One of India’s principal challenges in east Asia is that New Delhi’s strategy can only be effective if it builds sustainable geoeconomic relationships with countries with whom it shares geopolitical interests.
India often miss the geoeconomic dimension. For instance, in discussions about energy security or arms supplies, it goes unnoticed that we generally buy fuel and weapons from countries that are not among our top trading partners.
Take out oil imports and Saudi Arabia and Iran plummet down the list of our trading partners. Take out military equipment and Russia falls off India’s economic radar screen. This lack of congruence between our strategic suppliers and our overall trading partners is a pernicious source of risk to our national security.
So India finds itself at the receiving end of Russia’s negotiating tactics over missile and aircraft carrier purchases. The absence of a broader, deeper and more balanced economic engagement between the two countries gives Russia a lot of leverage. It is not only out of the goodness of hearts that Moscow is willing to sell us the equipment we want, but it is also because the Russians know that negotiating power in such deals will be overwhelmingly in their favour. Similarly, in 2005, the Iranians could unilaterally repudiate a $21-billion deal to supply liquefied natural gas after India voted to refer that country’s nuclear programme to the United Nations Security Council. They too knew they could get away with it.
There are three ways to get out of this corner. First, we could diversify supply by expanding the range of suppliers. This is not easy because it requires supply cartels to be prised open, supplier countries to prevail over dearly-held dogmas or technology to mature. Mere diplomacy is likely to be insufficient to break through the constraints imposed by the Organisation of the Petroleum Exporting Countries and the Nuclear Suppliers Group, to persuade Australia to export uranium or to enlist South Korea and Japan as defence technology partners.
Second, we could buy arms and energy from our trading partners — if they produce what we need and are ready to sell it. It, therefore, makes sense to buy more defence equipment from the United States and countries of the European Union — both are among our biggest trading partners. What about China then? If there were no unresolved bilateral disputes then a mutually beneficial defence technology partnership could be contemplated. But given the deep distrust, not to mention the possibly structurally competitive geopolitics between the two, such an outcome is ruled out for the foreseaable future. Beyond national security, there are ways in which China can be strategically engaged. Fellow columnist Ajit Ranade threw up a tantalising idea in this newspaper a few days ago: Chinese cash for India’s infrastructure? (“Corporate cash and fiscal crash”, July 26).
Third, we could broaden economic engagement with our energy or arms suppliers. In the two decades since the P V Narasimha Rao government established full diplomatic relations with Israel, bilateral trade has risen from negligible levels to around $5 billion in 2010, and India is the country’s second-largest export destination. There is a lot more potential in this relationship, and it stands as an example of how the geoeconomic and the geopolitical components of geostrategy can be made to converge.
This is extremely important in east Asia. However, economic partnerships are primarily built by the private sector, through investment, trade and travel. What role then does the government have? Should the government attempt to engage Japan, South Korea, Vietnam and Indonesia in big investment projects and trade deals? Yes, but without basic reform in land acquisition, labour laws, taxation and foreign direct investment norms, relationships will be limited to a few government greenhouse ventures.
At a recent roundtable organised in Singapore by the Indian High Commission and the Japanese Embassy, R P Singh, secretary, Department of Industrial Policy and Promotion, noted that “foreign private equity was now going into the established companies and not the start-up firms in India”. Political and regulatory risks surrounding new ventures, small or large, are causing investors to put their money in existing firms. Far more than trying to provide benefits to venture capitalists to invest in start-ups and small and medium enterprises, what New Delhi needs to do is move ahead with second-generation economic reforms. Indeed, such reforms are the necessary conditions for the success of India’s east-Asian engagement. Whatever might be the geopolitical prerogatives of their governments, Japanese and South Korean investors are more likely to invest in China and countries belonging to the Association of South East Asian Nations than in an India that is less than competitive.
The government has another role: to catalyse an economic intercourse with countries like Indonesia, Vietnam, Taiwan and the Philippines. But here’s the thing: there are not even directs flights to these countries. If Jakarta, Hanoi, Taipei and Manila are not considered commercially viable destinations at this time, then New Delhi could subsidise these routes. Besides, when the government already owns Air India, why not use it for strategic purposes?