India has to improve its connectivity with growth markets and link into Asia’s production and supply chains. We cannot be left isolated in our own backwater.
Since China launched the One-Belt-one-Road (OBOR) initiative – a long-term plan for land connectivity network across Asia and maritime routes spanning the seas from the Pacific to the Mediterranean – India has preserved a coy reticence about its participation in the venture. But in March 2016, in an address at the Raisina Dialogue in New Delhi, foreign secretary S. Jaishankar made a definitive statement on the subject. Without mentioning OBOR, he made it clear that India viewed it very differently from the Asian Infrastructure Investment Bank (AIIB), also a Chinese initiative. He emphasised that detailed consultations with China had preceded India’s decision to join the AIIB. However, OBOR had been presented as a “more unilateral decision”. “The key issue,” Jaishankar said, “is whether we will build our connectivity through consultative processes or more unilateral decisions”, adding that India definitely preferred the former.
OBOR and AIIB
That is an admirably clear articulation. But are AIIB and OBOR strictly comparable? Might prior consultation be right for one, but its absence (at the outset) not be a game-stopper for the other? The AIIB is an organisation, that has a formal structure and a constitution. It makes sense for India to obtain a prior view of the main sponsor’s intent and ideas on those subjects. Obviously, what India heard from China was sufficient comfort for us to join – correctly – as a founder member, and thus be well placed to contribute to developing the bank’s constitution as well its organisation structure.
OBOR, however, is not an organisation and hence it has neither any structure nor constitution. It is a loose network of roads, rail, pipelines and waterways linking China by land and sea to other parts of Asia and to Europe. If points A, B, C and D are to be connected to carry goods, services or information, the consent of each relevant sovereign authority is required. Every link will also need to be viable and thus custom-designed to suit the concerned parties, and so consultation and agreement are built into its very nature. However, at any point of time, the network as a whole can only be presented as a concept, since its constituent parts will each be in a different state of development. Every nation can choose what to take, what to leave and how deeply to get involved in the network.
The Chinese themselves admit now – ruefully – that the nature of OBOR, including these nuances, were insufficiently explained by them at the time of its launch. Much like presenting a tasty dish, that on sight alone would attract attention, OBOR was launched with great fanfare but with no further questions asked or explanations given. Despite some initial perplexity, several nations soon indicated their interest. Russia – initially somewhat sceptical – agreed to join, and as of now, some 70 nations are reported to have shown active interest. Amongst them are India’s neighbours – all except Bhutan. Clearly, these nations have since evaluated OBOR in cooler light and found it of potential benefit, notwithstanding the somewhat inelegant and one-sided nature of its launch. Indeed, at the Raisina Dialogue, the former presidents of Sri Lanka and Afghanistan prompted India to view OBOR ‘not as a threat but as an opportunity’.
The national interest
So how does OBOR work for India’s national interest? Relevant to it are the Maritime Silk Route (MSR) and also the three land corridors – the China-Pakistan Economic Corridor (CPEC) in the west, the planned trans-Himalayan railway linking Kathmandu to Lhasa in the north, and the Bangladesh-China-India-Myanmar Economic Corridor (BCIM-EC) to the east. We must evaluate these in the knowledge that connectivity is the most important factor impeding trade today, now that tariff barriers in most of the world have reduced sharply. India can only benefit by linking into the production and supply chains of Asia, that still host the fastest growing economies in the world.
The MSR could well be synergistic with India’s own ambitious port and coastal development plans. Let us remember the cautionary tale of India’s airport development. If the new airports at Delhi and Mumbai had been built 25 years ago, perhaps Dubai and Singapore may not have so easily become the airline hubs for the southern Asian periphery. Similarly, India needs at least one world-class modern port on each coast, capable of receiving the largest vessels. Indeed, a well-ordered system of main and subsidiary ports, which can attract international shipping lines, is essential to accelerate the ‘Make in India’ effort through the generation of export demand. Why not invite China, Japan and Korea – the worlds’ best ship-builders – to help us develop our ports, including hinterland infrastructure and our shipping capacity, distributing the projects judiciously amongst them as we have done in the case of our railway development?
The CPEC has been the object of much ire in India, since it traverses the disputed area of Pakistan-occupied Kashmir (PoK). But we should remember that in the CPEC, China has placed a huge bet of US$ 46 billion which it hopes will kickstart the process of prosperity and stability in Pakistan. India too must hope that this gamble will work, for the prospects of failure will unleash a nightmare scenario in Pakistan with India as its focus. But it is worth remembering that the real potential of the CPEC for the entire region lies in connecting with India in the east, and with Iran and the Middle Eastern economies to the west. Pakistan can be a hinterland for the industrial hubs of western India and, in time to come, could connect with the Delhi-Mumbai economic corridor. The sub-continent forms a natural geo-economic entity and India must seriously pursue the goal of an economic reconnection with Pakistan, while keeping the political issues running on a parallel track. This is much like China and Japan maintaining an intense economic engagement whilst dealing with emotive historical legacies and territorial disputes.
We can try and strike a deal with China that neither of our countries will object to the other’s (or to third-party) investments in PoK or Arunachal Pradesh, whilst reserving our respective legal claims to the territories in question. This will at least enable bodies such as the Asian Development Bank (ADB) (and now the BRICS Bank and the AIIB as well) to fund development projects in these areas, thus divorcing territorial issues from restricting benefits for the population.
The northern route via Kathmandu to Tibet does not have the potential economic scale of the CPEC, but it would perform the important geopolitical aim of reconnecting Tibet to the sub-continent, as was customary in ancient times. The Himalayas were never quite the impassable barrier that our old geography textbooks made them out to be. Tibet was closely linked to India culturally, as it was also to China, and thus provides an example of a unique cultural tradition with deep connections with both civilisations and rich intellectual trade with each one of them. Swami Pranavananda, author of Exploration in Tibet, documents 12 trans-Himalayan routes which linked India with Tibet, many of which were in active use until 1947. The road/rail connectivity with Tibet would enable northern India and Nepal to export agricultural and consumer products to Tibet, perhaps at competitive prices, considering that Chinese goods would need to make a much longer journey from the inner provinces of China. There is also the possibility of an electrical grid which would link Tibet, Nepal and India.
The Bangladesh-China-India-Myanmar Economic Corridor
Finally, the BCIM-EC – an initiative which India agreed upon officially to develop in conjunction with the other three nations – but upon which action, on the Indian side, is proceeding at less than glacial speed. This initiative offers us the opportunity to reconnect the historic waterway linkages with Bangladesh that were severed in 1947, and also to connect with Myanmar – a potential ‘little tiger’ economy to whom we need to pay far greater attention. It offers a concrete avenue to “Act East”. It is just as well that China is part of the BCIM since we must recognise that it will always be part of any “Act East” initiative – if not as formally part of the venture, it will nevertheless be a hidden ‘elephant in the room’ whose ghostly presence will make itself felt. In this sense, the BCIM-EC is realistic in being an inclusive group, as opposed to the formation of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), which ostentatiously excludes China. It is a forum where India and Bangladesh can – jointly and legitimately – place trans-boundary rivers on the agenda as an item for discussion with China, and thus provide a platform for all parties to work out a modus vivendi on the question of the Brahmaputra waters. The BCIM-EC also offers our north-eastern states the opportunity to connect with the two neighbouring continental economies of ASEAN and China. These opportunities come with costs, which need rational evaluation.
Northeastern states and the neighbouring countries
The Indian state has two apprehensions about the BCIM-EC (and the same would extend to the MSR and the other two land routes were they in the same stage of evolution as the former, which is not the case today). Firstly, security considerations related to China’s presence in the BCIM which traverses India’s sensitive Northeast; and secondly, the economic ‘threat’ of Chinese goods ‘swamping’ the Indian hinterland as a result of the BCIM trading arrangements. Let us consider both arguments one by one.
There is no doubt that security is a vitally important consideration to be evaluated when dealing with a country with whom we have a border dispute that is still alive. By its very nature, security issues cannot be laid bare in the same way as other areas. But having said that, there has to be a better way to discuss security in the lay domain than is currently the case, where the very mention of the word ‘security’ is enough to stop further discussion on any proposal for Chinese investment or participation. Perhaps the solution lies in adopting the concept of ‘risk management’ used in business and industry to evaluate the risk quotient of any project. This process starts by listing the various risks that any venture faces – market acceptance, technical failure, design, natural disasters and civil commotion. The magnitude of each risk is then quantified and multiplied by its probability of occurrence. The product, thus calculated, expresses the impact of that risk, usually as a financial number. For example, if a project is to be constructed in a Zone-4 seismic region (high earthquake magnitude and high probability), extra costs will apply for earthquake-proofing the construction design and providing additional safety measures.
Whilst security reasons may not be translatable into financial terms quite so easily, perhaps they could be measured by assigning a colour to each level of risk; green, yellow, orange and red. Each colour code should carry an illustrative description of what that risk level means. This will at least introduce a partial transparency to the security dimension of any Chinese investment and make it easier for a political call to be made to give the green signal. And political it must be, for bureaucratic ministries and agencies are, by their nature risk-averse, particularly in India, and no single agency is inclined or even mandated to look beyond its own sphere of responsibility and take a holistic view of the risks as well as the benefits. Political judgements can also take into consideration the extent and range of Chinese investments in other countries, their effectiveness and consequences. In Britain, for example, China has recently won a contract to set up two nuclear power plants, and they operate a telephone network as well. These and many other examples need to be studied, as also the tendency of trade competitors to use the term ‘security’ as a way to gain an advantage over rivals. It may be a good policy to make the best use of China’s vast financial resources available for investment, but also spread the risk by using Korean, Japanese, Malaysian and Indonesian resources which have proven expertise in the area of infrastructure development.
Import through BCIM-EC
Coming to the point about being ‘swamped’ by the Chinese goods through the BCIM-EC (and the other routes if and when they materialise), it is a simple matter of supply and demand. Take Chinese steel which was being ‘dumped’ until recently into India. These imports took place through orders placed by Indian intermediate steel product manufacturers, who found Indian-made steel too expensive. While the imports hurt Indian steel mills, the intermediaries and the final consumers benefited. When duties were imposed, the position reversed. In either case, the winners and losers were both Indian entities. Such anomalies are likely whenever there is a fundamental lack of competitiveness between two economies. Even Diwali lights and typically Indian Ganesh idols are imported from China by legitimate Indian importers.
The good news is – as the Confederation of Indian Industry (CII) points out in its two reports on India-China comparative trade of 2014 and 2016 – India’s competitiveness on many fronts as compared to China has improved in the period 2009-2014. During this time, the Chinese currency appreciated considerably while the Indian rupee depreciated, and wages rose rapidly in China. Indian medical formulations are cheaper than China’s as also are many automobile ancillaries. But specific steps need to be taken by the Indian industry and government in coordination to stem the growth of the trade deficit with China. Even more important is the urgent need to revive and rejuvenate Indian manufacturing.
It should be remembered that China is moving up the value chain in manufacturing whilst much of the low-cost production items such as textiles, garments and footwear have moved to destinations such as Bangladesh and Vietnam, and are now poised to enter Laos, Cambodia and Myanmar. So the danger of cheap smuggled goods across porous land borders remains as long as there is an arbitrage possibility open to the smuggler. But India’s size and diversity is such that these goods will find it difficult to ‘swamp’ the market in any appreciable manner.
We cannot be left isolated in our own backwater. India has to improve its connectivity with growth markets and link into Asia’s production and supply chains. In doing so, OBOR presents opportunities which need critical examination. At the same time, we need to set our internal house in order for strong economic growth based on a manufacturing revival. The window of opportunity for India to capitalise on its ‘demographic dividend’ will not remain open for too long. If the moment is not seized, the same demography can turn into a nightmare. If ever the Latin phrase ‘Carpe diem’ – seize the day! – had relevance for India, it is at this very moment. Let us do so with both hands.
Ravi Bhoothalingam is a corporate director and an Honorary Fellow of the Institute of Chinese Studies.