Pakistans and talks

The problem with talking to Pakistan is that there are two of them

It’s happened again to yet another Indian prime minister. He’s decided to resume talks with the Pakistani government after the process had been halted due to Pakistani transgressions and bad faith. 

Now, there is sense in talking to the Pakistani government because that’s exactly what that country’s military-jihadi complex — and India’s irreconcilable adversary — does not want. In normal course of events denying the adversary the response he desires is good strategy. However, the problem in the case of Pakistan is that there are two ‘Pakistans’: the putative state (represented now by Prime Minister Nawaz Sharif) and the military-jihadi complex that dominates the former.

Denying the military-jihadi complex what it desires means India sends a signal that it cannot punish transgressions, and allows Pakistan’s civilian government to raise its bottom lines. This risks India making incremental concessions each time without gaining anything in return. In other words, Pakistan has the ability to take by salami-slicing what it cannot achieve through war or negotiations.

What about not talking? This plays into the military-jihadi complex’s hands, which derives its own legitimacy and power by rallying all anti-India forces. In Pakistan’s domestic context, the army and the jihadi groups become more popular vis-a-vis the civilian government. Since the military-jihadi complex is irreconcilable and there is a chance that the civilian state is not, this is bad news from the Indian perspective. No surprises then, that the army and the Islamists will do whatever is possible to scuttle diplomacy.

In other words, India risks losing out on substantive issues by pursuing talks with Pakistan despite the latter’s hostility. If it does not do this, India risks strengthening its worst adversary on the other side. Damned if you do, and damned if you don’t. 

So how should New Delhi deal with this situation? Ignore it. Focus on economic growth.

What Pakistan does or doesn’t do is a minor variable in India’s growth story. Growth, on the other hand, is a major factor in India’s foreign and security policies. Putting Pakistan on the back burner (actually, keeping it in the refrigerator) is not only possible, but is necessary at this time. Just half-a-decade of high economic growth will transform the geopolitical context around Pakistan, enough to swing the negotiating environment in India’s favour. The more we wait, the better it will be for us.

Let Pakistan undergo its internal transformation. New Delhi can deal with the outcomes rather than engaging in a game where it loses out, no matter what it does.

The Waheed regime’s games

New Delhi must punish Maldives’ Waheed regime, but without playing into its hands

Mohammed Waheed Hassan’s regime seized power through dubious means. It now seeks to acquire domestic popularity and external support by reneging on an airport operations contract with India’s GMR group. Contrary to its claims, the matter is not merely an issue of the business case turning out to be different than what was previously assumed. If that were so, it would not declared that it is expelling GMR and would select a different airport operator. Renegotiating with an existing vendor is less expensive, less difficult and more reasonable course of action if the intentions were purely commercial. [This ANI report has more details about the project]

The high-level politics of this is clear. The Waheed regime seeks to bolster its ‘nationalist’ credentials by showing it can take on the big, domineering neighbour. It seeks to acquire external support by playing on the India-China contest in the Indo-Pacific. If New Delhi can be provoked to react punitively, the Waheed regime gets the space to court Chinese or other foreign companies. That it was emboldened to attempt such a move is an indicator of New Delhi’s failure of neighbourhood policy.

What should New Delhi do now? First, it should not provide the Waheed regime the excuse it seeks. Diplomatic relations, economic ties, tourism and aid must not be suspended. Second, India should bolster the democratic opposition to the Waheed regime—including Mohamed Nasheed, who happens to be the legitimately elected president—and turn the heat on its illegitimate hold on power. Third, New Delhi must encourage GMR and Axis Bank to use the Singapore courts—the jurisdiction chosen by the contracting parties—to the fullest extent.

The arbitration verdict might well have gone in favour of the Waheed regime, but the Singapore court has stayed the eviction of GMR. If the Waheed regime refused to comply with the court’s orders—as it has declared it will—GMR can seek legal recourse. Similarly Axis Bank might have a case against the Maldives government if the latter has a sovereign guarantee obligation and does not discharge it. The Maldives government has financial and fixed assets in Singapore, which can be targeted by GMR & Axis Bank’s lawyers.

New Delhi has risks to its reputation at stake. If governments of the region come to expect that expropriating Indian companies will be inexpensive and will not have bad consequences, there is a greater chance that they will engage in such behaviour. The Waheed regime must be made to incur the costs of its politics. Not bluntly, though.

The issue will take on an entirely different dimension should the Waheed regime use force against Indian nationals, or engineer or condone violence against them. In such circumstances, it is proper to keep all options on the table.

How India and the US can be geoeconomic partners

A bloggingheads discussion with Dan Runde, Center for Strategic and International Studies

What does Taiwan’s election result mean for India?

Ma’s victory and India’s dilemma

Yesterday’s Asian Balance column in Business Standard.

Taiwan’s presidential elections, since they first started in 1996, have in large part been referendums on the “One China” policy. Voters have been offered two deviations from the delicious ambiguity of the status quo: either a path towards eventual re-unification with mainland China or a dangerous path towards independence. Taiwan’s grand old party, the Kuomintang (KMT), espouses the former, while the Opposition Democratic Progressive Party (DPP) favours the latter.

The stakes, obviously, are high for Beijing — whose leaders have tried, unsuccessfully, bullying, coercion and suasion to influence the Taiwanese voter. But the stakes are also high for the Indo-Pacific region because Taiwan is critical to the stability of US-China relations, especially at a time when they both are attempting to move away from the confrontation of the past two years.

Neither China nor the United States wants the Taiwanese voter to rock the boat. Both had let it be known that they would prefer the incumbent president, the KMT’s Ma Ying-jeou, to win. In the event, on Saturday, the Taiwanese people agreed. But not before pre-election opinion polls showed that the election would go down to the wire, prompting thousands of expatriate Taiwanese from places like Silicon Valley to crowd into flights back to the island to cast their ballot.

That Ma found himself neck-to-neck with Tsai Ing-yen, his DPP challenger, is interesting. Four years ago, he was voted in after people felt that the DPP’s Chen Shui-bian was taking Taiwan into dangerous waters with his pro-independence line. Ma delivered on his campaign promise of closer ties with the mainland, sealing a major trade deal with China in 2010, boosting trade, travel, communications and investments.

China-Taiwan trade is currently around $160 billion. Taiwanese investors pumped in close to $40 billion in the four years of Ma’s first term. Chinese investors reciprocated, albeit only to the tune of $170 million. Increasing the number of direct flights to almost 100 a day brought in 2 million Chinese tourists and $3 billion in receipts. There has been a parallel improvement in official relations between Beijing and Taipei, as much in form as in substance.

Why then did Ma face a tough election? One answer is what we would call an anti-incumbency effect. As he admitted last month, there were some economic goals his government failed to achieve, especially those relating to employment and income growth. The other answer, one that goes beyond economic angst and back to the China-Taiwan question, might be a preference by voters to drag deviations from the status quo to the middle. As Russell Hsiao, a political analyst, wrote in the Jamestown Foundation’s “China Brief” last month, a majority of Taiwanese people want to perpetuate the status quo and will punish politicians who stray too far from it. This might also explain both the closeness of the contest and the verdict itself.

Over in Beijing, Ma’s victory is seen as vindication and a political triumph for President Hu Jintao. In the internal dynamics of the Communist Party of China, it is likely to empower individuals and factions close to Hu, influencing the pecking order of the new administration that will take over after this year’s party congress. Also, as Willy Lam, a Hong Kong-based commentator, points out, “if the KMT continues to rule, one can assume that tensions will be lowered further and the [People’s Liberation Army] will have no reason to ask for a higher budget.” To the extent that the issue of Taiwan’s status becomes less of a thorn in Beijing’s side, the political salience of the hawkish factions will, on the margin, diminish. This in turn can help reduce tensions with the United States.

In Washington, some commentators have already begun asking whether it makes sense to continue to allow Taiwan to poison relations between the United States and China. While it is unlikely that such a policy reversal is in the offing, it is already clear that Washington would prefer a Taiwan that doesn’t raise the temperature in East Asia. Washington’s strategic calculus, like that of the other major powers in Indo-Pacific, is about shaping a favourable balance of power, not triggering a military confrontation.

India faces a dilemma. On the one hand, the geopolitical stability suggested by a KMT government means greater economic opportunities for India to engage Taiwan. Compared to Japan, South Korea and Singapore, our bilateral trade and investment with Taiwan is negligible. The country accounts for one per cent of India’s foreign trade. At 0.03 per cent of the total foreign direct investment in India, Taiwan ranks below countries like Chile and Turkey. Bilateral trade agreements can help, but only if domestic reforms make India relatively more attractive as an investment destination.

On the other hand, a Beijing less preoccupied with issues in its backyard will find it easier to project power elsewhere, including against India.

Geoeconomic opportunities are, thus, stacked against geopolitical risks. So unless New Delhi uses the space created by Saturday’s elections to rapidly scale up economic ties, India will have little upside from Ma’s success.
Copyright © 2012. Business Standard. All Rights Reserved. [Business Standard]

The Asian Balance: Dealing with a vulnerable China

China’s external, economic and ethnic vulnerabilities are worsening

Here’s today’s Asian Balance column in Business Standard.

This may come as a surprise to many, but China today is at its most vulnerable since the Tiananmen Square protests of 1989. That’s not all; it is unlikely that the country will shake off its vulnerabilities – geopolitical, economic and internal security – over the next three to five years.

The developments in East Asia in the past few weeks, focused around the East Asia Summit at Bali, have put China on the defensive. Not only is the United States reinvesting its military assets into the Indo-Pacific region, but almost all of China’s neighbours have moved to construct bulwarks against China. Even Myanmar is showing signs of wanting out of China’s orbit, and is opening up to India, the United States and Vietnam. If countries of the region are ganging up against China, it is largely Beijing’s fault. Picking a fight with each one of your neighbours at the same time is not the smartest of moves. Yet, that’s what China has done over the past couple of years.

What happened in Beijing’s foreign policy kitchen is anyone’s guess but China no longer enjoys a favourable external environment that it used to for the last two decades.

Let’s come to economics. Not only does China hold more than a trillion dollars of US debt, it is likely to have to increase its dollar holdings given the sovereign debt crises in the euro zone. So a lot of China’s money is, and will be for some time, at the mercy of its biggest strategic rival. Continue reading The Asian Balance: Dealing with a vulnerable China

India’s role in Europe’s financial stability

Should India offer to bail Europe out?

A few days ago in his Mint column, Narayan Ramachandran, Takshashila geoeconomics fellow, argued that India must directly offer to bail out Europe.

In an INI9 (9 Minute conversations) segment recorded yesterday, Narayan and I discuss this idea further.