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Modi’s Act East Policy Well-defined; By Dr. Rajaram Panda

C3S Paper No. 0115/ 2015


Prime Minister Narendra Modi returned to India early last week after a hugely successful six-day, three nation tour that took him to China, Mongolia and South Korea. Modi spent three days in China from 14th to 16th, one day on 17th in Mongolia and two days (18th--19th) in South Korea. What transpired from this visit is the demonstration of yet another example of Modi’s foreign policy activism and commitment to engage with these Northeast Asian countries economically, strategically and culturally in furtherance to India’s Act East policy. India’s Look East policy that was started by then Prime Minister Narasimha Rao in the early 1990s and subsequently pursued by successive UPA governments had reached a stage when it was felt under the Modi dispensation there was a need to inject a new dynamism to this and thus was rechristened as the Act East policy.

By visiting Mongolia, Modi became the first prime minister ever to visit, thereby underscoring Mongolia’s immense strategic relevance in India’s foreign policy calculus. India’s initial engagement strategy in this region that focused on the economic field in the initial years of its Look East policy has now embraced the security and strategic dimensions in the light of changing regional security dynamics and therefore Act East policy becomes hugely relevant. In the past, several Indian leaders have visited – President, vice-presidents, cabinet ministers and Lok Sabha Speakers – but Modi was the first as Prime Minister to set foot in Mongolia. During NDA’s tenure from 1999 to 2004, four ministers – Pramod Mahajan, Murli Manohar Joshi, Sanjay Paswan and Vinod Khanna – visited Mongolia. In 2011, the President Pratibha Patil also made an official visit to Mongolia.

Historically, the deep cultural links of over 2,700 years has a strong Buddhist root. Emperor Ashoka sent his disciples to spread Buddhism. Babur, the famous Mughul emperor was a descendent of Ghenghis Khan, the founder of the Mughal empire. On 24 December 1955, India was the first country to establish diplomatic relations and also supported Mongolia’s memberships in the United National and Non-Alignment Movement. Despite such close historical links, Mongolia did not figure in India’s strategic calculus for a long time and the rise of China now wakes up India to see Mongolia’s strategic relevance, which is why Modi’s visit assumes significance.

Prime Minister Modi’s Act East strategy became aptly clear when he travelled to Japan in August-September 2014, the first major visit to a foreign country, where he built a personal bonhomie with Prime Minister Abe Shinzo and reached understanding in a number of economic and security/defence related matters. Thereafter, the path of India-Japan cooperation has markedly expanded from the narrow prism of economic issues such as trade, investment, technical collaboration, etc, to joint collaboration in defence equipment production and possibly cooperation in the nuclear field soon for which talks are in progress. The recent three-nation visit is a logical extension of this well-crafted defined policy.

The decision to upgrade India-Mongolia ties to a strategic partnership and deepen defence cooperation is indeed a landmark development. With a view to engage closely economically, Prime Minister Modi announced that India shall extend a $1 billion credit line to mineral-rich Mongolia for infrastructure development and help the latter develop dairy cooperatives. Clearly, there is a larger meaning to this as India is keen to extend its footprint and influence in China’s backyard and the decision to upgrade bilateral ties to a “strategic partnership”, a year after a similar agreement was reached between Mongolia and China, needs to be understood from this perspective.

The resource-rich Mongolia is heavily dependent on the Chinese market for export, even while remains wary of China’s economic dominance. Though Mongolia’s economy is largely fuelled by a mining boom that has led to high rate of growth, it has also prompted government protectionist policies and resource nationalism. Therefore, fostering closer economic and trade ties with India also works to Mongolia’s interests. Buddhism and historical links facilitate this initiative.

Besides agreeing to extend a $1-billion credit line, Prime Minister Modi announced a host of other agreements in trade and defence to partner in the economic transformation of bilateral ties. A joint statement issued after Modl’s talks with his counterpart Chimed Saikhanbileg committed “to encourage development of equal and mutually beneficial trade, investment and economic cooperation, which is balanced, sustainable, and leads to prosperity in both countries”.

When Modi was in Japan in August-September 2014, he became an instant music maestro and performed a Taiko drum solo in an impromptu jam session at the inauguration of the Technology and Culture Academy in Tokyo. In Mongolia too, Modi “struck a new chord” by trying his hand at the traditional fiddle, the morin khuur, he received as a gift from Mongolian President Tsakhigiin Elbegdorj. Besides attending the traditional Mongolian Mini Naadam festival together with Saikhanbileg, Modi shot an arrow from a traditional bow and was gifted a Mongolian horse. He too watched wrestling, archery and horse riding at the Chingisiin Khuree Camp, 25 km from capital Ulan Bator. He also piped a tune on a recorder while touring an elementary school in the capital.

Mongolia, a country of three million people, largely depends on China on trade and thus wary of China’s economic dominance and therefore trying to deepen ties with other countries such as Japan, Russia and India. Such a policy choice by Mongolia gels well with Modi’s Act East policy, in which Mongolia can be an integral part. Besides hosting Modi, Mongolia also hosted Russian President Vladimir Putin in 2014 with a view to strengthen ties with Russia. Even while India is struggling in its own infrastructure development, its loan will fund Mongolia’s unfinished rail link from its coal mines in the Gobi desert to overcome bottlenecks in deliveries to the Chinese market. Of the 14 agreements signed included cooperation in areas such as policing and surveillance, air services, cyber security, renewable energy and civil nuclear regimes. India also gifted Ulan Bator with an indigenous cancer treatment machine. Indeed, 25 years of democracy in Mongolia and 60 years of diplomatic relations between the two nations are two important milestones in India-Mongolia bilateral relations and both need to maximise their mutual benefits accruing from deepening ties. Indeed, tapping Mongolia’s vast mineral resources, estimated to be worth one trillion dollar, and build a strong economic partnership could be appropriate way to counter China’s growing sphere of influence.

Compared to Modi’s Mongolia visit, his visit to South Korea had greater diplomatic heft. There is an unmistaken underpinning of China factor that is driving the rest of Asia trying to reach each other. Despite Beijing assures that its rise is peaceful, China’s recent muscle-flexing activities makes the rest of Asia feel unease. Its words are always at a variance with its deeds. China’s claims to the whole of South China Sea and threat to use of force to assert its maritime claims unnerve Vietnam and the Philippines, who also have claims to some parts of the area. It is locked into a territorial dispute with Japan over the Senkaku islands. Its border dispute with India remains unresolved. Its policy towards North Korea despite the latter is a huge nuisance to the rest of Asia, remains dubious and questionable. These justify the rest of Asia to work towards an understanding to cope with this ‘China threat’. China is being perceived as a new regional hegemon.

How does the “China factor” shape India-South Korean relations? As per the perspectives of Indian strategic analysts, a more robust relations with Seoul as a way to counter China’s burgeoning ties with India’s neighbours, in particular with Pakistan and Sri Lanka (port development, for example) will serve India’s interests very well. The truism is that Beijing becomes paranoid whenever any two other Asian countries come together and share common concern and sees the initiative as a front to ‘contain’ China. In order to remove such mistrust, dialogue as a means ought to be pursued so that common goals are achieved.

No wonder, Modi’s visit to South Korea helped further deepening and consolidating the economic and strategic component of the relationships. Like in Mongolia where Modi observed “Mongolia is also an integral part of India’s Act East Policy” and that “the destinies of India and Mongolia are closely linked with the future of Asia Pacific region”, Modi exhorted the entrepreneurs in South Korea to increase investment in India and join India in its plan to make it a manufacturing hub and thereby contribute to Asia’s economic prosperity.

After 35 years of remaining under Japan’s colonial rule, South Korea morphed from a backward agrarian country into an export-driven powerhouse in the space of just four decades. It is here India under Modi is trying to emulate and learn from the Korean experience.  Like India, South Korea is highly dependent on the import of natural resources including crude oil and essential minerals. Still, despite its supply drawbacks, the country has become the world’s 13th largest economy. Korea has committed to provide $10 billion for the development of India’s railways, smart cities and power generation capabilities. While this is in congruent with Modi’s ‘Make in India’ initiative, India needs to put its house in order to facilitate increased investments in sectors such as heavy industry, ship-building and automobiles by cutting red tape and streamlining procedures. If India can do so, Modi’s Act East would have leapfrogged noticeably.

There are over 300 Korean companies operating in India and making on-site products for local consumers. But in terms of Korean investment in India, it totals only $1.4 billion, ranking it only 14th among the largest investors in India, putting it behind the UK, Japan, the US and Germany. Prime Minister Modi urged the CEOs of large Korean companies, such as Hyundai Motor Co., LG Electronics, and Samsung Electronics Co to take advantage of the investment potentials present in India and partner in India’s ‘Make in India’ initiative.

Bilateral ties have remained sluggish and fell moderately in 2012 and 2013. The commodity basket of India’s exports to South Korea consists of raw materials, foodstuffs and unrefined metals and so low on the value chain. This has been falling since 2011 and India is having an adverse balance of trade with South Korea. South Korea’s trade surplus with India increased from $1.98 billion in 2007 to about $5.2 billion in 2013. There is scope for cooperation between South Korea’s hardware industry and India’s software houses. India’s design capabilities also gel well with South Korea’s car-making ability. In the ship-building industries, South Korea has considerable expertise and India can partner with South Korean peers to reaping mutual benefits.

In Prime Minister Modi’s domestic agenda, building smart cities is one of the major thrust areas. This includes building of 50 million houses over the next seven years, long industrial corridors and ‘mega investment regions’, which also means development of the country’s infrastructure. Such an ambitious plan is India’s chosen path of inclusive growth and the government is committed to create conditions to make this happen and aims for a quantum jump and not incremental changes.

On the global issues, Prime Minister Modi underlined the importance of unity among Asian countries and reforms of the global institutions of governance, including the United Nations and its Security Council. He exhorted South Korea and other Asian countries having shared heritage and youthful energy to pursue a common purpose to make Asia the hub of global activities. He observed: “Asia of unity will shape the world” and added that “India seeks an Asia of shared prosperity, where the success of one nation becomes the strength of the other”. Indeed, Asia’s re-emergence is the greatest phenomenon of this era. Modi emphasised that India’s progress will be Asia’s success story and it will help to make the Asian dream a bigger reality. Indeed, building an inter-connected Asia is the challenge at hand. Indeed, if shared prosperity is aimed, then the resources and markets also need to be shared in equal measure. Modi observed “It [Asia] must not be a continent of nations on the rise and others in decline; of regions with stability and others with broken institutions.” He said that Asia’s footprint on earth must become lighter as its economic weight increases.

At the bilateral level, cooperation between the two navies, especially in anti-piracy operations near the Gulf of Aden, is expected to provide the backbone for the deepening defence ties. Securing maritime commerce and sea lanes safe in the Indian Ocean is in the interests of most Asian countries and Indo-Korean naval cooperation will go a long way in achieving this objective. South Korea enjoys considerable expertise in the ship-building industry. India’s ship-building industry is lagging due to non- availability of technology in India. South Korea’s shipbuilding capability and India’s port-led development, and Korea’s expertise in infrastructure and housing and India’s needs can create a win-win partnership. Hyundai Heavy Industries and Hindustan Shipyard can jointly manufacture warships in India, including the construction of Indian vessels such as LNG carriers. It has been agreed that a Joint Working Group that includes the government and private sectors of the two countries will be established to facilitate cooperation in the shipbuilding sector.

Though South Korea was among the first countries to enter Indian markets when the Indian economy began liberalising in 1991, the subsequent progress is mired in red tapes and related bureaucratic bottlenecks and that have retarded the expected exploitation of potentials. For example, the case of POSCO in Odisha wherein South Korea committed $12 billion way back in 2005 to build a steel plant is yet to take off and this discourages potential investors. India needs to keep its house in order and stop just making slogans if it wants to benefit from a partnership with South Korea which has plenty of potentials. The decline in trade in recent years ought to be arrested and South Korea’s enthusiasm ought to be sustained if ‘Make in India’ initiative is aimed to be a success.

Notwithstanding the bureaucratic bottlenecks and red tapes that delay execution of projects at times, President Park Geun-hye was upbeat when she observed at the India-ROK CEO Forum that Modinomics and Korea’s 3.0 economic plans can combine to become central drivers for lifting the global economy. She proposed strengthened cooperation between the two countries in manufacturing, creative economy and new energy industries.

What really were achieved in concrete terms during Modi’s visit to South Korea? Seven agreements, including on avoidance of double taxation and formalising consultations between National Security Councils of the two nations, to boost bilateral ties were inked. The India-South Korea Double Taxation Avoidance Convention signed in 1985 was revised with a view to avoiding the burden of double taxation on taxpayers in the two countries. The two nations also agreed to cooperate in audio-visual co-production. The agreement on this was signed under the provisions of India-South Korea Comprehensive Economic Partnership Agreement (CEPA) that would enable co-production of films, animation and broadcasting programmes. The pact would enable opportunities for collaboration between Indian and Korean film industries, and facilitate collaboration and exchange. Another MOU was signed between the Ministry of Power and the Ministry of Trade, Industry and Energy of South Korea on cooperation in the field of electric power development and new energy industries. The agreement envisages cooperation in areas such as renewable energy, smart grids and power information and technology, transmission and distribution of electric power, energy efficiency and storage system.

In the cultural field, the two nations also signed a MoU to strengthen and encourage cooperation on youth matters through participation in events and activities through exchanges, international conferences, seminars, youth camps, festivals etc. The two sides also signed Framework of Cooperation (FOC) in the Field of Road Transport and Highways. The FOC envisages cooperation in areas including road policies, design and construction, road operation, road management and safety, intelligent transport systems and electronic toll collection systems. The MoU on cooperation between the two countries in the fields of maritime transport and logistics including through sharing of technologies, information and experiences, the training of seafarers, exchange of experts and port operations etc was also signed.

Infrastructure development is identified as a priority area of the Modi government to revive the economy. Prime Minister Modi was successful to negotiate with President Park to get a commitment to finance $10 billion infrastructure projects, including smart cities and railways. The Ministry of Strategy and Finance and the Export-Import Bank of Korea expressed their intention to provide $ 10 billion for mutual cooperation in infrastructure. The $10-billion pledge comprises Economic Development Cooperation Fund ($1 billion) and export credits ($ 9 billion) for priority sectors, including smart cities, railways, power generation and transmission, and other sectors. If the business communities of both the countries leverage the enormous synergies that exist in both the countries, South Korea could be a privileged partner in India’s ‘Make in India’ initiative for mutual prosperity.

It may be noted here that, as China prepared to launch the Asian Infrastructure Investment Bank (AIIB) with $100 billion capitalisation widely seen as encroaching on the regional financial clout of Tokyo and its ally the United States, Japan’s Prime Minister Abe has unveiled $110 billion to fund Asian infrastructure projects, to be invested over the next five years. Abe hopes the aid will help draw private funds to help meet the vast demand for infrastructure in Asia. India ought to put its house in order and take maximum advantage and use this available fund to sustain growth. Despite so much hype on Modi-Xi bonhomie, a lot of issues remain between India and China to be resolved. This justifies that India needs to build and deepen comprehensive partnerships with other allies in all spheres so that China’s advance is kept under check.

(Dr. Rajaram Panda, former Senior Fellow, IDSA, New Delhi, is now a New-Delhi-based Independent Researcher on Northeast Asia’s security and strategic issues. E-mail ID: rajaram.panda@gmail.com  )


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