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