Eurasian Economic Union anchored by Russia are yet to get underway. There is an impression among many countries that India is a difficult country to deal with on trade issues.

When looking at our ties with these European countries it would be useful to compare them with those of China. In 2016, German trade with China was of the order of Euro 170 billion, making it Germany’s most important trade partner. Total German FDI in China is around Euro 50 billion, Chinese investment is around Euro 18.5 billion. Bilateral trade between China and Russia is of the order of $ 69.5 billion in 2016 and is growing rapidly. China’s investment in Russia is around $ 40  billion and growing. China has ben on a buying spree in Europe, acquiring companies with a view of enhancing its own capabilities. They have bought companies dealing with robotics, telecom, aviation, energy, fashion and entertainment.

Beyond these figures are the trends over the horizon. China’s OBOR project aimed at consolidating ties with Europe and all three countries that Modi visited play an important role here. This year,  2000 or so trains will go from cities in China to European destinations like Madrid, Duisberg in Germany. Most of them travel through the Russian railway system. China is also developing maritime linkages via the Mediterranean into the heart of rich Europe. China’s strategy of Eurasian consolidation is closely linked to its aim of becoming a developed country by 2050 and it is systematically working towards it.

There are many opportunities for India through its close political ties with Russia and Germany. One of these is the International North South Transportation Corridor (INSTC), a multi-modal transportation project that will ferry  containers from Indian ports like Kandla and Mumbai to Russia and Europe via Iran. So far little has been done to promote the scheme, except to test its feasibility. Likewise it needs to speed up the linkages to Central Asia through Chah Bahar.

It is not surprising therefore that in Astana, Modi played a low key game. After all this was the first meeting India was attending as a full member. Nevertheless, he did make it a point to tell the audience, which included Nawaz Sharif and Xi Jinping, that India strongly  supported connectivity projects, but wanted them to take into account issues of sovereignty and territorial integrity. Perhaps India’s membership in SCO could provide the answer to the challenging issues that divide New Delhi, Islamabad and Beijing.
Greater Kashmir June 14, 2017

No comments: