The High Maintenance Friendship

 

 The High Maintenance Friendship

 The India-America relationship has always been strangely awkward. Indian students love studying in the Ivy League colleges of America, either on scholarships, or at enormous expense, and Americans, on their part, admire peace apostle Mahatma Gandhi and the Mughal architectural beauty of the Taj Mahal, in almost equal measure. Our understanding of each other is patchy, like the proverbial curate’s egg. 

Both sides seem to always want to improve the other with both one-sided demands and gratuitous advice, but  to little or no effect. America has a track record of getting along much better with tin-pot dictatorships and totalitarian regimes where the transaction, not understanding, is the main thing. Democracy may be what both India and America espouse, and practice, but it doesn’t seem to engender much mutual recognition of affinities.

And yet, JFK came to our rescue in 1962 when the Chinese invaded.   It was probably the US show of naval muscle that sent the Chinese scurrying back. Nixon sent in the aircraft carriers too, but this time to menace us, during the liberation of Bangladesh. We also got the message. Clinton summoned Nawaz Sharif from Islamabad to Camp David and threatened him with dire consequences if the Pakistan Army and irregulars didn’t withdraw from Kargil forthwith. Two out of three times, it was America to India’s rescue, and the third time too, there were no adverse reactions to the birthing of Bangladesh, in place of the erstwhile East Pakistan.   

But our democracies, that of the United States and India, do differ hugely in terms of scale. America has a much bigger land mass and many fewer people. Ours, involves 1.30 billion souls, with 525 million voting in the recent general elections, a number nearly double the entire American population. America’s democracy is neither as numerous, nor so variegated. It is also underpinned, willy-nilly, with the neo- imperialism of the biggest economy of all, and the greatest technological and military might on earth.

Is the Modi-Obama fan-dance then about an enhanced security cooperation and the pressures of geo-politics? One that is aimed at containing Chinese temptations towards expansionism?  Does America want to manufacture defence equipment in India in spite of its IPR and patent reservations?  What about the stalled nuclear power equations? Only time, and tide, will tell.

Meanwhile, India is the up and coming democratic poor cousin, come to visit, with three million of its ethnic brethren who are now US citizens. India as an independent republic  is just 69 years old, but also an ancient civilisation, rivalled perhaps only by China for sheer antiquity. America is just 200 years young, taking its civilisational cues from old Europe, from whence, after all, it was spawned.

After the two World Wars,  the US graduated from being considered gauche colonials, gaining in stature from each. It rose to its undisputable preeminence, its massive power and glory. But it is now also being challenged by an increasingly multipolar world, in a weakened economic state, and hampered by a tendency to be insular.  

Totalitarian China, set on its ascendancy by Nixon, is catching up, with a possibility of overtaking it in the coming decades.  India is bringing up the rear, from a long way behind. But, if all goes well, she too could be ranked very much higher in the not too distant future. And yet, not just now, but always, there has been a clumsiness at our mutual efforts to draw closer.   

It is therefore difficult to expect very much from Prime Minister Narendra Modi’s visit to America beyond a level of satisfying personal vindication on his part, pleasant ‘optics’ on all the Indian TV channels blanket covering the visit, and an evident swell of pride in the American-Indian community.

Modi’s first visit to Washington D.C. as Prime Minister also coincides with President Obama going into his lame-duck period. And judging by how the India-US relationship went into limbo after the warmth of George W Bush’s second term, India can only really expect to make a proper accounting of where things are going strategically, once the new US president assumes office in 2016.

Modi has certainly assessed this, and spent a lot of time meeting many people from the American business community, boosting ties with the Indian diaspora, illustrated in some measure by permanent visas for PIOs. He met politicians and influencers from both the Democratic and  Republican Parties. He wants to tell all those who wish to know that he will make things very much more hospitable once he comes back home. This should attract a flow of new investment in due course, assuming that the Americans are enthused.

Modi has evidently built a strong lobby group amongst the US ethnic Indian community during this trip, who may succeed to keep the momentum in bilateral initiatives going. Some have compared the emergence of the Madison Square Garden effect to be a lobby second only to Israel’s. This too remains to be seen as future events unfold.

But perhaps the world is changing faster than America’s ability to control the difference. Japan is seeking a meeting of minds with China. China likewise has made a significant overture towards India, as has India and Japan towards each other. It is possible that the powers that be are not looking to America for either dictation or protection any more. Old NATO is now a little redundant, with the demise of the USSR. Russia is on its own, but reasonably unafraid of the United States.

The alliances to be made today cannot sustain if they want to be master-vassal  treaties. What exactly they are to become instead is hard to define, but the sharing of power seems to be involved to an appreciable degree. America with its propensity to leave chaos behind in its wake wherever it has chosen to force itself, or has been welcomed in, needs to change its tack. For the most powerful country in the world, it is surprisingly callous in the conduct of its foreign policy.

And in its commerce and technology concerns, it must also decide to voluntarily share its knowledge or be supplanted by those who are more willing to do so. Many of the ready to do business without holding back, are from Europe. There is greater recognition in the EU, that  it cannot afford to  not jump in.  Israel, like Barkis, is also more than willing. So is Australia.  In other ways, so is Saudi Arabia, Qatar, and yes, Iran.

It may be high time for Uncle Sam to welcome, even embrace, this change that has come unbidden but won’t go away.

(1,097 words)
September 30^th,2014
Gautam Mukherjee

The Credibility Quotient

 

The Credibility Quotient

Twenty-nine months after a downgrade to ‘negative’, despite six monthly reviews, Standard and Poor (S&P), restored its outlook on India to ‘stable’.  Being the largest of the international rating agencies, it is likely to lead to others, such as Moody and Fitch, to also revise their ratings upwards.

The Modi Government has earned this endorsement  because of its majority presence imparting stability, plus its business and economy friendly policies. Also India’s external debt is small, its foreign exchange reserves are reasonable, and  its current account deficit (CAD) is under control. The fiscal deficit is still high, with much rupee debt, and massive subsidy bills. Yet the economy is moving again, with the GDP tending towards 6% from the erstwhile low of 4.5%.

This ratings boost will, amongst other things, build confidence with regard to India as an investment destination, lower external borrowing costs, enthuse fence-sitting FDI, and occasion greater FII flows.  A negative assessment from such agencies results in very little of the trillions of dollars in international investment flows actually coming to this country, or into the reviewed stocks.

Even after this upgrade, India with a country rating of BBB-, has a ranking lower than a beleaguered Spain, which boasts  of a BBB. That Spain, near bankrupt, with poor growth and horrendous borrowings, is rated a notch higher than India, is ironic. Not only is the ‘political risk’ viewed differently for this ‘developed’ country, propped up by its membership of the EU, but its debts are  de facto underwritten by the Germans and French.  It is another matter that the EU is hanging together today so that it is not hung separately.  

India, an emerging economy (EM), has, of course, to fend for itself. It is here that Modi’s fresh initiatives to strengthen SAARC, join ASEAN and the Shanghai Group have significance. Coming closer to both China and Japan, and Australia for that matter, as we are now doing, will also help the way we are rated in future, with the politics of such ranking working in our favour. Things are not necessarily judged fairly by the US dominated World Bank, the IMF, the ADB and so forth. The new BRICS Bank under formation will also help in this regard.

The American owned S&P’s upgrade, coming on the eve of  Prime Minister Modi’s departure for the US, and coincidentally just after the launch of the Government’s lion monikered ‘Make in India’ campaign, is most welcome.

The stand-off between China and India in Ladakh has also, in the interim, been resolved diplomatically, auguring well for the Modi- Jinping concordat afresh. The Indian media, near hysterical over the intrusions, can perhaps start to regard the recent warm interaction with China at its highest level, as a brand new start to mutual cooperation after all.

It remains to be seen what the harvest brings in from the prime minister’s high octane visit to America. Mainstream America has taken little notice of Narendra Modi, and is unlikely to do so, until he actually meets President Obama this week. From the inter-governmental interaction some investment decisions in the defence production area could emerge if the IPR fears of the Americans are addressed. Other items, including ISIS and ISIL, Afghanistan, Pakistan, the WTO, India’s UNSC seat, operationalising of Nuclear Power matters, a possible beginning in Thorium based development, will probably be all in the discussion,  but with little for the public to take away.

But the interactions with the powerful CEOs of America, politicians on both sides of the aisle who may succeed President Obama, now on the cusp of his lame-duck period, and the greats of the  mutual fund  industry etc. are likely to have far reaching and favourable consequences.

What these good things are however may not become immediately visible, and are much dependent on what the Modi Government proceeds to do to cut red tape, taxes, reform labour and other laws, and so on. Modi knows this full well, and is making bold and clear cut promises, following through on his ‘Look East, Link West’ policy.

There are challenges and opportunities for political consolidation in the forthcoming Maharashtra and Haryana assembly elections for the BJP.  In the dramatic developments on coal block allocations returning much better yields to the Government shortly. And in the substantial blow against corruption in public life bracketed in the conviction of  Ms. J.Jayalalithaa, erstwhile sitting Chief Minister of Tamil Nadu.

But to really put movement into his ‘Come-make in India’ clarion call, and to see the billions in foreign investment pour in, the credibility quotient on the ground when NaMo returns home, will have to be raised sharply, quickly, and across the board.  

(776 words)

September 28^th, 2014
Gautam Mukherjee

History In The Making

History In The Making

 A pattern is emerging after just four months of the new Modi-led Government. It is quite simply focused on ‘ sabka vikas’ to the exclusion of all distractions. And it is working foreign policy levers to give its vision the wings to soar. Domestic money just won’t stretch. And Narendra Modi declares he understands money and business instinctively as a Gujarati.

The regional revival of SAARC as a political vehicle signals India’s willingness to be counted afresh and to prevent China achieving a walk-over. This initiative has been rapid, almost immediate, though it looks like India must pay all the bills. And now it is Japan, China, and on to the US. The overture to Vietnam, though executed on specification by President Mukherjee, is also of a piece.

But, as usual, the visionary Narendra Modi is off and running, far ahead of the pack. Let the public realise that this is not 1962, as Modi and Jinping already have. They may both be constrained and embarrassed  a little by the blunt antics of the PLA, but this is not going to sustain.  

Our numerous domestic fearmongers  need to understand that India and China, are both nuclear powers now. But more importantly, they are the fastest growing economies in the globe despite recent slow downs. Nuclear weapons power creates a zero sum game, and everyone concerned must necessarily tread carefully.  Besides, the 1962 Chinese invasion and pull-back, was a slap in the Nehruvian face for our own provocative ‘Forward Policy’ that contradicted the high-mindedness of the ‘Panchsheel Agreement’. 

The Indian media have even misinterpreted the $20 billion investment over five years already pledged by China. They see it as reneging on the talk of $ 100 billion mentioned by the Chinese Consul in Mumbai. The fact is, there is preparatory work to be done on defence production cooperation, satellite technology transfers, nuclear power generation and so on, before more investment from China can formally come. This fresh tranche may well be announced during Prime Minister Narendra Modi’s forthcoming state visit to China in 2015.

The intent of the Jinping/Modi entente cordiale for now is to change track. China will most likely overtake the US as an economic power soon, and it makes no sense for her to fight with the only other country on earth that can consolidate its bargaining power. Especially, when it lives in the same neighbourhood.

The PLA may not see things quite so clearly, fogged by its own vested interests, but it cannot stop the inevitable.  The border issues need demarcation to be sure, but it has been pending for a century. Nevertheless, both Prime Minister Modi and President Xi Jinping are determined to see it through. History unfolding will not allow either leader to be held prisoner to this impediment.

Modi, on his way to visit America as prime minister for the first time, will play the new ‘Great Game’ of shifting geopolitics when he meets President Obama and his government.   But India plainly does not want to be at the mercy of any hegemon, either from the West or East. And the best way to avoid servitude to any superior power is to befriend both sides.

In 2014 however, the stage is set for a great Asian resurgence. And this is principally to do with India and China joining hands. Japan and Australia are already realigning their priorities. India may be the junior partner today, but it has immense acknowledged potential, and not just because of its ‘demographic dividend’.

The current situation could be a replay with variations of the Nixon-Kissinger accord with Chairman Mao. It was path-breaking at the time, an improbable alliance between Capitalist America and Communist China, but it had very far reaching consequences.

Not only did it make China very rich as manufacturer to the world over the subsequent decades under Deng Xiaoping, but it also broke the back of the USSR and brought down the ‘Iron Curtain’. India too is poised  for great promotion with the help of China today. And together, India and China could well dominate global trade and commerce later in the 21^st century.

In some ways China needs India more for this purpose and knows it. We can save it from the decline of an ageing population and waning demand. The West, burnt-out with a crushing debt burden and low growth, cannot provide it sufficient succour anymore. But we, at the beginning of acche din,  certainly can.

India should not be overly afraid of the PLA now. If the PLA strangulates China’s India opportunity
despite Xi Jinping’s efforts, it will serve as a boon to Japan, Australia, West and South East Asia, Europe and the US. Either way, India will benefit, because we have become anew what we were in ancient times, the land of great opportunity and sustainable growth.

(804 words)

September 21^st, 2014
Gautam Mukherjee

Meet Your Modi-Maker

Meet Your Modi-Maker

 For a country that only joined the limited set of trillion dollar economies in 2007, is only at some $ 2 trillion in size now, the prospect of attracting a trillion dollars in FDI from America between now and 2030 is exhilarating, if  a little difficult to envisage. This particularly, when America has never done this before. But now, it well might, unwilling to be left out, and ironically, into an India led by Narendra Modi, till recently disqualified from even receiving  a visitor’s visa.

America’s investment, after decades of close interaction with China, stands at $ 600 billion. So part of the reason for this sudden uptick in prospect, is because a million, or for that matter a billion, or even  a trillion, is not what it used to be.

Chris Wood of CLSA, a leading international investment firm, calls Narendra Modi the most business-friendly leader in the world today. CLSA, like several other global investment majors, is ‘overweight’  for investment in India. Wood expects the GDP percentage rate per annum to double in the next five years to over 10%. 

Meanwhile, France wants to build missiles in India. Japan is willing to bring in $35 billion on the back of ‘red carpet’ treatment, and likewise China is planning on investing $100-300 billion over the next five years. Others, Israel, Russia, Germany, are expected to make their offers. India has  emerged as probably the biggest development opportunity on earth at present.

China wants to seize the day by solving the trust deficit, including the lingering border and LAC issues, in order to contribute substantially towards transforming our infrastructure. This lists a lot of things, as well it might, because we need to update, enhance and modernise almost everything to catch up to the developed world.

China will  help in overhauling the  Indian Railways, the poor electricity generation/ transmission set up, our water management ,inclusive of dredging ponds/ rivers and linking them, putting in humungous solar power batteries, ramping up our fledging food- processing industry, with e-retailing, the high-tech dodge of the FDI in multi-brand retailing controversy, and so on.  The Chinese will also help India realise its vision of turning into a manufacturing hub for domestic markets and exports.

The old WWII vintage ‘Stilwell Road’, to ‘Mandalay’, and on to China, is also back on the cards. China calls it ‘The Silk Route’, euphemistically, though it actually isn’t the historic overland Silk Route from Europe. Nevertheless, reviving this regional artery to the East may lead to great deal more regional cooperation, reaching beyond SAARC, echoing the weave and weft of British-India that once ranged from Burma to the Gulf including Afghanistan.

Some think-tankers have suggested it is best for the Gulf countries to also get on board  this emerging conglomeration on land and sea. Like the new Balkans, both independent and dependent on each other, there is a compelling point in regional cooperation as the US and its NATO partners withdraw into their own troubles at home.

Pakistan, its Taliban, the ISIL and ISIS in Syria/Iraq, the incorrigibles under Mullah Omar in Afghanistan, and their joint and several  ‘medieval mind-set’ struggles, are, despite the barbarism, an obsolescence playing out. There is no future in jihad no matter how hard it is pushed by its votaries.  It is illustrative that America has gathered 40 countries against ISIS, including several  West Asian nations. But America herself is growing irrelevant in the area, and its sporadic interventions are unlikely to achieve very much in the long run.

Meanwhile, the weak performance of the BJP in recently held by-elections suggests that the grass-roots public is keen on the Government concentrating its energies on economic progress rather than any of its traditional, communally polarising issues. And that the sole vote-catcher in the saffron fold is the charismatic Narendra Modi himself.

This is also a momentous week for the stock markets, reflected by a weakness in its performance despite the prevalent bull market. President Xi Jinping’s visit may result in a number of good economic announcements, but these have already been discounted, and the market is latching on to its worries instead.

What will be the impact of the Scotland referendum? The closeness of the likely voting indicates that even if Scotland stays in the United Kingdom it will become much more autonomous. This will also affect Northern Ireland and Wales and their future attitudes. Britain as a major ally of the US in the European theatre, will never be the same again. If Scotland secedes, the destabilising effect on the debt-ridden UK, the EU, the US, and then world, will be considerable.

And then, there is the meeting of the Federal Reserve Bank of the US. The world will be watching for straws in the wind. When will the ‘tapering’ end? When will US interest rates start to rise and by how much? Is there going to be any change in the anticipated timetable of June 2015 for this? Will it mean a flight of capital from the emerging markets? This, even though India, going into its festive season, is thought to be the best investment destination in the EMs right now.

At home, is Governor Rajan of the RBI, improving liquidity only in micro doses so far, going to start cutting interest rates? The economy is clearly recovering and inflation is coming down. It is now at its lowest in five years already, and diesel subsidies too may soon be gone.

Oil prices, very important to India, which imports 80% of its needs, are sharply down and unlikely to spike upwards again except for disruptions in supply. There has been a diversification of sourcing from farther afield, and a strong push towards development of alternate/ green sources of energy.

The global demand supply dynamic for petroleum is now permanently changed, most importantly because America, once a 50%  consumer, is now self-sufficient. This is a profound  strategic difference, with far reaching consequences. Things are different in a way not seen since the hugely inflationary multiple oil price shocks which began in the 1970s.

West Asia will lose its leverage going forward, prices will fall further, analysts say it will be limited to $70/barrel or less, even as China, India and  other major consumers, develop their own shale oil, other oil and gas fields,  and new age  ‘green’ resources.

Indeed, the era of ‘fossil fuel’ itself may be in terminal decline, even as the geo-political scenario changes irrevocably. This is, like the proverbial silver lining, very good news for India, with its huge energy needs, particularly on the threshold of its makeover into a developed country.

 (1,101 words)

September 16, 2014
Gautam Mukherjee

Changes

 Changes

China, as expected, has announced plans to invest $100 billion in India, about half of it in infrastructure alone, over the next five years. The rest will go into a slew of SEZs around the country, food processing industry, more bullet trains, and so on.

And Chinese banks, flush with funds, will finance all the Indo-Chinese joint ventures expected to mushroom. President Xi  Jinping is coming on the 17^th of September, Narendra Modi’s 64^th birthday, for his first three day visit to India.  

For China, the time is right for this economic tilt towards India. The new dispensation there recognises that China has a lot of spare infrastructure-building capacity currently, and indeed a good deal of surplus manufacturing capacity as well. This, given that its investment driven domestic  infrastructure growth is now largely done with. China is in the process of promoting its consumption-led avatar instead. The manufactured export story, once downright stellar, is no longer robust, since both Europe and America are not buying as much. India, however, presents a wonderful opportunity. It is large, under-developed, hungry for a huge amount of capital, technology, product, know-how and expertise, and this for at least a decade going forward.

India’s dance card for foreign investment is looking good, even before Prime Minister Modi’s visit to America later this month. Perhaps the US, which has never matched words to deeds when it comes to investment in India, will also make bold this time. It may even attempt to compete with the initiatives taken by Japan and China already, possibly in Defence production, where billions are easily absorbed.

But, with all this happening, the challenge will be in India’s ability to smoothly assimilate such unprecedented investment flows, with even more to come. We must transform our obstructive processes and bottle-necks.  To digest such cash flow, now that we have begun to attract it, the change that must come will give teeth to Modi’s oft repeated promise of ‘red carpet, not red tape’.

This will have to go a lot further than expeditious ‘single window’ clearances.  We will have to provide quick, real-time access in areas opened up to 100% FDI, such as the Indian Railways, soon in Insurance, and conditionally, in Defence production. We need to develop a brand new reputation as a truly business-friendly destination.

We do not have to do this as a precondition for countries that want to exploit our markets while giving us little or nothing in return. But we must make things as convenient as possible for China and Japan, countries that are willingly and enthusiastically putting down their money on India’s future.

Telecom giant Vodafone, Auto conglomerate Honda, Oil major BP, and sundry others have recently reiterated that India remains a very difficult place to do business. They have all invested billions of dollars in India, and are hoping that Prime Minister Modi will change things at last.

The taxes on manufacturing and inputs are onerous, multiple, and applied multifariously. They need to be lowered, and simplified into a GST soonest. Labour hire-and-fire laws have to be put in place to engender efficiency countrywide, as they have been in Rajasthan, where personnel changes up to 300 do not need Government prior approval.  But even this hardly goes far enough. Consider that the automobile and motorcycle industry in Haryana today employs about 10 lakh people. And there has been a great deal of labour unrest there, inclusive of stoppages, gheraos, murders of management, extensive production slow-downs/stoppages and property damage.

So much so, that that the auto majors are unwilling to put in new factories in Haryana, preferring Tamil Nadu, Gujarat, Rajasthan and elsewhere. Much of the conflict has come on the back of trade union activity protesting terms for large numbers of ‘contract’ personnel. They do not enjoy several service benefits, but can indeed be let go, unlike ‘permanent’ employees. But then the Socialist era Labour Laws make it difficult to hire personnel who are ‘protected’ by the Government .

Additionally, land, electricity, rail, road, airport and port connectivity, need to be in place or developing.  High quality office space, residential accommodation and recreational facilities are equally important. Law and order, and faster legal due process must happen. But perhaps, the greatest change has to come in our attitudes, manners and mores. Corruption must be stamped out of our dealings and be replaced by an eagerness to facilitate.

By the 18^th of September, even as Premier Xi  Jinping  will still be here, the world will learn whether Scotland has indeed chosen to break-away from the United Kingdom. Even if she does not, Scotland will necessarily be far more autonomous in future. Across the world, by way of contrast, Hong Kong is inexorably losing its ‘special status’, spawned in colonial times. Despite protestations, Hong Kong’s identity as distinct from mainland China is certainly blurring. This, while democratic India and nominally Communist China, make ready for a decade of unprecedented collaboration.

  (821 words)

September 13^th, 2014
Gautam Mukherjee

Reading The Tea Leaves

 Reading the Tea Leaves

The tectonic plates are shifting. Seven years after Australian Prime Minister Howard signed a nuclear cooperation agreement with India, present Conservative Prime Minister Abbott has agreed to start selling us its uranium. Australia has 40% of the world’s uranium deposits and also sells to China. In fact, both China and Japan are Australia’s major general trading partners.

Military exercises and further trade, technical collaboration and industry cooperation with India will be intensified rapidly. This implies that Australia’s modest $ 600 million FDI in this country is set to grow substantially.

Coming hard on the heels of the Japanese intent to invest $ 35 billion in India over the next five years, it sets the stage nicely for the forthcoming visit of Chinese President Xi . China too has just $ 1.1 billion invested in Gujarat presently, but has announced  a fresh $5 billion investment in two SEZs, ahead of the President’s visit. But much bigger investment is definitely in the offing.
Our National Security Advisor (NSA) Doval is paving the way on security and defence issues, following on from recent visits  to China of Commerce Minister Sitharaman and Vice President Hamid Ansari. The Chinese, who see Modi as a ‘friend of China’, were the first of the big powers to send their Foreign Minister across, soon after the elections.

Conventional analysis has been suggesting this coming closer of Australia and Japan to India is to create a strategic bulwark against Chinese domination. These same thinkers feel India should not trust China because of 1962 and the constant border intrusions.

Others such as MJ Akbar, and this writer, think the move should be towards a pooling of strengths  of the players in the Asia-Pacific . In future days, we can expect a drawing closer of several others in the ASEAN and the Shanghai Strategic Group, at China’s urging certainly, but also in their own best interest.

There is much to be gained from pooling experience, know-how, technology, financial and raw material resources, military and diplomatic ability etc. , because the region’s commercial heft is at least equivalent to that of the EU, if not better. The Asia-Pacific countries, in fact, have competitive executive abilities and price advantages.

 The shrinkage of growth and huge indebtedness of the European and US economies that will take decades to set right, has resulted in a withdrawal from global investment, confining the Western powers to becoming over-priced vendors of their wares.

America  can no longer  afford to, nor is willing, to play the globocop of the Bush era. It is slowly diluting its commitments to Japan and Australia as well as NATO. It is folding its tent in West Asia as its dependence on foreign oil is much diminished. The US does not want to stretch to further indebtedness to protect its allies when its own interests are not directly threatened. And neither can the allies cough up enough resources to pay their own way. 

The Asia-Pacific countries together, inclusive of South Asia’s SAARC, can truly give wings to the Asian century, albeit starting only now, half way into the second decade.China, under its present leadership, can see its preeminence in the region strengthened, not by militarily menacing others in the area, or aggressively foisting unequal trade balances as before, but by pragmatic cooperation with its geo-political neighbours.

The People’s Liberation Army (PLA) in China, like the Pakistani Armed Forces and its dreaded ISI, are not too keen on their power being diluted or its budgets trimmed. And therefore there is a degree of inconsistency between military actions and that of the political leadership, particularly with reference to India and Japan. In terms of the sub-continent however, the political leadership in China has already stopped hyphenating India with Pakistan.

Meanwhile, the Indian Stock Market rally, a barometer of confidence about the future, is currently at all-time highs. The 30 share Sensex has run up 30% in dollar terms, while the investment in the midcaps and smallcaps has also intensified.  What will happen going forward? The US will start raising interest rates and India will start lowering its own. The FII money from the West may not be quite so forthcoming. However, the Indian Government is making moves to allow the domestic Pension Funds into the market with a cash flow of about Rs. 6,000 crores a month. If this happens, the Rs. 12,000 crore monthly flow needed to keep things moving at today’s pace, is assured, with the FIIs and others making up the rest.

But  going forward, company earnings have to surge in order to raise the earnings per share (EPS). Leading brokerage firm Motilal Oswal expects the market capitalisation, presently at $ 1.5 trillion, to double in the next three or four years. Much of the impetus for this in the real economy could well come from our born again friends in the SAARC and Asia-Pacific.

 (812 words)
September 7^th, 2014
Gautam Mukherjee

Lal Salaam Rising Sun Redux

 

 Lal Salaam Rising Sun Redux

 Japan,  as former Foreign Minister Natwar Singh just remarked, was nationalist India’s WWII ally during the freedom movement. And China under Chairman Mao was the inspiration for the ravages of the Naxalite movement in West Bengal fifty years ago.

Today, both linkages are in for a resurrection, a redux, rich in bonhomie, in a Butch Cassidy and the Sundance Kid kind of way. Japan, of course, once conquered and occupied China, much to its humiliation, and China overran India with consummate ease, much to ours.

Manmohan Singh may have been mumbling about his ‘Look East’ policy for some time past, but it is Prime Minister Modi’s Japan sojourn which is all set to yield $ 35 billion in fresh investment . This will go into infrastructure, skill development and manufacturing over the next five years. Other items of cooperation fill out the list of bilateral engagements, and include  rare-earths and defence. Nuclear cooperation will have to wait, but others, the Australian prime minister, the Russians, the French, are on their way.

India on its part, is all set to revoke the MAT and DDS taxes on manufacturing in its becalmed SEZs’ and elsewhere, and there will also be a special facilitation cell for the Japanese working out of the PMO and a hotline between prime ministers Modi and Abe.

China’s President Xi is due to visit next, and the Chinese have pointedly chosen not to take exception to being called ‘expansionist’. After all, there is little percentage in denying it. They must be making ready with proposals for investment in India instead.

Their client state Pakistan, apart from being a much smaller opportunity, has already yielded the prize of access to Baluchistan and its raw materials, a strategic port on the Gulf, and good office access to Afghanistan’s mineral riches. Pakistan  does take in a lot of Chinese arms and even nuclear power stations, but China has to finance it, pretty much on the never-never, with this spectacularly bankrupt state, living for long on drug money, terrorist shakedowns, and loads of US and Chinese grants.

Meanwhile, the roads across the Akshai Chin, the Gilgit area, and the Karkoram Pass  are also constructed. India observation posts in Pakistan occupied Kashmir have come along with Chinese aided infrastructure development. Roads and train lines have been built to the Sikkim border and also to Lhasa and beyond.  

There is not much economic percentage left in a volatile Pakistan verging on a failed state. Besides their ‘long-time ally and all-weather friend’ has not hesitated to foment Islamic terrorism in China’s Tajakhistan province!

China’s encirclement policy, the ‘string of pearls’, with regard to India is well-nigh advanced, with ports in Sri Lanka, developments in Myanmar, bilateral cooperation with Nepal and Bhutan and hard patrolling of the long borders. There is also the burgeoning blue water navy and the urge to dominate not only the South China Sea but the Indian Ocean as well. The United States has tacitly conceded the space, but let’s face it, countries like Japan and India actually live here.

But through it all, it is believable enough that China has no actual territorial ambitions  in India. It is just keen on being the undisputable top dog, and forcing India to toe its line in international affairs, including BRICS. To this end there is a carrot and stick approach with allurements of support for a permanent seat in the UN Security Council and invitations to the Shanghai Group regionally.

India on its part, meek and willing to be bullied under the UPA, is no longer keen on ignoring Chinese pressure, and is rebuilding its own bridges, in its neighbourhood, and farther afield; with Bhutan, Nepal and now Japan.  

But undeniably, there is much business to be done given the size of the Indian market. India is in a resurgence under Narendra Modi, and the $68 billion trade in China’s favour is not going to be as significant going forward as making in India, especially if other countries rush forward to do so. But, as it stands, in FDI terms, China is a laggard, with a mere $1.1 billion invested in Gujarat.

Modi’s Government seeks trillions in infrastructure and manufacturing investment in particular, and China has a great opportunity to contribute or fall behind other countries.

From Prime Minister Narendra Modi’s native Gujarati perspective, in which he claims an innate understanding of business as ‘money runs in my blood’, it makes good sense to attract substantial investment from both countries and others.

The Chinese have enunciated and adopted national interest as their foreign policy. And it is indeed in the Chinese national interest to ramp up investment in an India run by the business-friendly Narendra Modi. It will be a Lal-Salaam-Rising-Sun Redux that will benefit India, China and Japan alike.

(797 words)

September 2^nd, 2014

Gautam Mukherjee