China Can’t Hold India’s Foreign Policy to Hostage

Today’s article ‘India Gets Close to Japan at its Own Peril’ in Global Times by Chinese scholar Liu Zongyi, a visiting fellow at the Center for Strategic and International Studies and a research fellow at Shanghai Institutes for International Studies will resonate in India’s policy corridors for a long time to come. The article stressed that Indian policymakers are aware of the benefits that being a swing state on the global stage can bring to India. This follows the conclusion of Indian Prime Minister Manmohan Singh  visit to Japan where he held a range of security and economic dialogues with Japanese Prime Minister Shinzo Abe. This visit came after Chinese Premier Li Keqiang's recent trip to India.

For one, Global Times is a state run paper having the tacit backing of the ruling communist party. The article throws light on China’s behaviour, albeit, myopic and aggressive towards its neighbours and the compulsions behind India’s foreign policy. It’s also time that India by its behaviour and actions made its position very clear. India should not appear to hunt with the hounds and run with the hares. In other words, it cannot afford to project itself as a swing state as the paper claims. India’s foreign policy must be formulated with our interests in mind and the ensuing problems with neighbouring countries. It is good to mend relations with difficult neighbours but we should not be seen to be cuddling up to them. There is no point in giving unnecessary concessions to such difficult neighbours.

The present times calls for realignment of strategic relations. BRICS should not be seen as a political and economic block. There is nothing which holds this group together in terms of ideology or markets except that they are emerging markets. But even in emerging markets, the action is shifting to SLIMA, CIVETS etc. India would do well to build an alliance with US, Britain, EU, Japan, Australia, Phillippines, Vietnam and South Korea and other friendly countries and push trade, commerce and security agenda with them. China has clearly shown to India by its behaviour and actions over the last few decades that it has scant respect for India, is domineering and a bully and understands only the language of strength. So be it. India should build a strong economic and security alliance with countries interested in keeping China in check even though the trade volume between China and India is about four times that of India and Japan.

Meanwhile, India’s economic growth began a feeble recovery at the tail end of a 2012 fiscal year that saw the slowest expansion in a decade. Asia’s third largest economy grew 4.8 per cent from a year earlier in the January-March quarter. The full year economic growth for the fiscal year 2012/13 came in at 5 per cent. The government data showed that the manufacturing sector grew an annual 2.6 per cent in the March quarter. The farm sector expanded 1.4 per cent from a year earlier. Mining sector, meanwhile, contracted an annual 3.1 per cent. The services sector, that makes up more than half of India’s economy grew an annual 6.6 per cent in the March quarter. Worryingly, annual capital investment growth slowed down to 3.5 per cent in the March quarter from 4.5 per cent year-on-year a quarter ago.

This despite India's share in global investments is expected to almost double by 2030, a World Bank report said. "In less than a generation, global saving and investment will be dominated by the developing world with India's share in global investments expected to almost double by 2030. No other country except China will be investing more than India globally," says the latest edition of World Bank's Global Development Horizons (GDH) report. The two countries together will account for 38 per cent of the global gross investment in 2030. In fact, developing countries' share in global investment is projected to triple by 2030 to three-fifths, from one-fifth in 2000," the World Bank said.

Meanwhile, The HSBC/Markit purchasing managers’ index (PMI) for the services industry today inched up to 53.6 in May, pointing to a solid expansion in output, one that was the fastest in three months. A reading above 50 shows that the sector is expanding, while a reading below 50 shows that the output in the sector is contracting. Yet, India which was one of the largest recipients of foreign direct investment (FDI) inflows in the last decade has taken a turn last year when FDI registered a significant decline of 38 per cent to $22.42 billion. According to government estimates, India would require around $1 trillion in the next five years for its infrastructure requirements and to sustain its growth. This could be found in household savings which stand at $1.7 trillion.

Further, India's gold imports surged in May and along with oil imports these are one of the driving factors behind India's current account deficit — when the value of imports exceeds that of exports. And the current account deficit can hurt economic growth. This is because a large current account deficit (CAD) can impact foreign exchange rate and weaken the Indian rupee. If India has to pay more of its imports this would affect economic growth. As a weaker global economy has impacted exports, India has used hot money to finance this deficit, and that money can flow out very quickly in a risk off environment. CAD reached a record high of 6.7 per cent of GDP in the last quarter and has been blamed for weakening the Indian rupee.

Compiled by assorted internet news sites and self analysis