India’s Development Agenda and China

The present Indian government led by Prime Minister Narendra Modi enjoys a mandate that was secured largely for the promises made to advance the so-called 'development agenda.' In the flush of an impressive victory in the 2014 elections, addressing his first public rally on May 17 in Ahmedabad, Modi said: “In this election the majority has voted for the development agenda. …This election has laid the foundation for a modern India.”

Modi went on to say, “Development is not a government programme. It has to be the public agenda.” It was a combative speech. Modi knew he was entirely at liberty to set the yardstick of ‘good governance’ for his government. No one disputed him.

To be sure, Modi assiduously cultivated a reputation for himself in India and abroad as a ‘business-friendly’ political leader. India likes to hear comparisons being drawn with China wherever it can, and it must have come naturally to Time magazine when it wrote on a cover story lauding Modi as a “firm, no-nonsense leader who will set the nation on a course of development that might finally put it on par with China.” 

Indeed, high hopes were raised all around that Modi as Prime Minister would turn around India’s relationship with China and reset it on a new course orientated toward economic partnership. The American think tank Carnegie Center for International Peace assessed the emergent paradigm of Sino-Indian partnership as follows:

“When it comes to dealing with big powers, geoeconomics...will likely guide Modi’s foreign policy…. For instance, geo-economics will play a central part in driving Sino-Indian relations. Modi is well aware that China needs the big Indian market, while India desperately seeks large Chinese investments to build transit and other infrastructure critical to its economic revival. Acrimony over borders and geopolitical rivalry in the region notwithstanding, trade will be the centrepiece of India’s policy toward China.... In all likelihood, Modi will highlight issues relating to trade, investment, infrastructure, and the other economic and development inputs necessary to revive economic growth. In short, his government’s priority is to bridge the gap between the country’s development goals and its foreign policy.”

GALVANISING JOB CREATION

Without doubt, a reset of India-China ties riveted on“geo-economics” makes great sense. For one to fully grasp it, an understanding of what constitutes the ‘development agenda’ in the Indian context and how China comes into it becomes necessary. India is a vast country full of paradoxes. One of them is that it can be proud of achievements in the economic sphere comparable to Western standards, but on the other side it is also characterised by extreme poverty affecting nearly one-third of its population.

Where China fires up India’s imagination is by its incredible record of pulling up 200-300 million people above the poverty level within a generation or two, which is unprecedented in human history. Certainly, analogies do not hold between any two ancient countries such as India and China, since so many variables are at work–cultural ethos, political system, social formation, external environment, and so on. Nonetheless, China’s experience and development trajectory attract the Indians. We Indians would like to cherry pick from China’s experience. 

The Chinese experience is real and, therefore, relevant. For a political economy like India, it is unacceptable that after nearly seven decades of Independence, the backlog of poverty weighs it down like an albatross. India too needs to create jobs in their millions for its youths. Employment generation on such a massive scale is only possible if India emulates China’s example and creates a manufacturing industry. 

Viewed from such a perspective, manufacturing industry and the infrastructure development that goes with it are the principal locomotives of India’s development agenda. Both can create jobs in large numbers, and at the same time provide a big stimulus for the overall revival and growth of the economy.

Amidst the mayhem in the world economy today, India may seem a rare exception with a projected growth rate of 7.3 percent during the 2015-2016 financial year (FY). The government draws satisfaction–and the International Monetary Fund probably endorses it–that India is today one of the fastest-growing big economies in the world.

On the other hand, on a closer look, a different picture emerges. For one, there has been a controversial revision of the methodology of computing the national income figures, which gives the economy a larger-than life look. There has been much criticism within India and abroad that the actual growth of the economy may only be somewhere around five percent.

Secondly, the fall in the price of oil has come as a windfall. India’s oil imports as a percentage of GDP have come down from nine percent in the 2011-2012 FY to five percent currently. Obviously, this is a significant factor contributing to growth. But then, it is a transient factor. Big oil producing countries such as Saudi Arabia, Russia, Venezuela, and Iran are seized of the need to keep production at levels that assure higher market price.

Equally, it becomes evident that the sector-wise performance of the Indian economy also doesn’t convey such a rosy picture. Poor monsoons for two consecutive years have taken a heavy toll on agricultural production and, in turn, on rural demand. If the performance of the manufacturing sector has been rather unimpressive, the year-on-year growth of exports will have been negative. Suffice it to say, the economy is virtually surfing on high growth of the service sector and the fall in oil price.

Even while assuming a GDP growth figure of 7.3 percent to be accurate, when translated into employment generation, a very dismal picture emerges. In the prevailing circumstances, it is only through massive investments in irrigation, power, and rural and urban infrastructure that large-scale job creation becomes possible. This is where economic partnership with China can play a very useful role in India’s development. China’s rich developmental experience, its investible surplus of capital and its deep expertise in infrastructure development and manufacturing industry are of great relevance.

REBALANCING WORLD POLITICS

The Modi government began brilliantly by injecting new dynamism in India’s diplomacy towards China. Indeed, China was not a strange country for Modi. As the chief minister of Gujarat, he had visited China more than once and from all accounts, he was visibly impressed by what he saw. He was reportedly enthusiastic about Chinese companies setting up business in Gujarat.

However, looking back over the 22-month period of the Modi government, to cut a long story short, the high expectations about India-China economic relations–trade and investment, in particular–getting a makeover have not been fulfilled. There was much hype about India welcoming large-scale Chinese investments in setting up industrial parks, modernization of railways, highways, ports, power generation, distribution and transmission, automobiles, manufacturing, food processing and textile industries and so on. But such animated talk is no longer heard.

In fact, Sino-Indian economic ties are languishing. The paradox is two-fold here. One, Chinese investment still holds a major attraction for India to develop its infrastructure and build a manufacturing sector leading to large-scale job creation, and the West cannot substitute for China here. Two, China itself has been manifestly eager to advance economic relations with India, which, incidentally, stands in sharp contrast with the reluctance of U.S. businesses to invest in India. China’s trade and investment in the South Asian region is on a pronounced upward curve, too. However, Sino-Indian trade has shrunk, and there is no big Chinese investment plan on the anvil–except, perhaps, in the IT industry. So, where is the problem?

In a nutshell, it appears that old phobias regarding any deep engagement with China have resurfaced in India. Whereas trade and economic ties would have been a stabilizing factor in the overall Sino-Indian relationship, in practice it remains a road not taken.

The Indian thinking with regard to relations with China misses the ‘big picture.’ Simply put, economics is lagging behind politics (and geopolitics), notwithstanding the claims by Modi during the election campaign in 2014 that economic diplomacy would be the primary driver of India’s foreign policies in a government under his leadership.

The heart of the matter is that the ‘cooperation-cum-competition’ syndrome vis-a-vis China is far too deeply embedded in the Indian mindset. There is an acute sense of rivalry felt by a large segment of informed Indian opinion. They are unable or are reluctant to absorb the import of the internationalization of the RMB. The point is, China has re-emerged, historically speaking, as a semiautonomous core of the world economy. China is today, arguably, the principal driver of East-West and North-South rebalancing that is taking place in world politics.

With its economic growth trajectory, in spite of the recent slowing down, China has become the core of South-South trade and investment linkage, replacing the U.S. and Japan from their traditional pivotal status. This makes China a crucial global actor in the decades to come. Suffice it to say, in the ongoing, gradual reordering of world politics, which challenges the authority of traditional rule makers (whose ability to set the global agenda and shape the global environment is waning), India has a lot of convergence with China by way of common interests and shared concerns. 

The erosion of Euro-Atlantic authority, the growing irrelevance of the G7, the inability of the North Atlantic Treaty Organization (NATO)in setting policy agenda serving the West’s preferences or choices, the failure of the United States to prevent even its closest partners and allies from joining the Asian Infrastructure Investment Bank (AIIB)–don’t these signposts point in the same direction?

The Indian thinking or mindset towards China is somehow fixated on a scenario of China inexorably dominating as the apex of a new global authority. Whereas, the unmistakeable trend of development in the political and economic order is towards a diffusion of power. It is, therefore, in India’s interests to work with China so as to nudge the global rebalancing in the direction of greater equality and political voice.

A final point concerns the India-U.S. relationship to the extent it would impact India’s normalization process with China. A significant segment of opinion in India has failed to grasp that the U.S. and China are deeply interdependent. They would prefer to believe that the two countries are locked in a rivalry that has every potential to become confrontational.

On the contrary, China is a main creditor of the U.S., while America is China’s principal market for exports. Put differently, India needs to factor in that China’s reemergence is part of a historic transition. What the U.S. can hope to achieve realistically will be to manage the competition with China from a position of strength, while avoiding confrontation and taking care not to give the impression of making covert attempts to contain China.

The challenge facing Indian diplomacy will be to engage closely with the U.S., while independently reaching out to China. India’s problem with China ultimately narrows down to the border dispute, which will take time to resolve. But, in the meantime, the two countries are manifestly anxious to keep peace and tranquility on the border. At any rate, the U.S. cannot be expected to take a stance supportive of India in the border dispute; nor is India expecting or in need of any such American role.

Thus, taking a holistic view, it makes eminent sense to pursue the “Modi path” of giving primacy to geo-economics in India’s relations with China. India has the requisite intellectual resources to comprehend the profundity of China’s rise for contemporary history and politics of Asia and the world. And Modi has the personal awareness that a mutually beneficial India-China relationship is possible-and is highly desirable for India’s developmental needs.

The Modi government has run through 25 months of its 60-month mandate. It is important to make up for lost time, as all is not lost. A purposeful reorientation of India’s economic diplomacy vis-a-vis China is an urgent necessity.

The author is K. Bhadrakumar, a career diplomat belonging to the Indian Foreign Service, retired as ambassador to Turkey. His previous assignments included the former Soviet Union (twice), South Korea, Sri Lanka, Germany, Pakistan and Uzbekistan. He served the Pakistan-Iran-Afghanistan Division in the Foreign

Ministry at various levels, including as its head. Since retirement, he has been writing for Indian and foreign publications on India’s foreign policy and regional and international politics.