Politics / Globalisation

The new India-US partnership in the Indo-Pacific: Peace, prosperity and security

Original link is here

Over the years, India earned the epithet of a reluctant power in Asia — exuberant in its aspirations, yet guarded in its strategy. However, as the challenges in its immediate neighbourhood and beyond continue to evolve, India is today gearing up to embrace a larger role in the far wider theatre of the Indo-Pacific.

Forming the core of the ongoing global economic and strategic transitions are a rising and assertive China, an eastward shifting economic locus, and the faltering of Western-led multilateral institutions. These converge with domestic development and national security objectives to demand that India strive to expand its presence, reach, and voice both on land and in the sea in its extended neighbourhood. Today, New Delhi is actively seeking to create opportunities for mutual development in the Indo-Pacific, in the Arabian Sea and in Africa even as it engages like-minded nations in the pursuit and preservation of a rules-based order that promotes transparency, respect for sovereignty and international law, stability, and free and fair trade. In both these endeavours, the United States is an appropriate and willing partner. As Indian Prime Minister Narendra Modi stated in his address to the US Congress in 2016, “[a] strong India-US partnership can anchor peace, prosperity, and stability from Asia to Africa and from the Indian Ocean to the Pacific.”

The US has been a principal architect and the traditional guarantor of a liberal economic and maritime order in the Indo-Pacific. While the commentariat in the US and India might express apprehension at the idea of US President Donald Trump’s ‘America First’ strategy, this moment must be seen as an opportunity to rebalance the Indo-US relationship to reflect a real convergence of strategic interests, as opposed to an abstract engagement based on values alone and one that has disregarded the core interests of both countries.

Even as the phrase ‘free and open Indo-Pacific’ replaces ‘Pivot to Asia’, it is clear that the US will continue to play an important role in the region.

The US is acutely aware that disengagement is not an option when the contests of the region are, in fact, irrevocably moving both westwards and eastwards, and ever closer to its own spheres of influence. Thus, maintaining an influential presence and assets in the region effectively responds to its agenda. The US continues to retain an unequivocally large military presence in the Indo-Pacific. Moreover, Washington appears intent on finding ways to address shortfalls in its defence budget. The most recent defence bill specifically authorises the establishment of the new Indo-Pacific Stability Initiative to increase US military presence and enhance its readiness in the Western Pacific. As it remains an invested actor across the Middle East and in Afghanistan, and as it confronts an unrelenting North Korea, it must seek to empower regional like-minded nations such as India, which it recognises as having an “indispensable role in maintaining stability in the Indian Ocean region.”

US Secretary of State Rex Tillerson’s remarks at the Center for Strategic and International Studies a few days before his visit to India in the fall of 2017 is a testament to the continuity of the relationship: “The increasing convergence of US and Indian interests and values offers the Indo-Pacific the best opportunity to defend the rules-based global system that has benefited so much of humanity over the past several decades.” In a way, the title of his speech, “Defining Our Relationship with India for the Next Century”, should set the tone for the Indo-US relationship; and this new direction must not be influenced even by changes in leadership in the two capitals. It must first be imagined and then crafted as a multi–decade relationship that engages with the disruptions that abound in a multipolar world. This 21st century partnership must take into account each country’s economic trajectory, political values and strategic posture. The Indo-Pacific region will be the theatre in which this partnership will truly be realised. Both President Trump and Prime Minister Modi seem cognizant of this reality, and are intent on creating a new blueprint for this long-term engagement.

The terms of this bilateral cannot be limited to maintaining the regional balance of power. Rather, both countries, in concert with other likeminded powers, have a stake in enabling and incubating a peaceful, prosperous, and free Indo-Pacific. As these countries align in their desire to see a new regional architecture emerge, the following present themselves as the most crucial domains where a strengthened India-US The New India-US relationship can have deep and influential impact in a region that matters to the whole world:

Defence trade and technology

India’s designation as a ‘major defense partner’ of the US, and the Defense Technology and Trade Initiative provide a bilateral platform for defence trade and technology sharing with greater ambitions and at a faster pace. The ‘Make in India’ initiative strengthens scope for coproduction and co-development. The new appetite for business reforms is catalysing the largest volumes of foreign direct investment ever received by the country.

As India undertakes broader defence transformation initiatives, US defence companies can collaborate with New Delhi in its USD 150 billion military modernisation project. They can do this by jointly identifying the gaps and working together to equip Indian forces in the short run. This must be followed by cooperation on advanced technologies to help build up the country’s defence manufacturing base in the longer term.

Continuous progress on these fronts will enhance Indian capabilities, enable greater readiness of Indian forces, and level the playing field. Specifically, priority military hardware, technologies and areas for joint production need to be identified. Pending sales, such as that of the Guardian RPVs, need to be expedited, along with the micro unmanned aerial vehicle project. Further, the matter of quality and subsequent liability of equipment made in India through joint Indian-US ventures needs immediate attention. Additionally, the hesitation of US companies in sharing proprietary and sensitive technology is a concern that will need to be taken up on a case-by-case basis.

Maritime freedom and security

There is a rare moment of clarity in US and Indian policy circles on the importance of each other in this region. This is important if the countries are to act as “anchor of stability” in the Indo-Pacific.

It is time to begin conversations on new arenas of military cooperation, intelligence sharing, and strategic planning, to include advanced platforms like fifth-generation fighters, nuclear submarines, and aircraft carriers. Already, the two countries share a maritime security dialogue, which was instituted in 2016, as well as working groups on aircraft carrier technology and jet engine technology. They should be strengthened further and complemented by new working groups.

The annual Malabar exercise, which now formally includes a third partner, Japan, is another key feature of military cooperation, improving coordination and interoperability. Adding to these efforts are the Logistics Exchange Memorandum of Agreement, which will create maritime logistic links, and a white shipping agreement which promotes regional maritime domain awareness.

India-US maritime security cooperation is critical because it supports efforts that prioritise joint stewardship for ensuring freedom of navigation and unimpeded trade across a maritime common that is a major conduit for commercial and energy supplies, and is rich in natural resources, ecosystems, and biodiversity. Moreover, the Indian Ocean Region is extremely vulnerable to extreme weather events that are likely to increase significantly in the coming years. To address these developments, the US and India can cooperate to provide humanitarian assistance and disaster relief missions in the region.

Further, the two sides are committed to resisting the aggression that China has displayed in the South China Sea and elsewhere in the Indo-Pacific. Indo-US cooperation in the Indo-Pacific must also serve to affirm the principles of freedom of navigation and peaceful settlement of maritime disputes.

An expanded bilateral maritime partnership that involves transfer of technology to build India’s capacity in the Indian Ocean Region will help create a more stable and balanced security architecture there. This same partnership should explore new forms and formats of joint exercises and naval drills, such as anti-submarine warfare and maritime domain awareness missions, and encourage support for Indian leadership as “force for stability” in the IOR.

Blue economy

India and the US must also collaborate to promote a market-driven blue economy as a framework for growth and prosperity in the Indo-Pacific — home to bountiful hydrocarbon, mineral, and food resources, as well as burgeoning coastal populations.

India and the US can further elevate cooperation in marine research and development to create common knowledge hubs and share best practices. They can collaborate to develop mechanisms and foster norms that ensure respect for international law. The US can support regional collaboration in the Indo-Pacific to explore new and environmentally conscious investment opportunities in maritime economic activities and industries, such as food production and coastal tourism. Direct investments in Indian efforts, such as in identified coastal economic zones and the Sagarmala initiative, and participation in regional groupings like the Indian Ocean Rim Association, are two ways in which it can do so.

Effectively, the US can support India in creating a resilient regional architecture in the Indo-Pacific that places an emphasis on stability, economic freedom, growth and maritime security.

Connectivity

Today, states in the Indo-Pacific are in dire need of funds and expertise to improve infrastructure development and regional connectivity. Beijing has introduced its own project — the Belt and Road Initiative — through which it is investing in infrastructure initiatives across Eurasia and the Indo-Pacific. While connectivity is undoubtedly the primary aim of the project, it is increasingly clear that China seeks to expand its political and military influence in the region under the aegis of the BRI. To prevent the emergence of an Asian order inimical to the rules-based order, states must work together to forge a more inclusive approach towards an emerging regional architecture. This framework must be willing to accommodate everyone, including China, in connectivity projects from Ankara to Saigon, or the sea lanes seeking to link ASEAN with Africa.

For this to occur, pragmatic, democratic, and normative powers need to first create a political narrative within which Asia’s connectivity will take place. This narrative must underscore the importance of good governance, transparency, rule of law, and respect for sovereignty and territorial integrity. This can then be posited against strictly bilateral projects such as the BRI, which burden participating countries with debt and environmentally unsound projects. This alternative proposition to China’s BRI can then become the blueprint for connectivity and integration from Palo Alto to Taipei, Bengaluru to Nairobi, and Tel Aviv to Addis Ababa. The possibilities are endless and straddle hard infrastructure, digital connectivity, knowledge clusters, and value chains in the Indo-Pacific space.

The India-US partnership has an important role to play in this respect. The American vision of the Indo-Pacific Economic Corridor supplements India’s Act East policy, and India-US cooperation in physical and soft infrastructure can link cross-border transport corridors; help create regional energy connections; and facilitate people-to-people interactions. Further, India and the US can cooperate as “global partners”, with US investment in Indian projects in Africa. Accordingly, the Asia-Africa Growth Corridor proposed by Japan and India can provide a common platform to all three states. Further, the US can nurture burgeoning regional partnerships between Japan, South Korea, Australia, and India, as these countries work towards building a consultative and collective Asian framework.

Digital connectivity, trade, and technology

Digital connectivity merits particular attention. After all, in the next decade, the largest cohort of internet users will emerge from the Indo-Pacific region. China is working aggressively to ensure that digital platforms in the region will be influenced by its own model for cyberspace premised on sovereignty. A major part of China’s BRI is the new “information silk road”, which facilitates investments by Chinese companies in South Asia’s internet architecture.

Accordingly, the US and India must cooperate to ensure that digital platforms, trade, connectivity and norms are shaped according to the democratic and open nature of the internet. To do so, they must create a framework that responds to developing-country imperatives such as affordable access, local content generation and cybersecurity. Already, Prime Minister Modi’s ‘Digital India’ programme provides a model for other states in the region to use internet-enabled technology to spur economic growth. India’s Aadhaar initiative, a unique digital identity programme, has already generated significant interest amongst South Asian states. American companies have increasingly sought to adopt standards and technologies to leverage this platform and build new markets in India. For example, WhatsApp has integrated with India’s unified payments interface to provide digital payments. Examples of other development initiatives are also abundant. Elsewhere, the Google RailTel initiative aims to provide WiFi at 400 railway stations across India by 2018.

India-US bilateral cooperation in using the digital as a tool for economic development and empowerment can be the template to connect the three billion emerging users in other developing countries in the Indo-Pacific and across Africa. As digital norms are institutionalised — whether pertinent to data flows and e-commerce, or related to critical infrastructure, defence, and public services — there is a real opportunity for India and the US to build and subsequently provide a model working relationship for the digital economy. Effectively, the US and India can propose a set of ‘Digital Norms for the Indo-Pacific’ that can be operationalised under their various dialogues and mechanisms for cooperation in the region.

 

Bridging the gap: Addressing international barriers to climate action projects in the developing world

ORF, Issue Briefs and Special Reports, Dec 12, 2017

Original link is here

this report is part of the Observer Research Foundation’s “Financing Green Transitions” series which aims to find potential linkages between private capital, in all its forms, and climate action projects. The series will primarily examine domestic and international barriers to private capital entry for mitigation oriented climate projects, while also examining potential avenues for private capital flow entry towards adaptation and resilience projects.

Read the series: Financing Green Transitions

Introduction

The fight against climate change is at an inflection point. Despite a myriad of actors attempting to ensure that the world is not left in a ruinous state for future generations, linkages between the release of greenhouse gases and the rise in global temperatures are still ignored by certain stakeholders. The cavalier attitude of these important actors has had a detrimental impact on the state of financial flows towards climate action projects especially in the developing world.

Box 1: The politics of climate finance flows

As discussed in an earlier issue brief in ORF’s Financing Green Transitions series, the industrialised nations of the world made a pledge under the 2015 Paris Accords to provide $100 billion in annual funding for climate action projects in developing countries. The developed world has yet to live up to its commitment, however, with estimates showing current annual flows totalling $50 billion. The apparent lack of commitment towards climate finance flows is not the sole area of concern. The politics behind the calculation and categorisation of this estimate remains a point of contention in the developing world.

While the language pertaining to the $100 billion of funding within the Paris Agreement is vague, what was envisioned at the inception of the funding conversation was a supplementary stream of financial flows. Many developed countries, however, have simply reallocated the funds within their development aid budgets in order to meet their obligations. This has had a significant detrimental effect on the achievement of important sustainable development goals across the world.

In addition to their supplementary nature, the flows were also intended to be unconditional in their original form. A closer examination of the numbers, however, shows that 25 percent of the $50 billion that is being provided, comes in the form of loans from multilateral development banks. Given that loans, by their very nature, must be paid back with interest, certain parties have protested their categorisation as “assistance” for climate action efforts. The feeling amongst some in the third world is that the $50 billion estimate is an exaggeration, bolstered by creative accounting and wilful incongruity.

While a shortfall in the funding pledges made to the developing world through public financing seems inevitable, [i] there remain possible avenues to make up for this deficit through the mobilisation of private capital. Yet, despite repeated demonstrations of the sizeable returns that can be reaped by funding climate action projects, [ii] the institutions overseeing much of the world’s private capital have been wary of making such investments in developing economies.

An examination of certain domestic hurdles preventing private capital investments in the developing world, has been conducted in the first part of this series. It is important, however, to also examine the impediments on a global scale. This issue brief, part of Observer Research Foundation’s Financing Green Transitions series, will examine the main international barriers dissuading private capital investment in climate action projects — namely institutional investor practices, foreign exchange risk, and international financial regulations.

International institutional investor practices

Any conversation pertaining to private capital flows for climate action projects, must begin with institutional investors. Institutional investors (a catch-all term for large asset managers such as pension funds and insurance companies) control close to $100 trillion of the world’s wealth, [iii] and are in many ways the key to unlocking private capital flows for climate action projects.

Given the various stakeholders they must answer to, institutional investors tend to be conservative in their investment approaches, which acts as a deterrent when attempting to steer cash flows towards climate action projects. An example of this can be seen in the cautious approach taken by institutional investors with regards to illiquid investments. [iv]Most of the private capital in the world lies in the hands of pension funds and insurance companies, who are encumbered with large annual liabilities in the form of pension obligations and insurance pay-outs. This limits the amount of exposure that such asset owners are willing to have towards large projects involving heavy capital expenditure in PPE [v] which tend to be largely illiquid as an asset class. Investors prefer to put their funds towards instruments that can be converted into cash quickly, such as bonds and equities.

The cautious nature of institutional investors is further manifested in their project evaluation criteria. Traditionally, institutional investors do not evaluate investments on a case by case basis, preferring to apportion their funds to asset managers who have the capacity and expertise to carry out the necessary analysis and due diligence. In order to invest in climate action projects, institutional investors have to either build up sector-specific expertise internally or divert their funds towards specialists with existing capacity. Building up internal expertise is a time consuming and expensive process, and the global marketplace has a dearth of financial intermediaries who specialise in climate action projects. The evaluation of the performance of financial intermediaries is also problematic, given the absence of extensive track records in the nascent industry [vi].

The conservative risk management practices of institutional investors often act as a barrier against climate action investments, as well. In order to diversify their risk portfolios, pension funds and insurances companies tend to invest across a variety of asset classes, with set limits for the proportion that can be allocated towards each sector [vii]. Climate actions projects, and more specifically renewable energy projects, tend to be classified under the energy or infrastructure sector, and as such are often crowded out by more traditionally accessible investments that institutional investors are familiar with.

This problem is exacerbated by the orthodox perceptions and attitudes of institutional investors with regard to climate action project and developing economies. Pension funds and insurance companies tend to have outdated views with regards to climate action projects especially with regards to technology risks, payment risk, and returns. Institutional investors also rely heavily on risk ratings to inform their investment decisions, which is problematic due to the unreliable metrics and evaluation methodology used to evaluate many climate action projects. Risk ratings are also often constrained by the sovereign debt rating of a country – in many cases a climate action project rating cannot be higher than the rating of the country, regardless of the financial viability of the investment.

Foreign exchange rate

While internal factors play a part in hindering international institutional investor flows, there are also external factors that must be considered. Amongst the largest hurdles for any investor attempting to invest in the developing world is the risk associated with domestic currency fluctuation. Climate action projects can be affected by foreign exchange risk during any stage of the value chain, but are especially vulnerable to risk in the post construction phase. To illustrate how foreign exchange risk can affect investors, it is perhaps best to take the example of a solar plant project.

A solar project starts with the purchase of the land on which the plant will be built. Unfortunately, in many developing nations, the property acquisition procedure is time consuming, with costly delays that can take months or even years to be resolved [viii]. Unexpected upticks in the foreign exchange rate during the land acquisition period can lead to significant variance in investor expense, with cost increases potentially reaching millions.

The acquisition of land is usually followed by the procurement of materials — namely photovoltaic panels. China holds a near monopoly in the manufacturing of solar panels, [ix]which means that investors have to factor in the possibility of fluctuations in the Reminbi, as well as the local currency. Foreign exchange risk associated with the purchase of solar panels is not limited solely to developing nations. Recently, investors in a solar plant in Cambridgeshire County had to account for a $645,000-increase in the cost of Chinese based panels as a result of the unexpected depreciation of the Pound, following the United Kingdom’s vote to leave the European Union. [x]

Putting aside the procurement of land and solar panels, foreign exchange risk continues to exist during other phases of a solar project – payments to local contractors, transport fees, and government levies must all be made in the local currency. The largest exposure to foreign exchange risk for international investors, however, is in the post construction phase. Barring certain exceptions, power purchase agreements delineate payments in local currencies, which leaves investors susceptible to foreign exchange risk for the length of the contract. The possibility of currency fluctuations over a long time frame nullifies one of the key attractive characteristics of a solar energy project — guaranteed, predictable cash flows over a fifteen to twenty year period.

Box 2: Real world example – Brazil’s currency crisis

In late 2014, Brazil awarded nine contracts to developers for the construction of 900 MWs of solar power. A global downturn in oil prices caused the value of the Brazilian Real to drop dramatically over the next two years. As a result of the currency depreciation, the contracts that were signed in 2014 generated 36-percent less revenue for developers by 2016. Eight of the nine investors ended up dropping out of the agreements, citing a lack of continued financial viability for the projects.

The unpredictability of the revenue flows can lead to severe consequences that affect more than just the status of the investment. Given the sizeable capital needed for a solar project, investors often have to borrow up to 70 percent of the start-up costs from banks. If currency fluctuations are dramatic enough, investors can face the possibility of defaulting on loan or interest payments, [xi] which can lead to ripple effects for an investor’s entire portfolio. The starkest example of the consequences of changes in the foreign exchange rate can be illustrated by examining the case of Brazil.

While foreign exchange risk is problematic for investors, it is not a new phenomenon and affects a number of sectors. It is important to note, however, that the electricity sector is more susceptible to the effects of currency fluctuation — they cannot raise prices or renegotiate the rates dictated under the power purchase agreements to cover potential losses. Additionally, financial methods available for the mitigation of foreign exchange risks for other sectors are not necessarily applicable for renewable energy or other climate action projects. One simple solution employed in certain sectors, for example, is to use domestic banks to procure loans in the local currency. As has been pointed out, however, long-term debt for climate action projects is not available in many developing economies. Alternative financial strategies which can hedge against currency risk in other sectors, are also not always viable for developing economy climate action projects. The expenses associated with such instruments can raise the interest rates charged by international banks by six to seven percent, [xii] making previously profitable projects unattractive.

International banking regulations

While internal practices and foreign exchange risk play a role in limiting private capital flows for climate action projects, the largest hurdle for green investments in developing countries comes in the form of international banking regulations. Due to the large capital requirements for climate action projects, up to 70 percent of start-up costs usually originate from bank loans [xiii]. The credit crisis of 2007-2008 has led to stricter controls being imposed on bank loans, making it more difficult for investors to access the funding needed to get a project off the ground. The problems that the norms cause for renewable energy investments can be explained by examining two of the three ratios dictating the amount of cash or near cash assets a bank must keep on hand — the capital requirement ratio and the liquidity coverage ratio.

Box 3: A brief overview of the Basel norms

The Basel norms were initially conceived in 1988, by the Basel Committee on Banking Supervision (BCBS)[1] as a mechanism designed to prevent banks from insolvency issues caused by defaults of risky assets. The norms required banks to keep a certain percent of its overall investment portfolio on hand in order to prevent the bank from going out of business in the case of widespread failure of loans and investments. These requirements proved to be insufficient during the credit crisis in the mid 2000’s to late 2000’s, however, leading to a renewed examination of international banking regulations and the subsequent release of a new version of the Basel norms. The latest iteration of these macro prudential regulations, referred to as Basel III, were introduced in 2011 with subsequent amendments added in 2013 and 2014.

A holdover from the previous version of the Basel norms, the capital requirement ratio dictates the amount of cash that a bank must keep on hand, by factoring in how risky the investment practices of the institution are. Each investment made by the bank is assigned a risk weighted percentage, depending on its characteristics – certain government bonds for example are considered to have almost no risk associated with them and are thus assigned 0 percent. The value of each investment is then multiplied by its risk percentage, after which all the values are collated to produce the bank’s Risk Weighted Average (RWA). According to Basel III, banks must keep between six to ten percent of the value of their RWA on hand [xiv].

The core function of private banks, like any other business, is to make a profit and any cash that they have to keep on hand to meet the capital requirement ratio cannot be invested in revenue related activities. Banks, therefore, have two options — reduce the amount of cash they have to keep on hand by making investments that are considered less “risky” or ensure that the returns they get from the “risky” investments are high enough to justify the increased cash they will have to keep on hand.

While investors view the capital requirement ratio as a hindrance, it is the addition of Liquidity Coverage Ratio (LCR) in the Basel norms that has caused the largest amount of consternation amongst institutional actors. Intended to act as a counter measure against the factors that caused the credit crisis of 2008, the LCR forecasts how a bank’s business operations would be affected by a large scale financial crisis. The projection assumes that the amount of cash received from investments will drop during the “stressed period” while the amount of cash extracted by customers will increase. The extent to which cash receivables are meant to drop and cash withdrawals are expected to increase is dependent on certain characteristics – for example, 10 percent of deposits made by individuals and small businesses are expected to be withdrawn. Large financial institutions, on the other hand, are projected to withdraw 100 percent of their deposits in a stressed scenario [xv]. In order to fulfil the requirements of the liquidity coverage ratio, banks must keep on hand cash or assets that can be easily converted into cash (referred to as High Quality Liquid Assets) to meet all obligations that might occur during a 30 day “stress period.”

The inclusion of the leverage coverage ratio in Basel III has had two major effects on banking lending processes. First, banks have started to show a preference for the types of deposits that are expected to have less of an effect on cash outflows during a financial crisis, such as small businesses. Secondly, banks have moved away from lending to long term projects in favour of more short-term liquid assets in order to meet the requirements of the liquidity coverage ratio.

The capital requirement ratio and the liquidity coverage ratio are problematic for investors attempting to access debt for investments in either climate action projects or developing countries. The high risk profiles assigned to both types of projects by the majority of rating agencies lead to a higher capital requirement burden for banks who pass the cost on by asking for significantly higher interest rates for any debt provided to climate action projects in developing countries.

The long life span and illiquid nature of climate action projects also impacts the liquidity coverage ratios of banks, leading to significantly higher interest payments on loans made to finance said projects. The high cost of international debt financing, combined with the inability to access debt from domestic banks in most developing economies, has had a considerable negative impact on climate action projects with certain analyses showing a 40 percent drop in institutional investor flows as a result of the implementation of Basel III [xvi].

The way forward

The international issues that have been discussed in this brief play a significant role in hindering private capital flows towards developing economies. The conservative investment practices of international institutional investors create restrictive internal barriers that are difficult to overcome but can be done, over time, through capacity building measures. Foreign exchange risk can result in sizeable liabilities for certain types of climate action projects and while the risk cannot be hedged using traditional mechanisms, policies such as dollar denominated tariffs or government backed hedging facilities are possible ways to mitigate it. The restrictive controls that are placed on long tenured, risky projects such as renewable energy make it difficult to access international debt financing, but policies reclassifying the risk associated with such projects could make them more attractive for creditors.

The Observer Research Foundation over the next twelve months will release a set of reports as part of their Financing Green Transition series looking at potential methods to increase the flow of private capital investments for climate action projects in developing countries. The reports will include an examination of the risk perceptions of European Institutional Investors with regards to renewable energy projects; an econometric analysis of the benefits of credit enhancement mechanisms by Multilateral Development Banks; a methods report aimed at creating a transparent and publicly accessible ratings evaluation system; and a feasibility study examining the viability of greening “Basel” through alterations in their risk calculations.


[i] Joe Ryan, “G-20 Poised to Signal Retreat From Climate-Change Funding Pledge,” Bloomberg.com, March 09, 2017, accessed July 01, 2017,

[ii] Renewable Infrastructure Investment Handbook: A guide for Institutional Investors. December 2016. Accessed July 1, 2017.

[iii] “Institutional Investors: The Unfulfilled $100 Trillion Promise” June 18, 2015. Accessed July 01, 2017.

[iv] Nelson, David, and Brendan Pierpoint. The challenge of Institutional Investment in Renewable Energy. March 2013. Accessed July 1, 2017.

[v] Plant, Property and Equipment

[vi] Nelson, David, and Brendan Pierpoint. The challenge of Institutional Investment in Renewable Energy. March 2013. Accessed July 1, 2017.

[vii] Nelson, David, and Brendan Pierpoint. The challenge of Institutional Investment in Renewable Energy. March 2013. Accessed July 1, 2017.

[viii] India: Delays in Construction Projects. January 24, 2017. Accessed July 1, 2017.

[ix] Fialka, John. “Why China Is Dominating the Solar Industry.” Scientific American. December 19, 2016. Accessed July 18, 2017.

[x] “Currency Risk Is the Hidden Solar Project Deal Breaker.” Greentech Media. May 05, 2017. Accessed July 18, 2017.

[xi] Reaching India’s Renewable Energy Targets Cost Effectively: A foreign exchange hedging facility. June 2015. Accessed July 19, 2017.

[xii] Chawla, Kanika. Money Talks? Risks and Responses in India’s Solar Sector. June 2016. Accessed July 1, 2017.

[xiii] Renewable Energy Project Financing. Accessed July 19, 2017.

[xiv] Bank of International Settlements. Basel III: A global regulatory framework for more resilient banks and banking systemsDecember 2010. Accessed July 19, 2017.

[xv] Bank of International Settlements. The Liquidity Coverage Ratio and liquidity risk monitoring toolsJanuary 2013. Accessed July 19, 2017.

[xvi] The empirics of enabling investment and innovation in renewable energy. May 24, 2017. Accessed July 19, 2017.

Our Common Digital Future

GCCS, 2017

Original link is here

For a medium considered to have revolutionised communications, it is ironic that the many struggles around the governance of cyberspace stem from a lack of communication — communication among states, between states and citizens, and between those that create technology and those that consume it. Normative processes that will determine the future of cyber governance have greatly benefited by bringing together actors who represent diverse geographical, political, economic and social realities. One of the most important among these processes is the Global Conference on Cyberspace (GCCS).

Conceived in London in 2011, the GCCS is the largest gathering of all stakeholders on cyberspace issues. It has already managed to bring into this fold key interlocutors from government, civil society, industry and academia. The fifth edition of the conference, convened by India, is a significant landmark in the evolution of the London Process. GCCS 2017 is the first time that the gathering is hosted by a non-OECD economy. This very fact leads to an opportunity for the internet community to engage with a wholly new demographic and different set of issues animating the next billion internet users. That India hosts this process now is a message in itself and augurs well for greater degree of pluralism in the agenda, grammar and ambitions of this process.

This idea is reflected in the four main pillars for GCCS 2017 — inclusion, growth, diplomacy and security. This volume of essays captures some of the critical debates on these issues from foremost leaders, visionaries, founders and young minds in technology, policy and governance. While previous editions of this conference have been designed as high-level stocktaking exercises, this edition has the potential to go a step further and create an independent norm-setting initiative led by diverse and emerging economies. The essays in this volume are intended to guide this endeavour.

The multiple goals of policymaking — providing access, securing the medium and spurring economic activity — are no longer mutually exclusive. These are all interlinked interests. There is perhaps no better example that is more illustrative of this phenomenon than the opportunity presented by digital payments. Digital payments have immense potential in promoting financial inclusion to those at the bottom of the pyramid and in banking the unbanked. It can enable micro entrepreneurship and serve as the backbone for services in the digital age. At the same time, digital transactions have sometimes come under the shadow of technological vulnerabilities and in the unsafe practices of users who make them. Governments today have to juggle policy priorities that are often at odds with each other — providing access cannot ignore concerns around security and securing the medium cannot come at the cost of stifling innovation. Reconciling these challenges in pursuit of one goal is the digital trilemma for cyberspace policymakers today.

Addressing these challenges will require policymaking that is both technologically and socially dynamic. It will require normative guidance that is targeted and yet inclusive. With formal multilateral processes such as the UN Group of Governmental Experts on Developments in the Field of Information and Communication Technologies ending in a lack of consensus this year, initiatives such as the GCCS assume more importance. The conference can serve as a forum to make the global discourse around cyberspace more representative and plural — this year we will witness some of the normative conversations begun by bodies like the Global Commission on the Stability of Cyberspace and have these ideas deliberated upon.

The essays in this volume, covering a range of topics from cyber conflict to digital connectivity, aim to bring a diversity of interests and perspectives on to the same table, in the hopes that they will guide discussions for future gatherings and maybe even answer some of the long contested issues for policymakers today.

Asia is not only home to the largest number of internet users in the world, it is also poised to lead the world in technology, innovations and regulatory policy — it is therefore only fitting that GCCS 2017 is being stewarded by India. The process will benefit from the democratic ethos of policy conversations in India and will allow voices that have remained on the sidelines to have their chance to shape our common digital future.

How India has actually done a great job in dealing with the Dragon

Hindustan Times, November 1, 2017

Original link is here

Despite the power differential, India successfully raised the cost of China’s land grab activities at Doklam, a feat that even the U.S. has struggled to accomplish in East Asia. While China was relentless in the pursuit of its goals, and had the resources to spend, India managed to call its bluff, and simultaneously allayed Bhutan’s concerns.

narendra-modi-xi-jinping_331a3bfa-be34-11e7-922e-12a52d781256

The benefits of low-key diplomacy must not be underestimated. By engaging China away from the media glare, much to the vexation of New Delhi’s foreign affairs press, the Indian government successfully arrived at a favourable compromise.(AP)


If recent news reports are to be believed, China is back on the Doklam plateau in a veritable redux of the 73-day standoff that began in June this year. For its part, the foreign ministry has denied any change in the status quo following the “mutual disengagement” in late August. Those now skeptical of the government’s apparent inability to tackle China fail to appreciate that Doklam was never just a “stand-off”. It is part of a continuum of geo-political struggles – the current one is only naked in its manifestation as an outright territorial brawl — between the heavyweight and revisionist China and the defender India. It will not be the last, either.

Defusing the crisis at Doklam was never likely to reduce tensions across the 4,000 km border that India and China share. These border disputes are only symptoms of the Chinese determination to assert itself and claim pole position in an Asia that plays by Beijing’s rules. It was but a matter of time until China, rebuffed in its earlier attempt to needle India, decided to press New Delhi harder. By utilising its time-tested technique of ‘salami slicing’, and through the coercion of India’s smaller neighbours, China continues to seek to dent India’s credibility as a regional power.

China’s perception of, and strategy towards, India is shaped by the gaping asymmetry of power between the two countries. At $11 trillion, China’s economy is roughly five times the size of India. Were China to grow 2% and add over $200 billion to its GDP, India will have to grow by 10% to remain at the same place. In real dollar terms it may well be a decade or more before India begins to close this gap. In terms of security capabilities, this gap is most visible in defence expenditure, with China’s being approximately four times larger at $215 billion, compared to India’s $55 billion.

Even though the prognosis might appear grim, smaller countries have successfully deployed denial and deterrence strategies against larger opponents, for instance China against the U.S., in the past. Despite the power differential, India successfully raised the cost of China’s land grab activities at Doklam, a feat that even the U.S. has struggled to accomplish in East Asia. While China was relentless in the pursuit of its goals, and had the resources to spend, India managed to call its bluff, and simultaneously allayed Bhutan’s concerns.

The lessons from this incident for India’s foreign policy establishment are seminal, and can help shape future responses to Chinese aggression.

During a discussion in the US last month, a defence expert asked me if any other country has entered Chinese-claimed territory and stopped construction, as Beijing alleged, or intervened on behalf of a beleaguered third party as India claims. The subtext of the question was clear: India’s defiance of China was a unique moment. This is the first lesson: the spectre of an invincible, fire-breathing dragon must not awe India. New Delhi must, and can, stand up to China when its national interests are at stake and cleverly deployed political muscle will succeed in some instances.

The second takeaway is that the benefits of low-key diplomacy must not be underestimated. By engaging China away from the media glare, much to the vexation of New Delhi’s foreign affairs press, the Indian government successfully arrived at a favourable compromise. That this diplomacy was backed by a resolute security posture on the ground only bolstered New Delhi’s credibility, both at the negotiating table, and among regional partners. Deft and quiet diplomacy works and should be pursued as the first option.

Third, by participating in the BRICS summit in Xiamen shortly after the crisis, and investing in the future development of this group, India showcased the future direction of its relationship with China. For New Delhi, the lesson was that it is both possible, and necessary, to be politically assertive with China in some cases, while co-operating on others. Until the asymmetry between India and China is bridged, every Indian government will have to walk this tightrope.

Finally, New Delhi must realise the significance of creating new normative principles to manage regional affairs to get around the asymmetry of power with its neighbour. While boycotting China’s Belt and Road Initiative Summit in May, India cogently argued that regional integration must be premised on sustainable infrastructure investment norms and respect for sovereignty. That the US the EU and Japan have endorsed India’s position underlines the importance of “norm-fare” in the years ahead as an expansionist China continues to pursue its own version of the Monroe doctrine.

Samir Saran is vice president at the Observer Research Foundation and tweets at @samirsaran

 

President Xi and Secretary Tillerson: what two speeches tell us about the future of China and the US

Flags of U.S. and China are placed for a meeting between Secretary of Agriculture Sonny Perdue and China's Minister of Agriculture Han Changfu at the Ministry of Agriculture in Beijing, China June 30, 2017. REUTERS/Jason Lee - RC1A8F925660

Landmark addresses by President Xi Jinping and Secretary of State Rex Tillerson were a study in contrast


The past week has been a significant one for speeches. The first was President Xi Jinping’s marathon three-and-a-half-hour-long “report”, inaugurating the Communist Party of China’s (CPC) 19th National Congress. The 68-year-old Xi, widely regarded as the most influential Chinese leader since Chairman Mao, laid his ambition for the Asian giant bare, with his plan for “socialism with Chinese characteristics” in a “new era”.

 

As head of the party, military and state, Xi has accomplished what other world leaders can only dream of: an unprecedented centralization of power. He has the authority to make the world’s largest armed forces and the huge transnational Chinese corporations an instrument of his state policy, and this gives him the muscle to rewrite the rules of international politics.

 

His repeated swipes at President Trump’s “America first” policy, and emphasis on China’s positive role in global governance, sent a clear message: this new era would be Chinese-led, with China able and willing to commit political, military and economic capital to ensure that it happens. Needless to say, the “Chinese dream” – which includes becoming a global tech leader by 2035, reconnecting Eurasia with the Belt and Road Initiative (BRI), and achieving a strong, prosperous society by 2049 – brings with it implications for the rest of the world.

 

Before China can become a global leader, however, it must consolidate its position in Asia – arguably the most important region in the 21st century. What truly defines China’s ambitions in Asia is the BRI – Xi’s signature development strategy, which he called on the country to pursue as a priority. There was an underlying message to those who oppose or question it.

Image: Lowy Institute

China’s proposition

Ostensibly, the BRI is a regional connectivity project, stretching from oil and gas projects in Myanmar to ports in Malaysia and Pakistan, to a military base in Djibouti. This also creates the physical infrastructure for China’s “march west” to capture high-value markets in Europe – an essential part of its rise.

At its core, however, the BRI creates strategic co-dependencies between China and host states, setting the stage for what may be a Sino-centric world order. Already, China is in a position to create norms and rules across the wider region. Its leadership, through institutions like the Asian Infrastructure Investment Bank and initiatives such as the Regional Comprehensive Trade Partnership, significantly aid China in this effort.

While Xi was careful to point out that China’s rise would not be hegemonic, his speech also celebrated China’s militarization of the South China Sea (SCS), regarded by some as detrimental to the smaller littorals in that region.

 

Additionally, several of China’s regional projects have saddled smaller nations with debts they are struggling to repay, as was Sri Lanka’s experience with the Hambantota port. New Delhi, which boycotted the BRI summit in May over these very concerns (alongside the principal concern around sovereignty), was rewarded with a 73-day military standoff in the Himalayas.

 

Xi is confident that other developing countries would benefit from China’s rise. He was clear, however, that China would always protect its national interests – an attitude that will by definition be disadvantageous to many of its neighbours.

A democratic counterweight

Against this backdrop, the second important speech was delivered by the US Secretary of State, Rex Tillerson, a week before he is expected to visit New Delhi. Emphasizing on the importance of “shared democratic values”, Tillerson set out to define America’s “relationship with India for the next century”. Delivered on the same day as Xi’s landmark address, the speech extolled India’s peaceful rise, while chastising China’s disdain for international law and sovereignty.

 

Notably, Tillerson’s critique of the BRI was the strongest the Trump administration has made so far. Earlier in July, an Indo-US joint statement made only an oblique reference to “regional connectivity”, echoing some of India’s concerns. Tillerson, however, was more direct.

Tillerson hailed the US and India as the “eastern and western beacons of the Indo-Pacific”. Having struggled to balance China’s rise in the SCS, the US is keen to prevent the same kind of maritime militarization elsewhere – an objective India undoubtedly shares. Tillerson sees cooperation among the “Indo-Pacific democracies” – namely, India, Japan, the US and Australia – as key to stability in Asia.

 

With an eye on China, Tillerson’s speech is a call to like-minded states to ensure a rule-based multipolar governance architecture. Already, there is clear convergence of norms between the democratic powers – the US and Japan have reiterated India’s position that regional integration must be financed responsibly and must respect sovereignty. Similarly, Japan and India have echoed the US stance on freedom of navigation and peaceful resolution of maritime disputes. India led by example when it peacefully settled its dispute with Bangladesh recently.

 

Leading from behind?

What Tillerson’s speech tells us is that the Trump administration is correct in its reading of the geopolitical currents in Asia. It also tells us, unfortunately, that the US has no coherent response. Tillerson’s vague call for “some means of countering [the BRI] with alternative financing measures” underlines the fact that this and previous American pronouncements have not been matched by actual political actions and propositions. There is little to demonstrate that there has been any serious attempt to put together an alternative to the Chinese-led BRI in Washington, DC.

Unlike China, which is forging ahead on its own with its own roadmap, America is attempting to stitch together an alliance that is heavily limited by the larger political compulsions, both its own and those of its partners. Australia, for example, is still debating the nature of its relationship with China, and refusing to take a clear stance on either the BRI or on a maritime order, while Japan is still unsure about transitioning from its pacifist constitution. The US’s own willingness to engage with Pakistan limits its ability to integrate with India. India will confirm that, while it was staring down the dragon in the Himalayas recently, it was indeed lonely.

 

Xi has transformed China into a military heavyweight. Taking into account Beijing’s relaxed purse strings, no developing country can ignore China’s allure. American reluctance to address China’s rise head-on has already seen it lose influence in Asia, including with strategic partner the Philippines. While Tillerson’s words may constitute fresh rhetoric from DC, they will have limited impact on China’s influence, unless backed by real political and economic investments in the region.

 

Hardening fault-lines

 

The speeches by Xi and Tillerson are a study in contrast, and are reflective of the complex times in which they are given. At a time when US primacy is waning, Asia is rapidly emerging as the centre of global economic growth. The geopolitical implications are significant, and the institutional arrangements in Washington to manage this development are missing or feeble.

 

Both politicians sought to address this paradigm and were distinct in their tenor. Xi was imperious and forthright; with no signs of hesitation, he appeared certain that China was a power whose time had come and that he was destined to deliver “the great rejuvenation of the Chinese nation”.

 

Tillerson, on the other hand, voiced anxiety around managing a rapidly changing environment. It was a plea for collective action; to serve ambiguous goals; on behalf of a country whose policy of “leading from behind” is fast turning into, as US diplomat Richard Haass puts it, “leaving from behind”. The fate of the international order depends on which narrative ultimately prevails. Writing the script for this era will require a strong hand. As things stand currently, we know from whom the ink flows.

Original link is here

Intelligent interlocution

Economic Times, ET Commentary, 24 October, 2017

Original link is here

On Tuesday, the former chief of the Intelligence Bureau, Dineshwar Sharma, was appointed as the Government of India’s representative for Kashmir, in a bid to, in the words of Union home minister Rajnath Singh, “open a sustained dialogue” with stakeholders holding various shades of opinion in the beleaguered state of Jammu and Kashmir.

Dialogue, however, is rarely easy in Kashmir. History, religion, external actors, changing demographics and a technology-driven news environment have turned Kashmir into a perpetually simmering tinderbox of violence and cacophonous opinions.

In his book, Clash of Barbarisms: September 11 and the Making of the New World Disorder, Soas political scientist Gilbert Achcar famously wrote that the US and the Arab world were caught between two ‘barbarianisms’: Islamic fundamentalism and the military muscle of a superpower.

Kashmir, unfortunately, finds itself similarly trapped: a tragic painting of what ails many other parts of the world. A reality where the brutal response to ‘jihad’ and the ‘jihad’ itself affect similar populations.

The first ‘barbarianism’ results from poor state capacity in responding to incidents of terror, violence and unrest in J&K. Each time violence erupts in Kashmir, it generates an exasperatingly similar set of reactions.

Absent of any political guidance, and clever and contemporary security responses, the state police and army resort to brutal methods of crowd control, generating further outrage and disaffection.

Even as angry prime-time anchors fall over themselves to carry the banner of nationalism to garner TRPs, the Valley feels victimised twice over.

The second ‘barbarianism’ is the rabid violence of the extremists, who draw their self-perceived virility from social media where their perverse actions are extolled and eulogised. In turn, tech-savvy, disgruntled and often indoctrinated young men from Kashmir fall prey to the illusion of ‘Azadi’ (freedom) and the romanticism of a transnational jihad. Trapped in the futile narrative of a ‘colonising’ India and an occupied ‘Kashmir’, the aspirations of the state’s citizens remain unfulfilled and democracy mostly defeated.

The Vale Beyond the Veil

Caught between these two extremes, successive central governments in New Delhi have consistently failed to create a political opening to quell this recursive violence. If the Narendra Modi government is intent on making a sincere attempt to free Kashmir from this pattern, it must take stock of past failures and the lessons that they offer.

For one, the rest of the world is largely unsympathetic to separatist and radical movements, especially in areas where Islamic ideologies have taken hold in the post-9/11scenario. It is less likely than ever that the ‘Kashmir conflict’ will be ‘internationalised’, or other parties will seek to mediate.

This, however, may not be a bad thing as it has created enormous space for dialogue, which, in the case of Kashmir, is repeatedly wasted away by unimaginative State policy. Poor governance, failure to empower and create local institutions, and the lack of sustainable economic integration has left the Kashmiris disillusioned and secluded.

Second, despite the predictability of protests and uprisings, the Indian State’s inability to engage with the Valley manifests itself repeatedly through its failure to build police capacity that responds humanely. A larger failure in recent times has been the lack of capability to control the narrative. More often than not, sophisticated separatist propaganda successfully hijacks public perception and imagination.

Add to this, the vicious social media debates between the political parties at the Centre to use the travails of Kashmiris as a useful prop to score brownie points for, or against, the ruling dispensation. Internet shutdowns and curbs on media freedom only fuel the feeling of isolation at one level, and reveal the helplessness of the state machinery at another.

Finally, New Delhi has continued to invest political capital in a select few elite families, in the hope that they may manage the conflict. This is an unfortunate ‘colonial’ tactic. Outreach involves reaching out to disaffected communities and addressing local concerns, and in discovering new voices and new leadership that have astake in the future. Presumably, this is what Dineshwar Sharma hopes to achieve as special interlocutor.

But he has his work cut out. The predominant discord that has manifested in the past year with a spate of violence has seen the coming together of ideas and actors that are sometimes indigenous and organic, sometimes controlled and contrived, and many a times angry and irrational.

The spontaneous discord that emerged this past summer, though, may have been different and new. The response to it must also be novel. It must discard antiquity, manage malevolence and empower new and young democratic voices.

Talk Peace, Not Piece

The Indian State’s failure so far reflects lazy politics. A successful counterterrorism strategy requires outreach, minus the fear and threat of violence that the state today invokes. At the same time, conversations are meaningless if the State cannot create sufficient peace for dialogue to take place.

The key is to find a balance. Perhaps a consensus in Kashmir will require, to paraphrase Margaret Thatcher, “an abandonment of all beliefs, values and policies. So that it is something in which no one believes and to which no one objects”.

The writer is vice-president, Observer Research Foundation

How India and the US can lead in the Indo-Pacific

the interpreter, Friday, August 18, 2017

Original link is here

Although the Pacific and Indian Oceans have traditionally been viewed as separate bodies of water, India and the US increasingly understand them as part of a single contiguous zone. The US Maritime Strategy (2015), for example, labels the region the ‘Indo-Asia-Pacific’, while Prime Minister Narendra Modi and President Donald Trump referred to it in their recent joint statement as the ‘Indo-Pacific.’

India and the US have a strong stake in seeing this unified vision become a reality. It would increase the possibility that they could promote liberal norms and structures such as free markets, rule of law, open access to commons, and deliberative dispute resolution not just piecemeal across the oceans, but rather in a single institutional web from Hollywood to Bollywood and beyond. Given the region’s economic and demographic dynamism and the importance of its sea lanes to global trade and energy flows, the significance of such a liberal outcome cannot be overstated.

India and the US have publicly called Indo-US cooperation the lynchpin of their strategy in the region. But it has not been as productive as it could be. Robust maritime cooperation between the two countries began only after the 2004 Indian Ocean tsunami, which demonstrated the increasing capabilities of the Indian Navy. Even since then, however, India has generally not been a proactive partner, and in fact often has refused US offers of cooperation. In some cases it appears to have done so out of concern for Chinese sensibilities. For instance, a senior Indian official recently suggested that New Delhi had rejected numerous US Navy requests to dock ships at the Andaman Islands in part because of China’s ‘displeasure’ about the US presence in the Indian Ocean.

The US, for its part, has repudiated the Trans-Pacific Partnership, once touted as the economic bedrock of its Asia strategy, and is distracted by Russian machinations in Europe and the Middle East, and the continuing war in Afghanistan. In addition, bureaucratic divisions between US Central and Pacific Commands hamper Indo-US cooperation west of the Indo-Pakistan border, where the US-Pakistan relationship dominates.

China has taken the real initiative in constructing a wider Indo-Asia-Pacific region. Its strategy is multi-faceted. China erodes the autonomous politics of sub-regional groupings, using its economic leverage to create differences amongst ASEAN members, denying strategic space to India through economic projects like the China Pakistan Economic Corridor, and using North Korea to limit Japanese and US influence in East Asia. China also employs institutions like the Asian Infrastructure Investment Bank, construction and finance projects linked to the Belt and Road Initiative, and trade agreements such as the Regional Comprehensive Economic Partnership to create a network of physical infrastructure and strategic dependence across the region. This network includes ports in Malaysia, Sri Lanka, Tanzania and Pakistan; oil and gas projects off the coast of Myanmar; and a military base in Djibouti.

China’s strategy will increasingly put it in a position to create institutions, generate norms, and make and enforce rules in a zone stretching from East Asia to East Africa. Although Chinese preferences are uncertain, it seems unlikely that such a Sino-centric model will adhere to the liberal norms and practices that the US and India hope will take root in the Indo-Asia-Pacific. Indeed, Chinese behaviour, which includes territorial reclamations, rejection of maritime-dispute arbitration, establishment of an air-defence identification zone, and confrontations such as the ongoing Sino-Indian standoff over borders in Bhutan, suggest an authoritarian approach to the region.

Recognition of these dangers has been a central driver of US-India strategic cooperation. If the US-India partnership is to confront them effectively, however, the two countries must think more creatively about how better to work together, particularly in the defence sphere.

The core elements of Indo-US defence partnership include movement toward the adoption of common platforms and weapons systems as well as shared software and electronic ecosystems; closer cooperation on personnel training; and the convergence of strategic postures and doctrines. These elements can realise their full potential only if the two countries enable large-scale US-India data sharing, which will significantly enhance interoperability between their two militaries. This, in turn, will be possible only through the signature of the so-called Foundational Agreements, which provide a legal structure for logistical cooperation and the transfer of communications-security equipment and geospatial data.

India has historically resisted signing these agreements. But many Indian objections are rooted in domestic political calculations rather than substantive strategic concerns. Moreover, with the 2016 signature of the logistics agreement known as LEMOA, India may have crossed an initial hurdle. Perhaps a concerted effort to reconsider objectionable language, without fundamentally altering their substance, could make the remaining agreements palatable to Indian leaders. Given the impact this would have on India’s ability to cooperate with the US to meet the Chinese challenge, it could get serious consideration in New Delhi.

India and the US can take a page from China’s military strategy. Much has been made of the dangers of China’s anti-access/area denial capabilities. But India can also leverage its geography to impede access to the Bay of Bengal and the Indian Ocean. For example, with US assistance, it could transform the Andaman and Nicobar islands into a forward-deployed base for surveillance and area-denial assets. This would exploit natural Indian advantages, hamper China’s ability to expand its reach and consolidate its gains across the region, and not require India to shoulder unrealistic burdens in far-off areas of operation.

India and the US also need to take a diplomatic and developmental approach to the region that is geographically holistic and offers credible alternatives to Chinese projects; they should not adopt disparate strategies east and west of the Indian Ocean, or promote projects that are rhetorically attractive but lack financial and diplomatic ballast. Recent announcements of pan-regional projects such as the Indo-Japanese Asia-Africa Growth Corridor, and the revived US Indo-Pacific Economic Corridor and New Silk Road initiative, are welcome developments. It will be essential to ensure that these projects continue to receive adequate support, and to create synergies between them that can help to make the whole greater than the sum of its parts.

Additionally, India must cultivate political relationships in its close neighborhood with countries like Nepal, Sri Lanka, the Maldives and the ASEAN members to project its influence into the Indian Ocean. Regional states have already begun to fall prey to China’s ‘debt trap’ diplomacy. For instance, Sri Lanka has struggled to service its debt owed to China for the construction of the US$1 billion Hambantota port, which has put the government in Colombo under considerable political and economic duress. India should offer its neighbors sustainable infrastructure projects and strong economic incentives that can provide an alternative. These efforts will be more likely to succeed if the US, Japan and Australia support them diplomatically and through co-investment in economic ventures.

None of these measures will be easy to implement; they will face resource constraints, political opposition, and strategic competition. But the stakes – who gets to construct the legal, economic, and military architecture of an integrated Indo-Pacific region – are enormous. Without bold policy from the US and India, the answer will be China.

There’s a standoff between China and India in the Himalayas. Both sides explain

Mount Everest (2nd R), the world highest peak, and other peaks of the Himalayan range are seen from air during a mountain flight from Kathmandu April 24, 2010. REUTERS/Tim Chong (NEPAL - Tags: ENVIRONMENT TRAVEL) - RTR2RWME

A dispute high in the Himalayas threatens years of diplomatic progress


Original link is here

Indian and Chinese forces are locked in a stand-off high in the Himalayas, where the borders of India, China and Bhutan come together. In recent years, observers have grown used to such disputes being worked out peacefully, with a mutual face-saving solution. But as time goes by, concerns that this incident could mark the beginning of a longer term downward trend in Sino-Indian relations are rising.

 

To help understand the origins, significance and potential resolution of the Doklam stand-off, we asked Professor Wang Dong from Peking University, and Doctor Samir Saran, the Vice President of India`s Observer Research Foundation, to present their perspectives on these questions.

What is the origin of this dispute?

Wang Dong: On 16th June, 2017, the Chinese side was building a border road in Dong Lang (or Doklam), which is close to the tri-junction between China, Bhutan and India, but belongs to Chinese territory.

 

On 18th June, 2017, Indian border troops, in an attempt to interrupt China’s normal road construction, illegally crossed the demarcated and mutually recognized Sikkim section of the border into Chinese territory, triggering a standoff that has thus far seen no ending. In the past, border standoffs between China and Indian all occurred in disputed areas. This time, however, the standoff took place along a demarcated borderline which has been established by the 1890 Convention between Great Britain and China Relating to Sikkim and Tibetand has been accepted by successive Indian governments since independence in 1947. Given that the Doklam Plateau is located on the Chinese side, as accurately stipulated in the Convention, and that the Doklam area has been under China’s continuous and effective jurisdiction, it is crystal clear that the Doklam standoff is caused by Indian border troops illegally trespassing into Chinese territory. Indian border troops’ illegal intrusion into Chinese territory has not only unilaterally changed the status quo of the boundary, but also gravely undermined the peace and stability of the China-Indian border area.

 

There is no legal basis in India’s claim that New Delhi acts to assist Bhutan in defending its territory. Nothing in the Friendship Treaty between Bhutan and India justifies India’s cross-border intervention. India’s incursion into Chinese territory under the excuse of protecting Bhutan’s interests has not only violated China’s sovereignty but also infringed upon Bhutan’s sovereignty and independence. It should be noted that in fact it is pressure and obstruction from India that prevented Bhutan from concluding a border agreement with China and thus completing negotiations of establishing a diplomatic relationship between China and Bhutan. The bottom-line is that India has no right to hinder boundary talks between China and Bhutan, much less the right to advance territorial claims on Bhutan’s behalf. Indeed, India’s behavior will set a very bad example in international relations. Does New Delhi’s position suggest that China also has the right to intervene on behalf of another country which has territorial dispute with India?

Also, India has cited “security concerns” of China’s road building as a justification of its illegal incursion into Chinese territory, a position that runs counter to basic principles of international law and norms governing international relations. Given the fact that India has over the years built a large number of infrastructure facilities including fortifications and other military installations in the Sikkim section of the border area (that actually dwarves the very little infrastructure China has built on its side of the boundary) that poses a grave security threat to China, does India’s stance imply that China could also cite “security concerns” and send its border troops into India’s boundary to block the latter’s infrastructure buildup?

As Confucius says, “Do not do unto others what you do not wish others to do unto you.” New Delhi should heed the sage’s wisdom.

 

Samir Saran: The dispute was triggered by China’s construction activities on the Doklam plateau, which is at the tri-junction of Bhutan, India and China. India and Bhutan both acknowledge Doklam as a tri-junction and, as such, the boundary points of all three countries around it should be settled through consultations. In fact, the India-China Special Representatives dialogue agreed to do precisely this in 2012. China’s military activity seeks to change facts on the ground, rendering any diplomatic or political boundary negotiation moot. Now, China may unilaterally assert where the tri-junction actually lies, but in an age where maps are drawn, scrutinised and contested on social media, it behoves Beijing to adopt a statesmanlike approach to this dispute.

 

India sought to prevent China from pursuing such construction on the Doklam plateau for two reasons: first, in keeping with the India-Bhutan Friendship Treaty, India coordinated with Bhutan on all matters, including security issues, of mutual interest. India is acutely conscious of the fact that it is the net security provider in South Asia, and that military activities cannot but, be conducted through mutual consultations, no matter how big or small your neighbour is. One wishes the leadership in Beijing too embraced this principle. By asking China to desist from unilateral activity in Doklam, India sought to reassure its smaller neighbor that it will not allow Beijing to unilaterally change the boundary situation to Bhutan’s detriment. Second, the military implications of China’s infrastructure activity in the region, located close to the narrow Siliguri corridor which connects mainland India to its north eastern states, are worrisome for India. By intervening, India is making it clear that it will act forcefully to protect not only its territorial claims but also its sovereignty and national security interests.

 

On a more strategic assessment, this dispute is perhaps a harbinger of the Himalayan fault-line that is bound to get sharper as India’s economy grows and China continues to seek greater political and normative influence in the sub-continent. China must internalize that a multi-polar world will also necessarily see a multi-polar Asia emerge and its attempt to become the sole determinant of political outcomes in the region may be challenged.

What issues are shaping perceptions about the wider meaning of this stand-off?

Samir Saran: There is little doubt that the border dispute is the byproduct of a larger rivalry between China and India, both of whom can decisively steer the future of Asia. New Delhi is wary of China’s ambition to “hard-wire” its influence in the region through infrastructure and connectivity projects in order to emerge as the sole continental power. Already, India-China ties have deteriorated as a result of the China Pakistan Economic Corridor – which passes through the disputed Pakistan occupied Kashmir – seen by India as a clear affront to its sovereignty.

 

A unipolar Asia does not serve India’s interests. Accordingly, India is determined to be a reliable partner to its South Asian and other regional interlocutors. New Delhi realizes it must leverage its fast growing economy and military capacities to offer trade partnerships and security arrangements to other countries on the continent. By coming to Bhutan’s assistance on this border, New Delhi is making it clear the dispute will not be resolved without accounting for Bhutan’s interests. The subtext of the most recent iteration of the Malabar naval exercises, which sees participation from the US and Japan (and possibly Australia in the future), was a signal to China that unilateral militarization, such as the kind China engaged with in the South China Sea, will not be acquiesced to.

India understands the importance of being able to resolve bilateral disputes with China in a peaceful manner. We are the two biggest countries in Asia —with land and maritime borders extending in all directions — and how both countries manage their differences will determine the region’s stability. New Delhi has steadfastly abided by a rule based international order, often against its own interests. In 2014, for example, India accepted an adverse arbitral ruling regarding an UNCLOS dispute with Bangladesh. In comparison, China has run roughshod over its neighbours in the South China Sea, going so far as to threaten war with them. By highlighting the need to peacefully resolve the current border dispute, India is telling China, “Look, we have a problem here. For our sake and the region’s, we should adopt a mature and sensible attitude towards its resolution”.

 

Wang Dong: The root causes of the standoff in Doklam are multiple. First of all, since Narendra Modi took office as Prime Minister of India in May 2014, India has gradually shifted away from its traditional non-alignment policy, and moved closer to the United States and its allies such as Japan and Australia. Many Indian officials and analysts believe that Beijing has been taking the side of Pakistan in the ongoing India-Pakistan conflict. They also regard China as a stumbling block to India’s efforts to join the Nuclear Suppliers Group (NSG). Second, India’s misperception may also come from the fact that India has always been highly sensitive, sometimes even paranoid, about infrastructure projects initiated by China in border regions, whereas it has failed to account for its own much more intensive military infrastructure buildup along the border area.

While the “China-Pakistan Economic Corridor” has become the flagship project of China’s much touted “Belt and Road Initiative”, India views it as a part of the “New String of Pearls” strategy attempting to besiege India. Third, India’s swelling nationalism in recent years, exacerbated by a deepening threat perception against China, may have misguided its policy deliberations. After the standoff in Doklam occurred, a senior Indian military leader claimed that ”India is no longer the India of 1962”—an indication that India has not completely come out from its psychological shadow as a victim in the 1962 Sino-Indian border conflict. Indian leaders should resist the temptation to play up its domestic nationalism, and avoid making wrong decisions that will have a severely negative impact on the Doklam logjam as well as the future of Sino-Indian relations.

Despite repeated urging and warning from the Chinese side, India so far has refused to fully withdraw its border troops. If India continues to refuse to do so, it is likely to lead to the worst case scenario: the outbreak of an armed conflict between the two countries. However, this will be a heavy blow to the diplomatic achievements made by the two countries over the past 30 years.

 

Moreover, India will also have to pay a heavy price for its diplomatic blunder. Since the Bharatiya Janata Party took the power in 2014, domestic Hindu nationalism has been on the rise. If New Delhi fails to gain an upper hand should a military conflict break out, the ethnic and religious tensions in India are likely to be intensified, causing domestic upheaval and imperiling the political status of the BJP. Enormous demands for domestic infrastructure development in India may also be delayed, and ultimately India may miss the opportunity for economic development. On the other hand, even if China prevails in a military conflict, China’s relationship with India will suffer. The conflict will also likely create enduring enmity between New Delhi and Beijing, lock the two major powers into a lasting geostrategic rivalry, and inflict great damage to important pillars of a multipolar world such as the Shanghai Cooperation Organization (SCO), the BRICS, and Group of 20 (G20). Therefore, it is necessary for China and India, the two most important developing countries in the world, to solve the Doklam standoff peacefully, avoid sending bilateral relations into a downward spiral, and maintain regional peace and stability.

What are the chances of it getting out of control?

Samir Saran: India acknowledges the importance of a diplomatic resolution, but is also wary of being perceived as indecisive or incapable of standing up to Chinese aggression. It is aware that the reputational costs of ceding to Beijing (or being seen as such) will be just as damaging as any loss of territory. Rhetoric from New Delhi has been strong. Reports also suggest the Indian military has reinforced its positions in the area’s surrounding the disputed region.

The Indian government has demonstrably been more sober about the dispute than Beijing. So it is unlikely that India will seek to escalate the conflict. On the other hand, New Delhi is just as unlikely to withdraw unilaterally and, to this end, may be willing to continue standing up to China were tensions to escalate.

 

Wang Dong: At present, the nature of the Doklam standoff is abundantly clear: it is caused by the illegal incursion into China’s territory by Indian border troops to obstruct China’s normal road construction. Thus, the top priority is for India to withdraw its troops back to its own boundary. Although China has the will to resolve the Doklam standoff peacefully and has so far exercised maximal restraint, the Chinese government has made it clear that it is determined to steadfastly safeguard China’s sovereignty “whatever the cost”, should India refuse to withdraw troops and thus peacefully resolve the standoff.

What should be highlighted is that China does not wish the Doklam standoff to get out of control, and it will endeavor to peacefully resolve the standoff. Nevertheless, the root cause of the standoff is India’s illegally trespassing the border into Chinese territory, so the initiative to resolve the deadlock lies in the hands of India.

How can the parties de-escalate the situation?

Samir Saran: Neither India nor China can afford to ignore the geopolitical implications of their actions. If the contest is to be resolved, the situation at Doklam must be de-escalated through the mutual withdrawal of troops, followed by a summit level conversation between the two countries. While a National Security Advisor level meeting amongst the BRICS countries has already taken place in July, possibly opening up space for a dialogue, the importance of the issue implies that it will have to be taken up at the leadership level. This is probably a good time to reinvigorate the Special Representatives dialogue process on boundary settlement. Both sides will have to dial down the rhetoric and more importantly, offer face saving concessions in order to placate domestic sentiments and larger strategic anxiety. This face-off is also a reminder of the need for both countries to create new constituencies, from among industry, think tank/ academia and civil society more broadly, that seek a stronger bilateral relationship.

 

Wang Dong: China and India will both benefit from cooperation, or get hurt from confrontation. China consistently holds a clear stance on the Doklam standoff that the precondition and basis for any dialogue between the two sides would be India’s withdrawal of its border troops first. In recent weeks, India seems to indicate its willingness to solve the deadlock through diplomacy and negotiations. Indian National Security Adviser Ajit Doval has just attended the BRICS NSA meeting in Beijing, and has met with both President Xi Jinping and State Councilor Yang Jiechi.

The longer the standoff lasts, the worse the damage it would inflict on bilateral relations between the two countries. Now the ball is in the court of India. New Delhi should take responsible measures to correct its wrongdoing and de-escalate tensions. Provided that India withdraws its personnel that have illegally crossed the border and entered into Chinese territory that will set the stage for both sides to find a diplomatic solution to the standoff. Apart from negotiations at government level, public diplomacy including dialogues between think tanks and could also help to break the tit-for-tat logjam and send out signals to each other for further reducing tensions and settling the dispute. In a sense, the standoff is a symptom of the deepening security dilemma between China and India in recent years. In the long run, both sides need to exercise political will and wisdom to correctly gauge each other’s strategic intentions, reverse the worsening security dilemma, and chart a positive-sum trajectory of China-India relations that will greatly contribute to a stable and prosperous multipolar world.