All posts by Aanand Kharde

India-US Relations Blog

Retail Reverberations

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India’s retreat on economic liberalization has broad consequences for the country’s international standing and for U.S.-India relations specifically

Just when it looked like Prime Minister Manmohan Singh would make something out of his second term, he beat an ignominious retreat on opening up India’s huge retail sector to foreign companies. The stunning turnabout — actually more of a debacle –has a number of significant implications for the domestic economic and political landscapes. In particular, it confirms what many have increasingly suspected: Regardless of whether he manages to hang on through the Uttar Pradesh state elections early next year or miraculously serves out his allotted term, Singh is very much a lame duck presiding over a government that is hopelessly adrift and ineffectual. He and his long-time Cabinet associates, once lauded as the “economic dream team,” have proven themselves incapable of making the bold decisions many believe are crucial for India’s future.

The capitulation also has far-reaching consequences for the country’s international standing and for U.S.-India relations specifically. The retail liberalization was hailed as a landmark economic reform, evidence that New Delhi had finally overcome the chronic leadership paralysis and policy contradictions that have made foreign investors wary. This leeriness is the reason India is perpetually unable to lure in the levels of global capital that have fuelled China’s stratospheric economic ascent. It accounts for the marked withdrawal of foreign investment that has caused the rupee’s rapid depreciation in recent months. And it explains why the business community felt it necessary to launch a “Credible India” marketing campaign to address India’s image problem. Yet the retail retreat will only solidify international skepticism.  After the rescindment, the chairman of Microsoft India announced that the country could no longer even be regarded as a magnet for technology investment.

The backtracking similarly reinforces the growing perception that India is the Godot of great powers – its arrival in the top tier of countries is much heralded but never quite happens. The country’s elites speak assuredly of the coming “Indian Century” and yet are haunted by the shadow of the long-defunct East India Company, a corporate entity that is in any case now owned by an Indian entrepreneur. The contrast with China is instructive. Even with its own history of foreign exploitation, Beijing was confident enough about its strengths to allow Walmart, Ikea and other foreign retail enterprises to set up shop more than 15 years ago.

India possesses a multitude of latent resources necessary for national greatness but is conspicuously bereft of strong political institutions capable of mobilizing them in a purposive direction. This absence habitually condemns India to punching far beneath its strategic weight. A few days ago, Jim O’Neill, the progenitor of the now ubiquitous BRICs saga, pronounced India the “most disappointing” member of the quartet and ranked it on par with Russia in terms of governance and corruption. And Jyoti Thottam, Time magazine’s South Asia bureau chief, warns that the reversal “may be remembered as an inflection point in the ‘rising India’ story, a moment when skepticism about India’s future finally started to overshadow optimism.”

The episode will also have repercussions for relations with the United States. It will ensure that bilateral commercial ties remain far below their potential and that U.S.-India trade levels continue to be eclipsed by U.S.-China economic interactions. This is most unfortunate since, as Raymond E. Vickery, Jr. points out in his new book, The Eagle and the Elephant, private-sector linkages are a key driver of the overall U.S.-India relationship.

Many have proposed that Washington launch negotiations on a free trade agreement with New Delhi, while others criticize the Obama administration for dragging its feet on crafting a bilateral investment accord. But the logic of these measures is now in severe doubt. Given the obvious inability of Indian leaders to make the bold decisions that would be necessary, there is no reason why a beleaguered U.S. president would spend precious political capital on ventures that promise so little chance of success.

On the geopolitical level, Singh’s retreat further undermines the seriousness with which Washington views with the current Indian government. From the political soap opera that accompanied the parliamentary debate over the nuclear cooperation agreement three years ago to last year’s nuclear liability law that effectively locks out U.S. involvement in the nuclear energy sector, and from this spring’s rejection of American entrants in the lucrative fighter aircraft competition to this week’s retail rollback, doubts have been steadily rising about New Delhi’s capacity for strategic engagement. It is little wonder why, six months after Ambassador Timothy Roemer departed New Delhi, the Obama administration has yet to bother nominating a successor.

A chorus of critics accuses Washington of being derelict in relations with India. In a just-published article, for example, the Wall Street Journal’s Mary Kissel rebukes the administration for “neglecting” and “ignoring” New Delhi. She’s right that the Team Obama was too slow in distilling rhetorical professions about “indispensable partnership” into meaningful policy initiatives. But even if the administration had been more pro-active and creative, would it have made much of a difference? Sadly, the record of the past few years indicates that leadership dysfunctions in New Delhi would have precluded any sort of serious response.

Ever since President Obama’s inauguration, Indians have vocally complained that he has forsaken them in favor of the Chinese. The grievance has some justice, though many in New Delhi are oblivious to how they too bear some of the blame (see here and here). They would be wise, however, to heed the warning just issued by Ashley J. Tellis, one of the architects of the Bush administration’s strategic entente with New Delhi. In the coming years, he cautions, Washington may become “hard-pressed to justify preferential involvement with India at a time when U.S. relations with China – however problematic they might be on many counts – are turning out to be deeper, more encompassing, and, at least where the production of wealth is concerned, more fruitful.”

Defence And Strategic Affairs Blog

Borders and Buddhism

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Events last week illustrated that the true fault line in India-China relations remains the 60 year-old acrimony over the Tibetan frontier.

From India’s increasing presence in the disputed waters of the South China Sea to the duel over diplomatic influence in Myanmar, developments in recent months (here and here) amply illustrate how India and China will bump into each other as they grow in power and aspiration. But events last week illustrate that the true fault line in bilateral relations remains the 60 year-old acrimony over the Indo-Tibetan frontier. The border area was the site for the month-long war between the countries in 1962, as well as serious military crises in 1967 and 1987. It is the only place where the outbreak of armed conflict is a realistic possibility, as well as the focus for much of India’s expansive plans for military modernization. And the chances are good that the frictions here will only intensify in the years ahead.

The border was to be the stage for an act of India-China cooperation last week, when high-level talks were to convene in New Delhi aimed at managing the increasing quarrels along the Himalayan boundary. The meeting was also intended to prepare the way for a visit to India early next year by Xi Jinping, China’s vice president who is heir apparent to Hu Jintao. But the Chinese side abruptly pulled out of the talks after failing to persuade New Delhi to prevent the Dalai Lama, the exiled Tibetan spiritual leader who is much reviled in Beijing as a separatist, from giving the valedictory address at an international Buddhist conclave that was meeting in the Indian capital at the same time.

The border talks will likely be rescheduled in the coming weeks. Both governments were circumspect in their official comments about the postponement. Notably, the Global Times, a Beijing-based tabloid that is an unfailing tribune of bemusing jingoism including recent fulminations aimed at New Delhi, reacted cautiously. In an editorial titled “China and India mustn’t go for the throat,” it counseled that:

“Both sides must keep the border issue from worsening by focusing on keeping good will talks alive and being mindful of the consequences of a sudden breakdown.”

A high-level defense dialogue between the two countries will also go ahead as scheduled in New Delhi this week. With the United States becoming more strategically assertive in East Asia – punctuated by President Barack Obama’s tour in the region last month – Beijing has high incentive to stabilize relations with India while it turns its attention to the challenges raised by Washington. The Global Times underscored this priority when it noted that even though India “appears to be highly interested in facing off with China,” the rivalry with New Delhi “is not the primary focus of Chinese society.”

With its own plate piled high with economic and governance challenges, not to mention the multiple insurgencies underway in its northeastern region, India also is keen to tamp down border ructions. Indeed, in deference to Chinese sensitivities, Pratibha Patil, India’s president who was supposed to inaugurate the Buddhist assembly, cancelled her participation, while Prime Minister Manmohan Singh, also scheduled to make an appearance, likewise stayed away.

But events are conspiring to upend each side’s preferences. As last week’s contretemps demonstrate, the border dispute is not simply a matter of contested claims over real estate. It also is bound up with the increasingly volatile issue of Tibetan nationalism. It is no coincidence that Beijing in recent years has turned up the volume about its territorial claims on the northeastern Indian states of Sikkim and Arunachal Pradesh (the latter of which China has taken to calling “South Tibet”) at the same moment that the ethnic Tibetan population inside China has become more restive. Beijing views the agitations as the handiwork of the Dalai Lama, who has been especially effective in making Tibet an international cause célèbre, as well as the Tibetan government-in-exile. Both the Dalai Lama and the Tibetan exile core are based in Dharamsala in northern India.

Adding to the combustible mix is the location of Tawang Monastery, a revered site in Tibetan Buddhism that is just inside the Indian side of the contested border. The monastery is close to the birthplace of a 17th-century Dalai Lama who remains an immensely popular historical figure among Tibetans. Its significance has greatly increased after the current Dalai Lama stated that he might be reincarnated outside of Chinese-controlled territory and that the selection process for his successor might break with precedent, such as being hand-picked by him or chosen by popular acclaim. With Tawang likely to play an important role in the selection, Beijing is keen to assert control over it.

Beijing’s apoplexy over the Dalai Lama, once again on display last week in New Delhi, is a measure of its insecurity on the Tibet issue. This hypersensitivity has impelled the People’s Republic, officially an atheistic party-state, to entangle itself in deeply into the affairs of Tibetan religious institutions, including absurdly banning the current Dalai Lama from being reborn anywhere but inside China and insisting that it alone has the definitive word on the selection of his successor. It drove Beijing in 1995 to kidnap a six year-old Tibetan boy who the Dalai Lama proclaimed as the Panchen Lama, the second-ranking figure in Tibetan Buddhism. The boy’s fate remains unknown; Beijing has promoted its own candidate as the true Panchen Lama. While many Tibetans see this person as a pretender, he provides Beijing a key opening to manipulate the selection for the next Dalai Lama, since the Panchen Lama traditionally has a central part in the process.

China has also embarked on an extraordinary charm offensive (here and here) to win the hearts and minds of the international Buddhist community, including plans to build a multi-billion dollar pilgrimage and tourism complex at the Buddha’s birthplace in Lumbini, Nepal, which is right on the border with India. New Delhi is counter-punching by sponsoring Buddhist gatherings, including the one last week that raised Beijing’s ire and which in one of its final acts decided to create an International Buddhist Confederation that will be headquartered in the Indian capital.

Given the volatility of the Tibetan issue, one could envision without much imagination scenarios that result in a military confrontation along the frontier. One might involve the outbreak of serious unrest within Tibet, leading to a Chinese crackdown that spills into India. Beijing could bring military pressure on New Delhi to clamp down on the Dalai Lama and his compatriots in Dharamsala, setting off a dangerous spiral of misperception and miscalculation. Alternatively, the passing of the Dalai Lama, who is now 76, could spark a tumultuous search for his successor, leading China to seize Tawang so it can control the outcome.

Unfortunately, there is ample historical precedent for such scenarios. Indian support of the abortive Tibetan uprising in 1959, for example, colored Beijing’s perceptions in the lead-up to the 1962 border war. And in the mid-1980s, an isolated incident in the Sumdurong Chu Valley in Arunachal Pradesh led to a serious military stand-off in early 1987. As one of the WikiLeaks dispatches from the U.S. embassy in Beijing reported, some Chinese observers believe that policy on Tibet is even more inflexible than toward Taiwan, where Beijing at least tolerates some U.S. interference. And concern among Chinese leaders over internal unrest is rising.

A New York Times article has called Tawang “the biggest tinderbox” in relations between India and China. Expect to hear more about it in the coming years.

Defence And Strategic Affairs Blog

The Real Tragedy of Memogate

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The key lesson of the Memogate controversy is the readiness of the Pakistani political class to exploit the civil-military imbalance for tactical advantage.

On one level, the widening Memogate mystery/conspiracy drama playing out in Pakistan is yet another example of the endemic dysfunctions between the powerful security establishment and their nominal civilian masters that have lead the country throughout its history to the brink of ruin. But the affair also demonstrates the long-running failure of the political class to understand that, even in the throes of competitive politics, it has a common interest – indeed a fiduciary obligation – in upholding the principle of civilian supremacy over the military.

The unfolding saga centers on an unsigned backchannel note delivered to U.S. military authorities following the raid that killed Osama Bin Laden. The document, whose authenticity has yet to be ascertained, requests U.S. help in preempting a feared military coup against Pakistan President Asif Ali Zardari. In exchange, a host of tantalizing, albeit incredible, concessions is offered, including:

 installation of a new national security team in Islamabad filled with pro-American officials;

 transferring to U.S. custody the leaderships of Al Qaeda, the Taliban and the Haqqani insurgent network;

 giving American forces “carte blanche” to conduct operations on Pakistani territory;

 bringing greater transparency to Pakistan’s swelling nuclear arsenal;

 abandoning support of militant groups in Afghanistan.

Suspicions over the note’s provenance have come to rest with Zardari himself, and Pakistan’s ambassador in Washington, Husain Haqqani, a close Zardari ally as well as outspoken critic of the Pakistani military, is alleged to have orchestrated its delivery.  Both men have denied involvement.  But the controversy has now cost Haqqani his job and speculation is rife that army leaders will utilize the uproar to further diminish Zardari, perhaps even ousting him from office.

Nawaz Sharif, the leader of Pakistan’s main opposition party, has now waded into this combustible mix. His remarks this past weekend offer a particularly egregious example of the political class habitually using the issue of civil-military relations for myopic gain. Speaking at a political rally, Sharif blasted Zardari for “bargaining on national sovereignty and people’s self-respect.” He thundered that Haqqani is “asking the U.S. to control the Pakistani military when we should resolve our own problems.” His younger brother, Shahbaz Sharif, the chief minister of Punjab, has likewise charged Zardari with selling out the country’s sovereignty, while Sharif’s political supporters even accuse Zardari of committing treason.

Given how Nawaz once committed the very same acts for which he is now bludgeoning Zardari, he is trafficking in rank hypocrisy. In 1999, during Nawaz’s second stint as prime minister, he was the target of considerable criticism, including accusations of undermining the army’s honor and betraying the Kashmir cause, for cutting a desperate deal with President Bill Clinton to end the Kargil War. (A vivid portrait of Nawaz’s panicky state at the time, which included apprehensions that his life was endangered, is contained in Bruce Riedel’s first-hand account about the deal.) Fearing that the Pakistani army, under the leadership of General Pervez Musharraf, was about to take its revenge by overthrowing him, Nawaz urgently dispatched Shahbaz to Washington to seek the Clinton administration’s intercession.

As British journalist Owen Bennett-Jones relates in his acclaimed book, Pakistan: Eye of the Storm, Shahbaz pleaded that Washington had a moral obligation to protect his brother given the political risks he ran on Kargil. But Shahbaz also padded his case by passing along Nawaz’s offer to take a harder line with the Taliban regime in Afghanistan and help hunt down Bin Laden. The trip had the desired effect when U.S. officials signaled their opposition to “extra-constitutional actions” against Nawaz.

In the end, the warning shot failed to avert a military take-over and Sharif was expelled from the prime ministership and subsequently exiled to Saudi Arabia. Given his vexatious history with the army chieftains, one might expect Sharif to have a greater sense of solidarity regarding Zardari’s own travails with the military. Yet there he was over the weekend appearing to pander to the generals in Rawalpindi, announcing that his antagonisms with them were a thing of the past and that they would find in him a most suitable partner in the event they grow tired of Zardari.

To be sure, Sharif is only following a well-worn script. Pakistani history is replete with examples of opportunistic politicians who view the imbalance in civil-military relations as something to be exploited for tactical gain rather than rectified for the nation’s good. In an irony that ultimately cost him his life, Zulfikar Ali Bhutto built up ISI’s capabilities in order to suppress his political opponents. As the military constantly rotated them in and out of the prime minister’s office in 1990s, Benazir Bhutto and Sharif took turns celebrating the other’s demise rather than condemning the debasement of the Constitution. And instead of uniting following the Abbottabad raid to claw back decision-making authority from a humbled military, civilian leaders instead equated patriotism with fealty to the army.

The Rawalpindi crowd deserves the lion’s share of the blame for the deep morass that Pakistan has fallen into. But as the Memogate controversy illustrates, the political class is all too often willing to come along for the ride.

 

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.