Xi Jinping's India Visit: Foreign Investment Alone is not the Answer!

Indian Prime Minister, Narendera Modi has successfully wooed our Asian economic giants to invest in India. During his Japan visit a fortnight back, Japan committed an investment of 35 billion USD over a period of five years. If the third largest economy in the world can commit such an amount, then how can a head of the second largest economy of the world, and one of the most powerful persons on earth not commit more than the Japanese investment? It has been revealed by the media that President Xi Jinping, would be leading an extremely powerful business delegation to India between 17^th and 19^th instant and sign business deals worth billions of dollars. The Chinese prospective investment over a period of five years has been estimated at over 100 billion dollars and even more. Is the foreign investment alone the answer?

Can we overcome red tape?

Foreign investment alone is not the answer. Forget about the Chinese business operations in India, which has been held hostage by our ‘security’ ghost; many global investors including Honda’s global Chairman Fumihiko Ike and British telecom giant Vodafone has expressed that doing business in India is difficult. First and foremost, while Modi offering the investor ‘red carpet in place of red tape’ is a welcome gesture, however, the reality is different on ground. It would be a herculean task to eradicate the red tape, which according to Akhil Gupta, the author of Red Tape (2012) is a structural violence. Gupta calculates that poverty results in over 2 million excess deaths per year in India. The inclusion of the poor in social development through various welfare and poverty alleviation schemes systematically produces arbitrary outcomes. Channelizing the files, reports, orders, and complains through clerical levels to the highest levels has bred corruption, delays, inefficiency, status quoits etc. approaches. If the people have to receive public services, these have increasingly become ‘paid’ as a result of rampant corruption. And imagine the plight of 400 million poor people – one third of the population according to the World Bank that earns less than $ 1.25 per day paying for such services! If it is not the structural violence then what is it?

We sincerely need to take a leaf out of the Chinese experience in effectively managing the large population. Here, it has got nothing to do with the forced ‘one child’ family planning, rather the way they have benefitted from the globalisation. China, perhaps is the largest country in the world that has benefitted its people in the shortest ever time whether it is the question of alleviating over 300 million people from poverty in a span of 30 years or the neck breaking speed of its modernisation. In present day China, eradication of poverty is not the question; the question is how to increase the present income levels of the peasants. Poverty eradication has remained a question in India ever since we attained our independence.  

Can we reap the population dividend?

Secondly, India takes pride in having the largest young population in the world. According to 2011 census, nearly 50% of the population in India is under 24% and about 64% is of working age. Around 12 million young Indians are entering the job market every month! These very young voters, 150 million aged between 18 and 24 were instrumental in effecting a Modi wave in 2014 general elections. In contrast, only 10% of the Indian work force has completed secondary education!  We have been talking that India’s demographic dividend is at its peak! According to Dipankar Gupta (Times of India September 14, 2014) there are 14 million students who leave school annually in India; however, the capacity of vocational institutes in India can only cater only to 3% of such people. So much so, only 18% of those who have passed out of these vocational schools have regular jobs, rest have no jobs! It has been projected that within a decade, we would require 103 million skilled workers in the infrastructure sector alone, about 35 million in the automobile industry and 33 million in construction. Are we building such capacities?

Prime Minister Modi has rightly identified ‘skill development’ as a major policy of his government. It is the need of the hour that we build capacities and learn from the Chinese and Korean experience. In the 1960s China was producing Hongqi (Red Banner) cars and Jiefang (Liberation) trucks, so did India (Hindustan Motors), China could built its 10,000 ton ship at the same time, but Korea build nothing! Presently Korean cars are competing with the western and Japanese cars all over the world, especially in India and China, 35% of world’s diesel ship engines are now produced in Korea! China has caught up with the advanced countries as far as skill development is concerned. It is owing to these capacities and skills that China turned itself into the ‘factory of the world’. If India dreams to reap the population dividend, it cannot afford to sit idle!

Can we build capacities?

Thirdly, hope we are thinking of building the capacities in the infrastructure sector too, for these are crucial for attracting investment one the one hand and facilitating exports on the other. China boasts of 86,000 kilometers, of which over 11000 kilometers are high-speed. Comparing China, India has 64,000 kilometers, mostly built by the British, and there are no high speed rails. If the reports are to be believed, India added a meager 11,000 kilometer in 67 years comparing China’s 14,000 in recent five years! In Tibet alone, China plans to build 1,300 kilometers of rail lines and 110, 000 kilometers of roads by 2020. It just completed Lhasa-Shigatse line which is 251 kilometers and less than 100 kilometers from Indian borders. Our border provinces such as Uttrakhand, Jammu and Kashmir, Himachal and northeastern states do not even have good roads forget about railways! Since these states do not have much representation in the parliament, the infrastructural development has been held hostage to seat calculations.  

India’s roadways that according to 2013 figure stood at 4, 689,842 kilometers may not look bad comparing China’s 4, 106, 337 kilometers. However, the condition of our roads is extremely poor and expressways are invisible. Most of the freight in India is dependent on the truckers, who in turn are subjected to dual taxation and harassed at various transit points across the states. In contrast, China boasts of having 104,500 kilometers of expressways, largest in the  world. 

Capacity of India’s waterways and port system is also limited. It just has 14,500 kilometers of waterways comparing China’s 110,000 kilometer strong navigable waterway! India’s largest deep water port, Jawaharlal Nehru Port also known as Nhava Sheva, is the largest container port with a capacity of 4,307,622; China’s largest port Shanghai has the capacity of 31,739,000, almost 7.5 times bigger than the Indian port. Besides, other ports such as Qingdao, Guangzhou, Shenzhen and Tianjin are also 4 to 6 times bigger than our largest port.

Can we integrate our economy with neighboring countries?

China’s aggressive economic engagement with the ASEAN has greatly benefitted its adjoining regions of Yunnan and Guangxi. Yunnan has a border line of 4061 kilometers, bordering on Vietnam, Laos, Burma, Southeast Asia and South Asia. A Free Trade Area (FTA) between China and the ASEAN has prompted China to invest heavily in Yunnan and Guangxi and connect these provinces with the ASEAN and turn these into logistical and trade centers. A 179.2-kilometer expressway between Nanning, the capital city of Guangxi and Youyiguan (Friendship Pass) connected China with Hanoi in 2006. There are over hundred flight routes originating from Yunnan to ASEAN and South Asian cities. A network of railways, highways and waterways to Vietnam is already in place, and construction of Kunming-Bangkok highway and Kunming-Singapore railway is under way.  Do we have the same resolve?  

Why China is important to India?

If Modi’s top 10 priorities for India, pronounced soon after becoming the Prime Minister is any pointer, then definitely China is the country we need to focus on. India could universalize mobile phone connectivity in India with such an affordable rates is not because of Nokia and Ericson, but because of the tough competition these companies received from Chinese telecom giants Huawei and ZTE. Similarly, if India would like to build state of the art high speed railways and expressways, it could be built in tandem with China with latter’s expertise, capital and competitive prices not with the exorbitantly high western technology. Prime Minister Modi perhaps understands it better than any other political leaders in India, for he has been to China and Taiwan many times. In 2011 while addressing a crowd of 200 Chinese investors at a Beijing five-star hotel, he told them that Gujarat offered them ‘governance, transparency and stability. If Gujarat has attracted much of the 900 million dollars of Chinese investment in India, India could attract billions from China in infrastructural development and manufacturing sector.

Finally, greater economic and political engagement between India and China demands that constructive and cooperative partnership transcends bilateral and regional configurations and has global implications. As the 21^st century is tipped to be an Asian Century, and India and China twin engines of Asian and world economic growth, it is imperative for both to realize the dream of a resurgent Asia together. China has been vigorously following this dream for the last 30 years, it is time for India to set its house in order as Modi rightly says and be a strong and equal partner in the realization of this dream. Initiatives such as BCIM, Silk Route, Sea Silk Route that link the countries and regions by a network of roads, railways and markets are welcome steps. Active participation from India in these projects including the BRICS Development Bank and Infrastructure Development Bank will render the ‘string of pearls’ and ‘China’s containment of India’ etc. theories meaningless, and prepare India for a bigger role not only in the bilateral and regional economic development, but also in the security architecture of the world. Will Modi-Xi meet prove a game changer, we will have to wait and see!

Modi's Japan visit: Can India Ignore China?

Prime Minister Narendera Modi concluded his 5 day long Japan visit and returned home on September 3, 2014. The visit has been regarded as a success as both the countries upgraded bilateral relations to ‘special strategic and global partnership’ as Modi and Japanese Prime Minister Shinzo Abe pledged to strengthen economic and security ties. 

Modi’s close ties with Abe were distinctly reflected in the rhetoric such as ‘Japan is the closest and most reliable partner of India’, and that ‘No country has done more for modernizing India's infrastructure than Japan.’ Modi’s words including those pronounced at a gathering of business leaders in Tokyo when he said that ‘the world is divided in two camps. One camp believes in expansionist policies while the other believes in development,” and that ‘We have to decide whether the world should get caught in the grip of expansionist policies or we should lead it on the path of development and create opportunities that take it to greater heights’ were certainly offered to please his host who in an unusual gesture traveled all the way to receive Modi in Kyoto at the weekend to host an informal dinner for Modi. 

The 56 point long Tokyo Declaration issued on September 1, 2014 after the summit meeting is a blue print for future collaboration between India and Japan and incorporates areas such as infrastructure, investment, energy security, agriculture and food, regional connectivity, defense and maritime security, science and technology, and people to people exchanges. The biggest take away from the summit meeting could be said Japanese pledge to invest 35 billion US dollars in India within a span of five years and 480 million dollars in infrastructure loans to India. 

Though Japan has been providing yen loans to India since 1958, and has remained largest aid donor of India, however, the trade and economic relations between India and Japan have remained abysmal in the light of sheer market size of India and Japan’s capital accumulation as well as technological advancement. Just consider China’s trade volume with Japan irrespective of the fact that China established relations with Japan 27 years after India’s establishment of relation with Japan. Irrespective of Senkaku/Diaoyu spat, Japan’s trade volume with China is over 300 billion US dollars, almost 4 times bigger than its trade with India.  Though Japanese investment in the wake of Senkaku/Diaoyu standoff has dwindled to the tune of 9 billion US dollars per annum, but the sheer size of trade and investment tells us that China-Japan trade relations remains extremely important to both the countries and no one is willing to pull the rug, for it would be disastrous for both the countries, and may be the region as well.  

On the defense and security front nothing substantive happened, the Indian side was expecting a breakthrough in the civil nuclear cooperation as well as the purchase of US-2 amphibious planes, albeit both sides have directed the concerned departments to move ahead with the negotiations on these areas. As India has raised the private equity in defense industry to 49%, there may be joint research and development of defense related technology in future; Japan lifting the ban it imposed on 6 defense enterprises in the wake of 1998 nuclear explosion is an indication that the cooperation in defense sector is likely to be strengthened. 

Notwithstanding the signals of increased cooperation in the field of security, India must be watchful of fishing is the troubled waters when the spat between Japan and China is concerned. India must pursue its stated foreign policy of strategic autonomy; therefore, to gang up with a particular country/countries against another, or slip in to the arms of US are not the options for India. In Tokyo Modi referring to ‘expansionist policies’ of some countries was totally uncalled for, as it is utterly explicit as to whom one is referring to even if one do not name the country. 

India needs both Japan and China. We need investment and technology from both the countries. China undoubtedly remains India’s largest trading partner, accounting for almost 9 percent of our total trade. However, it does not figure amongst top 10 as far as foreign direct investment is concerned; Japan figures at number 4. I believe as the Chinese president visits India during mid September, this asymmetry is done away with and China’s investment in India increases manifolds. There are already talks to establish 4 industrial investment parks with billions of dollars investment; investment in infrastructure including high speed railways. I believe our prime minister repeats the words he spoke in Japan that ‘The success of the 21st century will largely depend on the path our two nations follow.’

China’s response to Modi’s China visit could be gauged from the cautious approach it adopted in reacting to Japan-India bonhomie especially Modi’s remarks on ‘expansionist policies’ of some countries. Chinese edition of Global Times editorial ‘Japan-India containment of China is a mythomania’; Xinhua commentary ‘Abe-Modi did you have a hearty talk?’ and another one by English edition of the Global Times ‘Modi-Abe intimacy brings scant comfort’ etc. are pointer to this approach. The language was conciliatory showing understanding for ‘Modi’s emotional bonding with Japan and a little nationalistic when it comes to China.’ At maximum the intimacy will bring ‘psychological comfort to the two countries’ wrote the English version of the editorial. China’s Foreign Ministry spokesman, Qin Gang even brushed aside the bonhomie and remarked that ‘China and India are strategic partners that seek common development.’ 

If Modi talked about Japanese technological prowess and foreign direct investment, we cannot ignore the Chinese technology, its experiences in modernization over the last 35 years, managing big populations, and having the largest foreign exchange reserves in the world. Today, irrespective of ‘security issues’, it is the Chinese telecom companies that have revolutionized the telecom sector in India. In Gujraat it is the Chinese technology that runs the power industry. There is a huge scope in building Indian infrastructure including high speed railways with relatively cheaper Chinese technology. Chinese investment in industrial investment parks across India is another example of building trust and opening opportunities for Indian work force. Bilateral initiatives such as BCIM, and Chinese proposal seeking India’s involvement in Silk Route, Sea Silk Route that link the countries and regions by a network of roads, railways and markets are welcome steps. Active participation from India will render the ‘string of pearls’ and ‘China’s containment of India’ etc. theories meaningless, and prepare India for a bigger role not only in the regional economic development, but also in the security architecture of the region. 

 Therefore, India and China relationship has transcended the bilateral scope and has acquired global significance as we engage in multilateral forums such as BRICS, G20 , BASIC, ASEAN, ARF, SCO , SAARC, and even Afghanistan and counter terrorism.  Yes, India and China has problems, however, the best way to deal with them is to negotiate and not let these jeopardize the overall relationship; to join the ‘united front’ of  this or that country will never be in India’s national interests.