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India-US Relations Blog

A Marshall Plan for South Asia

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The war of words between the United States and Pakistan in recent weeks has put in stark relief the two core strategic conundrums Washington has vis-à-vis Islamabad, as well as the integral role India plays in both of them. The first is to encourage a more constructive Pakistani approach in Afghanistan, which Islamabad regards as a theater for its endemic rivalry with New Delhi. The second is to steer a nuclear-armed but deeply dysfunctional Pakistan away from failed state status, a harrowing prospect that many believe is all too plausible unless Islamabad is convinced that its prospering neighbor to the East actually represents an economic opportunity rather than an existential threat.

The Obama administration entered office believing that Pakistani cooperation on Afghanistan was a function of addressing its acute security anxieties regarding India. Two weeks before the November 2008 election, Barack Obama declared that resolving the perennially-inflamed dispute over the Kashmir region was one of the “critical tasks” for U.S. foreign policy and worthy of “serious diplomatic resources.” It was a valid observation but the manner in which Washington pursued it guaranteed a quick failure. Moves to appoint a turbo-charged envoy (in the person of Richard Holbrooke) with the mandate of mediating the Kashmir issue– similar to U.S. efforts to broker the Middle East peace talks – met with Pakistani approval but proved too much for the sovereignty-conscious Indians to accept.

For the past three years, Washington has struggled to find a way to bring the two sides together and focus them on their common interests. Fortunately, the parties may have found one themselves. Despite the obvious displays of mutual suspicion in both capitals, a consensus is growing in the two countries – especially evident in their business communities – that the time has come for a more normalized relationship.

After a three-year hiatus caused by the 2008 terrorist strikes in Mumbai, India and Pakistan have restarted their peace dialogue. In July, Pakistan’s new foreign minister, the 34-year-old Hina Rabbani Khar, held unexpectedly warm talks in New Delhi, where she emphasized that a “mind-set change” was occurring among younger Indians and Pakistanis. Last month, for the first time in 35 years, Pakistan’s commerce minister visited New Delhi, bringing with him a notably large business delegation. The trip was especially productive. The two countries pledged to more than double their two-way trade flows – to the $6 billion annual level – by 2015. They agreed to ease visa rules for business travel and to open a new customs post at the Wagah border crossing that lies midway between Lahore and Amritsar. Islamabad also committed to extending “most favored nation” trade status to New Delhi, reciprocating the status India earlier conferred upon Pakistan. This last development promises to enliven the 2006 South Asia Free Trade Agreement which up until this point has been all but a dead letter. India’s commerce minister, Anand Sharma, captured the spirit of the meeting when he exclaimed that “only shared prosperity can bring lasting peace.”

The annals of India-Pakistan relations are filled with numerous false dawns and the current moves toward greater economic engagement could well founder upon the sharp historical animosities that regularly bedevil bilateral affairs. But things may be different this time. Reports out of Islamabad indicate that the Pakistani government realizes the country is in desperate economic straits and that closer ties with India constitute a much needed lifeline. The military establishment is also said to understand that the eastern border needs to be stabilized so resources can be focused on combating rising internal security threats.

If enhanced trade ties were to develop between South Asia’s largest economies, they would produce significant economic and (eventually) security dividends for both countries. Despite the common civilizational and historical bonds that permeate South Asia, as well as the unified market forged by the British Raj, the region today is remarkably fragmented economically. Trade flows between India and Pakistan, for instance, represent a miniscule fraction of each country’s overall trade portfolio.

Wagah is the only vehicle crossing along the 1,800-mile-long international border. The two-lane road there is only open a mere eight hours a day and the cargo that passes through it must be unloaded and transferred to local trucks. Indeed, the crossing, which some refer to as the “Checkpoint Charlie of South Asia,” is better known for the Kabuki-like displays put on by the border guards than as an efficient transit point.

The pervasive barriers to bilateral economic cooperation have also spurred circuitous and highly inefficient trade patterns. A booming India requires cement for its construction sector yet is forced to import it from Africa instead of Pakistan, where the cement industry has excess capacity. Off-the-books trade – the value of which easily rivals official levels – is also conducted via third countries like Dubai, Singapore and Afghanistan. According to various studies, a more liberalized trade regime would increase bilateral exchange at least 20 times above current figures as well as boost economic prosperity in both countries.

The Obama administration would do well to reinforce the current stirrings by launching a Marshall Plan-like initiative geared toward the expansion of cross-border economic linkages between the two countries. One of the keys to the Marshall Plan’s far-reaching success was the major financial inducement it gave European countries devastated by World War II to frame their economic futures in conjunction with their neighbors. By putting an emphasis on reconstruction projects that crossed national frontiers, it was an important catalyst for the historic reconciliation between France and Germany and paved the way for the deep economic integration embodied in today’s European Union.

A similar vision should inspire a U.S. effort to bolster cross-border economic cooperation between India and Pakistan. This initiative would be aimed at helping the two countries, on a joint basis, upgrade and expand the meager transportation infrastructure presenting connecting them. It would support projects that increase road and rail linkages, as well as the number and capacity of customs posts. It would help provide resources for modernized seaport facilities that enable more two-way trade. And with each country plagued by chronic power shortages, it would help bankroll cross-border energy projects such as joint electrical grids or the proposed natural gas pipeline connecting Central and South Asia via Afghanistan.

This effort would dovetail well with the “New Silk Road” initiative that Secretary of State Hillary Clinton announced in Chennai this past July, to foster the economic integration of Central and South Asia. Indian Prime Minister Manmohan Singh, who was born in what is now Pakistan, has spoken eloquently of the powerful role stronger economic linkages can play in bridging South Asia’s deep political fissures. In early 2007, he spelled out his vision for regional integration:

“I dream of a day when, while retaining our respective identities, one can have breakfast in Amritsar, lunch in Lahore and dinner in Kabul. That was how my forefathers lived. That is how I want our grandchildren to live.”

For his part, Pakistani President Asif Ali Zardari has even expressed the hope that India and Pakistan could one day join together in an economically-unified zone like the EU.

The original Marshall Plan entailed a staggering sum of money – well over $100 billion in today’s terms – and an austerity-minded U.S. Congress would certainly balk at any scheme with a similar price tag. But the initiative outlined here need only entail a modest level of expenditures – say, $50-75 million per year over a five-year period – and could be paid for by redirecting funding already authorized under the 2009 Enhanced Partnership with Pakistan Act. Better known as the Kerry-Lugar-Berman bill, the act provides $1.5 billion annually in non-military assistance to Pakistan through 2013. But due to a variety of factors, much of its economic development funds remain unspent.

To avoid potential concerns in New Delhi and Islamabad that Washington might try to extract diplomatic concessions from specific funding decisions, resources could be routed through the World Bank or the Asian Development Bank, where professional staff would assess the viability and impact of proposals submitted jointly by the two countries and make final judgments on which projects go forward. Additional countries, such as those assembled by Secretary Clinton in New York last month to discuss the New Silk Road plan, also could be invited to contribute resources.

Obviously, this initiative offers no magic bullet for transforming the singular intensity of the India-Pakistan strategic rivalry. But it would be a creative investment in nurturing promising developments already underway in both countries, which if they take root over the long term would help lead to a game-changing situation in South Asia: One in which Islamabad looks upon New Delhi more as a partner than as an outright enemy. If such a development came to pass, U.S. interests in the region would be vastly easier to safeguard than they are today.

Defence And Strategic Affairs Blog

Afghanistan Antagonists

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Indian Prime Minister Manmohan Singh and Afghan President Hamid Karzai

India has begun maneuvering to fill the potential power vacuum in Afghanistan.

As an earlier post argued, the quickening U.S. disengagement from the Afghan conflict that President Obama signaled four months ago will inevitably spark an intense regional scrimmage for influence as that country’s neighbors scramble to fill the resulting vacuum. The last few weeks have witnessed India making its opening moves in this jockeying by signing a strategic partnership agreement with Afghanistan and by repairing strained relations with Iran.

The strategic partnership that India and Afghanistan sealed last week – the first of its kind that Kabul has entered into – will significantly enhance New Delhi’s profile in Afghanistan. The arrangement provides for increased cooperation in counter-terrorism operations, as well as for expanded Indian training and equipping of Afghan security forces. It opens the development of Afghanistan’s mineral wealth (which may be worth nearly $1 trillion) and newly-discovered hydrocarbon resources to Indian companies. New Delhi also pledged to work with Iran to develop trade routes to Afghanistan that bypass Pakistan. Afghan President Hamid Karzai, who signed the agreement during a two-day trip to New Delhi – his second visit this year – praised India as a “steadfast friend and supporter” of his country, while Indian Prime Minister Manmohan Singh promised that India would “stand by the people of Afghanistan” even after the 2014 pull-out of U.S. and NATO forces.

Although Karzai insists that the partnership is not directed against Pakistani interests, it coincides with a serious deterioration of relations between Kabul and Islamabad. In the past week, the Afghan government has accused Pakistan of being behind the September 20th assassination of Burhanuddin Rabbani, Karzai’s chief envoy to the fledgling peace negotiations with the Taliban, as well as a foiled plot to kill Karzai himself. Standing in New Delhi, Karzai termed Pakistan a “twin brother” to his own country, but that was hardly enough to disguise the fact that his government was openly spurning Pakistan’s professions of friendship in favor of a wide-ranging covenant with its arch-nemesis.

The partnership underscores that New Delhi, unlike Washington, has no exit strategy in Afghanistan. Since the start of the Afghan conflict ten years ago this month, India has emerged as the country’s largest regional donor. It has invested more than $1 billion in assistance, mainly in infrastructure and development projects, including constructing the new parliament building in Kabul. It has also undertaken small-scale training of the country’s police, army leadership and bureaucrats. Prime Minister Singh traveled to Kabul this past May seeking to broaden India’s engagement. There he unveiled a significant expansion of Indian aid, committing an additional $500 million over the next few years.

Besides shoring up the precarious Karzai government, New Delhi is also moving to patch up strategic ties with Tehran, whose interests in Afghanistan are roughly congruent. India has traditionally relied upon Iran to help blunt Pakistan’s influence in Central Asia and to serve as a bridge to trade and energy opportunities there.  Relations between New Delhi and Tehran have been strained for the past few years as India, at America’s behest, supported several international censures of the Iranian nuclear weapons program. Prime Minister Singh turned down a number of invitations for a state visit to Tehran, and his government engaged in a convoluted exercise to avoid having Indian payments for crucial energy imports from Iran run afoul of U.S. sanctions against Tehran.

Yet the prospect of a geopolitical vacuum in Afghanistan is driving the two countries closer again. Singh met with Iranian President Mahmoud Ahmadinejad on the sidelines of the United Nations General Assembly annual conclave in New York last month and pointedly accepted a renewed invitation to visit Tehran in the near future. The two countries have also established a new payments mechanism for Iranian oil exports and are setting up a joint commission to explore even closer economic and security links.

Pakistan has long considered Afghanistan to be its strategic backyard. With so much of its national security posture driven by an obsessive focus on India, Islamabad is bound to regard New Delhi’s growing involvement there as a grave provocation. Pakistan regularly charges (see here and here) that India is using its large diplomatic presence in Afghanistan to funnel covert support to separatists in the restive province of Baluchistan, and the new India-Afghanistan partnership will be taken as further confirmation that New Delhi is intent on encircling and dissecting the country. Likewise, the renewed coordination between New Delhi and Tehran will be interpreted as a return to the role they played a decade, when their support for the Northern Alliance helped frustrate the Taliban regime. (Indeed, there are increasing signs that the remnants of the old anti-Taliban movement are being reconstituted.)

Given the region’s geopolitical dynamics, India has strong strategic interests in ensuring that any government in Kabul is capable enough to be a bulwark against Pakistan. And so India’s maneuvers are predictable enough. Inevitable, too, is the blowback from Islamabad. The nascent thaw in bilateral relations that has developed in the wake of the mid-July visit to New Delhi by Pakistani Foreign Minister Hina Rabbani Khar is now in jeopardy. Also expect increased attacks by Pakistan-based jihadis targeting Indian interests in Afghanistan, like the bombings of the Indian embassy in Kabul in July 2008 that killed 58 people, including the Indian defense attaché, and in October 2009 that left 17 Afghans dead.

India-US Relations Blog

Blowing hot and cold

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As many news reports noted, the past week was significant just for the numbers of Indian ministers in the United States at a given point in time. However, the more did not necessarily make the merrier.

cdn.wn.comNo less than nine members of the Indian Council of Ministers were in the US, including the primus inter pares, PM Manmohan Singh. The PM was in the  U.S. to address a session of the UN General Assembly and  his speech was notable, as one commentator put it, for its reference to “old ideological positions and  old constitutencies,” meant to signal his “disappointment with the West.” The PM seemed to emphasise the point by having a bilateral meeting with an old foe of the West, Iranian President Ahmedinajad, an event described by another commentator as a virtual affront to the United States. What India has to be disappointed about is unclear, and whether the disappointment will be followed up with distancing remains to be seen. Whether that is the most appropriate strategy is also moot in the rapidly changing global scenario.

Many of the Ministers, from Commerce to Power, to Finance were in the U.S. to drum up investment for mega- infrastructure projects back home. There were the usual assortment of think tank reports and seminars that usually coincide with such ministerial visits, but increasingly, they offer only new wine in old bottles, reflecting the current stalemate, if not slump, in relations.  An address by the recently promoted Deputy Secretary William J Burns at the Brookings Institution was even titled “Is there a Future for the US-India Partnership?”

Commerce Minister Anand Sharma made a valiant effort to break the logjam on the Totalization Agreement issue but came a cropper. This issue has been attacked from various angles, having earlier being piloted by the Minister of Overseas Indian Affairs. Mr Sharma made the point to his interlocutors that there was no reason not to sign an agreement with India pleading incompatibility between social security systems since India had signed totalisation agreements with many European countries  with which the U.S. had an agreement but this argument cut no ice.  This was not surprising since Under Secretary Blake had made it clear in his last read-out on US-India relations that the U.S. was in no mood to transfer over a billion dollars to India in the current economic mess it found itself in. There was also talk of progress made on a Bilateral Investment Treaty, even though it is almost as if when one side blows hot, the other side blows cold.

The other legs of the relationship, business and the diaspora, can, at best only play a supporting role, and are to an extent affected by the buffeting winds of the strategic relationship. The India-US CEOs forum also held its annual meeting in Washington this past week, but has increasingly less to show for being such a high-powered gathering. While India has a ready-made constituency in the U.S. in the form of the Indian Diaspora, Hillary Clinton’s public diplomacy initiatives are beginning to show results at least in India, with U.S. embassies and missions making all out efforts to engage with the average Indian through all the resources available from   social media to innovative meetups titled Charcha, Chai aur Coffee. The American Center in Delhi even provides a venue for Startup Saturday, a forum for young entrepreneurs to come together to share and learn from each other.

The blow hot, blow cold phase of the relationship into which we have entered seems set to continue into the foreseeable future with, as William Burns himself admitted in his speech, both governments distracted and pulled in different direction by a combination of domestic and external issues.

India-US Relations Blog

Back to Basics

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With the intergovernmental drivers of the US-India partnership now in a period of languor, it is time for the economic relationship to return to the forefront. This is the moment for business leaders in both countries to once again step forward.

As earlier posts have argued, relations between Washington and New Delhi – which not too long ago seemed destined to reach for the stars – are now feeling the heavy tug of gravity. In place of soaring rhetoric and high-profile undertakings, ties between the two capitals are weighed down by bureaucratic inertia and small-bore ideas.

Image back to basicsTwo recent episodes confirm this downward trajectory. The annual US-India economic and financial partnership talks took place this past June in Washington, though few beyond the personal staffs of Treasury Secretary Timothy Geithner and Finance Minister Pranab Mukherjee took any notice. The anodyne communiqué that was issued highlighted the deepening of “institutional relationships” as a major achievement of the talks, but the lack of specific commitments contrasted unfavorably with the detailed work plan that emanated from the US-China economic dialogue occurring just six weeks earlier. Indeed, the Washington-Beijing nexus has a way of upstaging US-India economic exchanges. When Geithner traveled to New Delhi in April 2010, for the launch of the bilateral economic partnership, all of the media attention was focused on whether he would fly off on a spur-of-the-moment trip to China, to engage in talks over the relative value of the yuan. (To nobody’s surprise, he subsequently did end up in Beijing.)  Similarly the US-India Strategic Dialogue that took place six weeks ago in New Delhi was an exercise in modest output and mutual frustration.

Given the serious domestic problems diverting the attention of both capitals, it is difficult to imagine how the government-to-government relationship can be advanced significantly in the next few years.  Nonetheless, the outlook for bilateral affairs is not entirely dim.  One exceedingly bright spot is the accelerating pace of economic engagement.  A decade ago, then-U.S. ambassador to India Robert Blackwill lamented that the volume of bilateral trade was as “flat as a chapati.” But trade levels have risen markedly in the years since.  Indeed, even with the global economy in the doldrums and the torpor in official ties, 2010 was a banner year for the trade relationship, with two-way goods exports surging nearly 30 percent to $48.8 billion. Merchandise exports are also up significantly in the first half of 2011 compared to the same period last year. All told, India is now America’s 12th largest good trading partner and the country constitutes one of the fastest-growing destinations for U.S. exports.

It is true that the economic relationship is very far from achieving critical mass and that US-China trade flows eclipse the US-India figures many times over. Still, the trend lines are quite hopeful and they illuminate the vital role that economic engagement plays in securing the growth of a resilient partnership over the long term.  This last point is persuasively set out in a new book, The Eagle and the Elephant, by Raymond E. Vickery, Jr.  A former U.S. Assistant Secretary of Commerce in the Clinton administration and now a leading figure in the US-India Business Council, Vickery argues that “economic engagement is fundamental to the ability of the United States and India to cooperate politically.” He demonstrates in great detail how over the past decade the private sectors on both sides forged the foundation for the diplomatic rapprochement that eventuated in the path-breaking civilian nuclear accord and an ever-closer security relationship. (Importantly, too, the book illustrates how mismanaged episodes of economic interaction can have far-reaching negative impact, such as the Dabhol debacle in the mid-1990s that continues to impede bilateral cooperation on energy and environmental matters, as well as impairing India’s international credibility as a respecter of contractual rights.)

So how can policymakers in Washington and New Delhi leverage the vitality of the economic relationship in order to re-energize the overall partnership? Two of the usual answers – concluding a broad-based free trade agreement and an investment treaty – are problematic, at least for the next few years. Considering that the two countries are at loggerheads in the Doha Round of multilateral trade negotiations, plus the neuralgic agricultural issues that must be dealt with, the prospects for a comprehensive trade accord are well off in the distance. And although U.S. and Indian policymakers recently agreed to accelerate discussions over an investment treaty, its full value is really contingent upon additional reforms within India – such as liberalizing foreign direct investment in the retail and financial sectors, deregulating labor markets, regularizing the land acquisition process, and dramatically addressing infrastructure bottlenecks. With decision-making in New Delhi all but paralyzed these days, it is anyone’s guess when these key reforms will be enacted.

There are several initiatives that have more promising prospects, however. As spelled out in earlier posts, Washington and New Delhi should aim to build upon their striking record of engagement in the innovation economy sectors by crafting a free trade mechanism relevant to advanced technology products and drafting an immigration accord that allows high-skilled Indian professionals to work in the United States. Both undertakings would capitalize on important economic complementaries and would build up economic capacities that are so significant to the long-term prospects of both countries.

Continuing to think outside the box, negotiators also might explore whether India would be willing to address manifold U.S. concerns about its regime for protecting intellectual property in exchange for a totalization agreement covering Indian technology workers posted to the United States on temporary assignments (as Derek Scissors suggests, or for the special restoration of trade privileges (amounting to $3.5 billion in value in 2010) that expired when the U.S. Congress failed to reauthorize the Generalized System of Preferences at the end of last year.

Finally, taking page from its successful campaign several years ago to bring India into global nonproliferation institutions, the United States should use the upcoming APEC Summit, which takes place this November in Honolulu, to lobby for New Delhi’s admission into the group.  Given that India is poised to become one of the world’s top economies in the coming years, its absence is a serious lacuna for the organization.  (My next post will deal with this issue in greater detail.)

With the intergovernmental drivers of the US-India partnership now in a period of languor, it is time for the economic relationship to return to the forefront.  This is the moment for business leaders in both countries to once again step forward.

India-US Relations Blog

Yesterday, once more?

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And just like that, the much awaited, once postponed India-US Strategic Dialogue came and went, with not even the the tiniest frisson of excitement of that had accompanied previous Dialogues. Minders on both sides must have been secretly pleased that the Murdoch slugfest in London came in as a suitable excuse to explain away the limited interest and analysis of the Strategic Dialogue in the media. With new lists of grievances building up on both sides to replace the long-drawn out lists of the Cold War era, the Strategic Dialogue process has had the unintended consequence of focusing attention on these issues for which all available political capital has been expended or there is no solution even at the highest political levels.  Given this reality, the reports of half-hearted wagging of fingers and admonishments behind closed doors were more for the benefit of respective constituencies than to move the process forward. The overriding urge to prevent any SNAFUs meant that Mrs. Clinton proposal to visit Kolkata as part of itinerary was shot down by the hosts. And whilst Mrs. Clinton broke bread with all her leading interlocutors, from the Prime Minister downwards, the glaring exception was Defence Minister A K Antony, for whom the Dialogue that was to take place in April had been postponed since he was ostensibly busy with the Kerala elections.

01-1The U.S. side, in particular, has become a master at the art of coming out with comprehensive factsheets laying out the massive advances in joint projects, emphasizing the width and breadth of the partnership.   With many of the bilateral agreements signed over the years stuck at various stages of implementation, it is almost as if both sides were virtually scrapping the bottom of the barrel this time around to come out with agreements on cyber security cooperation and cooperation in aviation safety. This is not to belittle the importance of these agreements, and particularly the one on cybersecurity. However, the impression one gets is that there is still a sufficient amount of mistrust on both sides to ensure that even this initiative will live uptoits potential for some time to come. By way of comparison, the agreement between cyber adversaries Russia and the United States on cyber security cooperation signed just the previous week is much more specific on actions and timelines.

But it is not as if Mrs Clinton would be particularly disappointed by either the dampened expectations or outcome of her visit. From an American perspective, given the flux in the wider Asian region, accelerating the strategic partnership with India in the security and defence realms, especially if it is only on the back of unilateral concessions, will only fetch diminishing returns. One only needs replace India with the U.S. in the previous sentence to come up with the Indian view. On the American side, there is reasonable confidence that an increasingly powerful and belligerent China will eventually drive India into U.S. arms. In the meantime, there is plenty of other fish to fry, particularly when it comes to pushing the economic and people-to-people aspects, part of larger initiativesthat Mrs. Clinton has focused on since taking up stewardship of the State Department.  And therefore it is not surprising that out of the many factsheets brought out by the Department at the end of the visit, it is those on economic ties and education and people-to people ties that have the most substance. While the former leads with talks on a Bilateral Investment Treaty, there is a consolation prize in the establishment of the first ever Consular Dialogue to take place on July 25 “for a full discussion of visa and other consular matters”. From Tri-Valley to the harassment of H1B visa holders and diplomatic pat-downs, there will be much to discuss at this Dialogue. Considering that a similar Consular Dialogue has been part of the EU-IndiaStrategic Dialogue since 2000 and the India-Australia Dialogue more recently,one wonders why this did not come into being earlier even earlier.

On the education and people-to-people front, the noteworthy developments are the publication of the first request for proposals under the aegis of the Obama-Singh Knowledge Initiative with the fields of focus being Energy Studies, Sustainable Development, Climate Change, Environmental Studies, Education and Educational Reform, and Community Development and Innovation. How different this Initiative is from existing programs being carried out under the India U.S. Science and Technology Forum remains to be seen.  The other interesting program to watch out for would be the newly launched Passport to India which will facilitate increasing number of American students to come to India for periods ranging from three weeks to six months, to match the 100,000 odd Indian students in the United States. This, too, has an economic focus since the students will be here on internships with companies rather than for study programmes.

The silver lining in this particular cloud might be this; with both sides forced by exigencies to dial down the relationship a notch, this provides some breathing space to consolidate the initiatives that have been taken up in previous years. The U.S. State Department Inspector General’s office  has recommended that a separate office be established for India since “nations of comparable importance and with important bilateral relationships, such as China, Russia, Cuba, Canada, Japan, Korea, Mexico, Afghanistan, and Pakistan, have their own offices”. A similar initiative on the Indian side would go a long way in implementing the many worthy initiatives of the Strategic Dialogue and make it less of the annual junket that it is being perceived to be.