Friday, February 27, 2015

Sri Lankan President’s Visit: A New Chapter in Bilateral Relations

Dr. Madhumita Shrivastava, 
Visiting Research Associate, VIF

Newly elected President of Sri Lanka Maithripala Sirisena’s visit to India from Feb 15-18 had justifiably raised hopes and expectations, both in Colombo and in New Delhi, of a major ‘course correction’ that could mark the onset of a new, vigorous and dynamic bilateral relations between the two countries. The reasons for such high expectations were many. To mention just a few, the new President had in a very significant gesture chosen New Delhi as the destination for his first bilateral visit after the ‘historic’ elections last month in which he put paid to the quest of the outgoing President Rajapaksa for a record third term in office. Equally important was the fact that the later part of Rajapaksa’s presidency was marked by an almost deliberate attempt to shift the delicate balance in Sri Lanka’s foreign policy approach away from India, in favour of China. There was also considerable disenchantment amongst the Sri Lankan minorities and in a section of the Indian populace on issues relating to devolution and rehabilitation in the war-ravaged North and North-eastern parts of Sri Lanka.

Diplomatic signals emanating from Colombo suggested that the new administration of President Sirisena was keen on restoring the desired ‘balance’ in his government’s foreign policy approach involving India and China. In this context, it may be recalled that the President had only recently, in his Independence Day speech said, “In considering the past, we make a clear commitment towards following a foreign policy of middle path, in friendship with all nations”. It was, therefore, reasonable to expect that Sirisena’s visit could mark a major readjustment in bilateral relations that could restore the balance. There was also the larger expectation that the two leaders, President Sirisena and Prime Minister Narendra Modi would not only address the afore stated concerns but also explore ways and means of enhancing economic cooperation between the two countries in a spirit of partnership (Sabka Saath Sabka Vikas) to realise their aspirations within the frame work of SAARC and in the bilateral format.

In this back ground, the two leaders did agree to initiate a slew of measures to give a new direction to the relationship. The most notable amongst these was the Agreement on Co-operation in the Peaceful Uses of Nuclear Energy. It may be recalled that Sri Lanka has been looking for assistance for its peaceful nuclear programme in the fields of energy, industry, medicine and agriculture for over five years and eventually, decided to opt for Indian assistance over the Pakistani and Chinese overtures in this regard. This has been interpreted by analysts as a mature and significant shift in strategic relations between the two countries. According to the agreement, the two countries would exchange knowledge and expertise, share resources and undertake capacity building and training of personnel in peaceful uses of nuclear energy.

Another important agreement provides for enhanced level of defence and security cooperation in the existing trilateral format with the Maldives. Analysts believe that under this arrangement, a number of pending issues could come up for review, possibly even incidents such as security concern emanating from the recent docking of a Chinese submarine in the Colombo harbour. The two leaders also agreed to expand cooperation in a number of sectors including energy, trade, investment, agriculture and healthcare. The perennial problem of fishermen on both sides of the Palk Straits was discussed and Prime Minister Modi and President Sirisena pledged to resolve these in a “constructive and humanitarian” way.

Significantly, no specific mention was made in the joint press release on the contentious issues of relief, reconstruction, rehabilitation and devolution in the North and North-east. It is suggested that the two leaders did discuss these but preferred to keep it out of the public domain for ‘very good reasons’. It is understood that on these issues as well, the engagement was constructive and the new government would start unveiling its new approach in the months ahead.

This could well happen under the programme already initiated by the new administration. In this context, it is mentioned that the government had already started moving with a sense of purpose and urgency in fulfilling the promises it had made to the people in the election manifesto. The 100 Days Reform Project was not just about the letter of the promises made but also the spirit in which it wanted to translate these into practice. It flagged the beginning of reversal of the ‘damages’ done by the previous regime. The prevailing view is that the twin leadership of Sirisena and Wickremesinghe, the new Prime Minister, can deliver. They seem to have the political will and the capability to decide the fundamental issues that had riddled the nation in the past and move ahead in ‘favour of the people’. A new Chief Justice, Shri Sripavan, has been appointed; the first member of the minority Tamil community to hold the post in more than two decades. A new civilian Governor has also been appointed for the Tamil-majority Northern Province. The Government has also announced lifting of the ban on foreign nationals visiting the Island’s former war zone. Economic embargo in the Tamil-majority area has also been scrapped. The reconstruction of railway line up to Jaffna is yet another milestone. Services to Jaffna were resumed recently after a gap of 24 years.. It is a landmark achievement and reflects the sensitivity of the government towards the people of that region.

The President has also pledged to grant autonomy to the Island’s former northern war zone where members of the ethnic Tamil minority predominantly reside. There has to be a meaningful devolution of power building on the 13th Amendment to the Sri Lankan Constitution, so that it can create necessary ground conditions for a lasting political settlement. The ethno-social fabric of the Sri Lankan society which was in a bad shape can now see a ray of hope for repair and restoration. Further, there is a pressing need for the Internally Displaced Persons to be resettled in their original habitation. The need for reconciliation through political settlement of the ethnic issues has been reiterated by India at the highest level.

One of the issues that New Delhi would be watching closely is Sri Lanka’s China policy. This had created an uneasy and awkward frosting of relations between India and Sri Lanka in the previous regime. There should be no illusion in New Delhi that the new regime in Colombo will stop building major projects with Chinese collaboration. China has entered Sri Lanka and its strategic geo-space in a very significant way. A total reversal in this sphere appears improbable, indeed impractical. . A great deal has been written and documented by very knowledgeable experts on the China factor in India- Sri Lanka relations. It is not our intent to catalogue these all over again. The fact remains that over the last 5-6 years, China has been aggressively pushing its way, largely successfully, into Sri Lanka’s key infrastructure projects through its state owned entities being ‘used’ by the Chinese authorities to the detriment of legitimate Indian interests. This trend continued unabated during Rajapaksa’s rule despite high level political persuasions.

It is certainly not India’s case to, in any way, undermine Sri Lanka’s rightful choice of picking its partners for normal commercial deals. It may also be mentioned that similar trends have been noticed in the entire neighbourhood in varying measures and these are likely to continue. What India would be looking for is a level playing field approach in the normal economic and commercial dealings with some concern for its sensitivities in projects that have implications for its security. India would also be justified in its expectation of better appreciation by its neighbours with whom it has special relations, particularly in Sri Lanka, having stood by that country in difficult times. Developmental and security co-operation form the most important cornerstone of our relationship. The edifice of this bond is the mutual trust and implicit faith which the two nations have had for one another.

The task is not going to be easy for both Mr. Modi and Mr. Sirisena. But the intent to develop a partnership approach seems to be obvious. Some significant forward movement is already noticeable and the ground has been set for more to follow. The Sri Lankan Foreign Minister, Mangala Samaraweera, had during his recent visit said that Sri Lanka would like to start its relationship with India on a clean state. India has been assured of these new priorities of Sri Lanka. And now the engagement is slated to move forward on a fast track with the new Foreign Secretary and the Indian Foreign Minister due to visit Colombo next month followed by PM Modi also doing so in March’15. The recent high level engagements between the two countries have given reasonable hope for a new chapter being opened in India-Sri Lanka relations.

Published Date: 27th February 2015, Image source:
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Vivekananda International Foundation)

Wednesday, February 25, 2015

Defence Budget 2015-16: Urgent Action is needed to Boost Modernisation

Brig Gurmeet Kanwal, 
Visiting Fellow, VIF

While inaugurating the biennial air show Aero-India 2015 at Bengaluru on February 18th, 2015, Prime Minister Narendra Modi said India did not like being labelled the world’s largest importer of weapons systems. With less than ten days left for the presentation of the NDA government’s second budget, the Prime Minister said in the era of shrinking defence budgets, India could become a global manufacturing and export hub for arms and defence equipment. Is that statement indicative of the shape of the defence budget to be presented to Parliament shortly?

The Prime Minister invited defence MNCs to join hands with Indian public and private sector companies to “Make in India” and reiterated the government’s willingness to allow FDI in defence beyond the stipulated 49 per cent for projects involving the transfer of cutting-edge technologies. He pointed out that reduction in dependence on defence imports from 70 to 40 per cent in five years would create 100,000 to 120,000 highly skilled jobs, boost investment, reduce costs and lead to the upgradation of India’s manufacturing and system integration skills. In short, a gradual shift in the defence acquisition policy to manufacturing in India will provide huge economic benefits,

In the budget for Financial Year (FY) 2014-15 presented in July 2014, Finance Minister Arun Jaitley had increased the allocation for defence by 12.5 per cent over the amount allotted for FY 2013-14. The Minister had hiked the outlay on defence expenditure from Rs 2,03,672 crore (Revised Estimates – RE) in (FY) 2013-14 to Rs 2,29,000 crore (Budgetary Estimates – BE) for FY 2014-15. The defence budget now stands at a low 1.74 per cent of India’s projected GDP for FY 2014-15 and accounts for 12.75 per cent of the country’s total government expenditure.

While presenting the budget, the Finance Minister had said, “Modernisation of the armed forces is critical to enable them to play their role effectively in the defence of India's strategic interests.” However, the increase of Rs 25,328 crore in the allocation – partially neutralised by the high annual inflation rate that still hovers between six and seven per cent, the steep fall in the value of the Rupee against the US Dollar vis-à-vis the traditional rise in the global prices of arms – was insufficient to give a major boost to the military modernisation that is necessary to meet the emerging threats and challenges.

The total revenue expenditure planned for the year 2014-15 was Rs 1,34,412 crore (approximately 60.00 per cent of the budget). This goes towards paying salaries and allowances and expenditure on rations, ammunition and transportation. The remaining amount of Rs 94,588 crore (40.00 per cent of the budget) was allotted on the capital account for the acquisition of modern weapon systems and equipment. Various consultancy firms have estimated that India will spend approximately US$ 100 billion over the 12th (2012-17) and 13th (2017-22) five-year defence plans on military modernisation.

The army has begun the raising of 17 Corps, designated as a mountain strike corps, which is expected to cost Rs 64,000 crore over seven years. Major acquisitions of weapons platforms that have been pending for long include initial payments for 126 multi-mission, medium-range combat aircraft (MMRCA), 197 light helicopters, 145 Ultra-light Howitzers, 15 Apache attack helicopters and 22 CH-47F Chinook medium lift helicopters, C-17 heavy-lift aircraft and frigates and submarines. The armed forces must also upgrade their command and control systems and substantially improve their intelligence, surveillance and target acquisition capabilities if they are to become proficient in launching effects-based operations in a network-centric environment riddled with threats to cyber security.

In a letter that he wrote as the COAS to Prime Minister Manmohan Singh in March 2012, General V K Singh, now MoS, External Affairs, had pointed out the ‘critical hollowness’ in defence preparedness. Ever since the Kargil conflict in 1999, when 50,000 rounds of Bofors medium artillery ammunition had to be imported in a hurry from South Africa, the ammunition holdings of the army have been reported to be too low to fight and win a sustained war. Many other deficiencies in the holdings of important items of weapons and equipment need to be made up.

While China has been engaged in rapidly implementing new rail, road and airfield projects in Tibet so as to reduce the deployment timings of the People’s Liberation Army (PLA) and enhance operational logistics, India’s development of infrastructure along the border with China has made relatively little progress. As many as 14 strategic rail projects have been pending due to resource constraints. These shortcomings need to be made up quickly to avoid military embarrassment in a future conflict.

The announcement made in the budget speech to raise the ceiling for FDI in joint ventures (JVs) for the manufacture of weapons and defence equipment from 26 to 49 per cent had fallen far short of the expectations of the defence MNCs. They would have preferred to have majority stake of at least 51 per cent. That would have made investment in defence manufacture in India worthwhile for them.
The Department of Industrial Policy and Promotion (DIPP) had proposed an increase in the FDI limit in the defence sector from 26 per cent to 49 per cent without transfer of technology (ToT), up to 74 per cent with ToT, both with FIPB approval, and up to 100 per cent in the case of the transfer of state-of-the-art technologies with prior approval of the Union Cabinet. However, the Ministry of Defence (MoD), the defence PSUs (DPSUs) and CII and FICCI, the two powerful of chambers of commerce, had expressed their reservations against giving controlling interest to the MNCs.

The Finance Minister had earmarked Rs 1,000 crore for OROP (one rank, one pension). The veterans’ associations were not convinced that the allocation of a token amount like Rs 1,000 crore over the full financial year was indicative of good intentions when the actual expenditure was likely to be almost Rs 10,000 crore. As for the government’s intention to build a national war memorial at Prince’s Park near India Gate at New Delhi, the three Services have for long sought a war memorial at India Gate and not near it and are disappointed with the decision.

Published Date: 25th February 2015, Image source:
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Vivekananda International Foundation)

Tuesday, February 24, 2015

Expectations from the Union Budget 2015-16

N K Singh

It is said that no success is final, nor failure fatal- it is the courage to continue that counts.

The Delhi electoral outcome has rekindled a fresh debate on the preferred model of development. Apart from other factors, some analysts argue that the economic policies of the Government have a pro-rich bias and alienated a large voter base among migrants, slum dwellers and generally the very poor. The forthcoming budget, they argue, must course correct. This reasoning is truly far fetched. The focus of the election campaign by the successful AAP related to issues of corruption, safety of women, availability of drinking water and inadequacy of basic infrastructure. Critics overlook that the amendment of the Land Acquisition Act pertains to the onerous nature of the process and does not dilute the generous compensation. Similarly with respect to MGNREGA, based on CAG Report the emphasis rightly has been placed on capital creating assets. The approach also overlooks the more basic fact that the excessively entitlement driven policies of UPA-1 and UPA-II weakened macro fundamentals, reduced investable surpluses and smothered investor confidence. These entitlement driven rights embedded in several legislations were a major draft on shrinking resources. Coupled with weak delivery systems which had inherent leakages, they eluded improved life quality to intended beneficiaries.

Any economic strategy must be designed to create more jobs rather than offering freebies, improve outcomes of social spending than just spending more, deliver quality infrastructure and improve competitive viability to attract private investments.

All principles of distributive justice are predicated on enlarging the size of the cake. The reverse is a vicious quagmire of a low level equilibrium trap.

Prior to 1991, India served as a caricature of a closed economy with its fiscal policy gone wrong. The Budget was also predominantly an accounting statement of projected revenues and intended expenditures.

Post 1991, the Budget has also increasingly become an occasion to go beyond accounting and articulate the broader economic and social agenda of the Government. This approach in the earlier reform period of 1991 to 1994 was fostered by multilateral institutions as a pre-condition for access to their resources. It was appealing that it overcame inter Ministerial tangles even if it was an encroachment on the policy making domain of other ministries.

The process of Budget making has evolved to emerge as a process policy pronouncement in the course of meeting the standards of multilateral institutions. The budget statements in years prior to 1991 always announced increments in both direct and indirect taxes. But now the tax rates have been moderated subsequently. Budget making has become more inclusive and a consultative process to involve the stakeholders. People hold expectations for important macroeconomic policy statement coupled with structural reforms.

India’s Open Budget Index, a result of biennial survey conducted by the International Budget Partnership (that ranks countries on a scale of 100, a higher number indicating a greater transparency), has improved from being at 60 in 2008 to 68 in 2012. Nevertheless, speculation, uncertainty and excessive secrecy contribute to the mystique of the budget process. It is not adequately recognized that all over the world economic policy making is a continuing process. The Budget is hardly a panacea for either all economic malaise or response to multiple economic challenges.

In the long run, in an increasingly inter dependent world we need to adopt the best international practice in the budgetary process and its contents. The OECD Best Practices for Budget Transparency Report has suggested an ex-ante engagement than ex-post out comes. It argues that “A pre-budget report serves to encourage debate on the budget aggregates and how they interact with the economy. As such, it also serves to create appropriate expectations for the budget itself.” Keynes suggests “Successful investing is anticipating the anticipations of others.”

So what should we anticipate for the forthcoming budget?

First, continue the focus on growth, investments and employment creation. Distractions and plea for populist programmes must be subsumed as part of the broader priority agenda of the government which focuses on externalities, public goods, enhancing our competitive viability and total factor productivity of the economy. Determination towards attracting private investments and creating employment will bestow upon the individuals the power to create income and purchasing power than being dependent on the announcement of populist policies.

Second, both savings and the investment rates and investment gearing ratio need to substantially increase for transiting to a higher growth trajectory. The saving- investment ratio has deteriorated from 0.98 in 2004-05 to 0.86 in 2012-13. The graph below indicates major trends in savings and investments as a percentage of GDP over recent past. Among others, Reserve Bank of India’s ‘Long Run and Short Run Saving- Investment Relationship in India’ concludes a co-integration between domestic savings and investments.

Source: RBI Handbook of Statistics

Third, reiterating the commitment to fiscal rectitude and path of fiscal consolidation. Mechanical fixation of fiscal deficit should be replaced by cyclically adjusted fiscal deficit with latitude to reach end targets with flexibility during the intervening period. The concept of cyclically adjusted fiscal deficits now has wide acceptance. As Glenn Hubbard reminds us that “Gradual fiscal consolidation may also be stimulative in the short run.”

Fourth, improved expenditure management, reduction in the number of centrally sponsored schemes and given reported generous award of the Finance Commission coupled with subsidy rationalization, particularly Direct Benefit Transfer benefits macro management. Designing a mechanism to monitor the implementation of expenditure and transfer of benefits to the intended beneficiaries would play a role in reducing leakages from the exchequer’s funds.

Fifth, reiteration of commitment that government would abstain from retrospective tax changes and the problems of the past would be expeditiously resolved by acceptance of judicial or quasi judicial or arbitration outcomes improves investor confidence.

Sixth, in the area of tax reforms the centerpiece is the implementation of Goods and Service Tax (GST). This has been on the anvil for several years but has at last made credible progress. Persistent misgivings by the State Governments have been allayed by a categorical commitment to fully compensate any revenue losses. Also, with regard to coverage providing flexibility in regard to petroleum and other exclusions may not make this an ideal GST but one must not allow the Best to become the enemy of the Good. The Constitutional Amendment for implementing the GST would be introduced during the current Session of the Parliament. This amendment is necessary because it rebalances the power of the Union and the States in relation to taxes as stipulated in the constitution. The enactment of GST will have a huge impact on the GDP by eliminating the cascading effect of taxes on economic activity. It will, in the long run, result in creating a large common market which has multiple benefits.

In the area of direct taxes, the key question is the skewed and limited tax base. The exclusion of agricultural income which while contributes around 14% to GDP continues to provide livelihood to around 54% of population. Agriculture tax must be calibrated without regressive burden being imposed on poor farmers but innovative ways to prevent agriculture as a tax shelter and taxing the profligacy of very rich farmers.

At the same time India’s corporate and income tax rates are not aligned with the tax rates in other emerging markets. By various analysts, India is considered an overtaxed country which deters investment decision. Lowering tax rates to improve opportunity cost of investment and enlarging the base with a commitment to align our taxation rates with ASEAN rates like the earlier tariff calibration with a credible roadmap will be an important investor fillip. Adopting best international practice in respect of Treaty Shoping, seeking Tax arbitrage, Base Erosion and Profit Sharing and application of GAAR can be part of the same process.

Seventh, clearly-identified programmes that are popular but not populist and contribute to inclusive growth, like Jan Dhan, Swachh Bharat, Clean Ganga, the Digital India and Make in India campaigns should receive tax incentives to invigorate green shoots of investments and back-end infrastructure. Improving the ease of business, particularly enforcements of contracts and permissions in the construction sector as high priority, can make a difference.

Eighth, enhancing agricultural productivity, particularly supply side response, in consonance with changing consumer preference is of significance. Orderly creation of non agricultural jobs is also important, particularly owing to the mismatch between the contribution agriculture to the GDP and employment. Besides, identification of the real beneficiaries (poor farmers and not the lobby of rich farmers and rural moneylenders) calls for a review.

Ninth, based on the contemporary economic ambience, effective tapping of the exogenous low oil price prognosis over medium term to rationalise the oil subsidies is being watched by both the domestic and the international intellect. The government is expected to take this opportunity to deregulate oil prices and let the invisible hands (demand and supply) play a relatively increased role. However, preparing to cope up with the flip side of low oil price prognosis in the form of reduced remittances from Gulf Countries and the impact of reduced national income and thus the purchasing power of the oil exporting countries on India’s exports is also equally important.

Tenth, improved social infrastructure, particularly health and education need an innovative approach. In education, replacement of the key issue of guaranteed access by improved outcome, through teacher training, and undoing the debilitating feature of the Right to Education Act, which has smothered private initiative, is critical. This would be congruous to the new skill inculcation initiatives both in respect of rejuvenating existing institutions and creating new ones. In the health sector, effective provision of Generic medicines and creating awareness regarding the same and improving the delivery system of the government hospitals is important.

The expectations from the union budget for the fiscal year 2015-16 in maintaining and transforming the positive prognosis about India’s growth into a reality remain high. However, in the end, any Budget is as good as we can implement commitments and enhance our implementation capabilities. In the end, any budget is as good as our implementation capabilities. John Keats was right when he said “Nothing ever becomes real till it is experienced”.

(The author is a noted economist, former top bureaucrat and Ex-MP)

Published Date: 24th February 2015, Image source:
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Vivekananda International Foundation)

Monday, February 23, 2015

Will India’s Latest Gamble on Pakistan Yield Results?

Amb Kanwal Sibal, 
Dean, Centre for International Relations and Diplomacy, VIF

Going by past experience, India’s latest initiative to engage Pakistan will not deliver the results it expects. The Government cancelled the Foreign Secretary level talks in August last year because the Pakistani High Commissioner in Delhi chose to meet the Hurriyat leaders in advance to mark the point that the “people of Kashmir”- whose true representatives in its eyes are those who contest India’s sovereignty over J&K and seek self-determination- are an interested party and should be included in a trilateral dialogue, a formula that India obviously rejects.

Pakistan takes the line that for it the Kashmir issue is not territorial; it is one of self-determination. When it intervened militarily in J&K in 1947, its intention presumably was not to forcibly grab J&K but seek self-determination for the Kashmiris even before UN Security Council resolutions were framed. When it sent its guerrillas disguised as locals into J&K in 1965 it was, again, with the noble intention to grant the Kashmiris self-determination. When it knowingly violated the legal position on the ground by extending the LOC from NJ9842 to the Karokaram pass- marking a clear territorial claim- its intention, again, was to grant the people of Kashmir who have no physical presence in this area, the right to self-determination. Its claim to Siachen is, of course, not territorial, but enshrined in the noble concept of self-determination for this desolate and unpopulated region. The Kargil aggression was the product of the same honourable yearnings. Pakistan’s vicious terror campaign in J&K since 1990, one that has cost the lives of both Hindus and Muslims in the state, has been motivated by the pure desire to give the right to the people of that state to determine their own future peacefully. If Prime Minister Nawaz Sharif and his Army Chief call Kashmir “the jugular vein” of Pakistan, it is clear that the territory is not vital to them because of fear that India’s control over it exposes Pakistan to the mortal danger of being choked to death, it is the plight of the poor Kashmiris whose jugular vein India has in its grip that gives sleepless nights to both.

After the cancellation of the FS level talks, Pakistan has said defiantly that it will continue to meet the Hurriyat leaders. It has insisted that because India broke off the talks, it is for India to take the initiative to resume them. The talks have to be unconditional, which means that India cannot demand that Pakistan must show progress on the terror front by, at a minimum, moving forward on the trial of those involved in the 2008 Mumbai terror attack. At the same time, Pakistani representatives, both official and non-official, have been exploring India’s mood and assessing its readiness to pick up the threads of the dialogue again. In their understanding, India used the Pakistani High Commissioner’s meeting with the Hurriyat as an excuse to call off the FS level talks. This rethink, they speculate, may have been prompted by elections in J&K, but with the elections there over, they have wondered whether India would now be ready to re-engage with Pakistan.

India has consistently demonstrated that however serious the provocations from Pakistan- whether infiltration, LOC firings, terrorism and military aggression- it will, after a spell of spurning dialogue, resume it unconditionally. Pakistan has integrated this lack of Indian resolve into its diplomatic strategy. It can therefore stick to its hardline positions, reject any concessions, keep stating that it is ready for a dialogue and keep placing the ball in India’s court, lobby with western powers to press India to re-engage, and keep tensions on the LOC alive to stoke their fears about the potential of an armed conflict between two nuclear armed neighbours.

Pakistan has used the US and the UK primarily to nudge India to resume the dialogue process after it is interrupted. Both oblige because they have US/NATO withdrawal from Afghanistan in good order in mind, the helpful role they want Pakistan to play in this and recognise the need to be responsive to Pakistan’s demands for some compensation at India’s expense for obtaining its cooperation. Currently, Nawaz Sharif’s supposed desire to normalise relations with India and the advisability of strengthening the hands of the civilian government against the country’s armed forces are used as arguments to press India to make an accommodative gesture towards the Pakistani Premier. The double speak of Pakistani diplomacy, India’s vulnerability to US influence and its enduring illusion that Pakistan’s own longer term self-interest will persuade its leadership to make peace with India explains the inadequacies and unsteadiness of our Pakistan policy.

True to form, we have once again reached out to Pakistan after an interregnum of six months. We have taken the precaution of giving the cover of SAARC to the latest initiative, and have also used the Cricket World Cup and public passion in South Asia for cricket as peg to blur its Pakistan focus. The strategy is to make it appear that this outreach to Pakistan is essentially to promote Prime Minister Modi’s SAARC vision and carry forward his specific proposals for launching a SAARC satellite, a SAARC business traveller card and so on, even as we concede that bilateral issues too will get discussed. But then, Pakistan has been, and is, the biggest hurdle in building SAARC as a robust regional organisation. It would hardly have any interest in promoting Modi’s vision as by doing so it will only be promoting India’s leadership of SAARC and diluting its own capacity to obstruct SAARC’s progress, as the cost of such thwarting will be increasingly seen negatively by India’s other neighbours. It will become increasingly difficult for it then to keep Afghanistan isolated from SAARC and prevent the development of India’s linkages with Central Asia.

The element of cricket diplomacy that has been introduced seems a little forced; its history, in any case, does not provide any assurance that our problems with those of our neighbours who are participating in the World Cup will become easier to resolve simply because of the common love of this game. This is especially true of Pakistan, in whose case cricket diplomacy has been an instrument of outflanking Indian political defences, going back to the days of Zia ul Haq.

Whatever our strategy in opening the door to Pakistan, the visit of FS to Islamabad will be for the time being within the framework of “talk about talks”. It could be argued that it will provide an occasion to gauge at first hand Pakistan’s willingness to progress on issues of India’s core concern and its outlook on how the relations can proceed towards normalisation in stages. But then, when Nawaz Sharif came to Delhi for Modi’s swearing-in and later when the two briefly inter-acted in Kathmandu during the SAARC summit, not to mention the assessments provided by the High Commissioners of the two countries based on their conversations in the respective capitals, as well as messages conveyed through informal channels, we should already have a fairly clear idea of expectations from each other. It is unlikely that anything really new at policy level will be conveyed to the FS at Islamabad. If a diplomatic breakthrough was being envisaged by Pakistan, we would already have received the signals. At best, re-engagement may induce Pakistan to resolve the outstanding MFN issue packaged as Non-Discriminatory Market Access.

If Pakistan had a change of course in mind, it would not have persisted in sending India negative signals since August last year. Nawaz Sharif has actually been doggedly aggressive on Kashmir after assuming office, declaring repeatedly his intention to bring the issue to the front burner, reviving Pakistan’s decades old position on UN resolutions and self-determination, making bellicose speeches at the UN General Assembly, ignoring the Simla Agreement, pleading for third party intervention, especially that of the US, and projecting Kashmir as the “jugular vein” of Pakistan, which suggests no room for compromise. When confronted with these facts, Pakistani representatives make no bones that Kashmir remains the core issue on which Pakistan will not compromise.

Pakistani forces have been firing across the international border in Jammu in particular in recent months to which India has responded robustly. Apart from accusing India of initiating the firings, Pakistan makes the usual demand of inviting UNMOGIP to investigate cease-fire violations, knowing India’s opposition to any UN role. Nawaz Sharif has not implemented his assurance that the trial of those responsible for the 2008 Mumbai terrorist attack will be expedited. He has not only put no curbs on Hafiz Saeed, he has allowed him to stage huge rallies at which jihad against India is openly advocated. Pakistan has been duplicitous about the UN ban on Jamaat ud Dawa as a terrorist group. To balance India’s accusations about Pakistani support for terrorism against it- which Pakistan denies- India is accused of supporting the Pakistani Taliban and the Baloch separatists. Elements in Pakistan, including in the government, even insinuate an Indian hand in the Peshawar school massacre. Pakistan is determined to raise the water issue with India contentiously despite the Indus Waters Treaty. It is bent on countering India’s legitimate interests in Afghanistan.

In recent weeks Nawaz Sharif’s National Security and Foreign Affairs Adviser, Sartaj Aziz, has excelled in hostile statements against India. President Obama’s successful visit to India has thrown Pakistan into tantrums when nothing against it was said during the visit, apart from an isolated reference that has figured in earlier joint statements too to punishing those accused of the 2008 Mumbai attacks, in which US nationals too were killed. Aziz has objected to US support for India’s permanent seat in the UNSC even when the formulation used in the joint statement makes no advance from previous ones. That Aziz should rail that this would be in violation of the United Nations Security Council resolutions on matters of international peace and security, such as the Jammu and Kashmir dispute and add that India “by no means qualifies for a special status in the Security Council”, reflects the depth of Pakistani antagonism towards India. He also fulminated against India’s membership of the Nuclear Suppliers Group (NSG), arguing that this discriminates against Pakistan and is a case of another country specific exemption that would undermine the credibility of the NSG, the fragile strategic stability in South Asia, while weakening the nonproliferation regime. He has castigated the Indo-US nuclear deal struck for “political and economic expediencies” for its detrimental impact on nuclear deterrence and overall balance in South Asia, projecting it as directed against Pakistan and therefore justifying his threat that Pakistan reserves the right to safeguard its national security interests. Aziz has inveighed against “India’s dangerous desire to create a space for war.” According to him, the dialogue process can only be advanced if talks are held on basic issues, which for Pakistan means Kashmir and water.

Aziz’s broadside re-affirms Pakistan’s obsession with parity with India. Any prospect of India getting enhanced international status has to be combated by Pakistan, notwithstanding the disparity between the two countries in physical, demographic, economic and military size. In private, Pakistani leaders accept these disparities and use the argument that India as the bigger and stronger country should be generous with Pakistan. Those in Pakistan, India and the West that purvey the line that the hands of the Pakistani civilian government should be strengthened by India against the country’s armed forces whose ideology remains the biggest obstacle in normalising India-Pakistan relations, should note that all these hostile statements have been made by the civilian leaders. In case they have been prompted by the military, then the messages being conveyed to India officially and unofficially that the Pakistani armed forces also now wants peaceful relations with India are deliberately misleading.

The US role in India-Pakistan relations remains murky. It prods India to resume the dialogue with Pakistan even as it buttresses Pakistan’s capacity to confront India. It does not want to weaken Pakistan to the extent of giving India a decisive upper hand in the dialogue because it wants India to make some concessions to Pakistan. The irony of the US position is that it rebuffs dialogue with leaders it dislikes, whether of Iran, Iraq, North Korea, Venezuela, Myanmar and Cuba. Its recent treatment of Putin’s Russia is instructive about its attitude towards dialogue when it doesn’t suit its strategy. During his visit, President Obama seems to have pressed Modi to resume contact with Pakistan. He would have promised Nawaz Sharif that he would do so as a form of balancing his decision to visit to India and not Pakistan. The US has become less reticent in publicly advocating an India-Pakistan dialogue. According to the US Deputy National Security Adviser Ben Rhodes, the pursuit of dialogue “is something that the United States has consistently supported, and we will continue to do so”. The US officials told the media before the visit that Obama would raise with Modi the issue of “how the two nuclear-armed neighbours can resume dialogue and reduce their hostilities”- which, unfortunately, equates India and Pakistan as nuclear powers and puts equal responsibility on both to “reduce hostilities”, ignoring the enormity of Pakistan’s terrorist provocations.

The unfortunate fall-out of our decision to resume FS level contacts with Pakistan despite consistently negative signals from that country is that it will be confirmed in its assumption again that even if the dialogue process is interrupted by India because of Pakistani provocations, India will resume dialogue eventually because it actually has no choice, its political psychology is fragile, temperamentally it prefers temporising, and that the international community will pressure it to do so because of persistent fears about a nuclear show-down in South Asia. It has long concluded that its intransigence strengthens its diplomatic hand.

Some well-informed Pakistanis close to military circles say that Pakistan has fears, however irrational, that India is still not reconciled to the creation of Pakistan and seeks to break it up. The military, they say, is willing to make peace but India should not try to rub its nose in the dirt, without being able to give an example that would justify this accusation. If all this true, Pakistan needs psycho-therapy, not diplomatic outreach.

Published Date: 23rd February 2015, Image source:
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Vivekananda International Foundation)

Friday, February 20, 2015

India-Iran Relations: Prospects and Challenges

Alvite Singh Ningthoujam, 
Research Associate, VIF

India’s relations with the Islamic Republic of Iran over the last few years have been marked by various hurdles. These pertained to the unresolved payment imbroglio for the import of Iranian crude oil; inability to streamline trade between the two countries and various other issues. These limitations have cropped up ever since the United States imposed economic sanctions on Iran for its controversial nuclear programme. The sanctions have led to negative impacts on India’s overall bilateral relations with Iran. This is evidenced by the visible fluctuation in the bilateral trade figures for the last few years. While Indian exports to Iran have witnessed an increasing trend, similar is not the case with that of imports from Iran. However, with the interim nuclear accord signed in 2013 between Iran and the West, there had been some improvements in the overall bilateral ties between India and Iran. Simultaneously, the newly elected government in New Delhi is likely to give more impetus to the energy-driven relations between the two countries. Having said that, the ties between the two countries would largely depend on how far both the countries could manoeuvre through the US pressures, in case the ongoing talks on nuclear standoff fails to bring any solution. Tellingly, the role that India and Iran could play in Afghanistan is going to be one of the most challenging tasks for both the countries.

Indo-Iranian Ties after the 2013 Geneva Nuclear Accord:

Going back to November 2013, when Iran and the West struck an interim nuclear accord in Geneva, one country in South Asia that observed the development anxiously was India. After the Geneva nuclear accord was signed, several reports surfaced analyzing how India is going to benefit from the breakthrough. For many, this interim nuclear deal was considered as a landmark deal while countries such as Israel watched it with jaundiced-eyes and denounced it as a "historic mistake.” In India, there was optimism and pessimism over the improved US-Iran ties. While some talk of an overall boost in India-Iran relations, particularly in trade and energy-related relations, others say the deal was only for six months and there would not be anything substantial that New Delhi could benefit from. That said, one of the most important advantages for New Delhi, according to Indian experts, is that it would now be able to play an active role in Afghanistan as a check against the Taliban, which could be helpful in the former's endeavours to strengthen its foothold in Central Asia. Simultaneously, India could also streamline its trade and business with Tehran, which have remained constrained due to the US-led sanctions since many years. There were others who were of the opinion that an immediate impact could be felt on the shipping activities which have remained visibly hampered due to the sanctions imposed. Most importantly, India's import of Iranian crude oil was expected to witness some flow in 2014. There were developments during late 2013 which signalled a possible revival of military-security cooperation between India and Iran that has become non-existent since mid-2000s.
Owing to the aforementioned interim nuclear deal, there was a considerable increment in India’s oil imports from Iran. According to a report, in 2014, India imported 42 percent more Iranian oil as compared to 2013. By December 2014, India imported 348,400 bpd. With this, Iran emerged as the seventh biggest oil supplier to India in 2014, in terms of volume. Although India cleared the dues for the Iranian crude oil import in rupees, the issue of payment mechanism came up intermittently, and this at times undermined the overall trade between the two countries.

As energy ties have remained the most important factor in India-Iran ties, both the countries explored further means to enhance this aspect of their cooperation. During early 2014, India opened formal talks with Iran and Oman for building a deep-sea gas pipeline. This could be viewed as an attempt to avoid the route through Pakistan. Increasingly, security concerns of carrying gas over land have led New Delhi to come up with this idea. For the moment, this pipeline looks to be the “most promising” option available to India. The pipeline, which is planned to be 1,300 kilometre (km) long, upon completion, would transport 8 trillion cubic feet (tcft) of natural gas to India over a period of 20 years. The estimated cost for this project currently stands at US$4-5 billion, and it would take four to-five years to complete the construction. This would not only facilitate energy trade but would also generate more power in India. Other projects such as Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline is unlikely to be favoured by India, considering the problem of instability inside Afghanistan and Pakistan. But with Oman, India’s proximity to the West Asian natural gas resources becomes closer and the landed cost will be lesser by US$1.5 to US$2 per million BTU. As a result, this appears to be more feasible at this juncture when India’s demand for energy is increasing manifold.

During 2014, Indian exports of pharmaceutical and electrical products, tea, rice, sugar, etc. received good dividends. To facilitate more economic cooperation, particularly in non-oil items, Iranian officials have requested India to open more accounts in different banks but the Reserve Bank of India (RBI) has certain restrictions. Such moves could, otherwise, speed up the commercial transactions between the two countries. Discussions for various investments by Indian firms, including, Special Economic Zones (SEZs) in fertilizers and petrochemical sector, in Iran have already been conducted, and it is now up to both the governments to materialise those projects and proposals without further delay.

On military-security affairs, cooperation between India and Iran has become non-existent. Going back little more than a decade, a considerable defence relationship was maintained between New Delhi and Tehran, and it was given heightened importance with the signing of a strategic partnership accord during the visit of the then Iranian President Mohammad Khatami to New Delhi in January 2003. However, with the signing of the Indo-US nuclear deal in 2005, India’s defence ties with Iran began to dissipate considerably. Nevertheless, with the visible change in the geopolitical and geo-strategic relations, both the countries discussed the possibility resuming defence ties, but that is unlikely to happen soon. In fact, in July 2013, the Iranian Ambassador to India Gholamreza Ansari expressed interest in enhancing defence ties with India, a sentiment that was reciprocated by the then Indian Defence Minister A. K. Antony. Discussions were held to initiate more bilateral defence exchanges between the two countries. In December 2013, two Iranian warships and a submarine paid a “goodwill” visit to Mumbai, and naval officials from both countries called for close naval cooperation. In addition, the need for a “framework for joint cooperation and security for vessels in India’s western waters to the Persian Gulf” was suggested.

Furthermore, acknowledging the achievements made by defence industries of both the countries, the Iranian ambassador emphasized on his country's readiness to exchange experience with India. However, it is still too early to predict resumption of a strong cooperation in this field. But if it happens, Iran would obviously like to lure the Indian defence planners with its military and defence equipment such as ground surveillance radar systems, personnel carriers, drones, destroyers, submarines, and missile-launching frigates. If this aspect sees the light of the day, then Tehran might use its military sales both as a means to gain political support as well as to revive its crumbled economy. Tellingly, this is a potential area where India’s strong defence partner Israel would be watching very cautiously and the latter would be concerned if New Delhi begins military cooperation with Tehran.

Although India supports Iran’s right to civil nuclear programme, there had been instances in the past when New Delhi voted against Iran at the International Atomic Energy Agency (IAEA) for its noncompliance to disclose intentions of its nuclear program. And India’s stand on Iranian nuclear programme is one issue, which at times, comes at odds with Israel. For instance, in June 2013, Israeli President Shimon Peres voiced his concern over the Iranian nuclear program and even urged India not to remain "neutral" to the issue. That said India and Israel continue to nurture their bilateral ties very maturely, even if they do not share the same views with regard to Iran's program. India, however, must be cognizant of the changing reality of the Israeli-Iranian standoff. As a result, it must strive unrelentingly to convince both the Middle Eastern countries, by playing the role of a mediator, to solve their crisis through diplomatic measures.

To avoid any negative fallout, India has the huge task of safeguarding its ties with both the archrivals of West Asia depending on its national interests: one for security and technological needs and the other for energy security. And the present government under the leadership of Prime Minister Narendra Modi is gradually steering an independent foreign policy approach in West Asia, and it is going to do the same with Iran and Israel as well. The government should separate its Iranian policies from that of Israeli strategic policies and should not let one dictate the other. Likewise, owing to the growing economy of India, it should be in the interest of Iran and Israel to conduct business with New Delhi purely based on their interests.

India and Iran in Afghanistan:

Afghanistan has increasingly become an important country for both India and Iran. While its importance has been realised since last few years, attempts to play a proactive role inside the country has gained momentum after the US announced the drawdown of its troops from this war-torn country. And visible developments had begun after the 2013 interim nuclear deal. India and Iran accelerated their commercial and energy trade. Along with this, they have begun to explore further possibilities to rope in Afghanistan as the latter could provide an important link in building more cooperation between them, and at the same time, provide opportunities to Kabul in reconstructing their economy. In short, Afghanistan has become a strategic asset that India and Iran would like to benefit from. An analyst once noted that, “While India looks at Afghanistan more from the prism of regional peace and security, for Iran, Afghanistan presents an opportunity to establish its credentials as a responsible regional player.”

Throughout 2014, most of the political discussions between Indian and Iranian officials were heavily concentrated on combating the rise of violence and extremism in the region. In this, maintaining peace and stability inside Afghanistan has also remained an important agenda for New Delhi and Tehran. These issues were flagged during the visit of Iranian Foreign Minister Javad Zariff to India in February 2014. Apart from the security issues, the need to develop the Chabahar port for the augmentation of trade has been given utmost attention. The visit of the India’s National Security Advisor Ajit Doval to Iran during early-February 2015 laid immense importance to these potential areas of cooperation. This port was a dream project of the former Indian Prime Minister Atal Bihari Vajpayee, who, during Khatami’s visit in 2003, had signed a Memorandum of Understanding for its development. But the previous United Progressive Alliance government did not carry out substantial work on this port as, according to another known India strategist, they “failed to get their act together on critical projects involving India’s national security.”

Finally, five months into the formation of the Bharatiya Janata Party (BJP) government in New Delhi under the leadership of Narendra Modi, the cabinet approved India’s participation in the development of Chabahar port in Iran. The government sanctioned approximately US$85 million for the construction of two berths that would include container terminal and a multi-purpose cargo terminal. The project which is likely to be completed in 18 months would be used to ship crude oil and urea, along with other trading items. This has become the first major breakthrough in New Delhi’s Iran policy ever since the new government was elected.

The importance of this port lies in the fact that it would offer an alternative route to the landlocked Afghanistan and resourceful countries in Central Asia without actually depending on Pakistan. Moreover, for India, Chabahar port would not only give an easy access to these mentioned countries but it would definitely serve its strategic interest, particularly at this juncture when the Chinese are investing heavily in Pakistan’s Gwadar port, which is roughly 76 km from this port in south Iran. It is a known fact that China wanted to invest in Chabahar’s development due to which India had gone into intense negotiations with the Iranian authorities. Otherwise, China’s involvement in this port would have come to the utter dismay of India. From this, it is evident that the energy-rich West Asia has become a region where India and China would like to wield their influence for their own regional aspirations. Now, as the US, that once rejected India’s role in Chabahar port, shows its favour, it is a herculean task for the three governments in India, Iran and Afghanistan to engage and negotiate constantly to benefit from this very potential port project. Nonetheless, the escalation of terror activities inside Afghanistan is likely to appear as a limiting factor in the furtherance of this project. India, very recently, has already shown its unwillingness to add more finance. Only Time can tell the progress on this front.

From the above developments, it has become clear that the present-day Indo-Iranian ties are full of prospects and challenges. Therefore, constant efforts have to be made by New Delhi to preserve the ties with Iran, keeping in mind the energy-security interests of the country along with other economic opportunities and regional dynamics. However, the talk that is going on between Iran and the West to settle the nuclear standoff would largely impact on India’s policies towards Iran. It is yet to be seen how India would manoeuvre its ties with Iran, should there be any negative fallout on nuclear talks.
Lastly, the entire West Asian region holds great importance for India; as a result, the government should keep equal focus on it as they are doing with the other Asian nations. India needs to carefully craft its foreign policies with the countries mentioned above, with a clear vision of its national interests. This region can also be a test for Modi’s foreign policy overtures.

Published Date: 20th February 2015, Image source:
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Vivekananda International Foundation)

Thursday, February 19, 2015

Developments in Maldives: Challenges for India

Anushree Ghisad, 
Research Intern, VIF

With fears of confrontation between the supporters of President Abdulla Yameen Abdul Gayoom and former President and human right activist Mohamed Nasheed sparking a wave of unrest in this littoral nation, Maldives has yet again attracted world attention, albeit for the wrong reasons.

A quick peep into the past

To better understand the current happenings in this island nation, it’s pertinent to take a quick peep into the major events over the last two years.

In the year 2008, Mohamed Nasheed, a champion of democracy, became the first ever democratically elected President, ending a three decade old autocratic rule of Maumoon Abdul Gayoom of the Progressive Party of Maldives (PPM). Within a span of four years, in February 2012, Vice President Waheed, a loyalist to former President Gayoom, usurped the power. Nasheed had taken asylum in the Indian Embassy and termed it as a ‘coup’, while Waheed maintained that it was transition of power. In fresh Presidential elections of October 2013, Yameen of PPM and step brother of former President Gayoom, was sworn in as a new Maldivian President. His coalition, described as ‘Progressive Coalition’, consists of PPM, Jamhoori Party (JP) and MDA. In March 2014, elections were held for People’s Majlis (Parliament), where Progressive Coalition got the mandate.

Current situation

Now around one year later, JP has broken off from the ruling coalition citing hijack of democracy and annulment of agreement by PPM; and has joined hands with Nasheed’s MDP to ‘defend the spirit of constitution’. PPM still has a thin lead in People’s Majlis, but dissent among its own members cannot be ruled out.

The situation has been further complicated by a recent chain of high profile ousters from the government, the latest one being the abrupt removal of Defence Minister Mohamed Nazim on 10th February this year on the charge of plotting to overthrow the government. Two judges of Supreme Court, including Chief Justice Ahmad Faiz Hussein, were fired and the Chief justice was replaced by a removed judge. Further in October 2014, Auditor General Niyaz Ibrahim was removed by a controversial constitutional amendment, four years before the end of his seven years term.

To top it all, former President Mohamed Nasheed has raised apprehension of getting arrested under a 2012 case, aimed at barring him from contesting the next Presidential elections, scheduled in 2018. He asserts that this a desperate attempt on the part of Gayoom’s family to gain complete control of Maldives by undermining opposition and appointing loyalists at all independent positions. If Nasheed is arrested, it could result in violent confrontations between Gayoomists and Nasheedists. In Nasheed’s own words, “we have now shifted parliamentary majority and under these circumstances it is impossible for Yameen to govern. So if you do not open up to the elections, the other way is to arrest everyone.” He has sought asylum in India.

Advantage India

There is a broad consensus among all major political parties in Maldives that the Indian Ocean Region has to be secured by none but India. This goodwill for India was further bolstered by New Delhi’s immediate intervention after Maldives request in 1988 to thwart the attempted coup against the then President Mohamed Gayoom under the banner ‘Operation Cactus’. Also, India’s swift help in rehabilitation and reconstruction programme after the mammoth devastation of this island nation by Tsunami in 2004 is remembered by all Maldivians.

Yet the manner in which the Indian private firm GMR was thrown out of the Male Airport contract and China’s ever increasing presence in the country, where it has officially termed Maldives as an integral part of its ambitious Maritime Silk Route Project, has somewhere challenged India’s pre-eminence in this region. But the alacrity with which India rushed drinking water in planes and ships when Maldives faced a severe drinking water crisis in December last year, and with Nasheed’s recent request for asylum in India; has given India yet another opportunity to get leverage in the tiny island nation.

Gayoom’s India Visit

On 5th February 2015, Maumoon Gayoom, former President and leader of PPM, visited India to attend Delhi Sustainable Development Summit 2015. Indian Prime Minister Narendra Modi said that, “the two countries not only shared history but also shared destiny.” Gayoom conveyed that for Maldives, its ties with India were of utmost priority, not only in the region, but also in the world.

The Economic Situation

Maldives’ economy is picking up fast post global economic slump, but a report released on 11th February suggests that 50% of its total working population is expatriate, hence Maldivians need to make employment generation for fellow Maldivians a high priority. It attests the earlier taken decision to ban all expatriate shops to create more job opportunities for Maldivians. In this regard, Maldives seems to be adopting the Saudi model of Nitaqat laws, which are a part of Saudization programme.

Figuring India in this maze

Maldives sits on the sea lanes of communication in Indian Ocean. Apart from its strategic location, trends of increasing Wahabi influence in this Sunni Island where huge money is coming from Gulf raises the concerns. Islamists are small in number, but urges towards Islamist movement and increasing nuisance power of hardliner Adhaalath Party is posing a challenge to the pluralistic and tolerant Maldivian trait. There are reports of around 200 Maldivian youths fighting in Syria and Iraq for the Islamic State and many more fighting alongside Taliban in Federally Administered Tribal Area (FATA) of Pakistan. During his tenure from 2008 to 2012, Nasheed undertook number of reforms but he could not nip extremist Salafi ideologies in the bud. Hence, from Gayoom’s days itself, religious leaders started assuming an extra constitutional authority. This rising fundamentalism can any time seep into India due to its proximity with Maldives and can pose a challenge to its sovereignty.

How to Manoeuvre: The challenge for India

The pressing question is, should a regional power give a friendly nudge to shape the events when other forces inimical to its interest start cropping up in the region, or should it let the events unfold by itself? National Security Adviser Ajit Doval visited Male in December for a round of meeting with all stakeholders, and views have emerged that India needs to play a stronger hand in ensuring stability. The situation in Maldives is very fragile and is still evolving. The challenge is to ensure that none of the extremes goes too far. India does not want Nasheed to be put behind the bars or Gayoomists to go underground as it may recoil back. India already enjoys good relations with Maldives, which considers New Delhi as an all weather ally. But even good friendship requires a constant working at it. The real challenge is to reinstate stability in the system.

Published Date: 19th February 2015, Image source:
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Vivekananda International Foundation)

Wednesday, February 18, 2015

The Obama Visit: An Assessment

Amb Prabhat P Shukla, 
Distinguished Fellow, VIF

The hype over the nuclear deal has obscured the main achievement of the Obama visit: this is in the Joint Strategic Vision Statement for the Asia-Pacific and Indian Ocean Region, to give the full name of the separate document issued by the two leaders. This is not to gainsay the importance of civil nuclear cooperation, or the understandings reached on defence and economic cooperation. But when heads of state and government get together, they should, and do, talk about the larger strategic environment in which their engagement takes place – and in the current regional situation, no partnership is more important for India and its security than the American one. There is little that is new in the document, but the message is in the fact that a separate document on this issue has been issued.

The Vision document begins by declaring that a closer partnership between the two countries is indispensible for peace, prosperity and stability in the Asia-Pacific and Indian Ocean regions. Of the three, the word “stability” carries the most meaning, for it lays stress on the need for the current status quo not to be challenged or disturbed. The geographical sweep is also impressive: from Africa to East Asia, from Central Asia to South-East Asia. It also addresses the high-voltage issues of freedom of navigation and over-flights especially in the South China Sea by endorsing these principles and linking their legal basis with the UN Convention on the Law of the Sea [UNCLOS]. As is well-known, China does not accept the applicability of UNCLOS to the South China Sea, but has its own claim to the entire Sea, based on flimsy and un-provable evidence.

The document also endorses India’s interest in joining the Asia-Pacific Economic Cooperation [APEC] forum, and enjoins on both countries the development of a road map to work together with other partners to face the diplomatic, economic and security challenges facing the region. The main Joint Statement also makes a reference to the India’s ‘Act East’ policy and the US “Rebalance” and points to the synergy between the two. This is welcome, and presumably, will also cover the Trans-Pacific Partnership (TPP) that the US is driving in the Asia-Pacific region. Several of our main trade and investment partners are in it, and if India were to be left out, it would stand to lose substantially in terms of trade and investment – of the order of tens of billions of dollars. We need to take account of the fact that there is a similar free-trade agreement being worked out with the European Union, which is another important market and source of FDI for India.

The Chinese, the Turks, the Africans have all expressed their interest in being part of these new arrangements, but have been kept out so far. We, who have been invited to join TPP, are hanging back, presumably because of the high-standard labour, environment, and IPR protection requirements – this needs to be rectified, and we could at least join in as observers, the way Canada and Japan began their association. The just-released US National Security Strategy lays great emphasis on the Rebalance and the TPP, and on the growing relationship with India, as if to emphasise the positive outcomes of the visit. We need to move quickly on this, since TPP appears to be reaching its conclusion, and then we shall once again be the outsider, seeking to get in after the doors are shut.

The only issue that causes some concern is the treatment of the AfPak region. The talk and references on this are lukewarm from the stand-point of our interests, and confined to bromides about stability in Afghanistan and the need to curb terror groups. The more troubling bit is about the energy linkage between South and Central Asia. This is a high priority for America, and has been for some decades now, ever since the emergence of an independent Central Asia. The strategic purpose is to block out Russian and Chinese influence in this region. But it will necessarily involve transit through Pakistan, and that country will certainly use this leverage for its strategic purposes, and these are inimical to our interests.

Indians should not get beguiled by all the recent talk about a new approach from Pakistan after the Peshawar school terror attack of last December. There have been many such false starts in the past – the ineluctable reality is that towards India, nothing has changed. As this is being written, there are reports that we are proposing to resume the dialogue with Pakistan; the proximity of this with the visits of Secretary of State Kerry and Obama is bound to raise questions. As it is, we seem to have accepted the Pakistani contention that since we called off the talks, the onus is on us to resume them.
It would be important to be clear that Pakistan is not about to change its approach towards India, not until we take action to change the calculus in Rawalpindi of their costs and benefits of enmity towards India. And the closer we get to the US vision in the Asia-Pacific, the more concern there will be in China as well, as was in evidence in the Chinese media during the visit itself. This is the real security contingency we need to prepare for, and need to know how far we can count on our friends and partners in the Asia-Pacific in such a situation.

In general, it needs to be emphasised that the US is still the driver of the global economy, and can thus be a stimulus for the Indian economy, especially for the ‘Make in India’ campaign. If indeed manufacturing is to reach somewhere near the scale that the Chinese economy did with such success, India will need not just its domestic market, but will also need the huge market that the US represents. This was the underpinning of the Chinese economic success: even today, but for the US, China would have a deficit in its balance of trade with the rest of the world, and its positive trade balance is the real driver of its economy. Therein lies the true importance of the US as an economic partner. In a welcome decision, we have agreed to raise the Strategic Dialogue to a Strategic and Commercial Dialogue.

There are three issues that needed to be raised with the US side regarding the current problems faced by Indian companies. The first is the issue of IT-enabled services, where Obama has been active in discouraging out-sourcing. The second relates to the problems faced by our Pharmaceutical companies, especially in the area of generics. This is something that is truly a win-win, because it would help in reducing the costs of Obamacare. And yet, there appears to have been no real solution to this issue. The third is the question of revising the quotas and voting rights in the IMF and the World Bank. The US Congress is holding up ratification of the changes, so it is to be hoped that there was some understanding reached on this. Of course, the US Congress is now in Republican control, so we need to work with the leadership of the two Houses directly as well.

Defence is also a sector of growing importance for bilateral ties and for strategic purposes. The US has emerged as the largest supplier of hardware in the last few years, and this trend is likely to stabilise. A few, admittedly minor, new “pathfinder” joint projects have been picked out to get the pump primed for joint production, and will lay the foundation for deeper collaboration in the future. In 2013, the two countries agreed to give each other the same treatment for defence cooperation purposes, as we give to our closest partners; it is time to implement this, and move on to more substantial work beyond the pathfinders.

It is reported that the US has also revived its interest in the operational agreements like CISMOA, which had gone into deep freeze over the past few years. And, of course, there is the issue of military-to-military links, including the posting of an officer of the Indian Armed Forces at the US Central Command HQ. It is time to resolve all these and move on to the next higher level of defence cooperation that the two countries need to achieve in their own respective interests. There is absolutely no threat to our cherished nonalignment or strategic autonomy in any of this.

Now for a brief discussion on the nuclear package. By way of background, it would be important to bear in mind that other industries do not get the kind of protection against liability that the nuclear industry demands and gets. BP, for example, for an oil spill in the Gulf of Mexico, has already been charged $ 8 billion, and is facing procedures for an additional $ 13 billion. The banks that were instrumental in the financial crash of 2008 have already paid a collective amount exceeding $30 billion, and further investigations by the US Justice Department are on-going. And the reason for this is obvious: the nuclear industry itself recognises that the damage it can cause in the event of an accident is much greater.

In the Fukushima accident, the estimate of total damage caused is assessed by Japanese scientists at around $80 billion in total, of which only a part will be civil liability. It may be of interest to look at what happened in practice in Japan. The liability paid out in the case of Fukushima has already crossed $14 billion, but TEPCO, the operator, was nationalised soon after the accident, and so the Government of Japan has taken over the liability for this entire amount. But there has been no exercise of the right of recourse.

As to the specifics of the India-US case, the Government’s side of the argument has gone by default; it would be worthwhile to put out some of the key facts about this. First, under all international laws, liability is unlimited. The Paris Convention of 1960 did have an upper limit, but this has also been removed by the 2004 Protocol, though this has not yet entered into force. In the same way, there is unlimited liability under domestic German, Swiss, and Japanese legislation. As a matter of fact, it is the Indian law, the Civil Liability for Nuclear Damage Act [CLNDA], 2010, that is most categorical in seeking to put a ceiling on the liability of the operator, at Rs 1500 crores. This is distinct from the total liability for an accident, which is notionally capped, but the Government retains the right to raise it by simple notification.

Second, and most important, although the liability rests with the operator, the international law on the subject, the Supplementary Convention on Compensation – and this too has not yet entered into force - itself allows for the right of recourse. Therefore, the Indian law, the Civil Liability for Nuclear Damage Act of 2010, does not violate the international Convention. However, the Rules on civil liability, issued by the Department of Atomic Energy in 2011, which have the force of law, since they were not amended or rejected by Parliament, do cap the liability of the supplier. This cap is the value of the contract, or the liability of the operator, whichever is lower. The supplier thus does have enough by way of safeguards.

Thirdly, the domestic courts in the country [or EEZ] where the incident occurs have exclusive jurisdiction – this is both in accordance with the international law and the domestic law. Executive action – as is being mentioned in the media - by the Government of India will not be able to offer protection to suppliers in foreign countries if such action represents any derogation from the domestic law. At the very least, such action will be open to challenge in the courts of India, and will likely be struck down if challenged.

What the American companies were seeking was exemption from both the right of recourse, and from the right of victims to seek compensation from the suppliers under laws other than the domestic law covering nuclear damage. This is provided for under CLNDA Article 46, but here too, the text speaks of liability only on the operator. Nonetheless, GOI have issued a clarification that rules out any suit against a supplier by victims. This is as far as the Government can go, without actually changing the text of the legislation. For their part, the American side have stated that this is a risk assessment that the companies concerned have to make for themselves.

It needs also to be noted that these companies are American only in the sense that their Head Offices are in the US. In terms of ownership, Westinghouse Electric Company nuclear operations are 90% Japanese-owned [Toshiba] and the balance is owned by the Kazakhs. General Electric is actually part-owned by Hitachi, with a 40% stake in the US-registered company, and a 60% holding in the Japan-based company.

There was one other issue that needed to be settled, and this was done before the actual visit, by the Contact Group. This concerned the tracking of all nuclear fuel that went into any US nuclear reactor, regardless of its provenance. The fact is that, under the 123 Agreement, we have agreed both to the perpetuity clause and to provide the full inventory of material under the Agreement to the US. The grey area is whether third-country supplies come under the Agreement – it is arguable that material being used in a US-supplied facility does fall under the Agreement. There are, of course, other issues that ought to be raised under the 123 Agreement – the building up of a strategic reserve of nuclear fuel, as well as enrichment and reprocessing facilities. These appear to have been lost sight of, or, at any rate, been put off for now.

All of the above ignores the most fundamental issue of commercial viability. The US figure, as at present projected, is Rs 12 per unit, and this will clearly not be viable. Both sides have wisely focused on the need for commercially viable electricity generation, but we are far removed from this at the moment.

One last point on the visit needs to be addressed briefly: this is the “admonition” by President Obama supposedly to the Indian authorities over religious tolerance. After the play this issue received in the Indian media, an official of the US National Security Council told the Indian press that there was no such intent behind Obama’s remarks. Promptly, the next day, Obama gave the lie to this assertion, and informed us that Gandhi would be shocked at what was happening in India. Never mind that Obama himself touted his Christian beliefs, both in Delhi and at the Prayer Breakfast; never mind that India has a better record of empowering minorities than any other country in the world; here is something for Obama and his drum-beaters to study and reflect upon, in the words of the Mahatma himself:
"(If) instead of confining themselves purely to humanitarian work such as education, medical services to the poor and the like, they would use these activities of theirs for the purpose of proselytizing, I would certainly like to withdraw. Every nation considers its own faith to be as good as that of any other. Certainly, the great faiths held by the people of India are adequate for her people. India stands in no need of conversion from one faith to another.”
Wise words, indeed, spoken in April 1931. We would all do well to remember them today.

Published Date: 18th February 2015, Image source:
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Vivekananda International Foundation)

Monday, February 16, 2015

The Ukraine Crisis and The Challenges Ahead

Dr Harinder Sekhon, 
Senior Fellow, VIF

A ceasefire deal to end the fighting in Eastern Ukraine was reached in Minsk after a marathon session of negotiations running into almost seventeen hours amongst the leaders of Russia, Ukraine, Germany and France. This seeks to end a year of bitter fighting that has seen many thousands killed and millions uprooted from their homes. The main points of the peace agreement are:
  • Ceasefire to begin at 00.00am local time on 15 February
  • Heavy weapons to be withdrawn in a two week period starting from 17 February
  • Amnesty for prisoners involved in fighting
  • Withdrawal of all foreign militias from Ukrainian territory and the disarmament of all illegal groups
  • Lifting of restrictions in rebel areas of Ukraine
  • Decentralisation for rebel regions by the end of 2015
  • Ukrainian control of the border with Russia by the end of 20151
This is still a tenuous agreement as the more hardcore element among the rebels is not satisfied with the deal but was forced to agree to the truce due to pressure from Russian President Vladmir Putin, who was the first to announce the breakthrough in negotiations. Putin too took his time to accept the negotiated settlement and at one stage it seemed that the talks would flounder due to certain conditions put by Russia that the Ukrainian President Poroshenko found unacceptable – apparently over the control of the crucial city of Debaltseve, important due to its strategic network of roads and rail links, and whose control seems to have become a matter of prestige for both the Ukrainian forces and the separatists who consider Debaltsve an integral part of its territory. When the ceasefire was announced, Ukrainian forces were holding out against heavy odds - surrounded by Russia backed rebels from three sides and their supply route from Artemivsk under imminent danger of coming under rebel fire. After the ceasefire was announced, the rebels launched an offensive by shelling the town of Artemivsk in an attempt to gain control of Debaltsve before the ceasefire came into effect, thereby raising an alarm whether the ceasefire would hold at all. The West has stepped up its diplomatic pressure on Russia in a bid to ensure some semblance of calm to eastern Ukraine.

The deal in Minsk follows hectic parleys by the German Chancellor Angela Merkel and the French President François Hollande. It also took US President Obama’s personal intervention a day before the scheduled talks to get Putin to assume a more reasonable posture at the talks. In a phone call to the Russian President, Obama emphasised "the importance of ... seizing the opportunity presented by the ongoing discussions between Russia, France, Germany and Ukraine to reach a peaceful resolution" to the violence in Eastern Ukraine.2

This seemed to be a last ditch effort by the European leaders to bring peace to Ukraine. The Ukraine Crisis that dominated the proceedings of the 51st Munich Security Conference last week saw a widening gulf between the US and the EU over what needed to be done to control the fast deteriorating situation. While the Americans were harsh in their criticism of Russia and explored the possibility of bolstering Ukrainian effort to fight off Russia backed rebels by supplying lethal weapons to Ukraine, the EU pushed for a diplomatic effort to control the crisis. The EU seemed determined to ensure that no further military escalation takes place on European soil and push Europe further towards a “New Cold War.” Economically too, sanctions against Russia have hit the EU and have had no effect on the US.

At the Munich Security Conference, the Russian Foreign Minister, Lavrov, was strident in his criticism of the USA and said, “Through every step, as the crisis has developed, our American colleagues and the EU under their influence have tried to escalate the situation.”3 According to a Facebook statement by the Russian Foreign Ministry, Lavrov also warned US Secretary of State, John Kerry that any US plans to supply Ukraine with military equipment would have “unpredictable consequences”, including “disrupting the efforts to resolve the crisis in southeastern Ukraine.”4

A day before the Munich Conference, the German and French leaders made a dash to Moscow for a closed-door meeting with Putin. It is this meeting that seems to have broken the impasse and resulted in a positive outcome at Minsk whereby some of the stringent economic sanctions against Russia would be eased if the latter agreed in principle to the September 2014 Minsk agreement that called for Russia ceasing direct military support to the rebels. That the issue of Russia’s seizure of Crimea would not be brought up was the other concession the West has given to Russia.

All the stakeholders would need to display tremendous tolerance in ensuring that this tentative peace holds and leads to a permanent political settlement. According to Putin, “The first thing is constitutional reform that should take into consideration the legitimate rights of people who live in Donbass. There are also border issues. Finally there are a whole range of economic and humanitarian issues.”5 While the deal has covered all contentious issues like border control, decentralization and the resumption of economic relations, it is a fragile agreement and the slightest provocation by any of the players could scuttle this initiative. The next part of the Minsk plan that seeks to ensure Ukraine’s existence as an independent and economically stable country would need sustained European attention and adequate funds. As a start, the IMF has announced a $17.5 billion rescue and rehabilitation package for Ukraine to be spread over the next four years. But the EU would need to bolster this initial effort through its own funding sources as well.

Politically too, Ukrainian President Poroshenko has to show sagacity by adopting an inclusive policy to overcome the divisions that have come to the fore within Ukraine. According to Angus Roxburgh of the Guardian, “It would be a disaster if the current situation—self-declared 'people’s republics' based around the cities of Donetsk and Luhansk—were allowed to ossify into a 'frozen conflict,' establishing de facto a separate rebel-run state and partitioning Ukraine, perhaps for ever."6 Poroshenko has a difficult task of ensuring that Ukraine does not become a pawn of big power rivalry between the US and Russia and would have to show great political sagacity as he walks a difficult tightrope to ensure the survival of his country.

"Though the deal doesn't grant Putin his ultimate wish—to keep Ukraine within Russia's orbit economically and politically—he couldn't have hoped for that without a decisive military victory. The optics are good for him domestically, though, and Putin can hope to cut the costs of war, including those imposed by the Western economic sanctions," writes Leonid Bershidsky at Bloomberg View.7 While Putin may have not got what he wanted, he has achieved three things through the Ukrainian offensive – (1) a stranglehold on Ukraine, (2) successfully demonstrated to the West that he will not accept any strategic encirclement of Russia, and, (3) he has been able to create dissension among the Europeans and between Europe and the United States.

Having achieved his objective, Putin should adopt a conciliatory posture and end the war in the Donbass so that the West can focus on the economic re building of Ukraine that would be beneficial to Russia’s own economic well being as well. Escalating tensions will not help anyone and the United States and Europe must reciprocate by promoting a Ukraine strategy that is “part of a larger Russia strategy whose goal has to be a strong and friendly Russia."8

While the crisis in Ukraine is largely a European problem, in an increasingly globalised world, there can be grave consequences for all and more so for an emerging player like India that has close historical ties with Russia and now an emerging partnership with the United States. Any military standoff between the two adversaries of the Cold war era has the potential to polarize the world once again on the same lines as the Cold war period. Another spin off has been the hasty signing of a 400 billion dollar Russia-China gas deal that had not seen fruition for over a decade. India needs to be watchful of any China-Russia rapprochement as it could be an impediment for India. This has been the first major face-off between the two traditional adversaries since the Soviet invasion of Afghanistan in 1979 and as India draws strategically and economically closer to the United States, it could face increased demands from both Russia and the United States to make hard choices.

India has so far maintained a nuanced stance on the Ukraine crisis and in a statement issued on March 6, 2014, soon after hostilities broke out, it was stated “India hopes that a solution to Ukraine’s internal differences is found in a manner that meets the aspirations of all sections of Ukraine’s population. It would be important, in this context, for a legitimate democratic process to find full expression through free and fair elections that provide for an inclusive society. India calls for sincere and sustained diplomatic efforts to ensure that issues between Ukraine and its neighboring countries are resolved through constructive dialogue.”9

However, later the same day, an informal interaction between India’s former National Security Advisor and the media was blown out of proportion. While the former NSA was careful in his choice of words and said, “We hope that whatever internal issues there are within Ukraine are settled peacefully and that the broader issues of reconciling the various interests involved, and there are after all legitimate Russian and other interests involved, are discussed and negotiated,” 10 the West picked up only “legitimate Russian interests” and not the rest of his statement where he talked of “reconciling the various interests,” thereby drawing criticism in the West and praise from Putin.

Though India has strong views on the territorial integrity of nations and may be uneasy about the annexation of Crimea despite its civilizational linkages with Russia, India could explore the viability of using its good relations with both Russia and the US to make a positive contribution in diffusing the crisis. Russia will not revoke the annexation of Crimea and neither can one entirely absolve the West of anti-Russia activities on its periphery. But the need is to end the game of one-upmanship, prevent the international isolation of Russia which will push it closer to China, and for all stakeholders to work sincerely towards the establishment of an economically and politically stable Ukraine.

  2. Ibid
  4. Ibid.
  9. Ranjit Gupta, Russia and the Ukraine Crisis: an Indian Perspective, available at
  10. Varun Sahni, Indian perspective on the Ukrainian crisis and Russia’s annexation of Crimea, available at

Published Date: 16th February 2015, Image source: