June 3, 2019
The following article originally appeared in The Hindu on June 3, 2019.
It is common to assess a country’s foreign policy by examining individual bilateral relationships or specific outcomes. But this risks missing the forest for the trees. While the broad directions of India’s foreign relations — with the neighbourhood, Afghanistan, the U.S., China, Indo-Pacific, Russia, and Europe — have been set over the past several years, the main factors inhibiting India’s performance are ultimately domestic in nature. Three stand out.
The first is trade. It often surprises people that India’s trade-to-GDP ratio is higher than China’s or the U.S.’s. India’s market, and access to it, remains a valuable lever with other countries. But much of India’s commerce involves raw materials and low value-added goods, and is still insufficiently integrated into global supply chains. With global trade stagnant and the World Trade Organization at a standstill, the only way for India to seize a larger share of exports is through well-negotiated preferential trade agreements. India’s past record in this department has been poor, leaving some sectors exposed to dumping and others unnecessarily cloistered. A smarter trade agenda will not only create jobs and drive reforms at home, it could become a potent strategic tool in international affairs.
The second concerns defence. India has the world’s fifth largest defence budget but is also the world’s second largest arms importer. Not only does this compromise national security, it means that India cannot offer an alternative as a defence supplier to countries in its region. Defence indigenisation will require financing for defence capital expenditure; assessments of costs, technology transfer capabilities, and export potential early in the procurement process; and fair competition between the Indian private and public sectors.
The third concerns overseas project implementation. India’s outgoing aid budget has been relatively flat, reflecting a scepticism of grant aid from India’s own experience as a recipient. Instead, it has now started to explore other financing options. Indian overseas credit has increased significantly, with over $24 billion extended primarily to South Asia, Southeast Asia, and Africa. But building on several recent steps will significantly increase the country’s delivery and regional credibility. These include better project planning, more attractive and competitive financing terms, more reliable disbursal of funds, and enhanced coordination and communication with the private sector for implementation.
Many regional policy challenges would be addressed with these three major fixes. None will be easy as they will require tackling vested interests. While the first Modi government made its strategic objectives known and set out a clear direction, key policy interventions in these three areas will now be necessary for India to realise its grander objectives.
May 30, 2019
The following article, co-authored with Rahul Tongia, originally appeared in Mint on May 30, 2019. An excerpt is below and the full text can be accessed here.
As a second Narendra Modi government takes office, the demands it will face to deploy its renewed political capital will be immense. In every area of policy priority—from education and financial inclusion, to health and infrastructure, and energy and defence—an impatient electorate will expect it to deliver. But every policy challenge must necessarily confront trade-offs, even before further complications arise from bureaucratic or party politics.
There’s a popular adage in the tech world: “Cheaper, faster, better. Pick any two." This applies widely to Indian policy, a field where it sometimes assumes the form of a variant: “Cheaper, more, better. Pick any two."
Given India’s human development imperatives, the natural policy impulse has usually been to rush towards providing healthcare, energy access, infrastructure and education on a vast scale. Most evaluations of policy have focused on input measures: How much of a certain public good can be built, deployed, or delivered? Recent examples include the opening of bank accounts as part of Jan Dhan Yojana or household electrification. How such bank accounts are being used or how consistent the supply of electricity on a new connection is, are understandably not the immediate priority.
Moreover, given historical resource scarcity, a second Indian government priority has been to focus on achieving its objectives cheaply. In public tender issuing and procurement—which dictates a lot of public service delivery in India—this has manifested itself in a rigid focus on the lowest-cost bids, known as L1. Together, the emphasis on “more" and “cheaper" has almost always meant that “better" has been sacrificed.
But India has changed. In many policy fields, the challenge of “more" is now being addressed: school enrolment is near full potential, there is surplus power generation supply, housing is readily available but remains vacant, allocated capital budgets for defence are not spent in their entirety, and agricultural yields in certain crops have exceeded demand (resulting in drops in prices and farmer distress). The question of limited financial resources, while still a constraint, is less relevant today, in part due to better tax revenue collection, a natural consequence of the goods and services tax (GST) and digitization. The India of 2019 is no longer as resource-starved it was in the 1970s or 1960s.
May 17, 2019
The following memo appeared in a compilation, India 2024: Policy Priorities for the New Government, released by Brookings India in May 2019.
The next Indian government faces a world that looks very different from the way it did five – and certainly 10 or 20 – years ago. The global economy is facing headwinds: stagnant trade, disruptive technologies, and growing protectionism concerning agricultural and manufactured goods, key services, technology transfers, and labour mobility. U.S. President Donald Trump is rewriting the rules on trade, alliances, and multilateralism, some of which could well outlive his presidency. As its economic growth decelerates, China has become more assertive and less sensitive to the concerns of other countries, including India. This extends to the bilateral boundary dispute, the Belt and Road Initiative (including the China-Pakistan Economic Corridor and the securitisation of the Indian Ocean), economic and trade differences, and positions at various international institutions. India faces a periphery – Bhutan, Nepal, Bangladesh, Myanmar, Sri Lanka, and the Maldives – that is democratising, creating new opportunities and long-term stability but also new challenges to integration and security. Pakistan continues to pursue a revisionist agenda against India – including through the support of terrorist proxies under the nuclear umbrella – even as its economic fundamentals weaken further. Afghanistan’s future remains uncertain, and tensions remain high across the Persian Gulf and between the West and Russia. Amid this backdrop, what should be the priorities for the next Indian government until 2024?
1. Prioritise Trade and Defence Indigenisation
Commerce is increasingly a strategic tool, and India’s growing market is evolving into a potent point of leverage with other actors. However, India’s trade policy has traditionally been dominated by domestic priorities. Identifying areas of Indian comparative advantage, liberalising selectively, and coordinating trade policy between ministries – including through the creation of a special trade representative’s office – are vital. On issues such as the Regional Comprehensive Economic Partnership (RCEP), India faces imminent and difficult choices. Joining RCEP will adversely affect certain sectors of the Indian economy; but not joining will also have costs, and will exclude India from the next generation of regional trade norms. Efforts must be made now in framing trade policy and prioritising certain multilateral and bilateral negotiations so as to avoid having to take such difficult decisions in the future.
Defence self-reliance remains another urgent priority. Despite India having the fifth largest defence budget and hosting a large defence industry, it remains the world’s largest defence importer while its exports are still negligible. Indigenisation of defence production will require: integrating budgetary, technological, industrial, and export factors into the military services’ qualitative requirements (QR), ensuring steady disbursal of funds by the Finance Ministry, and enhancing competition for contracts and innovation within the defence public and private sectors. Many of these policies will require top-down leadership decisions, often against staunch vested interests in the Indian bureaucracy and businesses, and despite very real constraints of time, financial resources, expertise, and political capital. But the absence of decision-making in these areas will severely constrain India’s rise as a global power.
2. Focus on the Neighbourhood and Indo-Pacific
The biggest external strategic challenge facing India concerns the manner of China’s rise and its increased assertiveness. This is impinging on a number of vital Indian interests through the militarisation of the Himalayan border region and the Indian Ocean; the deepening Chinese relationship with Pakistan; the undermining of India’s ties with the likes of Russia, Nepal, and the Maldives; non-market economic practices resulting in dumping, trade barriers, and competitive disadvantages; and India’s entry into international institutions such as the UN Security Council and Nuclear Suppliers Group. Addressing this challenge will require the next government to focus laser-like on improving relations with the neighbourhood, including devoting diplomatic attention, providing assistance, improving connectivity, and recasting regional institutions in a positive light. Furthermore, India must continue to implement an active Act East Policy in the Indo-Pacific. This will require, first, working to secure the Indian Ocean region from further militarisation. Second, India should connect politically, economically, militarily, and socially with Southeast Asia. Third, New Delhi must deepen security partnerships with balancing powers such as the United States, Japan, Australia, Russia, and France. And fourth, it should manage differences with Beijing through sustained engagement.
3. Contain Pakistan & Balance Eurasia
While policy in the near-abroad and to its east is less a question of vision and more one of implementation, a trickier balancing act will be required to India’s west and north. Much will centre on the immediate problem of Pakistan. From 1989 to 2016, India was stuck in a cycle of talks with Pakistan punctuated by disruptions caused by Pakistani military and terrorist provocations. Engagement served a useful purpose at times in mitigating international opprobrium, deflecting attempts at third-party mediation, and managing escalation. However, this experience also makes it clear that positive engagement has done little to alter Pakistani behaviour. The growing international frustration with Pakistan – whether its continued support for terrorist groups, its adverse civil-military relations, its non-proliferation record, or its involvement in Afghanistan – presents an opportunity for India to relentlessly press its advantages, within the confines presented by both countries’ nuclear weapons. Although Pakistan will continue to resist coercive behaviour, with likely support from China, the sustained isolation of Pakistan – even if unilateral and initially inadequate – is more likely to result in behavioural changes as the power disparity grows further in India’s favour than a return to the cycle of talks and disruptions.
More delicate balancing acts will have to be executed in West Asia and Eurasia. India’s partnerships with many centres of global and regional power are increasingly positive and broad, and have assumed a logic of their own. This extends to the United States, Europe, Japan, South Korea, Southeast Asia, Australia, Canada, the United Arab Emirates, Saudi Arabia, and Israel. These will remain India’s most important relationships. But as these ties improve, India will face tough balancing acts in preserving mutually-beneficial relations with Russia and Iran. Russia is more important and complicated, given India’s continued dependence on Russian military hardware, spares, and maintenance; close technological cooperation; and concerns about Russia’s relations with China. Engaging with Moscow will occasionally imperil relations with the United States and Europe, but this will require a series of clear-headed cost-benefit analyses. Iran is a more manageable issue, given leaner relations, but cooperation on connectivity and Afghanistan will remain important. To the extent that India can manage these balancing acts, it should do so.
Categories: Brookings India
May 8, 2019
The following article originally appeared in The Hindu on May 8, 2019.
Six years after it was unveiled, China’s Belt and Road Initiative (BRI) assumes another avatar. In its initial form, it was all things to all people, a catch-all for China’s international engagement. But in fact it had multiple, layered objectives. The first concerned domestic economics: exporting surplus industrial capacity and cash reserves overseas to keep China’s economy humming, its industrial output flowing, and its employment levels high. The second concerned domestic politics: a signature foreign initiative to associate with Chinese President Xi Jinping. The third concerned security: stabilising Western provinces and the Eurasian hinterland. And the fourth concerned strategy: leveraging China’s new-found economic heft for political objectives in Asia, Africa, Europe, and the Indian and Pacific Oceans, and creating new standards and institutions in a bid to challenge U.S. leadership.
But Beijing may have moved too soon and too quickly. As the second Belt and Road Forum (BRF) concludes, a paradox has become apparent at the heart of its ambitious initiative. On the one hand, there has been a strong backlash. The economic viability of Chinese projects is now viewed with considerable scrutiny. In capitals around the world, the port of Hambantota in Sri Lanka is being described as a warning sign. The BRI’s sustainability is called further into question as Chinese debt, especially that held by state-owned enterprises, mounts. Additionally, security concerns have begun to predominate as far afield as in the European Union, the South Pacific and Canada. The role of China’s state in its business dealings is being deliberated openly. China’s military base at Djibouti has injected an overtly military element to its external engagement. And political pushback to Beijing is also discernible, whether in Zambia, the Maldives or Brazil.
Yet, despite these obvious deficiencies, the allure of the BRI remains strong. Many countries still see China as an attractive alternative to slow-moving democratic bureaucracies and tedious lending institutions. There are also political motivations at play: a minor agreement on the BRI is a useful tool for Italy’s Eurosceptic government to send a strong political message to the EU. Beijing has also become more flexible, the tone of this year’s BRF less triumphalist. Chinese overseas financial flows have slowed since 2017, and the focus has shifted away from massive infrastructure projects to realms such as digital technology.
Given these contrasting trends, the future of the BRI is more uncertain than ever. For India, which boycotted the BRF for the second time on grounds of both sovereignty (the China-Pakistan Economic Corridor traverses Pakistan-occupied Kashmir) and unsustainability (particularly in the Indian Ocean), it means continuing to monitor China’s international engagement closely.