The greatest foreign policy difference between Prime Minister Narendra Modi and his predecessor Manmohan Singh has been Pakistan. Singh believed in dialogue with Pakistan at almost any cost. Modi’s views were more akin to those of an earlier prime minister, P.V. Narasimha Rao: dealing with Pakistan was high risk, low return and not worth the investment.
Same Boat Brother
Xi Jinping and Narendra Modi are crudely in the same boat when it comes to their economies: investment rates are not what they would like. In India, the private sector, burdened by debts and spooked by tax terrorism, is holding back on investment. In China, the government’s own attempts to get away from decades of overinvestment in physical infrastructure has led analysts to trim growth forecasts to just above 7% for the year.
Beijing accepts that its reforms will mean shifting the economy to a lower gear. But it wants the transition to go as socially smoothly as possible. It is trying divert the overcapacity in generators, cement and so on to overseas markets. Hence the multibillion-dollar One Belt, One Road and its component Silk Routes. A modern-day Lenin would claim this is imperialism with Chinese characteristics.
But with some unofficial estimates putting growth as low as 5.2%, China is also backpedalling on other issues. It is softening its stance regarding archrival Japan because, as foreign observers in Beijing note, it is alarmed that Japanese FDI to China has fallen over 40% the past year.
All Your Base Belong To Us
This doesn’t mean Beijing has retracted its claws when it comes to its territorial disputes with neighbours. It has upped the stakes in the South China Sea, its most ey-popping example of snatch and grab, by building airstrips on contested atolls and coral reefs. But it has deliberately lowered the temperature when it comes to the Senkaku Islands (Daiyu Islands in China) dispute with Japan.
Chinese officials and academics insist that the easiest dispute they have is with India. The border is relatively peaceful, no one has died violently since the mid-1980s and the two countries now have “strong leaders,” the Chinese say, who can resolve the border dispute. They carefully differentiate the Indian border dispute from the South China Sea, arguing the former is a colonial leftover while the latter is about territory that is “indisputably Chinese” going back “to ancient times.” Given that India, Japan and Southeast Asia experienced an almost simultaneous assertiveness in their territorial disputes with China in the roughly 2008 to 2011 period, it will take a lot more to get Indians to buy that is true.
Narendra Modi’s visit, and especially his decision to open an account on the Chinese Twitter, Weibo, have generally gone down well in China. His number of followers tripled during his state visit and his selfie with Chinese premier Li Kejiang received 35 million hits. “It went viral,” said an Indian official.
Modi get a fair amount of abuse, largely by Chinese demanding India return “South Tibet”, their name for Arunachal Pradesh. Interestingly comments on the Weibo account now appear only in select times in the evening and morning which everyone assumes is by Chinese censors – removing the more egregious insults against Modi.
But Modi gets credit for wading into the wild dog world of social media. Tea Leaf Nation, a website that analyses Chinese social media, noted only five world leaders have dared to reach out to Chinese via cyberspace. In large part because of a fear of similar hypernationalistic abuse. It doesn’t help that Facebook and Twitter, where a more global audience could have balanced the Chinese commentary, are banned in the Middle Kingdom.
Chinese commentators across the board say the image of both India and knowledge of Modi has increased positively as a consequence.
And, yes, at least part of the crowd of 3000 who waved at Modi when he exited a Xian temple was spontaneous: the Indian prime minister had made the decision to take a walkabout on the spot, much to the horror of his security.
One Belt One Voice
Everything in China, one sometimes feels, ends up going back to One Belt, One Road – Xi Jinping’s grand plan to build a global infrastructure network with China at the centre. Everyone in China somehow connects what he is doing with One Belt, One Road – no matter how tenuous the link. I fully expected a noodle chef to say, “My noodle look like Maritime Silk Route.”
Chinese express sorrow that Modi rejected Indian endorsement of this project, saying New Delhi would selectively choose those bits that converged with its own interests. Sensible enough as the only two parts of One Belt, One Road announced for South Asia are a $ 46 billion transport corridor running through Pakistan and the Bangladesh-China-India-Myanmar corridor that would effect India’s sensitive Northeast. As one Western diplomat noted, “The BCIM would make your Northeast more connected to south China than it would to the rest of India. Exactly what the Chinese did in Myanmar, almost detaching Upper Burma from Lower Burma.”
Not that India can stop One Belt, One Road. But an Indian yes would have opened the door for almost all the smaller South Asian states to jump on the bandwagon. And India will indirectly end up funding it as one of the key funding bodies for building it will be China’s new Asian Infrastructure Investment Bank – of which India is the second largest contributor.
Just in case you wondered: the “road” part is confusingly a reference to the maritime part of the project while the “belt” is the two land Silk Routes.
The latest statistic that the Chinese are bandying around to show the need for greater civil society engagement is that only 500,000 people travel each year between the two countries who have a combined population of 2.6 billion. “South Korea sends 8 million people to China every year,” said one Chinese think tank type. And most of that half-million is Indian. Only 180,000 Chinese come to India. There are no shortage of reasons why: a lack of Chinese speaking tourist guides in India, a Chinese vision of India as dirty, polluted and full of rapists, and a lot of difficulties getting Indian visas.
Modi is reportedly equally concerned about this lack of civil society engagement, one of the reasons he overruled India’s security agencies and unilaterally granted online visa applications to Chinese visitors to India.
Narendra Modi has been roaming the planet and has proven to have a real gift for international showmanship. But one part of the world that has, so far, been missing from his itinerary has been Europe.
Joao Cravinho, the European Union ambassador, held a press briefing this week and underlined the degree of neglect Brussels has experienced from the new Modi government.
The India-European Union free trade agreement, almost 95 per cent done, is awaiting the last mile of negotiations. Three quarters of a year in office, however, the new Indian government has not held a single meeting with the EU about whether they want to animate or bury the talks. Cravinho said he hoped that the EU would get word sometime in the next few weeks about what New Delhi wanted to do.
Somewhat strange given that, as he noted, the EU remains India’s single largest source of foreign investment, single largest trade partner and probably largest recipient of outward Indian foreign investment. Mind you, New Delhi had some reason to delay as the entire Brussels leadership was recently changed. Modi did meet the outgoing President of the European Council, Herman von Rompuy, at the G-20 summit long enough to master the pronunciation of each other’s names.
Of course, if you subtract the United Kingdom from this equation, the number for the rest of Europe plummets. Take out Germany as well and it is just a few billions here and there.
The lack of Indian engagement on climate change, the Holy Grail of European diplomacy, with Brussels is telling as well. Japan and the United States figure more in India’s climate change policy than Europe does. On Ukraine the two sides don’t even waste time talking to each other. Cravinho did say India could tell Russia that it was doing bad things in Ukraine, but it was for form’s sake.
One measure of the importance that Europe in the Modi worldview is the Indian foreign ministry’s recent 116-page e-book on the new government’s foreign policy, “Breakthrough Diplomacy”
which gives all of two pages to Europe as a whole (with Minister of State V.K. Singh’s visit to Slovenia as one of the high points), plus two pages each to the UK and Germany. The Indian diaspora gets 12 pages and Africa, which Modi has also yet to visit, 14 pages in comparison.
Of course this will change to some extent. Modi will go to Germany and probably France in April. The UK will get a place on the itinerary in the later half of this year.
Cravinho was also certain that the Indo-EU summit would also be held sometime this year. Hopefully.
Prime Minister Narendra Modi’s first budget was a disappointment, his first winter session of Parliament was an embarrassment, his passage of a slew of ordinances was touched by a hint of panic, and it’s still unclear if key economic legislation like insurance FDI and the general services tax will even get past his second budget.
Yet, foreign capital continues to flow. Greenfield foreign investment remains low, though it has at least rebounded from the bottom-scraping levels it reached last fiscal. Once you took out the usual end-of-the-year profit taking, the FII flow into India has been remarkable. And it continues to come in.
The Indian investor remains cautious about the stockmarket. The Indian corporate investor is even more wary. Having been burnt by the previous six or seven years by the last government, they are all waiting for concrete evidence of policy change before they put more money into expanding factories and plants.
Yet the foreigners keep coming.
One reason for this is that there aren’t too many places a foreign emerging market fund manager can put his money. As one equity player in London once told me,” There are a billion pounds in floating emerging market funds that have almost only India to go to these days now that Turkey, Brazil, Russia and a few others are belly-up. The FIIs, he told me, were buying and selling to each other so the Indian investor didn’t really matter.
Two, many overseas investors understand the damage done to the Indian economy by the United Progressive Alliance regime, especially the last five years of the Manmohan singh government. The fiscal deficit remains out of control. Bad loans are clogging up the banking system. The energy sector remains paralysed.
If anything, many of the institutional investors see how this would take a long time to unwind.
What worries them more is the tomtomming of calls for interest rate cuts by various senior government officials. This unnerves long-term financial investors, like pension funds, who focus on the broad parameters of the economy and policy and not short-term measures to get a quick burst of growth. For them, cutting interest rates prematurely is a sign of bad policy, that Modi wants to suborn an independent central bank, and means inflation would come back sooner than later.
They thus applaud Raghuram Rajan’s stance. As a Citibank study noted, India was a good place to be because of three things 1) Rajan, 2) the fall in global commodity prices and 3) Modi’s absolute majority in the lower house. No mention of Arun Jaitley or the key personnel in government.
In other words, Modi’s seeming “haste makes waste” method of governance gets him applaud with foreign investors who seen in this exactly the sort of long-term, stable policy mindset that they want.
Even on foreign policy, New Delhi is working on an ad hoc, ultra-pragmatic approach to diplomacy – and this is earning him points. This lack of geopolitical vision is actually acceptable now because there are no major government to government threats in the region. Sparring on the borders yes, but the chance of even a Kargil type situation is minimal. Modi is doing exactly what a Wall Street investor would want him to do in foreign policy.
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Why did Narendra Modi go to Fiji and hold a summit of nearly a dozen South Pacific nations – including the half-island state of Papua New Guinea?
The idea was put to him by the Indian foreign ministry, one of the few times in recent times they have impressed the prime minister one suspects. Why did Modi lap it up?
Different theories abound.
One is that he has a vision of mobilizing the Indian diaspora for both domestic political and foreign policy ends. It helps that the Indian minority in Fiji is so small that they are no longer part of a political struggle between the Indian migrants and the Fijian natives. But it is hard to see how this remote island and its small population will be of much use to him.
Another is the great geopolitical game supposedly being played between India and China, and sometimes the United States. India struggles to extend its military power beyond the Straits of Malacca. Melanesia and Micronesia are beyond even its navy’s imagination. Neither India nor, I suspect, China has a chapter on the South Pacific in its Grand Strategy Blueprint.
In fact, Modi was sensibly modest in what he offered the islanders. India cannot match the aid commitments of players like China and even New Zealand. But, says Jenny Heyward-Jones, Micronesia expert of Sydney’s Lowy Institute, “they are tailored to areas India has a comparative advantage…and have a reasonable chance of development impact in the island countries.” Tele-medicine, for example, makes sense given the distance between the islands and limited medical infrastructure.
I believe Modi going to Fiji is really an example of a larger pattern of leaders of two-tier countries building larger global profiles. Shinzo Abe is now one of the most travelled Japanese prime ministers in history. And it isn’t just about reducing Chinese influene. He also went to countries on India’s periphery where New Delhi’s diktat is still stronger than those issued by Beijing. And Chinese leaders have been everywhere.
At the heart of this is a simple fact that the West’s influence in the world has dipped a lot the past few decades. In addition, emerging economies have to hardsell themselves across the world to investors.
Modi understands the importance of narrative. He does at home anyway and I presume he gets it overseas. When he went to the United States he needed to change the narrative on India following five years of dismal UPA government. And he did, more successfully than many others who tried like the leaders of Turkey and Brazil, as one president of a prominent US think tank told me.
By putting aside one day in Fiji, probably holding an Indo-Africa summit at some point, even doing a tour of Latin America in a few years, Modi will keep adding to this new India narrative.
Some of this may have an immediate diplomatic benefit, as the world squares for another round of climate change negotiations. The South Pacific islanders, who face extinction, are hardliners against carbon emission won’t necessarily be won over by Modi’s climate change pitch. As Heyward-Jnnes notes, “climate change is an existential threat..its the one thing that unites them, even against their friends.” But hopefully they will at least understand where India comes from when it pushes hard against carbon pressures.
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