C3S Paper No. 0072/2016
The following is a dialogue conducted by C3S members and research officers from May 24- May 25 2016. The theme revolved around the article Why is OBOR Not at All a Good Idea for India?; By Commodore R. S. Vasan IN (Retd.), Director, C3S (vide https://www.c3sindia.org/economyandtrade/5620).
Shri B.S. Raghavan IAS (Retd), Former Policy Advisor to UN (FAO), Chief Secretary, State Governments of West Bengal and Tripura, Secretary to the Ministry of Food and Agriculture, Government of India.
As usual, and as expected, written with impressive clarity of expression and cogent and convincing arguments. It makes out an unrebuttable case for a wait-and-watch attitude by India, while emphasising that it should continue forging with vigour its own strategic geopolitical framework for external connectivity and international cooperation. The Chabahar agreement, TTTC and decisions taken at the Mumbai Maritime Summit are good examples. We need not feel diffident about our own capabilities to reach out and strike out as (in Commodore Vasan’s words), “India has a lot more geographical advantage in terms of its reach and access in comparison with China.”
Former Joint Secretary (Retd.) Ministry of Finance, Government of India.
China has been extending or enlarging its influence in all neighbourly directions in East, South, West and Central Asia. Over the past two decades it has stepped its investments and trade substantially (rather phenomenally) and, it seems, China has become the centre of these economies. China is gathering the threads and wrapping them under one grand plan named OBOR/MSR. China’s expansion in all these countries/areas seems unstoppable.
At the same time, whether by design or otherwise, India has been excluded. Our share in trade/investment in most of these areas is low and in some, especially in Central Asia, is abysmally low. Due to our own domestic (political) problems or lack of financial/fiscal muscle, we have not been able to invest to any degree in the areas. Much of the assistance we give is in the form of EXIM credit which helps Indian exporter more than those at the other end. We started rather late with our “Look East” policy and our record, sadly, is well below our capability and expectations. We have renamed it as “Act East” and there is not much evidence of progress in terms of taking or completing connectivity projects in North East linking South Asia through Myanmar. Even the road project is limping due to political difference with local governments.
As one assesses the ground reality, we are watching all these developments from the sidelines. Our MEA seems to take the stand that we can react only if we are invited. Yes, truly so. But why would anybody invite us unless we can contribute to a good measure? One is saying this with a sense of anguish. We seem to lack the grit and determination to be table to take up projects and complete them on schedule. Our projects in Afghanistan, Bhutan, and Sri Lanka will bear one out. In comparison, China seems to be performing extraordinarily well as could be seen from their record within China and in Central Asia, etc.
One way we could have met the move of China is to form an alliance with like-minded countries. We don’t seem to have many in Asia, except Japan. Due to our own historical or ideological background, we frown upon any close alliance with the U.S. Even the so called “Asian tilt” of the U.S, the emphasis is more on the military or strategic side and not economic. Its attempt to promote TPP is a damp squib which has no bipartisan approval even within the U.S. Its primary aim is to displace the WTO with a new formation which will favour multinational corporations, drug companies and their patent rights. By no stretch of imagination can India become a member of TPP.
These are grim realities. Unknowingly we seem to remain isolated and lack a strategy to counter China’s OBOR or MSR. The projects which Cmde. Vasan has detailed like Mausum or Maritime links are in a nascent state. If they are completed with political will among participants, they may touch a fringe of China’s reach and not run deeper. They require lot more planning and provisioning of finance and implementation.
Mr. T.V. Krishnamurthy
Management Professional, Chennai.
In response to Mr. K. Subramanian: This is a clear realty check. But like in business and military, strategies may not call for direct responses to situations. The best way to go forward for India is to ignore China, because it is impossible to compete with them, in OBOR or in the depth and scale of their economic involvement with many concerned countries in Asia.
India should plan independently, like the recent agreement with Iran and improve capabilities in meeting deadlines. The one major worry we simply cannot ignore is the economic feasibility of Chabahar project. Firstly our ability in preventing project cost over runs and secondly the operating expenses. Both will run in to some billions of U.S dollars, one is sure. At the end of the day if China’s OBOR becomes a game changer in costs for end users, that is the various countries using OBOR and bestows greater benefits to recipient countries, again in terms of costs and other efficiencies in the supply chain management, then Chabahar will become a major financial challenge.
One thinks that some U.S think tanks will start working on project comparisons sometime soon, once more details on Chabahar emerged.
Mr. M. R. Sivaraman IAS (Retd.),
Former Revenue Secretary, Ministry of Finance
Government of India.
My views on the subject:
For every theory or positive step there can be many negatives through a process of dialectic reasoning. That is what emerges in the quote by Shri B. S. Raghavan in Cmde. Vasan’s paper. (“Even taking OBOR at face value, an inchoate admixture of so many countries, economies, political systems and cultures seems to me to be foredoomed to running aground. By joining it, India is likely to find itself in a bewildering medley of unequal and incompatible partners, distracting it from single-minded attention to its own country-specific development goals. Both Arthashastra and Panchatantra warn against joining alliances which are being sponsored by those whose motives and agenda are not clear and members of which are apt to pull in different directions.”)
There are many highways crisscrossing Europe in which many of us have travelled. Has it not led to easy transport of both goods and people? These extend to all countries in EE countries and also to Russia. And all these countries have committed atrocities against millions of their people in the scores of wars they engaged in over the last few centuries.
We can benevolently consider the OBOR as only an extension of the concept of the European Freeways.
Building of any such highway will definitely have more economic benefits than negative ones.
India is already a founding member of the Chinese sponsored Asian Infrastructure Investment Bank .We occupy high offices there. Why did we join it enthusiastically?
India will definitely stand to benefit by joining this OBOR and we should not reject it on mere political grounds. We should do a proper cost benefit analysis on the Little Mirrlees model.
Yes undoubtedly PRC will benefit more as it can use its huge excess capacity in the area of construction equipment now lying idle.
PRC can use 800 million ton steel manufacturing capacity lying idle
It can move its goods faster and can certainly capture markets
It will do that as we are comparatively more expensive and so it is a question of how competitive we are.
It will be of strategic importance to China as it can move its troops and equipment fast along this road.
Surely, our Chabahar initiative is a partial initiative in that direction.
If we join the OBOR it should be on the following terms: (a)First the OBOR should be forbidden for military traffic of all countries excepting with the concurrence of a management board of the OBOR of all participating countries with one vote for one member in regard to all aspects of OBOR. (b) This concept as far as one can recall has not emerged so far as to how will the OBOR be managed regarding construction, financing, traffic control and maintenance and repair. Every country should have a proportionate share of the construction activity in regard to supplies for construction, personnel to be employed in construction and in the subsequent maintenance and repair.
India should keep talking to the Chinese on these matters and not reject the concept outright.
Shri B.S. Raghavan
In response to Mr. Sivaraman: It is good that the members of the group have an alternative viewpoint. On the question of AIIB, it is a structured institution with open, explicit, transparent and binding rules and regulations and procedures, and it cannot be equated with OBOR which is a loosely hanging proposition having geopolitical, strategic, implications rooted in a country’s self-image of a future super-power. Mr. Sivaraman’s conditions under para 13 will not fly… they are DOA (Dead on Arrival!)
Mr. K. Subramanian
It is easy to formulate basic theories and try to build structures over them. That happens in text books, especially those beloved in Chicago or other universities. In a real world where power (which includes in abundant measure economic or financial), the games are played out differently when the context changes dramatically. As Heraclitus said, “We don’t step into the same river twice.”
When the Washington Twins were set up after the Second World War, the U.S was the ascending power. It drove the globalization to derive maximum benefits for itself. It is common knowledge that the IMF/World Bank were used to power the motors to advance US’ rise in the world market. Now, the economic balance is shifting and the US is no longer the hegemon. Its position is being challenged by China which is the second largest economy on all accounts. It is extending its influence in all sectors – finance, trade, investment, high tech manufacturing- and in all the continents stretching from Asia to Africa to Latin America and the Caribbean. In Asia and other contiguous areas, China has been gradually extending its economic sphere over the last two or three decades. It subsumes this strategy into a broader one or an evolving vision of OBOR.
Whether this is a threat for other countries, especially India, is a matter for debate. There may be gains for participating countries. However, it is a decision which individual members en route the OBOR will have to take. China realizes this as Mr. Zhang’s exposition made it very clear. Indeed, it will require hard negotiations with China both on the projects chosen and also on specifics. We should also accept that fact that China is not running a charity show for all others to benefit or free ride. It will also be unrealistic or utopian to take the line as suggested by Sivaraman in para 13 of his views. By the same line of reasoning developed here, one would also plead that it would not be pragmatic to adopt a policy of watch and wait. India has to decide soon or it may be too late.
Shri B.S. Raghavan
In response to Mr. K.Subramanian: There is no need to be so desperate to say yes or no. OBOR is not going to roll out so fast, and even those countries which are disposed to look at it favourably are bound to ask hard questions when the deals take a concrete and tangible shape. Some may even pull out. In any case, if OBOR is a matrix of projects for connectivity and the like, India can get on board when something suited to its interests takes a concrete form. Or, India can pursue its own vision of forging connectivity and win-win cooperation as per its own strategic interests with countries of its own choosing, as is the case with Chabahar. With five revolutions in knowledge, communications, technology, economic diversification and social engineering simultaneously going on, with more and more countries coming of age in these respects, and with increasing demand from rising population, there will be enough scope for India too to spread its wings on its own merits. China’s OBOR is not a now-or-never opportunity in that sense.
Mr. T.V. Krishnamurthy
It will be good for India to join OBOR. The Chabahar port and uplinking to Afghanistan and Central Asian Republics is completely different. By joining OBOR, India will at least have legitimate access to move its troops through OBOR, though it looks remotely possible now. If indeed there is an agreement not forbidding troop movements by member countries.
Shri B.S. Raghavan
In 2011, I wrote a piece (see link) in which I argued that India and China can do their own separate things without feeling that one is outdoing or outwitting the other. Competition and cooperation can seamlessly merge into coopetition (which, in fact, is now a vogue word). In short, there is enough room at the top for both and, indeed, for everybody.
Cmde. R. S. Vasan IN (Retd.)
In response to Mr. Sivaraman’s comments: As they say a picture is worth thousand words. Please see the OBOR as represented in the map below. All of us are aware that there is a land segment and a sea segment (MSR) which are managed separately.
The over land segment of the silk route does not give us any advantage as it does not, repeat, does not pass through India. It is only the CPEC that will go through the PoK( not shown in the silk route ) and connect to the land route. Both CPEC and the BCIM are like tributaries that will provide connections to either the MSR or the Land silk route.
Presuming that India wants to join in on the land route, it will be a arduous task in the mountainous terrain (Please see the alignment of the land silk route carefully again) which is why it makes eminent sense to go through Chabahar and Afghanistan to these markets. Pakistan has not allowed us to do business with Afghanistan of the CAR using its territory.
No one will object to use of any of the high ways if there is advantage and the toll fee is paid. It is like you paying toll fee for using the special roads which save on time and effort. However geography which favours us in the seas is against us over land when it comes to the land segment.
The MSR ports (some more will be added depending on who else comes on board) as shown in the map are the ports from China to Indonesia to Sri Lanka to Africa to Europe. It is these ports that China wants to develop with the money earmarked for MSR. Kolkata is shown in the map though India is not yet on board. Let me again say that it is not some new sea route. There will be no new sea route and no new regulations. The existing ports will be modernized and may be a few more would be added. All mercantile marine traffic will use the Sea Lines of Communication where international rules and traffic separation scheme already exists (They will not be changed).
On the issue of stopping of naval ships or military goods through the MSR/ land route, there is no rule at least in the UNCLOS that forbids movement of naval vessels even in the territorial waters. Over land, it is the border control regimes of the countries on the silk route which will have to administer such protocols depending on their own perceptions of movement of military goods. If China has invested all the money for the land route and has built sound bilateral relations through economic investment, will any state en route object to China taking military goods to Pakistan?
The issue of funding, construction, maintenance etc., mentioned by Sri Sivaraman is relevant for the land route where there would be some arrangement that China will put in place in addition to the soft loans/grants. These headings for the ports will be covered by soft loans by China through the MSR fund (about 50 billion USD) and a similar amount or more for the land segment. Initially, it will not ask any of the countries to pay anything for maintenance. It has already trapped them with the lure of soft loans and development. The countries will be in debt trap+ trade deficit eternally. China wants to reach out to these countries both over land and sea for strategic and commercial reasons. .
This map hopefully will help in understanding the logic in my article on why OBOR will not bring any advantage particularly when the agenda is China-driven. The existing traffic will continue plying between ports around the world without any new conditions or fees .There are no new sea routes while there will be new highways over land where India does not figure .
The developed ports in Sri Lanka and other countries with the MSR fund will be modernised and plenty of money will be invested to increase China’s clout. Any country can use these ports as long as the port/handling charges are paid which is the case even now.
As is the case today, if some ports are charging you more, the global practice is to bypass those ports and resort to transshipment through cheaper ports. Maritime trade and commerce has its own momentum and none of this would be seriously affected with the MSR in the next 35 years the time frame in which it will be functional.
As brought out in the article the main reason is to be able to find good use for the surplus capacity and money that is going waste/lying dormant in China. Not utilising this surplus reserve and more importantly the excess capacity in terms of manufacturing, technical and manpower will lead to both economic and social upheaval . So by all counts, this is a grand plan to enhance its footprint across continents and protect its future long term interests. As brought out by the media today, China did try very hard to get India out of Chabahar and the MEA and Modi have to be complemented for working behind scenes to ensure that China did not upstage India again as in the case of Hambanthota.
The bottom line from my side is steer clear of this one sided project that has no tangible benefits for us.
Mr. M. R. Sivaraman
When a link comes to Katmandu from the Silk Route it may have some relevance to us. Yes, Chabahar is the best bet. But Indian clerkism in ministries will raise ghosts (queries) with many skeletons to make the JSs and /Secretaries get scared of decision making .So one is afraid how quickly most will decide on the builder without any controversy. China will not agree when the participants ask for a share of all construction and management activities as it will not serve the main purpose of China to use its idle capacity. Regarding its strategic importance China will use it for military purposes when the need arises but as of now such an eventuality may be remote.
Research Officer, C3S
In one’s recent China visit as part of the ICS think tank delegation, a Chinese official stated clearly that China does not want to ‘convince’ other parties to join OBOR. Rather it believes in ‘dialogue’. This may imply that China is putting the ball in India’s court. Various statements also arose on how the OBOR is not a threat and is rather a tool to bring opportunities to those involved. However, one wonders whether India’s domestic political situation, apart from India’s growing friendship with U.S.A are reasons why China is not keen to overtly invite India for the scheme. There may be other factors involved. For instance, as mentioned during the China visit, China fears that a significant hazard to India-China relations arises not from the border but from ‘global geo-political threats’. China is keen to contain terrorism in all its forms and may fear that India’s perceived vulnerabilities could affect the OBOR. Nevertheless India is not showing interest in joining the OBOR, as no uplifting benefits are observed. Perhaps this is the right stance, as China herself has not cemented any comprehensive framework for OBOR. One thing is clear, that a bilateral framework may be followed, rather than a multilateral one. Besides, China seems to contradict itself on its objectives of OBOR and its foreign policy principles. For instance, during the China visit, we were told by the Ministry of Foreign Affairs of PRC, that one one hand China wants to apply the principles of justice and harmony in its international relations. On the other hand, when one questioned how China would combine these principles, along with economic inclusiveness of the local population, environmental protection and thereby promote ‘justice’, the reply given was that “It’s a tough call. It is complex to integrate these principles with the OBOR.” The OBOR may be an ambitious project, but it it seems likely to benefit member governments of emerging economies, and not the local population. As another Chinese official stated during the visit, when asked about trickling down of economic benefits, “No pain, no gain!”
(All views expressed in this dialogue are the members’ own.)