It was a lesser expected topic. Nonetheless it found a way into the Indian Finance Minister’s speech.
When Nirmala Sitharaman presented the Budget 2019-20 last month – the first after Narendra Modi’s government was sworn in for a second successive term in May – she proposed a revamp of the Indian Development Assistance Scheme (IDEAS).
“Mindful of our position as the sixth largest economy, we will look at alternative development models which include private sector equity, multilateral financing, contributions from corporates, non-residents etc. I propose to revamp IDEAS during the current financial year,” Sitharaman read out during the course of her budget presentation.
For the uninitiated the preliminary objective of IDEAS is to provide concessional financing – or Lines of Credit (LoCs) – for projects and contribute to infrastructure development and capacity building in developing countries, the focus areas being those in Africa, Asia, the Middle East and Latin America.
However, as an ulterior motive IDEAS also strives to promote India’s economic and political (read strategic) interests abroad by positioning the country as an emerging economic power, an investor country and a reliable partner for developing countries.
It is imperative here to mention that IDEAS itself is a revamped version of the Indian Development Initiative (IDI), formulated by the Atal Bihari Vajpayee government in 2003-04 with the objective of sharing India’s development experience to developing partner countries through capacity building, skills transfer, trade and infrastructure development.
In fact in its first term (2014-19) the Narendra Modi government had not only okayed an extension to the scheme but also put its seal of approval on updating IDEAS and making a new set of guidelines to streamline LoCs offered to different countries. The amendment – in its current form is applicable till 2020 – was mooted to make Indian funding attractive, considering several countries had been raising the issue finance-related delays as well as their concerns about the timely completion of projects with India in meetings on the sidelines of multilateral events.
On the surface the initiative does aim to ensure socio-economic benefits in the partner country, and thereby bolster India’s overall relations with it. However, beneath the superficiality the idea was apparent, to counter the rising number of China-funded projects in the developing world.
Despite being neighbors China and India don’t exactly share an enviable history when it comes to bilateral ties. Blame it on similar ambitions. The two countries, that account for about 36 per cent of the world population – excluding expats, both strive to play more pronounced roles in regional and global politics and are desperate to make the mark in more ways than one.
Their demographic dividend, while putting them at an advantageous position when it comes down to a continued supply of manpower, also has a flip side. It makes them regularly seek pastures anew, in order to fulfill an ever-growing demand for resources. Besides, there is another common factor between the two neighbors. Both are reactive when it comes to technological advancements.
However, while China is proactive when it comes to reacting immediately to any such development and making bulk investments, the habitually risk-averse Indians play it further safe and invest only when they are absolutely sure they won’t lose big, if they stand to lose at all that is. It is this parsimonious attribute, and reluctance to take risks, that has made India a follower nation, and not a trendsetter. No points for guessing Indians are more concerned about the developments in China.
It is given that the Indian government, and its people, views anything and everything pertaining to China with utmost seriousness and concern. But does China view India in a similar vein?
Well, not exactly.
“China doesn’t take any country, except for the United States seriously, and that includes India,” China expert John Garnaut told this writer during the course of an interaction.
“In fact, it is amazing as to how so little attention is paid in China towards India.”
As things stand China is ahead of India in every which way, including demographics. It’s continued rise, both in economic terms and otherwise, has put many countries on alert. Its ambitious Belt and Road Initiative (BRI) – earlier labeled the One Belt One Road (OBOR), connects 60-plus countries and covers around 40% of world’s GDP.
Through the BRI the Chinese companies execute infrastructure projects in the connected countries while the initiative also aims to improve trade among these countries. BRI not only underlines China’s rising global status but also gives it a geopolitical advantage.
Palpably, the authorities in India are skeptical about this increasing Chinese influence. Multiple theories have been mooted and discussed to explain this growing apprehension.
Indian political strategists have previously emphasized on the ‘String of Pearls’ theory – a network of Chinese military and commercial facilities along the Indian Ocean aimed at reducing India’s influence – and the resultant belief that China is trying to encircle India by having strategic centers in Pakistan, Bangladesh, Sri Lanka, Maldives and a few other countries. The Chinese funded naval outposts like Hambantota in Sri Lanka and Gwadar in Pakistan are cited as examples of this somewhat flawed theory that Garnaut describes as “more of a fantasy than a perceivable reality”.
Likewise authorities in India have concerns over the China-Pakistan Economic Corridor (CPEC), a flagship project under the BRI, as it passes through the Pakistan occupied part of Kashmir, thereby undermining India’s sovereignty.
It doesn’t come across as a surprise therefore, to know that India is yet to become a party to the BRI, despite the best of Chinese assurances/efforts. One can’t find fault with the fact that China, like other major countries, views India as a huge market and wants to take advantage of that.
However, the Indian authorities are skeptical over the eventual control the Chinese will exert if India does become a part of the BRI.
India’s hesitation albeit has not stopped it from becoming a member of both the Asian Infrastructure Investment Bank (AIIB) – as its second largest shareholder after China, and the New Development Bank (NDB), these banks deemed as a potential source of long term infrastructure finance for the world’s seventh largest country. It is imperative here to mention that both these new financial institutions are linked to the BRI, and are crucial entities as such.
That said, the Indian stance on the BRI has remained intact. Not only India has had strong reservations on the funding pattern but also on the objectives of the plan. So much so that having boycotted the inaugural Belt and Road Forum (BRF), held in 2017, India also preferred to opt out of the second edition of the summit, held this April, clearly indicating a no change of stance over the course of the two years.
It is not that India’s doubts that China may take control of the adjoining nations through its investments, and that it will consequently impact India’s trade relations with these countries, is completely unfounded. That a Chinese company took over control of the Hambantota port, on a 99-year lease, after Sri Lanka was unable to meet its debt commitments is an apt example of how recipients of Chinese investments are eventually drawn into a debt trap.
Having said that, such apprehensions also ensure knee-jerk reactions from India, with the country following the Chinese lead in this aspect. And it is not exactly a smart thing to do.
To cite an example not long after the Chinese takeover of the Hambantota port (on lease), there were reports that India has agreed to form a joint venture with Sri Lanka to operate the country’s loss-making Mattala Rajapaksa International Airport. That white elephant project in Hambantota has been dubbed the “world’s emptiest airport” due to a complete lack of flights. Why would a developing country invest in such a project?
There were similar insecurities behind the Indian investment in Chabahar port in Iran. On the surface it seems a means to safeguard India’s economic and geopolitical interests. However, considering Chabahar is just 70 km from Gwadar it can also be seen as a panic reaction to the extensive Chinese funding in Pakistan. Now, following mounting pressure from the United States, India has been forced to drastically slash the budget allocated for the development of Chabahar.
In the same vein the proposed revamp of IDEAS can also be construed as an attempt to have something similar to match up to BRI, for countering it entirely is not practically possible. It can be argued that India has had a history of investments in infrastructural projects in Asia and Africa, that LoCs have benefitted many of these countries. However, it is also a fact that the Chinese presence in these countries in huge enough to instill in India a sense of insecurity and look for countermeasures.
Both the countries have high ambitions to make a significant impact at the global stage, and get the international recognition they believe they deserve. It is a clear case of conflict of interests.
However, while China has taken a clear lead, there’s a long way to go for India. Before bolstering its global status, it has to first match China’s regional influence. And that in itself is a tough task.
IDEAS, with its concessional financing, has thus far formed an important component of India’s diplomatic strategy and has been successful in generating goodwill and building long term partnerships with the various developing countries in Asia, Africa and even Latin America. The proposed revamp will perhaps be a step in the right direction.
*Bikash Mohapatra is an India-based consultant and writer who has made contributions to eminent global publications like the Guardian Network, The Diplomat, Asia Times, The Times of India, The Ascent and Stuff Limited [Fairfax Media] among others.