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PM Modi’s Foreign Policy “Trilema”

Trilema

(photo credit: http://www.financialexpress.com)

Reposted from Asian Age May 15, 2015 http://www.asianage.com/columnists/modi-s-trilemma-1

India’s bland foreign policy has traditionally been based on the principle of “please all and offend none”. Things changed under Indira Gandhi when we pivoted to the Soviets and teamed up against the “capitalists” in the West. But post-1990, once the Soviet dream evaporated, we reverted to the “offend none” tactic. The UPA years were a continuation of this approach, which suited the soft-spoken, nominal Prime Minister Manmohan Singh.

Things have changed since then. Prime Minister Narendra Modi is a muscular, energetic man and wants his foreign policy to reflect that energy and purpose. But he faces the classic problem of managing an “impossible trinity” comprising the US, a weakening Russia and an emerging China, which today attracts allegiance from countries cutting across traditional power blocs.

East Asia, other than Vietnam and Australia, feeds off China’s economic growth. China will likely add $6 trillion of new wealth (GDP increase over 2015) in the period 2015-24 and this is a powerful magnet that dulls the pain of negotiating with China over “disputed territory” in the South and East China Sea.

Similarly, Sub-Saharan Africa increasingly depends on Chinese investment “aid” and mineral export to China. Even Russia prefers to diversify its energy exports away from Europe to China, but not to India or Japan.

China is an immediate neighbour of India. A dispute over border demarcation in the west and east lingers. Neither party is really willing to resolve it because it is convenient for both.

For China, the ongoing border dispute presents it with the opportunity to build roads through Pakistan-occupied Kashmir (PoK), linking into Karachi on the Arabian Sea and the still-to-be-built Chinese port of Gwadar in Balochistan province, next to the Iranian border.

For India, the border dispute and China’s dodgy moves to build infrastructure through PoK, with the concurrence of Pakistan, is a package problem. It serves to legitimise a tit-for-tat aggressive development of Arunachal Pradesh, a border territory claimed by China. The area has significant hydro potential estimated at around 30 GW and is of strategic importance to safeguard the north-eastern states of India to its south.

It is fashionable to couch India’s need for China in commercial terms — trade and investment. But China is a much more efficient manufacturer than India and hence a trade deficit ($40 billion doubling to $80 billion in three years) is inevitable, with India as the junior exporting partner. Seeking investment from China is one way of plugging the hole created by the trade deficit. But such investment benefits China as much as India.

India’s growth story, whilst not as impressive as China’s, is sufficiently dramatic in these economically hollow times to garner eyeballs. New value creation (cumulative value addition to GDP over 2014 levels) of $1.4 trillion over a decade from now is not a trifle. A share of just 20 per cent (similar to its share today) in India’s new value creation could feed an annual growth of 0.3 per cent for China.

Growing economic ties with India — soon to be the fourth largest economy in the world (after the US, China and Japan) — enhance China’s “strategic prestige”. This is the “pull” factor. There is also a “push factor” which Indian strategists tend to emphasise — China’s paranoia that India may become part of a US effort to encircle China along with Japan. This “fear factor” is over hyped.

China knows well that the Indian psyche favours reconciliation rather than confrontation. India routinely prefers turning a Nelson’s eye to occasional intransigence but abhors subjugating its sovereignty to any foreign influence — a hangover of our colonial mindset. India could never be a link in an American chain to “contain” China.

China is unconcerned about future competition from the US. Over the next 30 years, the US will morph demographically into being dominated by fast-growing Hispanic and African-American communities; an ageing, minority white population; the inherited disadvantage of high wages and even higher citizen expectations; degrading infrastructure and increasing inequality. What this will mean for the “can do” spirit and mojo which defines the US, is unclear.

Despite such uncertainties, the US remains a long-term natural ally of India. Its plural culture, democratic values, federal institutional arrangements, history of innovation and grounded belief in religion and “family first” gels well with India.

A weakening US and a strengthening India make a perfect combination. The combined GDP of the US, India and Japan will be double of China’s GDP in 2024 and their future value addition — a key “convening” factor for attracting allies — will be higher than that of China.

Finally, the significant Indian community and private sector investment in the US and Europe provide a ready base for developing P2P (people to people) and B2B (business to business) contacts.

All this is reflected in the determined efforts of Mr Modi to establish a trade, investment and communication bridgehead with the US, Japan, Germany and Australia.

The traditional third leg of the impossible trinity has been Russia. But the gains from trade or strategic alignment are scarce. A close strategic friendship with Russia elicits no apprehension in Beijing because Russia is today a “toothless bear” plagued by a natural resource-export dependent economy. Russia, ruled by “grasping” oligarchs, has to reform and shed its macho image. Its best bet is to integrate into Europe, where it belongs. Consequently the “real” third leg of the trinity in future is Europe, with Germany and Russia as possible focal points.

Mr Modi’s strategy to navigate the impossible trinity of US, China and Europe-Russia is clear. Engage with the US, Japan and Germany aggressively and integrate into their value chains. Keep expectations low but exchange lofty targets with the Chinese and the Russians. But, most importantly, keep your powder dry and gear up India’s economy, because our best friend is our own strength and resilience.

Land Bill: political gains, future losses.

The Land Bill 2013 is backward looking and shortsighted. Coming  119 years after the predecessor legislation in 1894, it fails on four counts.

First, it does nothing to assure citizens that it shall rein in wilfull and unnecessary acquisition of property by the State, as has been happening in the past.  Consider that there are many Public Sector Undertakings which own land far in excess of their needs, as do the “new age” power plants which have been given coal mining licenses. The Bill actually skirts around the issue of “when and how much” is it justifiable for the State to acquire property. It focuses only on the process and amount of compensation to be paid in the event of acquisition.  It is curious therefore that it is being lambasted by industry as anti-industrialisation, not because of the higher amounts they may have to pay for land, but on account of the anticipated delays and increased bureaucracy now proposed in the process. The Bill proposes to artifically enhance the price paid for acquisition to give the disposed a fair compensation and possibly also act as deterrent to “deep pockets” from acquiring and holding large tracts land. The deterrent is over estimated. Land ownership has an average ROR of above 25% per annum which will continue to attract investments on account of its scarcity value. The provisions for enhanced acquisition price are populist and are likely to be ineffective in ensuring that only minimum volumes are acquired. The only way the volume of acquisition can be rationalized is by severely restricting the definition of public purpose to the needs of Defence and Security. The Right to Property is an essential part of empowering the ordinary citizen versus the State, which is ignored by the Bill.  Opposition should have come from the BJP and other rightist parties but “industry wallahs” typically like an interventionist State (like China or Vietnam) if it intervenes on their behalf. it is election time and all are wary of upsetting either the “poor”, “industry” and “real estate” wallahs. The pro-poor “lobby” essentially has a “left leaning” mindspace. For them, owning property is equivalent to being an oppressive, extractive, arrack swigging, landlord cum money lender.  This is a politically attractive stereotype, which all parties publicly bow to, never mind that atleast 90% of the population owns land and property. Why not use the Bill to define this Fundamental Right better and proscribe the powers of the State? We are losing a historical opportunity.

Second, the Bill displays an unerring faith in the bureaucracy and its ability to protect the rights of the poor, manage a complicated acquisition, participation, resettlement and rehabilitation process efficiently, despite all the evidence to the contrary.  Citizens today want a simplification of administrative procedures, not additional miles of red tape. The more the red tape, the more time it takes to get things done and higher the transaction cost, for getting files moving. The Policracy must rise above its class interest and declog administrative processes, not add ever more onerous procedures. Current estimates for completion of the new land acquisition process is a full five years! Only a policracy with a faith (or a vested interest) in an “interventionist” bureaucracy could impose this on citizens.

Third, the Bill shows the medieval mindset of the “policracy” under which industrial and infrastructure development and service delivery were a preserve of the government or of public sector undertakings. Hence land acquisition for private educational institutions, private hospitals and private hotels are all excluded from the definition of “public purpose”. The very same institutions if owned by the government or a PSU would be eligible. This approach runs completely contrary to everything the government has said about the criticality of private investment in infrastructure and service delivery. It confers on government the near unique ability to aggregate land in industrial volumes and then to use this leverage to enter into Public Private Partnerships with industry. The opportunity for extracting “rents” is obvious with the well known downstream consequences of fraud and corruption.  Medievalism is also evident in the requirement that there should be no change in ownership, post acquisition of the property, without the approval of government. Presumably, this is to discourage businessmen, who are “fast track approval getters”, from becoming middle men, in the real estate game. However this is a very restrictive condition for the genuine, medium level, private investor. An investor wants “full” ownership over what she has bought. This includes the right to transfer when considered appropriate. Having to go back to the government, cap in hand, just perpetuates the “license permit raj”. Once the Socio Economic Assessment and the Expert Group are satisfied with the “public purpose” and reasonableness of the project, it hardly matters who the owner is.  Despite all the high sounding support for the private sector, and the bon homie with government in CII and FICCI events, businessmen continue to have the stereotyped image of exploitative, manipulative, stingy but high living, low thinking, self seekers. This Bill reinforces that image. 

Lastly, the Bill is well intentioned in recognizing that the alienation of land can result in hardships for a larger group than just the owners. These are those whose livelihoods were dependent on the land continuing to be used for the purpose it was, till the time of acquisition. Whilst unquestionably appropriate, from the equity perspective, the problem here is the implementability of the proposal. The low ability to identify those eligible, with the robustness required, in the absence of records of informal labour  and the potential for flagrant misuse and cost inflation are obvious deterrents to efficiency and effectiveness in implementability. Are we creating an unenforceable entitlement here for workers, which may actually dissuade farmers from using labour as in the case of industry?

It is tragic that a well intentioned Bill is turned ineffective and counterproductive because of the timing of its introduction. This is a part of the pro-poor pre election bonanza that no party can afford to distance itself from. It is consequently ill intentioned, disruptively regressive and anti-poor by being pro-bureaucracy, anti-efficiency, anti-investment and anti growth.

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