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Strategic challenges for India in 2013
Economists’ forecasts see, among BRIC countries, a bright future or at least a promising 2013 for Russia and China, but less so for India. Hesitant recommendations to foreigners to engage in India are based on poor infrastructure, incredible red tape, continued current account and state budget deficits, insufficient growth, an inflation rate higher than the productivity growth and difficult market access for foreign investors and industrial operators. Nothing of this is new. But, as has been stated in this column before, India remains too relevant to be circumvented or avoided for those reasons. Global society and economy can do without some of the more promising emerging economies, but cannot be envisaged without India, irrespective of its current economic performance. The difficulties mentioned are left to Indian Government to be tackled; the unfinished business of market access for foreign multi-brand retailers teaches us one lesson: in the eyes of genuinely open and liberalised economies, the steps taken went into the right direction, but were half-hearted. Essential free trade arrangements with the giant European Union and with the small, but highly developed EFTA countries (Norway and Switzerland among them) are said to be on hold, since the prospect of general elections looming at the horizon as soon as spring 2013 has a paralysing effect on Government’s determination to carry on necessary reforms. Good reasons to abstain from investing in India now! But not, from getting involved in India somehow. A wider view tells us another story of relevant fundamentals. It is the strategic context. Strategic affairs are politics. While economics is about profit and development, politics is about power and influence. India is a giant by global standards and even more so by regional standards. The same applies to the age-old competitor China. While the two giants differ little with regard to their long-term economic potential, they fundamentally differ with regard to their strategic goals, intentions and regional impact. China’s rise during the first generation of reforms has taken place in a governmental setting and attitude which had as a purpose and effect, indeed, not to scare the regional environment. A more recent development in attitude, however, has generated an image of a giant more determined to ascertain its influence through open moves of deployment of power tools. Securing the supply of energy and other natural resources from neighbours and suppliers of the wider region, multiplying safe supply and trade lines on land and sea by buying or leasing and constructing deep sea ports in Pakistan, Myanmar and Sri Lanka has created awareness and anxiety in the region about a resurgence of ancient Chinese hegemony. The professional Indian strategic community labels the regional Chinese strategic outreach “strings of pearls”, indicating thus their fear of being encircled by China. This demonstrates the fundamental difference of age-old attitudes of China and India towards their respective neighbourhood. China has for centuries sought to dominate its neighbours politically and, where necessary, militarily. India with its open civilisations, on the other hand, again and again attracted foreign invasions and suffered exploitation by intruders while at the same time exported ideas, knowledge, philosophies and religions. This old pattern has not changed much and would partly explain the advantage of China’s over India’s development. The most recent consequence of China’s more aggressive regional self-assurance, however, is the perception by its neighbours of a growing Chinese threat. This perception has triggered a growing rejection of China’s strategy of regional domination. China’s more assertive strategic outreach in the East China Sea is mobilising Japanese resistance, which will cause Japan to increase military spending. China’s territorial claims in the South China Sea have already provoked Vietnam, the Philippines and Malaysia to develop their own anti-Chinese strategies. And finally, the very recent regime reform in Myanmar, where China was seen as having established a permanent strategic base perceived by India as part of the “string of pearls” encircling the Subcontinent, constitutes a serious setback for Chinese hegemonic ambitions. With this recent development in the region, India is set to profit from growing regional rejection of Chinese strategies and policies by establishing itself as a non-hegemonic, that is “natural” dominant power in the region with little potential of scaring neighbours. A non-scaring giant will always find more open doors for friendly cooperative arrangements. This remains a solid strategic advantage for India’s positioning in the world and should, in the long run, have a fruitful pulling effect on foreign investment.
23rd December 2012 / Philippe Welti