INDIA AND AMERICA
Indian workers carried the U.S. flag and the Indian flag March 2 at Hyderabad House, the venue of the talks between President Bush and Indian Prime Minister Manmohan Singh in New Delhi, India.
It's the economy, stupid
THE UNITED STATES should approach its reinvigorated relationship with India as more of a long-term economic relationship than a geopolitical chess move against China.
U.S. relations with independent India have never been quite what one would have hoped. To the dismay of the United States, Nehru-led independent India became a key leader of the non-aligned nations' movement, which sought a middle ground between the United States and the then-Soviet Union. The United States became an ardent supporter of Pakistan, with whom India fought wars in 1947, 1965 1971 and 1999. One might have thought that India's defeat in its 1962 war with China could have pushed India closer to the United States. Instead, India signed a 20-year treaty of friendship with the Soviet Union in 1971 due to its fear of China. As further insurance, India began development of nuclear weapons in 1974 and conducted five underground tests in 1998 (after other powers ceased). Economically, Indian government policies were highly suspicious of foreign investment, reflecting the country's colonial past. Faced with unending regulation, U.S. and other foreign investors put their money elsewhere.
For the last 25 years, India has had the second-fastest-growing economy, behind China, in the world. Serving first as the governor of the Reserve Bank of India in the early 1980s and finance minister in the 1990s, Prime Minister Manmohan Singh often is called the architect of India's economic reform and opening to the world. Since becoming prime minister in 2004, Singh has eliminated the capital gains tax, reduced corporate tax rates, and sought to increase India's economic growth rate between 7 percent and 8 percent. To do so, agricultural growth must continue, despite India's ruinous monsoons and poor infrastructure. Foreign direct investment (FDI) has averaged only $5 billion to $6 billion a year, as compared to the $60 billion in FDI that pours into China annually. India hopes to increase FDI to $10 billion this year.
As an FDI destination, India offers many advantages that China does not. Like America, India embraces democracy. Approximately 20 percent of Indians speak English as a native language. Key Indian service industries have grown at more than 9 percent year after year due to increases in productivity and the incorporation of new technology. The Mumbai-Sensex Index gained 42 percent for 2005. Stock exchanges and the securities business in India is considered well managed and above board, quite to the contrary of the Shanghai and Shenzhen exchanges in China. The Indian banking industry shares a similar reputation. Conversely, China's beleaguered banking sector is the victim of a high percentage of loans that it will never be able to fully recover and that were made on the basis of political concerns and connections. India has a functioning, codified judicial system; China does not. Although one-third of India's 1 billion people live in poverty, it boasts a middle class of 250-300 million and is experiencing a tsunami of consumerism, second only to China's. One-half of all Indians are under 25 years of age; China is an aging society. If India had not experienced the growth that it has, Bush likely would not have visited earlier this year.
Based on Dan Fineman's "Growth Model" in the April 15, 2004, edition of the Far Eastern Economic Review, India has created its own model of economic development that is distinctly different from the East Asian model. Unlike the East Asian model, the Indian model is not based on a central government developed and monitored industrial policy, which dishes out preferential tax breaks, politically directs lending and ponies up subsidies. The East Asian model creates growth, but stock market profits lag behind gross domestic product.
President Bush shook hands with Indian Prime Minister Manmohan Singh, after Bush's March 1 arrival in New Delhi, India.
PROMOTING privatization and deregulation, the Indian model reaps higher stock market profits. The Indian model requires less saving, which allows for greater growth of domestic demand. Being more consumption driven, it has less need for export growth, which can lead to surpluses causing political problems with trading partners suffering perennial trade deficits (for example, the U.S. deficits with China and Japan). India's model is more sustainable because it rewards the consumer and minimizes trade friction with other countries.
At first glance, India seems to share a good deal with the United States. English is the communicative adhesive that helps to hold both culturally diverse countries together and connect them to the world. India and America share a strong democratic tradition and share similar economic interests; however, both countries still need time to become better friends. And Americans shouldn't assume that because there are these common points, that India sees the world through the neo-conservative blinders that Washington does.
In area and population, India is a huge country with an abundance of human talent, has a large military, is one of the world's oldest civilizations, and withstood more than 300 years of British intrusion. Not surprisingly, it is sensitive to foreign bullying. In a recent survey conducted by Outlook magazine, a leading Indian publication, 72 percent of Indians consider America an international bully and dislike its unilateralist approach to foreign policy. While it talks about halting nuclear proliferation, it is the only leading nuclear power that has actually used nuclear weapons. It talks about the need to control chemical weapons but used them in Vietnam. Interestingly, two-thirds of Indians thought that Bush was a friend of India, yet 59 percent believe India has compromised its foreign policy goals to better get on with the United States.
DESPITE ITS huge Islamic population of 150 million, India is free of Islamist terror. Javed Akhtar, leader of Muslims for a Secular Democracy and leading Indian filmmaker, said, "The problem of the world is not Islamic fundamentalism. It is American fundamentalism and American greed for power." Conversely, there are those Indians who would like to see a stronger response to Islamic terror, especially in Kashmir and along India's border with Bangladesh.
The United States and India both have legitimate concern for growing Chinese military power. They closely watch steady increases in China's military budget and its continued acquisition or development of increasingly sophisticated military weaponry. Many in the U.S. Department of Defense warn about China's rise in such publications as the Quadrennial Defense Report. Secretary Donald Rumsfeld's strident, blustery tirades are legendary. Some theorize that a strong relationship with Japan in East Asia should be complemented by a strong relationship with India in South Asia. These types of security relationships would force China to divide its attention and resources between two distant locations and limit its ability to spread its influence.
Moreover, such geopolitics triggers a key Chinese concern and fear -- "containment." Many Chinese leaders and analysts assume that the United States wishes to surround China on its borders to prevent it from achieving superpower status, just as the United States did to the Soviet Union. U.S. officialdom claims that both the United States and India do not view China as an enemy.
CHINESE diplomacy toward India has been highly active and successful. Within the last year, progress has been made on two long-standing border issues. Nevertheless, India is concerned by the posting of Chinese naval advisers along the Myanmar coast, soldiers on the Yangon-controlled Coco Islands and growing ties with Bangladesh. Chinese assistance in building a Pakistani submarine base in Gawdar draws close attention. While China seems intent on protecting water routes to Middle East oil, the projection of Chinese naval power into India's maritime and regional zones of interest has brought about a corresponding Indian naval build up. Some wonder if the question shouldn't be the other way around: Does China wish to contain India?
It would seem that both India and America would want to counter growing Chinese influence. However, the Indians, given their colonial experience and size, wish to maintain strategic independence. Put in the words of Robert Blackwell, U.S. ambassador to India from 2001 to 2003, "there is no better way to empty a drawing room in New Delhi of Indian strategists than to start talking about the idea." India wants to develop its own relationship with China, based on shared interests and to compete for the economic leadership of Asia.
While President Bush's administration proclaimed its wish "to help India become a major world power in the 21st century," it opposed the building of a gas pipeline from Iran across Pakistan and into India due to deteriorating ties with Iran. America has not supported India's burning wish for a permanent seat on the U.N. Security Council. During Premier Wen Jiabao's May 2005 visit to India, he expressed China's support for India to join the body although nothing more was said about it once he had returned to Beijing. Furthermore, China and India have engaged in joint naval exercises off Shanghai in 2003, and India maintains observer status in the Chinese dominated Shanghai Cooperation Organization, which seeks to limit U.S. influence in Central Asia.
IN CONSIDERATION of its relationship with China, India has shown less support for maintaining a refuge for the Dalai Lama. Consequently, his organization has considered moving to the United States. While a better relationship with America is one strategic option for India, others have emerged. In the early 1990s, the Russians were promoting a triangular relationship combining Russia, China and India. An April 2004 edition of the People's Daily advocated Asia's three giants -- China, India and Japan -- form an alliance. The suggestion had a distinct "Asian for Asians" tone and obviously sought to minimize U.S. influence, promising regional stability and economic well being.
At first glance, Bush's offer to open U.S. civilian nuclear technology to India ostensibly to alleviate demand for natural resources in the international energy market appears to be clever diplomacy. Closer scrutiny reveals a number of problems. India did not sign the Nuclear Non-Proliferation Act. By offering India U.S. nuclear technology, the United States signals ipso facto acceptance of India's nuclear program. Although India's nuclear sites are to be divided into military- and civilian-use facilities, only the civilian-use facilities will be open to international inspection by the International Atomic Energy Association. India will determine the designation of each site, but it is assumed that one-third of the sites will be off limits to inspectors. Too many remember India's broken promise in 1974 that its nuclear development was only for peaceful purposes. Instead, India developed nuclear weapons.
THERE IS no guarantee that this arrangement will receive U.S. congressional approval, despite the growing number of lobbying groups. In India many object to foreign inspection of any kind and believe that the United States wants to limit the nuclear weapons program.
The United States promotes itself as a country based on law, yet the proposal breaks U.S. and international law. Presenting such a glaring contradiction and double-standard to the world only reinforces negative images of the United States at a time when its global popularity continues to plunge, suffering from charges of being unilateralist, self-serving and dogmatic. If the United States can help India, can we realistically expect Iran to halt nuclear development? Why should North Korea seriously consider scrapping its nuclear development when the United States is helping India's? What will Pakistan ultimately want? Can we afford to alienate Pakistan who has worked closely with the United States in fighting terrorism? How would the political future of President Musharraf, who has survived two assassination attempts for his cooperation with America, be affected?
To try to play the "Indian card" against China will only further prolong development of a relationship that has been too long in coming. The best way to promote a long-term relationship with India is to build on the economic relationship and encourage more investment in India, and less in China. The geopolitics will follow at the right time.
Bill Sharp is adjunct professor of East Asian International Relations at Hawaii Pacific University. He writes a monthly column for the Star-Bulletin.