Politics / Globalisation

India’s Role in a Liberal Post-Western World

The International Spectator, Journal, Article,  06/03/2018

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After a period of significant gains, achieved largely through the establishment of institutions that promoted international liberalism, the global order today finds itself at a crucial juncture. Rising inequality, the proliferation of nationalist politics, technology-induced disruptions and the resurgence of zero-sum geopolitics, are all beginning to shake the foundations of the global governance architecture built assiduously over the past 70 years. It is clear that the liberal order, as it is frequently referred to, will not be able to sustain its influence in the 21st century unless it finds new torchbearers in Asia, where politics and economics are scripting a story very different from that of post-war Europe. To some, it is evident that India, which has successfully combined economic growth with its own liberal traditions, will indeed be the heir to and guarantor of this system as an emerging and leading power.

Autori: Samir Saran
Dati bibliografici: p. 92-108
In:  The International Spectator Numero:  53/1
ISBN/ISSN/DOI: 10.1080/03932729.2018.1396433
Data pubblicazione: 06/03/2018

India: Inclusive Growth and the Employment Challenge

India’s strong growth in recent years has outstripped job creation and poverty remains a key challenge. But in the face of the changing world of work Terri Chapman and Samir Saran, Social Policy Specialist and Associate Fellow and Vice President at India’s Observer Research Foundation, explain how perceived problems in the economy can become opportunities.

Terri Chapman, Samir Saran, Feb 09, 2018, The Forum Network

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India’s sustained average growth rate of 7% over the last decade has not been accompanied by sufficient growth in employment. While half of India’s population is below the age of 26, the increasing demand for jobs is not being met by the creation of sufficient new economic opportunities. The annual demand for new jobs in India is estimated at 12-15 million, leaving India with a shortage of between 4-7 million jobs each year. This is further compounded by the 300 million people of working-age outside of the labour force. India’s official unemployment rate of 3.5% masks the magnitude of the jobs crunch.

The extent and severity of poverty in India provides further impetus for addressing the jobs challenge. One in five people live on less than USD 1.90 per day, and more than half of the population lives on less than USD 3 a day (2011 PPP). High rates of employment in low-skilled, low-wage and low-productivity occupations only exacerbate this condition. India has a working poverty rate of 20%. Increasing both individual and household incomes will need to be at the centre of policies designed to address the employment challenge.

Two characteristics of the Indian economy that have historically constrained growth may actually provide new opportunities in the context of a changing economy. The first is a disproportionate share of microenterprises, with 98% of companies employing fewer than 10 workers; the second is the high rate of informality, with 90% of employment generated in the informal sector. In an increasingly digital- and service-based economy these characteristics could, in fact, create efficiencies. Three strategies should be undertaken to leverage these opportunities: upgrading skills and capabilities; supporting microenterprise and self-employment; and creating new models for social protection.

The service sector is providing immense opportunities for job creation in both traditional and emerging sub-sectors. Currently, this sector accounts for 60% of GDP and 30% of employment. Continued growth in domestic and export services is expected it and will be increasingly important in the face of uncertainty in the manufacturing sector, where employment has stagnated at 22%. Changes in manufacturing processes, especially the potential for increased automation, will limit the benefits of labour-intensive growth. Structural shifts in the economy due to digitalisation are altering the kinds of jobs being created and the skills required for individuals to remain competitive. In order to help workers adapt to changing demand, India must develop an enhanced skills development framework. Such a framework should be accessible, driven by demand, linked to employment opportunities and enable individuals to quickly up-skill and re-skill.

The adoption of digital technologies and emergence of digital platforms, such as in e-commerce and digital financial systems, are improving the business viability of microenterprises in India. Additionally, India’s microfirms create direct employment and should be an essential part of its employment strategy. In order to support inclusive growth among micro and small-sized firms, India must improve financial connectivity and reorient its skills development strategy. Further, in order to take full advantage of the employment potential of the digital economy, it is essential to improve and secure digital infrastructure to enable equal access to digital technologies and reduce the digital divide.

As the digital economy begins to generate new opportunities in India, it will be characterised by increased contract work and self-employment. This should be met with new models of social protection and strategies that mitigate risks of shifting labour relations. Social safety nets and social benefits that are typically linked to employment should be accessible to individuals directly. Potential issues such as depressed wages, low productivity, and economic insecurity need to be managed through new policy frameworks.

© Press Trust of India

A changing global economic environment, structural changes to the Indian economy and digital transformations have the potential to greatly exacerbate the employment challenge. At the same time, a major opportunity for India stems from its existing economic structure that is dominated by the informal sector. New digital technologies will allow India to catalyse growth. Given global trends towards informalisation and self-employment, India is at a strategic advantage to avoid substantial structural adjustments.

India has the opportunity to drive growth from the informal sector, while simultaneously creating stronger linkages between the state and individuals through new, digitally-enabled social protection mechanisms. This opportunity will be accompanied by a major challenge: to effectively skill, up-skill and re-skill India’s workforce. The immensity of this undertaking is compounded by the lack of a quality formal education among large parts of the population. It is imperative that India leverages digital technologies to bring workers into the labour force, connects individuals to social protection systems and finds ways to effectively prepare people for a changing employment landscape.

Go to the profile of Terri Chapman, Samir Saran

Terri Chapman, Samir Saran

Social Policy Specialist and Associate Fellow, Vice President , Observer Research Foundation

A STRONG CANADA-INDIA RELATIONSHIP HOLDS PROMISE OF PROSPERITY: MAJUMDAR AND SARAN FOR INSIDE POLICY

By Samir Saran and Shuvaloy Majumdar, Feb. 25, 2018, MLI

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Prime Minister Justin Trudeau’s visit to India this past week came at a time when Canadians are particularly preoccupied with two other compelling international relationships facing unprecedented strains born from a changing global order: the United States and China.

The US friendship is inescapable, forged by geographic, economic, and cultural realities. American leadership remains the lynchpin of an international order Canadians cherish, dedicated to free peoples and free markets. Yet as NAFTA undergoes a tough re-examination, Canadians are reminded that even the closest alliances are not immune to diverging interests.

Amid anxieties over America, China is often presented as Canada’s obvious alternative, and the creeping “Sinofication” of Canada’s economy, and Sinophilia of its political class, has increased at a rapid clip. Canadian access to Chinese markets and global influence comes at high cost to Canadian interests. Critical voices have rightly questioned the degree to which Canada can enter into the good graces of a one-party command economy while keeping traditional Canadian business and political ethics intact.

India, more than any other growing power, offers Canada economic and strategic possibilities that are genuine, pragmatic, and achievable.

Canada needs new room to manoeuvre, and the Indian opportunity is an essential corridor to the high growth Indo-Pacific region between these two demanding poles.

India, more than any other growing power, offers Canada economic and strategic possibilities that are genuine, pragmatic, and achievable. It is a common-sense, practical alliance, free from tyranny of geography, grounded in shared values and mutual interests. A stronger Canada-India relationship holds the promise of enhanced prosperity and security for both parties without threatening the character and agency of either.

The rapid modernization of the Indian economy, and with it, the material improvement of the lives of millions, is a remarkable achievement of modern history. Within the next two decades, the Indian economy may be valued at $10 trillion, placing it firmly in the most elite upper tier of nations. The country has established a window for global opportunity through a growing array of modern industries, including technology, energy, urban planning, and agriculture.

The bright future such development portends has not gone unnoticed by Canadian firms hungry for international partners, and Canadian investors eager to diversify their portfolios. Canadian pension investments in India in particular have risen dramatically, from virtually nothing a decade ago to over $14 billion today. With each passing year the evidence becomes clearer: Canadians who fail to appreciate the economic opportunities of India do so at their own risk.

On the security front, New Delhi plays a critical role as the defender of the international order which Canada is so invested in. India’s strategic geographic location, increasingly sophisticated military and security forces, and principled opposition to the hegemonic and regressive ideologies of our time make it an essential ally in an uncertain era. The country has proven itself a willing partner in the fight against violent extremism, including the false prophesies of Khalistan and political Islam, within its borders and beyond. Its proximity and understanding of West Asia, Pakistan and Afghanistan make it an invaluable partner for the West.

On the security front, New Delhi plays a critical role as the defender of the international order which Canada is so invested in.

Perhaps most importantly, India provides an essential counterbalance to China’s rising ambition as Asia’s unquestioned regional superpower. When Beijing threatens the sovereignty of other nations, for example its “Belt and Road Initiative” to construct highways through disputed territories in Asia, or the uninvited presence of Chinese warships and military infrastructure in the Bay of Bengal, Indian Ocean and South China Sea, it is India’s strength, both militarily and diplomatic, that make it the most credible voice of resistance. At a time when many of Canada’s leaders seem oblivious or resistant to the consequences of Chinese power, India’s informed insights demand a Canadian audience.

As we enter the third decade of this century, both countries’ political and opinion leaders need to explain India’s contemporary economic and strategic realities to Canadians. We must make clear the vast opportunities for productive cooperation. In announcing a new era of collaboration between our two organizations while our national leaders meet in New Delhi, the Observer Research Foundation and Macdonald-Laurier Institute intend to serve as leading proponents of this mission from both our capital cities.

Although our two countries share symbolic and cultural bonds born from decades of migration and common political heritage, the true strength of our partnership will ultimately be defined by the ability of Canadians and Indians, in both the private and public realm, to coordinate tangible activities of mutual geopolitical and material interest. It is a testament to the skills and resources of both nations that this objective seems easily within our grasp.

Samir Saran is Vice President of New Delhi’s Observer Research Foundation (@samirsaran). Shuvaloy Majumdar is Munk Senior Fellow for Foreign Policy at Ottawa’s Macdonald Laurier Institute (@shuvmajumdar).

 

India sees the Belt and Road Initiative for what it is: evidence of China’s unconcealed ambition for hegemony

The Security Times, Samir Saran, February, 2018

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For 73 days between June and August 2017, Indian and Chinese troops were locked eyeball to eyeball over a small strip of land marking the tri-junction between India, Bhutan and China: the Doklam Plateau. The clash was ostensibly triggered by Chinese road construction activities around disputed territories. But military tensions at Doklam are only the symptom, not the cause of conflict. The standoff itself is the naked manifestation of a long simmering conflict over regional primacy. India sees itself as an indispensable actor in influencing the future of the Asian century. China, on the other hand, is intent on shaping a unipolar Asian order that will be defined by deference to the Middle Kingdom and its increasingly imperial rulers.

The Belt and Road Initiative (BRI), officially unveiled in 2013, is perhaps the most visible demonstration of China’s intention. The ambitious connectivity project – straddling two oceans and implicating three continents – seeks to create a cohesive economic and political arrangement across Eurasia and Africa. Within these regions, Beijing has devoted resources towards building ports, energy pipelines and railways, along with investing in close political relationships and military cooperation. For China, the BRI is a shining symbol of its leadership. At a time when Western powers are turning their focus inward, the BRI is billed by China as its commitment towards globalization and integration. Taken at face value, such grand projects are not novel in ambition, nor should they be rejected for their intent.

However, the BRI as it stands today is unique in its opacity. Embedded in its strategy is an agenda that ultimately serves only one actor – Beijing. The 65 nations that have signed up for the BRI are relatively small, low-income and in urgent need of infrastructure finance. By their short-term calculus, the promise of China’s seemingly generous loans and development partnerships outweighs concerns over political independence, economic stability, environmental degradation and sovereignty. When China hosted its BRI summit in May 2017, historians were hard-pressed to miss the symbolism of world leaders stepping up to shake hands with President Xi – a 21st-century vision of the Middle Kingdom’s ancient tributary system. Through debt, political influence and outright coercion, the BRI is a roadmap for structural servility to Beijing.

Countries with agency and regional heft are not likely to succumb to this lure. Yet India sees many of its neighbors straddled with bad loans and white elephant projects, which China uses for strategic leverage. Sri Lanka’s Hambantota Port, over which China now enjoys a 99-year lease, is perhaps the most obvious example of Beijing’s “debt-trap diplomacy.” New Delhi is also acutely aware that states in the region are slipping into China’s orbit, making it difficult for them to criticize Beijing. ASEAN’s inability to develop a cohesive response to China’s maritime aggression in the South China Sea underscores this risk. Further, India views China’s investments in Kashmir as a violation of its sovereignty, while it sees other regional projects as a part of China’s “string of pearls,” which are intended to limit India’s rise as a global power.

For these reasons, aspiring “leading powers” like India see the BRI for what it is: an exercise in hardwiring influence. As the only major country that refused to attend the BRI summit in May, India cogently argued that connectivity in Asia must be consultative, and guided by transparent financial guidelines, principles of good governance, internationally recognized environmental and labor standards, and respect for sovereignty. For a country that has always preferred multipolarity and multilateralism, both globally and regionally, acquiescing to Pax Sinica was never truly an option.

The India-China relationship is thus coming to signify a contest for the future of Asia, as well as the world at large. At issue is whether nation states that exercised their hard-won right to self-determination and democracy will now be forced into a client-satellite relationship with Beijing as its economic dominance continues. Over the past seven decades, the international liberal order – as it is often called – was carefully crafted with the intention of promoting free markets, rule of law and democracy. Leadership with Chinese characteristics, discernable most visibly through the BRI, is ominously lacking in these qualities. China has used its trade relationships to silence political opposition, bribed its way towards closer diplomatic ties and militarily coerced many of its neighbors. In each case the message China sends is clear: Accede to Chinese interests and enjoy good relations, or resist and face fury.

This effort to sabotage the relevance and the principles of the liberal international order has prompted the concept of a “free and open Indo-Pacific.” First made popular by the United States when Secretary of State Rex Tillerson visited India in October 2017, the geographical definition of this space, and the values that must define it, has since caught on in the strategic calculus of several regional powers. The resuscitated Quadrilateral Security Dialogue – a partnership of four maritime powers, including India – has coalesced around this region with the vocal intention of providing a democratic bulwark against China’s unconcealed ambition for hegemony. As a result, the Indo-Pacific, which spans the West Indian Ocean and stretches towards the Eastern Pacific, is now primed to become the battleground for the future of the liberal order.

Three imperatives will guide this contest: norms, connectivity and security. Regional democracies will have to invest considerable resources and synergize their own connectivity initiatives to address the region’s burgeoning infrastructure finance demands. They will also have to develop political and military partnerships to ensure that states in the region are capable of resisting Chinese pressure. However, a democratic alternative by definition cannot be exclusive; it must be capable of accommodating Beijing’s projects and security concerns as long as they abide the well-established principles of international law. Only by doing so will the idea of a free and open Indo-Pacific provide a viable and attractive rules-based alternative to the autocratic strain of the BRI.

The India-China relationship is ultimately defined by the differing worldviews of both actors. From China’s perspective, India – whether through diplomacy, coercion or force – must understand its place in a hierarchical Asian order that pays obeisance to Beijing. However, according to a famous Chinese adage: “One mountain cannot contain two tigers.” Nonetheless, as a confident democratic power, India will increasingly exercise its heft to shape the world around it, without being browbeaten by the dragon. The competition over values, norms, ethics and influence, both within Asia and around the world, will continue to exacerbate tensions between India and China. The standoff between the two countries over the Doklam Plateau – their most serious border conflict since the 1962 – was likely a prologue for what is to come.

SAMIR SARAN
is vice president of the Observer Research Foundation in New Delhi.

 

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

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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

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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

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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

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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