Breaking Geo-Economic Containment: India’s Need of the Hour – I
by Ramtanu Maitra on 16 May 2022 1 Comment

India is no longer the inward-looking nation it became soon after its inception in 1947. For decades, India’s post-Independence development strategy was to foster a self-sustaining economy premised on a low rate of economic growth. Adopting that policy made the country both inward-looking and highly interventionist; New Delhi insisted on import protection, complex industrial licensing requirements, financial repression, and substantial public ownership of heavy industry. That version of the Indian economy was wasteful, mired in low productivity and dependent on poor technology. In addition, India’s fast-growing dependence on imported oil and its inability to export made the country highly vulnerable to current account deficits.


The shock came in 1990-1991 in the form of a steep rise in world oil prices. The slow growth of India’s important trading partners put additional pressure on India’s deteriorating current account. Widening current account imbalances and reserve losses drove down investor confidence, which was further weakened by domestic political uncertainties and, finally, the downgrading of India’s credit rating. India’s currency, the Rupee, was sliding down the slippery slope; policymakers were staring into a fiscal abyss.


In 1991 Indian authorities finally decided to abandon the beaten path and began carrying out preliminary structural reforms and the type of stabilization policies necessary to attain a higher rate of growth. Several sectors were marked as crucial to push-start the economy. Today India has not yet achieved what it needs to. Still, partial implementation of targeted economic reforms and visible improvement in physical infrastructure have begun to transform the Indian economy. In the two decades since the reforms began, the country’s average annual industrial growth rate of 7 percent, though lagging that of the East Asian economies, has made India the third largest economic power in Asia, behind China and Japan, with a GDP just above $ 2.5 trillion. India’s economic revival has had an impact on the regional and even the world economy.


Today, for its own economic security and sovereignty, India must break out of the geo-economic blockade imposed by a hostile Pakistan and its partner China to keep moving forward. Two major interconnected economic projects promise to accomplish this: the first is India’s 2014 agreement with Iran to co-develop Iran’s Chabahar port, which will afford New Delhi access to Afghanistan, Central Asia and the Caspian Basin; and the second is the International North South Transport Corridor (INSTC), India’s import-export route to Russia, Europe and Central Asia bypassing Pakistan, which originated with an intergovernmental agreement between Russia, Iran and India in 2002.


Proceeding vigorously with these projects and emerging as a dominant Asian power providing security and economic benefits to the Eurasian landmass, New Delhi needs to utilize its proven diplomatic capability to pursue an independent strategic path to ensure the long-term welfare of the Indian population and its near and distant Asian neighbours.


Broadening Economic Relations


The determination of India’s 1991 leadership and their successors to move the country out of stagnancy and into a position of regional economic leadership was met with uneasiness amongst some of its neighbours. Along India’s western land borders, an unfriendly Pakistan has successfully blocked India’s land access to Central Asia, the Middle East and Russia—a vast region with which India must interact to strengthen its economic muscle and enhance its security. China, growing at a breakneck pace since the 1990s and emerging as a massive economic and military power, has virtually joined hands with Pakistan to strengthen the barriers set up to block New Delhi’s land access beyond its immediate neighbourhood. China is now actively engaged in undermining India’s efforts to develop a direct land access eastward to southeast Asia by openly encouraging anti-India activities in Nepal, Bhutan, and Myanmar.


These open hostilities by its neighbours have hurt India but have not succeeded in fully stymying its growth, as noted in the book India Transformed – 25 Years of Economic Reforms, written by various Indian business leaders and edited by Dr. Rakesh Mohan, former Deputy Governor Reserve Bank of India. India’s average industrial growth in the 25 years since 1991 of around 7 percent is higher than any previous 25-year period. Though it comes with shortcomings and distortions, including a worsening income gap among the Indian people, it is a substantial achievement that has already had an impact in the neighbourhood.


One such notable feature of India’s economic success in recent years is its emergence in the Middle East and Central Asia as a crucial economic partner. Commercial ties between India and some of the powerful Arab nations—such as Saudi Arabia and the United Arab Emirates, among others—have begun to grow rapidly. For the first three quarters of 2021, India was Saudi Arabia’s second-largest trading partner. During his October 2019 visit to Saudi Arabia, Indian Prime Minister Narendra Modi established the Strategic Partnership Council with Riyadh. As a result, some 745 Indian companies had registered as joint ventures or 100-percent-owned entities in the Saudi Kingdom as of October 2021. Saudi investments in India have also risen sharply in recent years. Following his visit to India in February 2019, Crown Prince Mohammed bin Salman stated that his country is looking to invest $100 billion in India across several sectors such as petrochemicals, infrastructure, and mining.


Economic relations with India are also the focus of another wealthy Arab nation, the UAE, consisting of seven emirates. During a recent virtual summit with Prime Minister Narendra Modi, UAE leader Sheikh Mohamed bin Zayed Al Nahyan said India is UAE’s “most important strategic partner.” Following the summit, a Comprehensive Economic Partnership Agreement (CEPA) was signed. Nadia Abdul Aziz, the president of UAE’s National Association of Freight and Logistics, said CEPA will boost the UAE’s logistics sector, adding that “with CEPA in place, Indian products can penetrate the UAE market through which they can enter the Gulf Cooperation Council, the Commonwealth of Independent States, Africa and beyond.” (UAE-India economic partnership agreement to be operational soon: N.P. Krishna Kumar, Al Arabiya English: March 25, 2022) Indian authorities have pointed out that “the CEPA will lead to increase in bilateral trade from the current US$ 60 billion to US$ 100 billion in the next five years.”


Broadening economic relations with Arab nations meshed well with India’s increasing interactions with Central Asian nations located between Russia’s southern borders and Afghanistan. Following Washington’s withdrawal from Afghanistan in 2021 and its handing over power to the Islamic Emirate of Afghanistan, aka the Taliban, Central Asian countries have become wary of their security. These countries have realized the necessity to put India on their security and economic map. Last January, five presidents—Kazakhstan’s Kassym-Jomart Tokayev, Uzbekistan’s Shavkat Mirziyoyev, Tajikistan’s Emomali Rahmon, Turkmenistan’s Gurbanguly Berdimuhamedow and the Kyrgyz Republic’s Sadyr Japarov—participated in a virtual summit with Prime Minister Modi. It was the first such joint engagement of its kind between the highest-level leaders of India and the Central Asian countries.


The joint statement at the end of the summit noted that ties between India and the region have been historically close, with “civilizational, cultural, trade and people-to-people linkages,” but that the lack of access to land routes and the situation in Afghanistan remain major challenges. The presidents’ statement also called on the other Central Asian countries to consider joining the International North-South Transport Corridor (INSTC) and the Ashgabat Agreement on International Transport and Transit Corridor.


The Ashgabat agreement is a multimodal transport agreement between the governments of Kazakhstan, Uzbekistan, Turkmenistan, Iran, India, Pakistan, and Oman to create an international transport and transit corridor facilitating transportation of goods between Central Asia and the Persian Gulf that came into force in April 2016. The INSTC corridor was conceived to reduce the time taken, costs incurred, and increase connectivity between major cities like Mumbai, Moscow, Astrakhan (located in Russia), Baku (Azerbaijan), Tehran, Bandar Abbas and Bandar Anzail (all located in Iran). Russia, India, and Iran are the founding member states of INSTC. The agreement was signed in 2002.


In addition to these recent developments, India continues to maintain its age-old ties with its traditional friend, Iran, a key partner in India’s endeavour to pursue westward links to the Middle East, Central Asia and Russia by water and land.


The Path West and to Central Asia


One of India’s misfortunes is its inheritance of an unfriendly neighbour, Pakistan, to its west. The undivided Indian subcontinent had direct land-links to Central Asia, Afghanistan, and Iran. However, thanks to a departing kick by the British Raj in 1947, that land access has been cut off by a hostile Pakistan, a religion-based nation. Since its early days, Pakistan’s authorities have been fearful of a direct land link between India and Afghanistan. Pakistan fears that if India secures direct access to Afghanistan, it will use Afghanistan as a platform to weaken Pakistan’s virtually ungoverned and hostile western border provinces, leading to a break-up of the country.


That fear hardened further following a civil war in the eastern wing of Pakistan that led to the formation of Bangladesh in 1971. Aware that Afghans generally welcome India as a friendly country, in the late-1990s when Afghanistan was embroiled in a bloody civil war, Pakistan actively helped to form an anti-India Islamic religious grouping, the Taliban, within Afghanistan and brought them to power. This paranoia is at the heart of Pakistan’s denying India a westward land access to Afghanistan and beyond.


In recent years, Pakistan’s efforts to stymie India’s westward progress were further boosted by its close ally, a growing and ambitious China, who, in its quest to establish economic hegemony over Central and West Asia, has joined hands with Pakistan. China’s interest in befriending a virulently anti-India Pakistan centres not only on having a permanent presence within Pakistan, but also on denying India broader economic and security relations with the Central Asian nations. This is a well-orchestrated Pakistan-China joint policy designed to slow down India’s economic progress and prevent India from becoming a regional power.


However, India found a way around this blockade in 2003 when discussions between India and Iran began that ultimately resulted in signing an intergovernmental Memorandum of Understanding in 2014 whereby India agreed to a joint venture with Iran to equip two berths at Iran’s Chabahar port. In May 2016 India signed another bilateral agreement with Iran to refurbish one of the berths at Shahid Beheshti port and reconstruct a 600-meter-long container handling facility at the port.


Chabahar is India’s first major overseas port venture, and many consider that it could act as a counter to China’s endeavour to develop Pakistan’s Gwadar Port about 170 km to the east on the Arabian Sea cost. For India, Chabahar port and the development of its adjoining areas is an opportunity that Iran has offered to bypass Pakistan in securing a firm access to Afghanistan, Central Asia, and the Caspian Basin, and to enhance its economic and security influence in these regions. India has already invested heavily in several infrastructure and financial projects in Afghanistan, and New Delhi realizes the importance of the Chabahar port to safeguard and widen its assets there.


(To be continued…) 

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