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India-US Relations Blog

Afghanistan is Key to India’s Iranian Connection

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Washington grumbles about the Indian relationship with Iran, but the U.S. withdrawal from Afghanistan leaves New Delhi little choice

The striking juxtaposition this week in New Delhi is a nice illustration of how Tehran has become a complicating factor in U.S.-India relations.  Secretary of State Hillary Rodham Clinton was in town to exhort Prime Minister Manmohan Singh’s government to do more on curtailing imports of Iranian oil.  All the while, a large Iranian trade delegation was a few miles away striking deals for the provision of agricultural commodities that Tehran is finding harder to purchase.

On the surface, the awkward tableau was reminiscent of the situation three months earlier when the Obama administration moved to enforce new U.S. sanctions aimed at shutting down the Iranian petroleum sector as a means of pressuring the Islamic Republic to abandon its nuclear weapons program.  At the time, reports emerged that India had overtaken China as Iran’s largest oil customer and that a new rupee payments system and barter trade arrangement were being set up for the purpose of circumventing the sanctions regime.  Adding to the perception of New Delhi’s defiance was the announcement that an Indian trade mission would visit Iran to scope out commercial opportunities created by the U.S. and European Union sanctions.  Even if the Americans and Europeans wished to shun business with Tehran, Commerce Secretary Rahul Khullar was quoted as saying, “tell me why I should follow suit? Why shouldn’t I take up that business opportunity?”

These actions caused the Wall Street Journal to editorialize about “Iran’s Indian enablers” who were “turning about to be the mullahs’ last best friend.”  Nicholas Burns, who during the George W. Bush administration did yeoman’s work in bringing about the new era in bilateral affairs, issued a cri de couer:

This is bitterly disappointing news for those of us who have championed a closer relationship with India.  And it represents a real setback in the attempt by the last three American presidents to establish a close and strategic partnership with successive Indian governments.

Others pointed to New Delhi’s actions as evidence that Washington’s efforts to forge a strategic partnership with India were naïve and foolish.

But things have changed over the last few months.  While New Delhi continues to protest publicly the unilateral character of U.S. sanctions, it has quietly taken steps to accommodate U.S. concerns.  According to media reports, the Indian government has instructed domestic refineries to reduce imports of Iranian oil by 15 percent.  As a result, Baghdad has replaced Tehran as the country’s second largest crude oil supplier and Iranian oil now constitutes nine percent of India’s import profile as opposed to 12 percent last year.  Imports of Iranian crude declined by a third in April compared to March’s figures.  And the state-run Indian Oil Corporation, the country’s largest refiner, did not purchase any Iranian crude last month, down from 75,000 barrels per day in March.

During her trip, Mrs. Clinton publicly commended these efforts but also insisted that “India’s role in the international community” obliges it to go further.  To continue pressing this point, Washington is dispatching a special envoy next week to New Delhi.  This visit is significant since the Obama administration will soon begin rolling out punitive measures against foreign entities that have not lived up to Washington’s expectations.  It earlier granted passes to Japan and EU nations but pointedly left out such countries as India, China, Turkey and South Korea.

There is some speculation that India is in danger of being sanctioned for its continued oil transactions with Iran.  But a better bet is that this will not happen.  The rupee-based payment mechanism that India has fashioned to buy Iranian oil is certainly problematic from Washington’s perspective, though it is something U.S. officials can tolerate since it does not entail the exchange of major convertible currencies like the U.S. dollar or the euro.

Moreover, the third round of the U.S.-India Strategic Dialogue is taking place next month and Washington will not want the sanctions issue to derail the momentum coming out of the talks.  Indeed, according to sources quoted in the Indian media, the matter was not a major agenda item in Clinton’s discussions with Foreign Minister S.M. Krishna:

“Both sides referred to it obliquely, but Clinton didn’t even push it.  In fact, she seemed much more keen to talk about possible deliverables that could be achieved when the two ministers meet again for the bilateral strategic dialogue in mid-June.”

In his joint press conference with Clinton, Mr. Krishna once again pleaded that the country’s burgeoning energy security needs – it imports 75 percent of its petroleum requirements – limit how quickly it can break its oil links with Tehran.  Washington urges India to get more of its supplies from Saudi Arabia, which has happened to an extent though New Delhi remains wary of Riyadh given its close friendship with Islamabad.

But there is another factor at work here than just the geopolitics of oil, one that seems not to have been squarely acknowledged during the Clinton visit: A significant reason for New Delhi’s continuing desire to engage Tehran resides in the adverse effect on Indian security concerns caused by U.S. withdrawal from Afghanistan.

With domestic politics largely driving U.S. strategy, key differences are bound to emerge between the United States and India regarding the political endgame that is now unfolding.  Looking toward the exits, Washington will not be overly concerned with the exact details of the country’s future or the viability of the government in Kabul it leaves behind.  In contrast, New Delhi, which has invested heavily in Hamid Karzai’s government, has strong security interests in ensuring that any regime in Kabul is capable enough to be a bulwark against Pakistan as well as a gateway to trade links and energy resources in Central Asia.

India has traditionally relied upon Iran, whose interests in Afghanistan are roughly congruent, to help accomplish these goals.  After the fall of the Taliban regime, New Delhi played a key role in building a transportation corridor from the port of Chabahar in southeastern Iran into Afghanistan.  Late last year, it announced plans to expand this link by constructing a 900-kilometer rail line to Bamiyan province in Afghanistan, where an Indian consortium has won mineral development rights.

Indeed, New Delhi and Tehran may go so far as to revive their cooperation during the 1990s that provided critical support to the non-Pashtun militias battling the Taliban regime.  (Already reports are surfacing that the old Northern Alliance may be reconstituting itself.)  The Americans will surely grumble about the cozying up with Iran, but the geopolitical logic of the Obama withdrawal leaves New Delhi little choice.

India has for some time now telegraphed how the Afghanistan factor looms over its relations with Iran.  Speaking in mid-2010, at a time of renewed U.S. pressure on New Delhi’s bonds with Tehran, Indian Foreign Secretary Nirupama Rao (who now serves as New Delhi’s ambassador in Washington) gave a noteworthy address on the relationship.  She highlighted the “unique” civilizational ties and “the instinctive feeling of goodwill” between the two countries.  She spoke of how links with Tehran are a “fundamental component” of Indian foreign policy and how there has been a recent “convergence of views” on important policy issues.  Regarding bilateral cooperation on Afghanistan, she argued that New Delhi and Tehran “are of the region and will belong here forever, even as outsiders [read the Americans] come and go.”

Reinforcing this message, a senior Indian official was quoted in the press at the same time as saying that efforts to tighten relations with Iran were a policy “recalibration” caused by the “scenario unfolding in Afghanistan and India’s determination to secure its national interests.”

The tussle over Iranian sanctions is a harbinger of bigger challenges ahead for U.S.-India relations.  One of the key foreign policy conundrums the Obama administration faces is how to reconcile its approach on Afghanistan, which has the effect of aggravating ties with New Delhi, with its recently-unveiled strategic “pivot” toward Asia, the success of which hinges in important measure on a strengthening of the security partnership with India.  The interplay of two conflicting dynamics in bilateral affairs – growing strategic cooperation in East Asia and unfolding differences over the future of Afghanistan – will be a key factor to watch for in the years ahead.

This commentary was originally posted on Chanakya’s Notebook.  I invite you to follow me on Twitter.

India Business

Turning Up The Heat

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In 2010 India’s Prime Minister Manmohan Singh unveiled the Jawaharlal Nehru Solar Mission with the aim of raising India’s solar power output from 170 megawatts to 20,000MW by 2022. While the project will be a major initiative to help safeguard India’s energy security and international climate commitments, the Solar Mission has been set up to help formulate policy and logistical conditions which will enable the streamlining of renewable technology penetration in India at both the state and local levels.  To this end, the government has mandated that photovoltaic cells and modules must be sourced domestically, and that at least 30% of advanced power systems be made by domestic manufacturers.

This caveat has been received with some disfavor by the present American administration.  In the 1960s and 1970s during the heyday of the state protection Raj India missed out on the global boom in semiconductor manufacturing, which reaped vast rewards for Taiwan, Japan, and South Korea as engines to building a high-skilled domestic manufacturing base.  Yet with forward five year GDP growth forecasted at over 6% per annum, and a national electricity deficit of over 10% of daily demand, there will be vast opportunities for both domestic and foreign solar module makers over the next ten years for projects both covered and not covered by the mission.  India’s latest budget has also encouraged foreign solar companies by lowering customs duty on solar panels by 5% and exempting excise duty on solar photovoltaic panels.

India has available sunlight capacity of over 300 days per year, a significant geographical base for technological deployment, the world’s largest consumer base and one of the world’s largest aggregate growth rates for the perceivable future.  State governments in Gujarat, Karnataka, and Rajasthan are already planning deployment of new energy resources with a mix of conventional and renewable projects in mind, with developers free to source material and technology from wherever they choose.  With prices of photovoltaic panels falling globally, American technology providers should look to India to soak up excess capacity.

India-US Relations Blog

Missed Opportunities, Promising Trends

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The year was filled with missed opportunities but also promising developments in U.S.-India relations.  2012 is shaping up to be the same.

 

President Obama’s state visit to India in early November 2010 appeared to impart new dynamism to a bilateral relationship that had been listless since his inauguration. The trip offered an effective tonic for Indian concerns that he had forsaken New Delhi in pursuit of G-2 collaboration with Beijing. The president spoke of India as “an indispensable partner of the 21st century” and dramatically endorsed its long-standing bid for permanent membership on the United Nations Security Council. Reporting on his giddily-received address to a joint session of the Indian Parliament, the Times of India noted that the “audience lapped it up, with no less than 25 rounds of applause in a barely 45-minute speech. The cherry on the cake, of course, was the ‘Jai Hind’ [Hail India] with which he concluded.”

But the promise of re-energized partnership quickly dissolved as leadership capacity in Washington and New Delhi dramatically waned. In retrospect, the trip’s maladroit timing and messaging should have been a tip-off. That the president’s Democratic Party received an electoral “shellacking” just days earlier meant that he arrived in India a much diminished political figure – a condition that became increasingly evident as time progressed. The White House also put out the word that the trip was essentially a jobs-hunting mission rather than one connected to grand strategy, telegraphing how domestic economic anxieties would continue to take attention away from the foreign policy agenda.

Prime Minister Manmohan Singh also was about to undergo his own political declension. A week after the state visit, the multi-billion dollar 2G telecommunications scandal exploded, igniting a crisis of governance and corruption that continues to engulf Mr. Singh’s administration. For the past year, Singh has been forced to deny that he is a lame duck even as his Congress Party colleagues openly pine for his replacement by Rahul Gandhi and his coalition partners – especially Mamata Banerjee’s Trinamool Congress – feel increasingly free to defy him. As 2011 unfolded, it became more and more clear that Singh’s government was adrift and ineffectual.

The leadership void has contributed to the “Delhi disillusionment” that is now a staple of Washington’s foreign policy conversation as well as the transactional approach some advocate vis-à-vis India. Experts now debate just how steadfast this “indispensable partner” really is. Deputy Secretary of State William J. Burns even felt it necessary to make a rhetorical nod to this discussion with this title to a recent address: “Is There a Future for the U.S.-India Partnership?”

Whatever its technical merits, New Delhi’s rejection of Boeing and Lockheed Martin’s bids in its lucrative fighter aircraft competition – an issue on the Obama administration lobbied aggressively – was handled so ineptly that it reportedly hastened Ambassador Timothy Roemer’s departure from New Delhi. Indeed, many discerned a deliberate snub of Washington. Ditto for the stringent nuclear liability law that is so divergent from international norms that it effectively locks out U.S. participation in India’s nuclear power sector – something that the nuclear cooperation agreement was suppose to bring about. Last week’s debacle on retail sector liberalization underscored U.S. concerns that New Delhi has permitted domestic political concerns to impede closer economic interactions, while the WikiLeaks revelations about the Indian debate over the nuclear accord further undermined confidence in New Delhi’s credibility as a serious strategic partner.

All of these episodes only sharpened questions in Washington about whether New Delhi is as compelling a geopolitical collaborator as the Bush administration had envisioned. They also help explain why the Obama administration has yet to bother nominating Roemer’s successor.

To be sure, the Indians have valid reasons to complain about the paucity of American leadership. President Obama’s announcement of an accelerated disengagement from Afghanistan – a decision driven more by the exigencies of domestic politics than by a careful assessment of U.S. security objectives in South and Central Asia – affects India’s security interests in unpalatable ways. Looking towards the exits, Washington does not seem overly concerned about the exact details of a possible political settlement while New Delhi is all too focused on how the strategic terrain in its neighborhood is shifting to its detriment. This lack of solicitude explains why, according to one analysis, “few tears are being shed in the top levels of the Indian establishment over the state of ties with the US.”

Yet beyond the top-level ructions, the past year also witnessed the growing density of bilateral affairs, especially the accelerating pace of economic interactions. Even with the global economy in the doldrums, 2010 was a banner year for the trade relationship, with two-way goods exports surging nearly 30 percent to $48.8 billion. Merchandise exports were 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 goods trading partner and one of the fastest-growing destinations for U.S. exports. This is a welcome trend, as increased private-sector linkages are key to limiting the risks that today’s political and diplomatic frictions could escalate and disrupt the overall partnership.

Notwithstanding the disappointments over the fighter competition, the United States has also become a critical player in the ambitious military buildup India is undertaking. New Delhi was the third largest buyer of U.S. weapons this year, with purchases amounting to $4.5 billion – a level ahead of such long-time American allies as Australia, Saudi Arabia, Israel and Japan. Indeed, over the past year or so the Indian government has either purchased or taken possession of a number of key weapons systems: the AH-64D Apache attack helicopter, the C-130J Super Hercules transport aircraft, and the C-17 Globemaster III strategic transport aircraft.

Finally, as the constant parade of Cabinet officers and senior officials between the two capitals attests, bilateral relations have acquired a scope and depth that were unimaginable less than a decade ago. Among other things, Washington and New Delhi now hold regular consultations on policy vis-à-vis China, Deputy Secretary Burns has just concluded talks in New Delhi about strategic and economic cooperation, and a trilateral U.S.-India-Japan security dialogue will meet for the first time next week. Indian foreign policy elites are growing more comfortable with the notion of strategic intimacy with the United States. And the expansion of Chinese strength will undoubtedly push New Delhi to tighten its security relations with Washington in the years ahead, though the process will neither be as smooth nor as speedy as many Americans would like.

All of these factors are contributing to the steady accumulation of bilateral bonds. The key question for the approaching year is whether Washington and New Delhi will exhibit the constancy of leadership needed to capitalize on these favorable developments. Alas, the prospects do not appear promising. With 2012 shaping up to be one filled with turbulent politics in both countries, the focus of President Obama and Prime Minister Singh will continue to remain inward.

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

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.