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Mainstream, VOL LIV No 6 New Delhi January 30, 2016

Chronicle of wasted time: India’s Spluttering Economic Diplomacy with China and Pakistan

Saturday 30 January 2016, by M K Bhadrakumar

The Time magazine featured Narendra Modi, the then Chief Minister of the State of Gujarat, as the cover story in a March 2012 issue titled ‘Modi Means Business’. Only four Indians had appeared on the magazine’s cover—Mahatma Gandhi, Sardar Patel, Lal Bahadur Shastri and Vinoba Bhave. Time lauded Modi as a “firm, no-nonsense leader who will set the nation on a course of development that might finally put it on par with China”.

This was the common perception of Modi in the West. It was a carefully-cultivated impression by Modi who went on to state through his 2014 election campaign that he intended to turn around the focus of Indian foreign policies to give primacy to trade and economic diplomacy.

In the run-up to the 2014 election, the prognosis by the American establishment think-tank Carnegie Endowment for International Peace reflected the growing opinion on Modi: “When it comes to dealing with big powers, geoeconomics... will likely guide Modi’s foreign policy... For instance, geoeconomics will play a central part in driving Sino-Indian relations. Modi is well aware that China needs the big Indian market, while India desperately seeks large Chinese investments to build transit and other infrastructure critical to its economic revival. Acrimony over borders and geopolitical rivalry in the region notwithstanding, trade will be the centrepiece of India’s policy toward China... In all likelihood, Modi will highlight issues relating to trade, investment, infra-structure, and the other economic and develop-ment inputs necessary to revive economic growth. In short, his government’s priority is to bridge the gap between the country’s development goals and its foreign policy.”

Indeed, seasoned ‘India hands’ were also not without a degree of unease, given Modi’s contro-versial background as a staunch Hindu nationalist and erstwhile RSS pracharak. Teresita Schaffer at the Brookings Institution wrote: “From the policy perspective, the good news is his emphasis on enhancing India’s economic performance and ensuring that a welcome mat is out for business... (But) relations with Pakistan are at best a question mark... If Modi followed his economic logic and pursued the currently stalled economic opening between the two neighbours, this could put them on a more constructive path. On the other hand, a bombing or other incident could bring out the tough side of policy. There are plenty of spoilers around who might produce such a scenario.”

As Modi completes 20 months in office as Prime Minister (one-third of his 60-month mandate), it is possible—and necessary—to ask how far he lived up to his fabulous reputation for bringing about a reorientation in the Indian foreign policies, making them an extension or tool of the development agenda he promised as the core of his national policy.

The issues narrow down to India’s relations with China and Pakistan for the purpose of this essay. How far has India succeeded under Modi’s leadership to create an external enviornment for the pursuit of robust economic diplomacy vis-a-vis China and Pakistan?

Shattered Hopes

Modi began brilliantly with both China and Pakistan. Beijing already had favourable notions about him since he had visited China thrice as the Chief Minister of Gujarat and was a promoter of Chinese business in the State. Beijing warmed up with alacrity to the Modi Government and in an extraordinary gesture, Foreign Minister Wang Yi arrived in Delhi, doubling down as special envoy, hoping to be the early bird to catch the worm. This phase of camaraderie lasted for the next several months until the sun set on the Sabarmati river banks on September 17, 2014, drawing to a close the first day of President Xi Jinping’s visit to India.

By the time Xi arrived in Delhi the next day, it was apparent that the effusive warmth with which Modi received him at Ahmedabad was nowhere to be seen or felt either due to naivety over the formidable headwinds from the Indian establishment or was, after all, a put-on show on his part to mislead the gullible Chinese. Who really sabotaged Xi’s visit still remains an open question.

Things were never really the same again. To cut a long story short, the $ 100 billion dollar investments that China reportedly had planned “in setting up of industrial parks, modernisation of railways, highways, ports, power generation, distribution and transmission, automobiles, manufacturing, food processing and textile industries” (according to the Chinese Consul-General in Mumbai) disappeared into thin air.

The Sino-Indian economic ties are languishing today. This is despite Chinese investment still holding a major attraction for India to develop its infrastructure and build a manufacturing sector leading to large-scale job creation. The West cannot substitute for China here. However, Sino-Indian trade has shrunk and there is no big Chinese investment plan on the anvil. Ironically, Chinese projects under the rubric of the $ 42 billion China-Pakistan Economic Corridor have meanwhile galloped to reach the implementation stage (although Xi visited Pakistan seven months after his India visit.)

Modi’s diplomacy toward Pakistan has run almost on a parallel track. Again, he took a breathtaking initiative to invite Pakistan Prime Minister Nawaz Sharif to attend his inaugural, which was every bit as sensational as the welcome he personally extended to Xi in Ahhmedabad. It raised high expectations, but only to be dashed very soon. A dialogue with Pakistan is still struggling to take off and Modi’s campaign pledge to develop friendly relations with that country lies in shambles.

Meanwhile, the Hindu nationalists, who mentor the government, began resuscitating the thesis of ‘Akhand Bharat’ and ‘Hindu Rashtra’. As things stand today, the pendulum has swung to the other extreme with Defence Minister Manohar Parrikar, one of Modi’s close associates in the government, openly threatening Pakistan (for a second time) with the use of cross-border terrorism as an instrument of state policy. The stunning part is that Parrikar did this within a fortnight of Modi’s dramatic stopover in Lahore at Sharif’s family estate on December 25.

Suffice it to say, the dismal picture that emerges is that economic diplomacy is actually nowhere at the top in the Modi Government’s order of priorities when it comes to India’s relations with China and Pakistan. Whereas trade and economic ties would have been a stabilising factor in the troubled relations with these two countries, incrementally making them ‘stakeholders’ in a cooperative relationship, no serious effort was made. In the case of China, despite that country’s manifest eagerness to accelerate economic cooperation, the Modi Government chose to identify India with the US’ rebalance strategy in Asia (whose principal objective is the containment of China.)

In a series of provocative moves, India barged into the South China Sea dispute as if it is an aggrieved party. India began inching closer to forming a strategic alliance with the US and Japan in the Asian region, with a pronounced animus against China.

The Modi Government’s China strategies are predicated on the belief that Washington and Tokyo visualise India as a ‘counterweight’ to China. It is a big gambit because, paradoxically, both the US and Japan have hugely consequential relationships with China and they practise robust economic diplomacy with China, never taking the eye off the Chinese market. Arguably, the Trans-Pacific Partnership itself can be seen as the leitmotif of a far-sighted US project to eventually integrate China as a market economy on America’s terms.

The Sino-American inter-dependency has touched such a high level today that a confron-tation between the two big powers is simply inconceivable and their cautious mutual behaviour while finessing emergent frictions in the relationship bears this out. China seeks a more equitable world order but has no intentions to undermine the existing one, especially the financial architecture. America understands this. One of the most significant events of 2015, perhaps, was the IMF’s acceptance of Yuan as reserve currency alongside the Dollar, Yen and the Euro. It illustrated, if more evidence was needed, that Washington recognises that China has risen and that the rules of the game need to change.

Why would Washington have use of India as ‘counterweight’ to China? India would have been far better off to move on the same track that the UPA Government astutely pursued by giving primacy to constructive engagement of China that helps it to address its specific concerns while cooperating to advance common interests as emerging powers. The UPA consis-tently maintained that India and China have more shared interests as emerging powers than the differences that may keep them apart.

The Modi Government’s Pakistan policies face similar dilemma. It has been evident for sometime that under the combined pressure from the international community—the US and China alike—Pakistani policies regarding Afghanistan and the use of terrorism as an instrument of state policy were on the cusp of change. It is in India’s interests to encourage Pakistan to move in that direction and to create a comfort level, given that country’s paranoia and phobias about India. But, on the other hand, a new template has appeared in the nature of alleged Indian activities to destabilise Pakistan.

No doubt, an extra edge has also appeared insofar as that the forces that give ideological orientation to the Modi Government refuse to accept the Partition as an enduring reality. Like in the case with China, the Modi Government is conveying the impression that it is willing to deal with Pakistan only from a position of advantage.

But there is a major difference here, too. While a Sino-Indian normalisation ultimately has to be India’s choice, an India-Pakistan normalisation will also be the US’ choice. Modi has come under heavy US pressure to resume dialogue with Pakistan and ease tensions so that American strategies in the region—Afghan settlement, military bases in Afghanistan, ‘rebalance’ in Central Asia, etc.— can make headway. The on-again-off-again nature of Modi’s engagement with Pakistan is to be seen in this light.

Of course, the American pressure on India and Pakistan to ease their tensions is a welcome thing under the circumstances when the two countries seem to be unable or unwilling to move forward in their relations. But this also has minuses since the US has a history of inserting itself into other countries’ mutual relationships and to take advantage. In the ultimate analysis, India will be far better off to deal with Pakistan as its next door neighbour out of its own volition and as a matter of long-term policy in its national interests without having to take take help from faraway powers who would have their own regional agenda. After all, the two countries are also joined at the hips, as it were, despite their acrimonious quarrels and differences.

The ‘Big Picture’

In all this, what becomes evident is the fundamental flaw in the Indian policies in the Modi Government’s failure to make a sustained attempt to use economic diplomacy as a confidence-building measure and underpinning to make Pakistan a stakeholder in friendly relations. The Iran-Pakistan-India gas pipeline project would have provided an ideal platform to build a relationship of mutual dependency, but the US pressure (on both India and Pakistan) stood in the way. Now that the sanctions against Iran are due to be lifted soon, it is about time India takes a fresh look. But, alas, the Modi Government is so far looking disinterested. The Modi Government seems to prioritise India’s relations with Israel in its West Asia policies and it needs no elaboration that Israel regards the rise of Iran as posing a threat to its regional dominance as the unchallenged military power and an Indian-Iranian energy axis will be the worst-case scenario.

Similarly, India has not cared to connect the dots to evolve an integrated strategy taking advantage of its privileged status as the second biggest shareholder in the Asian Infrastructure Investment Bank (AIIB). It is abundantly clear by now that with or without the Modi Government’s cooperation, China’s Belt and Road Initiatives are taking shape in the region and New Delhi’s policy of aloofness is only isolating India. Infrastructure development in India dovetails ideally with China’s Belt and Road Initiative, thanks to the funding available from AIIB and Silk Road Fund, which have capital of $ 100 billion and $ 40 billion respectively.

Ideally, India should aspire to use its (and Pakistan’s) forthcoming membership of the Shanghai Cooperation Organisation (SCO) to leverage its relations with both China and Pakistan. The SCO has vast potentials to be a platform for regional cooperation not only in the security sphere but also in the economic field. The very fact that India, China and Pakistan will be sitting ever so frequently at various levels under a single canopy and deciding on regional cooperation strictly on the basis of unanimity of opinion derived out of convergence of interests opens up seamless possibilities.

Of course, there is bound to be renewed American pressure on India to hold back its involvement with the SCO, an organisation that Washington has viewed with disquiet as a platform of Asian solidarity that brings together four nuclear powers and three of the major powers in the Asian continent. On the other hand, the SCO can provide the missing link in India’s Central Asia policies. By the way, there are growing signs that once the sanctions against Iran are removed, that country’s SCO membership will be speed-tracked. An ‘SCO energy club’ that has been talked about in the past is poised to enter the realms of possibility —bringing together two of the world’s top-ranking energy-producing countries and two of the world’s most important energy-consuming countries.

For all this to happen, of course, India needs to have the ‘big picture’, which is sadly lacking. Admittedly, an enduring settlement of disputes with China and Pakistan remains a long-term project. What is involved is much more than the drawing of a line on the map. It becomes a historic ‘political act’ that can fructify only on the basis of strategic understanding, which will take time, where domestic opinion also forms a template. This is where economic diplomacy comes handy, which helps to stabilise the relationships and create a matrix of mutual interests in a short term itself that ultimately can provide the critical mass for reaching a strategic understanding.

Economic diplomacy involves ‘public diplo-macy’, which also helps form domestic opinion. However, the past 20 months have turned out to be a chronicle of wasted time with the Modi Government meandering aimlessly, marking time. Economic diplomacy remains, arguably, yet another unfulfilled pledge that Modi made during his election campaign in 2014.

The author is a former diplomat who has served in the Indian missions in the former Soviet Union, Pakistan and Uzbekistan and headed the Iran-Pakistan-Afghanistan Division in the Ministry of External Affairs.

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