Brookings: Projects - The India Project

Premier Li Keqiang of China Goes to India

Tanvi Madan — Sat, 18 May 2013 14:00:00 -0400

On Sunday, Chinese premier Li Keqiang heads out from Beijing for his first visit abroad in that role. His first stop: India. He’s probably wishing the trip had taken place about a month and a half ago. At that time, there was a sense in India that the new leadership in China was reaching out to India for a number of reasons. Over the last month, however, temperatures rose in the Himalayas, as the long festering China-India boundary dispute flared once again. The good news for those interested in stable Sino-Indian relations: the two governments seem to have got past the recent incident. They continued to communicate throughout the crisis. Pre-scheduled China-India talks on Afghanistan were held in the midst of the crisis—their first such dialogue focused on the subject. Chinese and Indian military officers held a border meeting. The Indian foreign minister traveled to Beijing. And Li’s visit is going ahead. The bad news: The border incident reinforced the mistrust that many in India feel toward China and its intentions. Furthermore, it was a reminder that despite increased engagement, bilateral differences have the potential to stall, if not, reverse progress toward more stable relations. Li’s challenge: to get the relationship back on a positive trajectory and begin to convince a skeptical Indian public that the border incident was not representative of the new Chinese leadership’s approach toward India. Overall, the premier has his work cut out for him.

Before mid-April, many observers of Sino-Indian relations noted that under the new Chinese leadership there seemed to be an “upswing in relations.” Chinese president Xi Jinping proposed a five-point formula to improve ties with India. The two countries agreed to discuss Afghanistan. “Positive vibes” were detected at Xi’s subsequent meeting with Indian prime minister Manmohan Singh on the sidelines of the BRICS summit in Durban. The Chinese government indicated that Li soon planned to travel to India.

This trend did not surprise observers. After all, there were enough reasons for Beijing to seek a stable relationship with India: economic ties, cooperation in the multilateral realm and a desire to limit India’s burgeoning relationships with the U.S. and Japan (reports indicated that Chinese officials were eager for the premier to visit India before the Indian prime minister headed to Tokyo in late May), as well as other countries in the region. There were also reasons for the political leadership not to want the relationship with India to deteriorate: such as preoccupation with China’s eastern maritime disputes and the North Korean situation, as well as the need for stability in the region with the impending American withdrawal from Afghanistan.

What did surprise observers was the border incident. Former U.S. deputy secretary of state James Steinberg, who was in India as the crisis played out, said “I don't know what the Chinese leadership is up to…confronting India and Japan, especially when they have been trying to build strong bilateral relations...The Chinese leadership should understand, it will not benefit them in the long run.” The opacity of Chinese decision-making meant that various theories were floated about why Chinese troops had taken the unusual step of setting up camp across the Line of Actual Control (LAC): differing perceptions of the LAC; “a rush of testosterone by local officers;” in response to India building up its border infrastructure; the desire of the People's Liberation Army to assert authority; the result of an internal political power struggle; Chinese expansionism; or Chinese strategic designs against India. One observer contended that a clear motive was near impossible to pinpoint: that “Chinese foreign policy is an enigma wrapped in a mystery.”

Since the resolution of the crisis, Beijing has tried to press a “reset” button, trying to return the relationship to its pre-crisis trajectory. The Chinese ambassador to India unusually took to the editorial pages of an Indian newspaper to emphasize, “To strengthen good-neighbourly and friendly cooperation with India is China’s strategic choice and established policy which will not change.” Chinese officials indicated that greater efforts should be made toward a boundary settlement.

The Chinese government also signaled that the choice of India as the premier’s first stop was very deliberate and a sign of the importance Beijing placed in the Sino-Indian relationship. Hosting an Indian youth delegation, Li put a personal spin on the choice, noting the “the seeds of friendship sown” when he visited India 27 years ago—a trip that he said left a “lasting impact.” Beyond trying to win hearts and minds, he also seemed to want to appeal to Indians’ pocketbooks, talking about the economic benefits of greater ties. Finally, he pointedly mentioned experiencing the “warmth and hospitality of Indian people.”

That hospitality will certainly be forthcoming on the part of key policymakers in the Indian government. Delhi has its own reasons for seeking stable relations with Beijing. Thus, Indian officials had joined their Chinese counterparts in playing down the border incident and seeking to resolve it speedily. Since it’s been resolved, both sides have sought to highlight their success in defusing the crisis, pointing to that as a sign of progress in the relationship. During that visit, they will work toward agreement on certain issues. Expectations are that there will be developments on the economic front. China-India watchers will also be looking for any sign of progress on the border and Brahmaputra river issues.

Among the Indian public, the welcome for Li is likely to be cooler. The recent tensions at the border—heavily covered in the Indian media—reinforced negative impressions of China among many in the Indian public. Many—even beyond the public—will take with a larger grain of salt the new Chinese leadership’s assurance that it intends for China to rise peacefully, be a responsible state, and seek good relations with India. The crisis has reinforced the narrative that has prevailed in many quarters since the 1962 China-India war: that China only understands strength; that while Beijing’s leaders say China and India “must shake hands,” they cannot be trusted—that one hand held out might just be a precursor to the other stabbing one in the back.

The border incident has also kept the focus on bilateral differences and even beyond the border issues there are many of those: China’s growing political and economic ties with India’s neighbors, its Indian Ocean ambitions, the overall lack of trust, cyber-security concerns, Tibet, the diversion of the waters of the Brahmaputra, a trade imbalance and restricted market access in China for Indian companies, the sense that China does not respect India and/or that it will seek to prevent India’s rise and, significantly, China’s relationship with Pakistan, which, of course, is Li’s second stop.

The incident also seemed to strengthen the hands of those inside and outside government who are skeptical of China’s intentions towards India and weakened the voices of those urging engagement with that country. Furthermore, the crisis negatively affected the credibility of the Indian government on issues related to security broadly and China in particular. This matters because significant bilateral progress on crucial fronts will require concessions from both sides—concessions that might now be harder for the Indian government to sell on its side.

Overall, that’s a lot of mistrust and skepticism to turn around in one visit. But if Li Keqiang wants to see the relationship prosper, the trip is a good time to start trying on two fronts. First, substance: progress on key issues will go a long way in building trust. Second, style: Li should take the opportunity to introduce himself and reintroduce the new Chinese leadership not just to Indian government officials and private sector leaders, but also to the Indian public—for it might be tempting to dismiss public sentiments, but they will play a key role in setting the limits of the relationship.

Authors

Tanvi Madan

Image Source: © China Daily China Daily Information Corp - CDIC / Reuters

John Kerry’s Indian Image: Moving American Policymakers Beyond "Pro" and "Anti" India

Tanvi Madan — Fri, 17 May 2013 15:17:00 -0400

Later this summer, US Secretary of State John Kerry will visit India for the US-India Strategic Dialogue. Before and during his visit, many observers in India will likely try to assess whether Kerry is "pro-" or "anti-" India. This is not surprising. In the narrative of US-India relations, there has always been a hall of fame and a hall of shame. Praise was heaped upon "heroes" — such as President John F. Kennedy and US ambassadors to India Chester Bowles, John Kenneth Galbraith and Robert Blackwill — for being pro-India. President Richard Nixon and secretaries of state John Foster Dulles and Henry Kissinger found themselves on the anti-India "villains" list. More recently, Kerry and Secretary of Defence Chuck Hagel have been labelled anti-India or pro-Pakistan. However, this focus on whether policymakers are pro- or anti-India is limiting at best and harmful at worst. It can lead to an exaggerated view of the extent of the impact of one individual's personal bias and obscure more complex motivations and drivers of policymaking.

Conclusions about policymakers' biases have often been based on one or more statements made or one or two high-profile decisions taken. It is crucial, however, to focus on individuals' track records. Take Nixon. He has often been tagged as anti-India. In the early-to-mid 1950s, when he was vice-president, Nixon indeed had little patience for non-alignment and was a proponent of military aid to Pakistan. By 1957, however, he was internally arguing for greater economic aid to India. He made his view public too, asserting that "what happens in India... could be as important or could be even more important in the long run, than what happens in the negotiations with regard to Berlin."

In 1967, long before people were talking about the next century being an Asian century, Nixon also laid out the importance of Asia and how that continent's future would largely be shaped by four "giants" — China, India, Japan and the US. Writing at a time when there was much pessimism in the US about India and the Indira Gandhi government, Nixon noted with sympathy that India's "present leaders at least are trying... in exceedingly difficult circumstances" to move forward and doing so in a democratic context. Once in power, his administration did make the infamous one-time exception to provide military assistance to Pakistan, but he vetoed recommendations for a larger, more sustained package.

The pro/ anti-India narrative also does little to explain change. Why, in 1972-73, did Nixon and Kissinger work to rebuild the relationship with an India they disliked? Or, why did policy towards India change over the course of the Clinton administration with a similar set of policymakers? The narrative also assumes individuals' views stem from an inherent dislike or love for India, rather than circumstances or worldviews. It does not often recognise that individuals can change — and that Indian words and actions can shape views of India. Biographers of Indira Gandhi proclaim, often approvingly, that she treated Nixon badly in 1967, without any consideration of whether that treatment might have affected his views of India and her.

Furthermore, the narrative cannot explain how policymakers can make some statements and decisions that are "pro" India and others that are not. As Rajeev Sharma has noted in the case of Kerry, and Dhruva Jaishankar on Hagel, one can identify instances when these supposedly "not-India-friendly" individuals have supported legislation helpful to India — the India-US nuclear deal, for example.

In narratives of India-US relations, these simplistic conclusions are not restricted to depictions of US policymakers. Nehru is often portrayed as anti-US, even though he was perhaps the first to use the term "natural partners" to describe the bilateral relationship. Others insist on identifying Indira Gandhi as pro-Soviet, ignoring instances such as her resisting for two years her advisers' entreaties to sign an India-Soviet treaty.

This is not to say that personalities don't matter. They do, but their role needs to be put in context. They can facilitate cooperation or exacerbate conflict. They can help determine the policy option chosen. Personal relationships, too, matter. However, personalities are not the only factor — or often the primary one — determining policy and consideration of their role should go beyond discussions of the pro- or anti-Indianness of particular policymakers.

The pro/ anti India narrative often neglects to consider whether and how much the "pro" or "anti" policymaker influences policy broadly, and policy towards in India in particular. Cabinet members' or ambassadors' roles and influence are not the same as those of presidents. Moreover, it sometimes overlooks actors involved in shaping policy and the policy debate outside the White House and state department.

Instead of focusing on whether key policymakers are anti- or pro-India, it would be more worthwhile to assess which individuals are making policy; their role and influence in the policymaking process, especially relative to other policymakers, and their proximity to the president; and the nature of interaction between policymakers. Furthermore, it is crucial to analyse the worldviews of key actors; their perception of US interests and preferred strategy for achieving them; whether they see a role for India in that strategy and, if they do, is it as potential spoiler or supporter. Finally, it is essential to think about what India can do to build enough constituencies for the relationship in the US and ensure its own importance so that bilateral relations do not depend on — and are not thought to revolve around — one or two individuals.

Authors

Tanvi Madan

Publication: The Indian Express

Image Source: © B Mathur / Reuters

When India’s Foreign Policy Is Domestic

Teresita C. Schaffer and Howard Schaffer — Tue, 02 Apr 2013 11:06:00 -0400

Editor's note: Teresita Schaffer has started work on a book called India at the International High Table. The book, co-authored with Howard Schaffer, will examine how India sees its role in the world, and how this translates into India’s negotiating style. This article, co-authored as well, discusses the impact on Indian foreign policy decision-making when an international issue becomes a factor in domestic politics.

In the past six months, passionate domestic politics have twice taken over India’s foreign policy process, complicating its relations with neighboring countries. The most recent case involved a resolution on Sri Lanka adopted by the United Nations Human Rights Council (UNHRC), which led an important coalition partner to leave the government. The earlier crisis, in September 2011, scuttled two major features of India’s proposed expansion of relations with Bangladesh. When India’s foreign policy becomes domestic, decisions tend to escalate, coalition politics intensify, and the fallout affects both politics and policy.

The Sri Lankan story began in 2012, when Washington sponsored a resolution intended to press for accountability for the anguishing events that took place at the end of Sri Lanka’s civil war. The text was very mild, recommending that Sri Lanka take a number of measures that it had already more or less pledged. India’s surprising “yes” vote reflected pressure not so much from the United States as from a handful of politicians from the southern state of Tamil Nadu, who were concerned about Sri Lanka’s Tamil minority. Indian foreign policy professionals were unhappy over this departure from their normal practice of not voting for country-specific resolutions.

The second act took place at the March 2013 UNHRC meeting. The United States sponsored a somewhat sharper Sri Lanka resolution. “Requests” became “urgings” and the text called on Sri Lanka to heed not just the recommendations of its own government-appointed Lessons Learned and Reconciliation Commission but also reports from the United Nations.

The drama in India, however, was substantially greater than last year. The absence of any significant movement toward national reconciliation left Indian foreign policy professionals frustrated (like their U.S. counterparts), and the release of film footage reportedly showing the killing of the Tamil rebel leader’s twelve-year-old son, created widespread revulsion in India. But what really drove events was the rivalry between two Tamil parties that alternate in running the state government. The Sri Lanka conflict is deeply embedded in this contest, and both parties use their alliances and disputes with the party in power in Delhi to further their quest for state primacy. The DMK, allied with the central government but opposed to the state government, mounted a full-court press to demand that India not just vote for the resolution, but amend it to accuse the Sri Lankan government of “genocide and war crimes.” This fit in with the DMK’s traditional sympathy for the now-defeated spearhead of Sri Lanka’s Tamil uprising, the Liberation Tigers of Tamil Eelam (LTTE). It also was an opportunity for the DMK to outdo its rival, the AIADMK, in support for their brothers in Sri Lanka.

The DMK took its campaign on the road. A debate in the national parliament produced no consensus, but drew public statements blasting Sri Lankan anti-Tamil “atrocities” from a parade of government ministers as well as Sonia Gandhi, president of the ruling Congress party. The Government of India cancelled the upcoming India-Sri Lanka defense dialogue. A DMK-led organization reportedly lobbied foreign embassies in Delhi to toughen the resolution. The DMK then pulled out of the government coalition, citing the U.N. resolution. This put the government’s existence in technical danger, though the DMK hinted that it would not bring the government down. Not to be outdone, the Chief Minister of Tamil Nadu (from the other major Tamil party, the AIADMK), banned Sri Lankan cricket players from participating in an upcoming match in Chennai.

Unusually, India’s UNHRC representative was summoned to Delhi, and returned to Geneva with instructions – evidently from the top – to try to toughen the resolution. This last-minute effort went nowhere. On March 21, the resolution passed with 25 positive votes, 13 negative ones and 8 abstentions – compared to last year, one more yea, and two fewer nays. India had once again overridden its normal distaste for country-specific resolutions, and India and Sri Lanka were left with some difficult fences to mend. Last year’s Sri Lankan anger was mostly against the United States; this year, India was the principal target. There is every likelihood that the same issues will be back again at next year’s UNHRC meeting.

The Bangladesh case also involved a regional party and former ally of the Indian government, and was in some ways even more dramatic. Prime Minister Manmohan Singh visited Bangladesh in September 2011. In preparation, the two governments had worked out a package of agreements to resolve many of their oldest and most complex disputes. These included settling a border that includes nearly 200 enclaves on both sides that are under the sovereignty of the other, division of the waters of one of their shared rivers, transit for India to areas east of Bangladesh, and expanding trade. The Indian government thought it had the acquiescence of the provincial government in West Bengal, headed by the feisty Mamata Banerjee and her Trinamool Congress, mercurial former allies in the central government coalition.

They reckoned without Banerjee. A week before the prime ministerial visit, she denounced the water sharing agreement. The central government dispatched a star senior diplomat, National Security Adviser Shivshankar Menon, to pour oil on the troubled waters in Kolkata. He failed. Among many competing explanations, two stand out: Menon had no authority to provide sweeteners for the financially strapped West Bengal; and he was not an elected politician, much less one Banerjee would consider her equal. In addition, it is not clear that he could help Banerjee address the local impact of the proposed agreement within West Bengal.

Banerjee’s opposition nearly scuttled the whole trip, to both sides’ great embarrassment. The overture to India was Bangladeshi Prime Minister Sheikh Hasina’s signature foreign policy issue. She reluctantly agreed to implement the salvageable parts of the program. The two governments continued to work on the water issue and the transit agreement that Bangladesh had withheld in retaliation. In February, Indian Foreign Minister Salman Khurshid visited Bangladesh and opined that the problems would be resolved. He was followed by President Pranab Mukherjee, India’s most senior Bengali politician.

Bangladeshis of different backgrounds and politics tend to blame the Indian bureaucracy for their problems with India, and hope that politicians – especially Bengali ones, and especially Mukherjee – will provide solutions. The view from Delhi and Kolkata is more complicated. The personalities of the political leaders in Kolkata and in Dhaka emerge as a critical factor. The long-time Communist chief minister of West Bengal, Jyoti Basu, had his state’s politics in the palm of his hand. Political observers in Kolkata told us that this enabled him to take a statesmanlike view, as he had in shaping the 1996 India-Bangladesh water agreement. Banerjee is less secure in her political hold on the state. She is also a “street fighter,” determined to eliminate any threat to her West Bengal power base, either from the communists or from her former allies in Congress. This makes for a natural tension with New Delhi.

Indian observers ruefully agree that the next move is up to New Delhi. The government faces an uphill task in obtaining parliamentary assent to the constitutional amendment it needs to implement the border agreement. Obtaining the support of the West Bengal government for the water and transit deals is probably becoming more difficult.

Despite their different dynamics, these cases have important features in common. Both featured high-octane local political leaders in India, and both had deep roots in state politicians’ volatile relations with the central government. Domestic politics swept aside the normal foreign policy process, making decisions and follow-up unpredictable. When foreign policy issues are taken up by party politics, decision-making rockets to the top of India’s power structure. Domestic deal-making becomes the primary requirement. India’s foreign policy machinery cannot control that – or the international bargaining that goes with it. India’s foreign policy institutions are starting to maintain stronger state level contacts in Tamil Nadu and West Bengal. However, as we saw in both these cases, when there is a political dispute over policy toward Sri Lanka or Bangladesh, contacts between senior officials or ambassadors and the state government are mainly useful as an early warning system. They are unlikely to be able to resolve problems.

Some foreign policy issues get caught up in party politics without the direct local identification that marked these two cases. Recent examples include the U.S.-India nuclear deal, frozen for nearly a year because of the leftist parties’ objections, and the Indian government’s initial decision to permit foreign direct investment in retail trade. Such issues are less likely to revolve around one high profile opponent, like Tamil Nadu’s Karunanidhi or West Bengal’s Banerjee. But they share the other characteristics of the boundary between foreign and domestic politics, including escalating the locus of decisions. They will become more frequent as India’s economy grows and its integration with the global economy becomes more important.

Authors

Teresita C. Schaffer
Howard Schaffer

India and America, Batting Together in Asia

Teresita C. Schaffer and Howard Schaffer — Wed, 27 Mar 2013 00:00:00 -0400

Editor's note: Teresita Schaffer has started work on a book called "India at the International High Table." The book, co-authored with Howard Schaffer, will examine how India sees its role in the world, and how this translates into India’s negotiating style. This article, originally published in The Hindu, one of India's leading English language newspapers, discussed U.S.-India interaction in East Asia.

On a table in the office of a senior Indian diplomat sits an unusual piece of memorabilia: a baseball bat. It is signed not by members of the official’s favourite baseball team, but by the U.S. officials who participated in the inaugural session of the now well-established consultations between India and the United States on East Asia, in 2010. This bat and the similarly adorned cricket bat kept by the Indian diplomat’s American counterpart are an apt symbol of how the United States and India have deepened their common understanding of the strategic stakes in this critical region. Now they need to deepen their economic ties across the Pacific.

The geopolitical shifts that shaped the expanded U.S.-India relationship changed the way both related to East Asia. India’s Look East policy expressed New Delhi’s intention to expand its footprint in East Asia, after decades of thin relations with China and relative neglect of the rest of the region. India’s economic opening to the global economy made its Asian orientation a tangible reality. India has signed three free trade agreements, all with East Asian partners: Japan, Korea, and ASEAN. Participation in several ASEAN-centred institutions underscored the political dimension of India’s Asia-wide ties.

Three indicators

The Obama administration has intensified a decades-long shift toward Asia in U.S. economic and foreign policy. The heart of U.S. Asia policy traditionally lay in the military anchor in Japan, the security challenge of China, and the enormous economic relationship with both. These factors are still important. But with the “pivot” or “rebalancing” that administration spokesmen have been talking about for the past two years, look for three new markers: deeper U.S. engagement with Asian regional institutions; a modest shift in the centre of gravity of U.S. military assets toward the Indo-Pacific region; and, significantly, the decision to treat India as part of a larger Asian region, a decision made more important by the growing prominence of U.S.-India ties.

Read the full article »

Authors

Teresita C. Schaffer
Howard Schaffer

Publication: The Hindu

Subir Gokarn, Former Deputy Governor of the Reserve Bank of India, Named Director of Research for Brookings India

Thu, 14 Mar 2013 00:00:00 -0400

New Delhi, India – Subir Gokarn, who recently completed a term as deputy governor of the Reserve Bank of India, has been named the first director of research for Brookings India in New Delhi, Brookings President Strobe Talbott announced today.

Dr. Gokarn, who will also serve as a Brookings senior fellow, was previously chief economist of Standard & Poor’s Asia-Pacific from 2007-09 and executive director and chief economist of CRISIL from 2004-07. He served as chief economist at the think tank National Council of Applied Economic Research (NCAER) in New Delhi from 1999-2002 and taught at the Indira Gandhi Institute of Development Research (IGIDR) in Mumbai from 1990-2000.

Dr. Gokarn earned his Ph.D from Case Western Reserve University (U.S.) in 1989. He received his B.A. (Hons) in economics from St. Xavier’s College in Mumbai in 1979 and his M.A. in economics from the Delhi School of Economics in 1981. He was awarded a Fulbright Research Fellowship in 1997, on which he spent an academic year at the Economic Growth Centre at Yale University (U.S.). He is currently a member of the National Security Advisory Board of India and a columnist with the Business Standard.

“Dr. Gokarn brings to the position both his credentials as an economist and his experience in leadership and decision-making roles in the private and public sectors,” said Vikram Singh Mehta, chairman of Brookings India. “This reflects the centre’s emphasis on combining high-quality research with effective dissemination to and communication with stakeholders.”

The recently established Brookings India will serve as a platform for cutting-edge, policy-relevant research and analysis on the opportunities and challenges facing India and the world. The center aims to provide high-quality and independent policy research on a variety of domains of critical importance to India’s development and global integration strategies. Indians will play the primary role in directing, staffing and funding the centre. Its work is based on the Brookings motto of "Quality, Independence, Impact," promoting in India its brand of independent, in-depth research and engagement in the policy debate. The Brookings Institution is one of the oldest independent think tanks, and for the fifth year in a row, it has been ranked as the most influential, most quoted and most trusted think tank in the world.

Prepare for the Unknowns: India's Black Swans

Tanvi Madan — Fri, 08 Mar 2013 00:00:00 -0500

Imagine the breaking news headline: Revolution in Riyadh. The scenario: The House of Saud, which has ruled Saudi Arabia for years, has been overthrown. Closer to home, think about what China going off the rails would look like-and portend for India. These are just two of the "Black Swans" that foreign policy scholars at the Brookings Institution recently identified as deserving the attention of the U.S. government, along with a series of Big Bets that the administration should make in President Obama's second term. These black swans are low-probability, high-impact events that can have a dramatic impact on the plans and policies of a country. The idea behind this project was to identify potential events, suggest ways to prevent them if possible and prepare for them if they occur. With American involvement in a number of countries in the world, it might seem natural to undertake such exercises in the United States. It is essential, however, that such thinking take place in India -- whose global interests and involvement are growing -- as well.

Just a glance at the black swans that Brookings scholars envisioned indicates how each of them could affect India's interests. The collapse of the Saudi monarchy would bring instability in a country that is India's largest oil supplier and critical to its economy. It is also the location of two of Islam's holiest sites. The spillover into other countries in the region that is not just the source of most of the crude oil and natural gas that India imports but is home to a large number of Indians, will also have major ramifications. A Eurozone collapse would have a significant impact on the Indian economy. A China-U.S. confrontation or especially a direct military conflict between them over Korea -- though seemingly distant from India's area of operations and interest -- would change the geopolitical context in which India is operating. A confrontational Chinese leadership, driven by popular nationalism and desire for regime survival into war, could have serious consequences for India. Domestic revolution in China could also affect not just India's geopolitical interests but its economic ones as well; it could also lead to significant changes in the Tibet dynamic. Finally, a dramatic rise in sea levels could devastate India's coastal areas where about a fifth of its population resides.

One could dismiss these scenarios as far-fetched, but ignoring such possibilities entirely can be risky. India itself has felt the brunt of black swans -- for instance, the Dalai Lama's escape to India in 1959 or the black swan triple whammy in 1990-91 with the Iraqi invasion of Kuwait, the Gulf War and the collapse of the Soviet Union. India has also benefited from some black swans -- for example, from two crucial ones that Nassim Nicholas Taleb, who generated the black swan theory, laid out in his book The Black Swan: the development and spread of the computer and the Internet.

India could face black swans again: A serious and sudden deterioration of the situation in Tibet. A climate change-caused catastrophe in Bangladesh with thousands, if not hundreds of thousands, of people trying to cross over into India. A major cyber attack with uncertain origins. A disintegration in Pakistan with the "loose nuke" problem becoming real. A collapse in the price of gold. A U.S.-Iranian rapprochement -- a black swan that could throw up challenges or opportunities for India.

Black swans are not always negative and do not necessarily have a negative impact. As my Brookings colleague Govinda Avasarala notes, a major breakthrough in grid-level battery storage developed in India that could make solar and other intermittent forms of energy instantly economic could be one such "positive" black swan. This development would not only change India's energy picture, it would change the debate on and the available solutions to the climate change challenge. It would also put India at the forefront of the next big technology revolution.

It is important to think about such black swans, consider ways of preventing them if they are negative ones and facilitating them if they are positive, and lay out ways of coping with them. Government agencies can do some of this thinking. Indeed, recently, at a talk organised by RAW, former president Abdul Kalam highlighted the need for the country's intelligence apparatus to be prepared for black swans. Policy planning staffs can also undertake such exercises. Government agencies, however, are often burdened or overburdened with day-to-day priorities, with little time, inclination or resources to undertake such thinking. Therefore it is outside government -- in think tanks, universities and the corporate sector -- that such thinking about black swans, as well as forecasting, scenario planning and war gaming can and must take place. Such exercises do not necessarily require classified information. They do require time, resources, expertise and, most importantly, imagination.

Authors

Tanvi Madan

Publication: India Today

Image Source: © Rafiquar Rahman / Reuters

The State of the Indian Economy: The Budget and Beyond

Mon, 04 Mar 2013 15:30:00 -0500

Event Information

March 4, 2013
3:30 PM - 5:00 PM EST

Saul/Zilkha Rooms
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

Over the last couple of years, India's economic growth rate has slowed. It remains one of the fastest-growing economies in the world, but the decline has caused concern within that country and outside of it. In the fall of 2012, the Indian government took measures to reverse the trend, but authorities acknowledge that much remains to be done. On February 28, P. Chidambaram, the Indian finance minister, will release the Union budget, which analysts will watch closely to determine the direction the government intends to take, especially with regard to economic reforms.

On March 4, the India Project at Brookings hosted a discussion of the state of the Indian economy, the highlights of the Indian budget, and prospects for further reforms and growth. Panelists also discussed the recently released International Monetary Fund annual staff report on India, which assesses Indian economic performance and lays out the risks and opportunities that lie ahead for the country. Panelists included Diane Farrell, executive vice president of the U.S.-India Business Council, Anne Krueger, professor of international economics at the School for Advanced International Studies, Johns Hopkins University, and Laura Papi, assistant director in the Asia and Pacific Department of the IMF. Brookings Senior Fellow Eswar Prasad, the New Century chair in International Trade and Economics, moderated the discussion.

Event Materials

Brookings India: A Conversation with Tom Friedman

Vikram Singh Mehta — Mon, 25 Feb 2013 15:30:00 -0500

India is the world’s largest democracy and a rising power with one of the fastest growing economies. It is also a dynamic and complex country facing a number of opportunities and challenges that are a matter of great interest across the world. With this in mind, we recently launched Brookings India—a center for public policy research based in New Delhi, which I am honored to serve as its chairman. At our first event in New Delhi, I was grateful to host and engage New York Times op-ed columnist and author Thomas L. Friedman in a wide-ranging conversation on topics such as U.S. domestic and foreign policy, education, democracy in the Middle East and energy and climate change.

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Brookings India Launches with a Discussion Featuring Thomas Friedman and Vikram Mehta

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Brookings India Launches with a Discussion Featuring Thomas Friedman and Vikram Mehta

Authors

Vikram Singh Mehta

Recent Political Developments in India: The Other Leadership Transition

Thu, 14 Feb 2013 15:00:00 -0500

Event Information

February 14, 2013
3:00 PM - 4:30 PM EST

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

While the world’s attention has been focused on leadership elections and selections in countries like China, Israel, Japan and the United States, recent political developments in the world’s largest democracy also warrant attention. Although national elections will not take place in India until 2014, recently there have been crucial state elections and party leadership changes, and elections in ten states are due over the next year. Rahul Gandhi has been elevated to the position of vice president of the Congress party, further stoking discussions about his role in the party and government. The potential impact of the recent Bharatiya Janata Party (BJP) presidential elections on the party’s direction over the next few years is still being debated. Gujarat Chief Minister Narendra Modi’s third electoral victory in state elections has once again sparked questions about his prime ministerial aspirations and chances. Speculation also continues about the national political prospects of others like Bihar Chief Minister Nitish Kumar and Madhya Pradesh Chief Minister Shivraj Singh Chauhan.

On February 14, the India Project at Brookings hosted a discussion on these recent political dynamics in India, as well as their potential impact on the policy debate and political developments over the next year. Panelists included Sadanand Dhume, resident fellow at American Enterprise Institute, and Milan Vaishnav, an associate in the South Asia program at the Carnegie Endowment for International Peace. Brookings Fellow Tanvi Madan, director of the India Project, moderated the discussion.

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Recent Political Developments in India: The Other Leadership Transition

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China's Marathon is India's Triathlon

Tanvi Madan — Mon, 04 Feb 2013 11:00:00 -0500

Steve Rattner’s observation in The New York Times a couple of weeks ago that India had lost the race to China came on the heels of a year or more of global hand-wringing about India and its prospects. That had followed a few years of internal and external observers feting India as the next big thing. It brought to mind Heidi Klum’s weekly quip on Project Runway, “in fashion, one day you’re in, the next day you’re out.” If one wants to keep track of whether India is in or out, up or down, losing or winning “the race,” one only has to take a look at the latest Economist cover story or survey report headline on India. In 2004, “India’s Shining Hopes” were dazzling the world. A year later, India had been elevated to China levels with the newspaper declaring “The Tiger in Front.” By 2006, the newspaper was asking “Can India Fly?” with the answer a couple of years later being that unfortunately India was still “An Elephant, Not a Tiger.” Just a year later, however, there was “Good News from India” and a year after that the newspaper was laying out “How India’s Growth Will Outpace China’s.” Alas, by 2012, the newspaper, disappointed by developments in India, wistfully proclaimed that India needed to be “In Search of a Dream.”

These kind of report cards, rankings and ratings of India generate much interest, especially when the country’s progress is juxtaposed against that of China. Thus, predictably, Rattner’s piece laying out his view of the result of the economic race between China and India received some attention. Most of the responses tended to focus on whether or not India was losing or had lost the economic race. A different question, however, needs to be asked: Is that the only race India is in and the only race that those cheering for India want that country to win? Because it’s not that India doesn’t have the same “eye on the prize” as China does, as Rattner argues; it’s that the prize is different. Indeed, the race is different.

A few years ago, Indians and Indiawallahs might have “taken offense” – what Manu Joseph has called “India’s favorite spectator sport” – to a greater extent to Rattner’s declaration. Slowing economic growth and governance challenges, however, have reinforced the realization that victory parades are premature and the nation-building project that started six and a half decades ago continues. Many agree that India is indeed losing the race at the moment, at least the one that Rattner writes about: the economic one and, more narrowly, the infrastructure one. Some have even argued that he is late to this discovery and India lost the economic race a while back. Others have pointed out that the race isn’t over yet or that India started from behind and will catch up. Some have criticized Rattner for emphasizing growth at the expense of democracy. Yet others have responded with “what race?” either asserting that China and India haven’t been in the same league for the last three decades, or that comparisons should not be made because it’s like comparing apples and oranges.

It is perhaps futile to demand that people cease and desist from comparing the two Asian giants. Some have tried. Indian Finance Minister P. Chidambaram recently dismissed comparisons between the Chinese and Indian economic situations as irrelevant, saying that the countries faced different problems. Yet, his own prime minister has compared India’s banking system (favorably) and its scientific research achievements (unfavorably) with those of China. On the other side of the aisle, Gujarat Chief Minister Narendra Modi has compared his state’s progress with that of China, as have Indian corporate leaders. At the recently concluded Jaipur Literary Festival, a panel (“The Elephant Paradigm, the Dragon Paradox.”) was devoted to comparing the two, with panelist Gurcharan Das saying that India was a soup and China a salad, and Nandan Nilekani noting that a good diet required both.

Neither the idea of a “race” between China and India is new nor is the hope on the part of many in the West that India win that race. It is a concept and comparison that predates Rattner, Francis Fukuyama, Niall Ferguson, Pankaj Mishra, Raghav Bahl and Tarun Khanna and Yasheng Huang. 60 years before Rattner’s piece, in The New York Times Magazine, Barbara Ward, then of The Economist, laid out “The Fateful Race between China and India,” pitting an authoritarian and a democratic country against each other in a development race that the whole world was watching. American policymakers interested in aiding India used the idea to lobby for assistance arguing, as historian Nick Cullather noted, that while there was an arms race and space race, the development race was the third and “deciding heat in a Cold War triple crown” and the U.S. needed to help India win. The idea did not get mainstream support till the second half of the 1950s. As Washington watched the battle unfold beyond Europe for hearts, minds and stomachs, the idea stuck that if Soviet-backed China succeeded while democratic India failed economically, it would be a victory for communism. If, on the other hand, the U.S. could help India win the development race versus China, it could demonstrate to the “uncommitted” world that democracy and development could co-exist and thrive.

By 1957, the “competition between Communist China and India” was enshrined in official U.S. documents and linked to American national security. NSC 5701 explicitly stated that it was in the U.S. national interest to strengthen India because, “A strong India would be a successful example of an alternative to Communism in an Asian context and would permit the gradual development of the means to enforce its external security interests against Communist Chinese expansion into South and Southeast Asia.” This argument laid the basis for years and billions of dollars of aid to India over the next few administrations. It enjoyed bipartisan support, with then Senator John F. Kennedy and Vice President Richard Nixon both advocating for aid for India on these grounds. The latter, emphasizing the significance of the competition, even asserted, “what happens in India…could be as important or could be even more important in the long run, than what happens in the negotiations with regard to Berlin.” Initially, this aid was designed to help India win the race; over time, as Indian performance lagged, it was designed not just to prevent India from losing the race, but from falling off the racetrack. Eventually, frustration about this performance led to "India fatigue" and the cheerleading squad – and, with it, aid – dwindled.

The race was not just a Western concept. In 1951, it was the editor of a leading Indian newspaper who laid out in Life magazine the idea that China and India were “two testing grounds” and that the results had Cold War implications. Over the next decade and a half, Indian government officials, private sector leaders and public intellectuals used this idea of a China-India competition to attract aid. They also worried about the implications of the race at home. While Indian policymakers often denied there was a race underway, Prime Minister Jawaharlal Nehru accepted that comparisons between India and China were inevitable. In the 1950s, he acknowledged the “great test:” if his government did not “deliver the goods…democracy will then be in peril…Then people may think of totalitarian methods…” He wasn’t the only one making the comparison to the country next door, with many in India complaining about its progress lagging behind that of China. Nehru’s responses would be familiar today: he highlighted the progress that India was making, noted that democracy made development more difficult, emphasized China’s problems, noting that its statistics were exaggerated, and asserted that China’s failures were not as evident because of the lack of openness, but that “the lid” would come off and “terrible criticism” would emerge later. Overall, he stated that development might take longer, but it would be more sustainable in a democracy, which was “the sounder way of doing things.”

More recently, Indian leaders have cited the hare-tortoise or the sprint-marathon analogies to argue that it’s only a question of time or distance, but India will eventually win. But the issue that Nehru brought up decades ago and Bihar Chief Minister Nitish Kumar has brought up more recently – democracy – leads to the question of whether China and India are in the same race at all. If one must put it in sporting terms, the question is whether China is running a marathon while India is participating in a triathlon—one where it is not running, swimming and riding sequentially, but simultaneously, competing in an economic development race, a democratic one, as well as a social one.

India’s progress should be assessed on each of those fronts, even though final results might take a while to come in. Perhaps it is harder to track democratic and social progress. Perhaps statistics are easier to pick and choose from and quote than “the rhythm and sensibility” of countries are to measure. Perhaps the fact that there is nothing monochromatic about India makes it frustrating to assess. And perhaps developments in India lend themselves to different interpretations. Rattner’s piece makes this evident. For example, you can see the government’s response to the protests after a horrific gang-rape as a sign of concern or you can see peoples’ response as one of hope. You can see Mukesh Ambani’s billion-dollar home as a symbol of wealth disparity and limited economic mobility or, as Dhruva Jaishankar of the German Marshall Fund noted, given Ambani’s father’s modest beginnings, you can see it as a sign of the economic mobility that is possible. Or you can see both. Regardless of the difficulty of tracking the triathlon, it is important to look at more than just the economic race India is running. Investors looking for short-term returns might be focused on just that race, but neither Indians nor those who want it to really win should. After all, those who want India to win – and, as Rattner notes, there are many in the West who “fervently” hope that it does – are rooting for that country because it is a multi-ethnic and multi-religious democracy and not despite it. Democracy should not be used as excuse for not developing. But development without democracy is not a prize India should want to win.

Authors

Tanvi Madan

Image Source: © Vivek Prakash / Reuters

Water: Asia’s New Battleground?

Thu, 24 Jan 2013 15:30:00 -0500

Event Information

January 24, 2013
3:30 PM - 5:00 PM EST

Saul Room/Zilkha Lounge
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

Security concerns in Asia focus today on maritime and territorial disputes in Northeast Asia, yet the potential for conflict over access to fresh water across the continent may be equally dangerous. Asia's exploding demand for water makes it the most water-scarce continent per capita. Many of its water sources cross national boundaries, creating the potential to raise international tensions as water becomes less available. The water security challenges facing China and India in particular may have consequences not just for the two rising powers, but also for Asia as a whole. How policy-makers manage that demand and deal with cross-border water conflicts deserves greater attention.

On January 24, the Asia Society and the India Project at Brookings hosted a discussion on the water security challenges facing Asian nations, with a particular focus on China and India. Discussants also highlighted how water security challenges interact with those involving energy and food security, disrupting economies, governments and environments and imposing further hardships on the poor. Panelists included Brahma Chellaney, professor at the Centre for Policy Research in New Delhi, and Jennifer Turner, director of the China Environment Forum at the Woodrow Wilson Center. The Asia Society also recognized Chellaney for his receipt of the 2012 Asia Society Bernard Schwartz Book Award for his book, Water: Asia’s New Battleground (Georgetown University Press, September 2011).

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The India Investment

Tanvi Madan — Thu, 17 Jan 2013 00:00:00 -0500

The U.S.-India relationship is broader and deeper than it has ever been. On a bipartisan basis, U.S. policymakers believe that, overall, it benefits American interests. But the danger is that it will suffer from Indian and American inattention. Tanvi Madan drafted this memorandum to President Obama as part of Big Bets and Black Swans: A Presidential Briefing Book.

What actions can the U.S. take to continue engagement with India’s policymakers?
How will issues like the Comprehensive Test Ban Treaty and others affect the U.S.-India relationship?
What is “India fatigue” and what can the U.S. and India do to fight it?

Download Memorandum (pdf) | Download the Presidential Briefing Book (pdf)

TO: President Obama

FROM: Tanvi Madan

Your administration has made the correct judgment that the rise of India and its increasing role and influence in the international system benefit U.S. interests. This assessment has been articulated repeatedly and enjoys bipartisan support. While Indian policymakers have not been as vocal, their actions have indicated that they too recognize the importance of the bilateral relationship. U.S. relations with India are broader and deeper today than they have ever been. The danger to the relationship is that it will suffer from inattention – on the Indian side, because of the lack of bureaucratic and political capacity, and policymakers’ domestic preoccupations; on the U.S. side, because of the lack of a crisis or a single high-profile initiative focusing bureaucratic and political attention, and other more-pressing domestic and international concerns. Furthermore, the return on the U.S. investment in India will likely only manifest itself in a major way in the medium to long term. That, combined with political and economic circumstances in India, might lead to “India fatigue” in the United States.

Recommendation:

You have already made a bet on India. In your second term, as you try to shape the emerging global order in a liberal direction, India’s role will become ever more important because of its size, geostrategic location, economic potential and democratic institutions. Accordingly, you need to ensure that your administration stays invested in that bet and perhaps even ups the ante. In many instances, it is India that needs to put more chips on the table. However, there are steps that the United States can take to help increase the momentum, as well as shape the context in which Indian decisions are made. These include working with Indian counterparts to implement existing agreements, conclude current negotiations, and explore new areas of collaboration, in particular in the energy and education sectors. Your administration should also signal sustained commitment to the relationship through continued consultations, high-level visits and timely personnel appointments. Active efforts are also needed to encourage movement on the Indian side, increase public outreach and facilitate the consolidation and creation of constituencies for the relationship beyond government.

Background:

The relationship with India has been one of the little-heralded foreign policy successes of your first term. The momentum, however, will not sustain itself. Along with the danger of drift, there is likelihood that bilateral differences rather than achievements will take center stage. Past irritants are likely to re-emerge. Your administration and the Indian government successfully navigated the tricky Iran sanctions-Indian oil imports issue last year. However, if the situation with Iran worsens and conflict breaks out, Delhi and Washington might find themselves on opposite sides. The U.S. relationship with Pakistan, in the context of the withdrawal from Afghanistan, might create another area of potential difference. The United States has recently encouraged Indian involvement in Afghanistan and a U.S.-India-Afghanistan trilateral is in place. There are already concerns in India, however, that the U.S. desire to assuage Pakistan to facilitate the Afghanistan withdrawal might lead to a reversal of that position. There are also concerns that the United States will be less likely to pressure Pakistan on counter-terrorism issues related to India. Any renewed drive for the Comprehensive Test Ban Treaty (CTBT) might spark bilateral strain as well. U.S.-India relations have changed since the debate over the CTBT in the 1990s. But the CTBT issue could once again lead to contention between the two countries, which will not be restricted to the private sphere. Finally, as you carefully calibrate the relationship with the new leadership in Beijing, dormant Indian concerns about a G-2 or Sino-U.S. condominium will also likely arise again.

Avoiding drift and the dominance of differences will necessitate getting more deliverables from the numerous U.S.-Indian official dialogues. This means implementing agreements that have already been reached. In some cases, the major obstacles to implementation lie on the Indian side — the civil nuclear agreement is one such example — but there are others where the United States needs to act, including in the defense and technology areas. The expeditious completion of negotiations on other agreements would also help, including those related to bilateral investment, as well as defense technology and trade. These agreements have the potential to create opportunities for the U.S. private sector to invest in India and generate jobs here at home. It can also create new constituencies for the relationship, including at the state level, in both countries and demonstrate that the United States is interested in strengthening

India’s economy and security, as well as those of the United States. New assessments will be needed of other areas in which there can be substantive cooperation: space, maritime, and cyber-security offer opportunities. The United States and India should try to move from consultation in these areas to joint initiatives. An updated feasibility study on a free trade agreement with India could also clarify the desirability of moving on that front.

While diplomatic, defense and economic engagement get the most attention, cooperation elsewhere could bear fruit, particularly in the energy and education sectors. Your administration’s efforts should include urging Indian reform of its higher education sector to allow the participation of American universities. Meanwhile, research collaboration, academic exchanges, and university linkages should be facilitated, and you should encourage India to review visa procedures to facilitate more American citizens studying and working there. U.S. immigration reform that includes addressing the question of the mobility of high-skilled workers could strengthen the U.S. hand in encouraging these changes. On the energy front, the administration should work to allow the export of natural gas to India, while explaining that this is not the major solution that many in India seem to think it is. Furthermore, there should be additional progress on cooperative clean energy initiatives and the opening up of the energy infrastructure sector in India to greater U.S. investment.

Progress in these areas will require difficult domestic decisions for the Indian government. Yet recent statements and actions from Delhi have shown that it recognizes the magnitude of the problems and the need for foreign investment and cooperation. Progress on these issues would also encourage engagement from state governments, corporations, civil society and individuals on both sides. Finally, while offering opportunities for the American people and corporations, these initiatives would also help build physical and human capacity in India, and demonstrate U.S. investment in India’s future.

The quality of bilateral interaction will also need to improve further. As personnel change on the U.S. end and, potentially, on the Indian side, there is a need to ensure that the level of trust and workinglevel cooperation that has been established is not lost. The relationship requires White House attention and coordination, which would be facilitated if an official responsible for India policy is appointed. Furthermore, India-related positions across government need to be filled speedily and not left vacant as they were in some high-profile instances in the first term. This is especially important since post-Afghanistan withdrawal and with the possible consolidation of South Asia bureaucracies, there is a danger that India will revert to being seen in the government as just another South Asian country. India’s involvement in the rest of the world is only going to increase. If the United States does not continue to engage with it on regional and functional issues outside South Asia, it will miss an opportunity to cooperate and increase the possibility that India will hinder U.S. interests.

There is a continuing need for attention and commitment at senior levels. You could make evident your personal interest by visiting India during your second term, making you the first U.S. president to visit India twice. A reciprocal visit from the Indian prime minister should also be encouraged. Such visits would be especially important if there is a change in leadership at the top in India.

An overarching challenge is how to facilitate movement with India without stepping on Indian sensitivities and becoming an issue in Indian domestic politics. First, your administration should continue to share with the Indian government your concern that “India fatigue” will make further progress on our end harder. India will need to help cultivate constituencies in the United States that support the relationship. In certain instances, pressure will be called for; ideally, it should be applied privately. Second, through a more vigorous and consistent public outreach effort in India, your administration needs to explain the content and objectives of its policies and agreements, as well as how India benefits. If the United States does not fill the vacuum, others will do so with misinformation or disinformation. Such an effort should also engage critics and, while keeping the sitting government informed, opposition leaders.

Conclusion:

You will need to manage the differences that the United States will continue to have with India and not underestimate the difficulties India’s rise might create for some U.S. interests, for example at the U.N. or in global trade talks. However, your judgment that the United States and India are natural partners and that the benefits of India’s rise outweigh any costs remains sound. But the relationship needs continued nurturing. It also requires sustained buy-in from legislators, corporations and individuals who have been key in driving the relationship; more recently their support has been flagging. Importantly, India needs to do its part too. It is likely that it will. India is concerned about an economic slowdown and the security situation in its neighborhood, especially involving China and Pakistan.

It also continues to aspire to a greater role on the world stage. And Indians realize that the United States can play a critical role in helping India achieve its security and economic goals to an extent that perhaps no other country can.

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Authors

Tanvi Madan

Image Source: © Stringer India / Reuters

New Paradigms for Financial Regulation: Emerging Market Perspectives

Masahiro Kawai and Eswar Prasad, eds. — Thu, 27 Dec 2012 00:00:00 -0500

Brookings Institution Press 2012 300pp.

The global financial crisis has led to a sweeping reevaluation of financial market regulation and macroeconomic policies. Emerging markets need to balance the goals of financial development and broader financial inclusion with the imperative of strengthening macroeconomic and financial stability. The third in a series on emerging markets, New Paradigms for Financial Regulation develops new analytical frameworks and provides policy prescriptions for how the frameworks should be adapted to a world of more free and more volatile capital.

This volume provides an overview of the global regulatory landscape from the perspective of Asian emerging markets. The contributors discuss the many challenges ahead in developing sound and flexible financial regulatory systems for emerging market economies. The challenges are heightened by the rising integration of these economies into global trade and finance, the growing sophistication of their financial systems as globalization and emergence processes accelerate, and their potential vulnerability to instability arising from the financial markets in the advanced economies.

The contributors provide guidance about pitfalls to be avoided, general principles that should guide the creation of sound regulatory systems, and valuable analytic perspectives about how to continue to broaden the financial sector and innovate while still maintaining financial and macroeconomic stability.

Specific topics covered by the volume include:

Implications of global regulatory changes for emerging markets, with particular emphasis on Asian emerging markets
Effective design of regulatory and policy frameworks to promote financial system development and stability
Monetary policy frameworks to enhance financial stability and international policy coordination
Principles for a sound global regulatory architecture

This is the third in a series of books edited by Kawai and Prasad—copublished with the Asian Development Bank Institute—on international financial regulation and reform in the wake of global crisis, focusing on emerging markets. The first two books in the series are Asian Perspectives on Financial Sector Reforms and Regulation and Financial Market Regulation and Reforms in Emerging Markets.

ABOUT THE EDITORS

Masahiro Kawai

Masahiro Kawai is dean of the Asian Development Bank Institute and a former chief economist for the World Bank’s East Asia and the Pacific region.

Eswar Prasad

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Continuity and Change in Beijing: India-China Relations

Tanvi Madan — Fri, 14 Dec 2012 00:00:00 -0500

Over the last year, there have been leadership transition processes in four of the five permanent UN Security Council members. In East Asia, leadership elections or selections will have taken place in China, Japan, South Korea and Taiwan over 2012. The transition in China has perhaps raised the most questions about whether it will lead to policy continuity or change. This is not just because of the high leadership turnover or because it is a once-in-a-decade process. It is also because, as a result of China's growing influence in the world and interactions with other countries, including India, what happens in Beijing does not stay in Beijing.

What has actually transpired there? The 18th National Congress of the Chinese Communist Party, held last month, selected members of its Central Committee. That body selected members of the elite Politburo, seven of whom were chosen to be in the Politburo Standing Committee (psc). From that key ruling body, Xi Jinping has been appointed party general secretary, the first among equals in what is a collective leadership system, and designated president. He and designated premier Li Keqiang are likely to remain on the psc till 2022. Overall, the turnover in party leadership has been significant and, over the next few months, further changes will take place at the central and provincial government levels.

This turnover has led to much discussion abroad about the potential impact on China's foreign policy. It is rare to hear the phrase "I don't know from foreign policy pundits, but it is an oft-heard one in response to questions about the attitudes of the leaders who will be taking over in Beijing. Significant turnovers in leadership in any country give rise to questions about policy implications. Experts on Chinese domestic politics highlight a few reasons why these are especially difficult to answer in China's case. First, in one-party systems like that of China, individuals do not rise to the top by publicly standing out from the crowd. Their worldviews, policy preferences and leadership styles are, thus, relatively unknown. Second, in a system that has been labelled "one party, two coalitions, how factional politics will play out in the various leadership bodies is also uncertain. Third, while psc members are no strangers to officialdom, having held positions at the central or provincial levels, they have not been part of the foreign policy apparatus and their views on international affairs are not evident. Another reason for the uncertainty at the moment is that the transition is ongoing. Government appointments will only be formalised in March 2013 when the National People's Congress meets and when we will also get a clearer sense of the foreign policy leadership team.

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Authors

Tanvi Madan

Publication: India Today

Image Source: © B Mathur / Reuters

Mumbai Attacks: Four Years Later

Bruce Riedel — Mon, 26 Nov 2012 00:00:00 -0500

Four years ago Monday, the Pakistani terror gang Lashkar-e-Tayyiba attacked Mumbai, killing more than 160, including six Americans, in the deadliest and most brazen terror attack since 9/11. Then and now, LeT enjoyed the support of Pakistani intelligence and al Qaeda. Today, LeT is a ticking time bomb ready to explode again.

Ajmal Kasab, the only one of the 10 LeT terrorists who survived the attack, was hung for his crimes in India this week. He had confessed to joining the organization and to being trained in its camps in Pakistan for the operation. He implicated the senior LeT leadership in the plot. LeT’s founder and leader Hafez Saeed is not only still free and at large in Pakistan, he routinely speaks at large rallies attacking India, America, and Israel. He denounces the drones and demands Pakistan break ties with America. He eulogized Osama bin Laden as a “hero” of Islam after the SEALs delivered justice to al Qaeda’s amir last year.

Saeed’s patrons include the Pakistani army and its intelligence service, the ISI, which works closely with LeT. Kasab also implicated the ISI directly in the Mumbai operation, saying it assisted with his training and helped select the targets. Two Pakistani emigres, David Headley (an American) and Tahawwur Rana (a Canadian), have also confessed in American courts that they helped LeT plan the massacre in Mumbai and that the ISI was deeply involved in it. Both were found guilty. The ISI helped bankroll their reconnaissance trips to Mumbai to set up the attack.

In researching my forthcoming book, Avoiding Armageddon: America, India and Pakistan to the Brink and Back, it became apparent that there was a third party behind the scenes in the Mumbai plot: al Qaeda. Al Qaeda deliberately kept a very low profile, but helped the LeT plan and select the targets. Al Qaeda and LeT have long been close. Bin Laden helped fund its set-up, and LeT routinely helps hide al Qaeda terrorists at its bases in Pakistan. Al Qaeda had big hopes for the 2008 plot—a war between India and Pakistan that would disrupt NATO operations in Afghanistan and the drone attacks on al Qaeda. Instead, India chose to use diplomacy and avoid a military response. We all dodged a bullet.

Since 2008 LeT has continued to enjoy a free hand in Pakistan and plot more attacks. In 2010 it planned a major attack on the 19th Commonwealth Games held in New Delhi. The plot was thwarted by good intelligence work, especially by the British intelligence services. This summer the Indians arrested a major LeT terrorist, Sayeed Zabiuddin Ansari, a.k.a. Abu Jindal, who was plotting another terror attack from a hideout in Saudi Arabia. Abu Jindal was also involved in the Mumbai operation in 2008—he was in the LeT-ISI control room in Karachi from which the orders were given by cellphone to the terrorists to kill hostages, including the Americans.

The Mumbai attack took place just after Barack Obama's election. It was his first crisis as president-elect. In the last four years his administration has tried to rein in LeT. This year a $10 million reward was offered for information leading to Hafez Saeed’s capture, and the U.S. helped capture Abu Jindal. But the group is free to plot and plan in Pakistan and it has cells in the Persian Gulf, Bangladesh, England, and elsewhere. It will strike again sooner or later. When it does, al Qaeda and the ISI will probably be co-conspirators again.

Authors

Bruce Riedel

Why the End of British Aid to India Won’t Matter

Raj M. Desai and Natasha Ledlie — Wed, 21 Nov 2012 11:10:00 -0500

The British international development secretary, Justine Greening, recently announced that all assistance from the UK to India will end by 2015. The withdrawal of foreign assistance from India’s largest donor affords an opportunity to reflect on the role British aid (indeed, all foreign assistance) has played in Indian economic development, and on how Indian anti-poverty programs will evolve in the absence of foreign aid.

The Indian beneficiaries of UK aid programs will inevitably feel the loss of the experimentation and risk-taking that characterized UK aid. On the other hand, India has also been moving away from more fragmented anti-poverty programs traditionally supported by donors towards more centralized, universal schemes. But these reforms require increasingly sophisticated management and accountability mechanisms — something donors have had limited success in supporting. While the absence of British aid may leave a small hole, it will not affect India’s anti-poverty efforts.

To put the aid stoppage in context, consider that UK assistance comprises about 15 per cent of all foreign aid received by India. The UK gives slightly less than 10 per cent of its foreign aid to India. This makes India the largest beneficiary of UK aid and the UK the largest donor to India. Given the current state of the British economy, it is only natural the UK would be forced to reconsider its assistance to fast-growing countries such as India. Indeed, other donors may soon follow suit, forced by fiscal constraints. In the U.S. foreign aid may be cut due to “budget sequestration”, under which all government programs will be subject to across-the-board cuts.

More than half of official aid from Britain to India went to programs focused on education, health, nutritional programs, and water and sanitation access. In relative terms, these are not large amounts (the $450 mission in total annual British aid was about 0.04 per cent of India’s GDP). Despite some prevailing views that the Department for International Development was merely a source of British “soft power” or that British aid simply supported British strategic and commercial interests, the evidence suggests that Britain has been one of the better-behaved donors. According to a joint assessment of the Washington-based Brookings Institution and the Centre for Global Development, DFID performs quite well when ranked against other donor agencies on measures of efficiency, institution-building in recipient countries, keeping administrative burdens to a minimum and ensuring transparency.

British aid was also an invaluable source of piloting, access to knowledge and risk-taking. The Business Innovation Facility funded by DFID is a decent example of this—a programme that supported companies as they developed and implemented “inclusive” businesses that expanded opportunities for the poor. This was an example of foreign aid at its best: a gateway to current information, a clearinghouse for insights on good practice, a resource for businesses, and of course, targeted financial support.

On the other hand, British aid—and most foreign aid—has achieved only modest success in helping countries such as India make the transition from a multiplicity of narrowly targeted interventions, transfers and subsidies to a comprehensive welfare system. Both bilateral and multilateral aid to India may be rightly criticized for placing too much faith in these narrower instruments.

Many observers have long pushed for more comprehensive social policies based on universal provision of essential services in India, and for less reliance on narrower social programs. The latter have not served India well. In the past two decades, for example, India has grown much richer than Bangladesh and Nepal. But during the same period, both countries have overtaken India in terms of life expectancy, infant mortality, fertility rates, immunization rates, and female literacy. India’s expansion has been characterized by Jean Dreze and Amartya Sen as “growth without development”. In recent years, the Indian government has moved to consolidate social policy through nationwide multi-sector programs such as NREGA. But the local bodies largely responsible for administering them continue to suffer from capacity weaknesses. It is in governance and institutional capacity-building at the local level that foreign aid has had less impact.

While few in India may shed tears over the end of British official aid in India, the occasion should also provide an opportunity to double efforts to reform the public institutions that govern social policy and poverty alleviation.

Authors

Raj M. Desai
Natasha Ledlie

Publication: The Indian Express

The Talent Paradox: Funding Education as a Global Public Good

Rebecca Winthrop and Gib Bulloch — Tue, 06 Nov 2012 15:31:00 -0500

As the World Economic Forum descends on Delhi today, addressing the massive needs of India’s education system will be one small part of the discussion. But for a country that is projected to supply approximately 25 percent of the global talent pool by 2030, what could be more important than getting education right? Especially for corporate leaders, as one CEO of a Fortune 500 company puts it “the global talent gap is the issue that keeps me and every other CEO I know up worrying at night.”

And there is much to worry about. Global demographic trends mean that soon a disproportionate share of the world’s human capital will be born in developing countries. Yet these countries, particularly those with high levels of inequality like India, do not have good education systems that can prepare their young people to be the talent that companies want to hire. India alone lacks 400,000 teachers and absenteeism within the existing teaching ranks is currently at a staggering 25 percent. Last year, close to 60 percent of children in class 5 in rural government schools could not read a class 2 text, a number that has only risen since 2008. This education crisis is mirrored in other emerging economies. In Nigeria, 58.3 percent of student are not meeting basic learning levels in literacy and numeracy with Ethiopia and South Africa not far behind at 55.3 and 33.7 percent respectively.

So what can be done about this? Klaus Schwab, the founder of the World Economic Forum, has long advocated for multi-stakeholder solutions to global, regional, and national problems as the best way to achieve sustained economic growth and social progress. And so, the solution to the global education crisis is no different. Clearly governments have a central role to play by investing in the young minds of their nations. And others are also stepping up to the plate. For example, the United Nations Secretary General recently announced a new five-year global initiative, Education First, focused on putting every child in school, making sure they learn well while there, and ensuring their education helps them become good global citizens.

But what about the many global business leaders who are wringing their hands about how the emerging talent gap could undermine their profits? Well, to that we say “it is time for businesses to move their investment in education from the halls of corporate social responsibility programs to the long-term investment and business strategies of their companies”.

Is it realistic or fair that the Indian government, for example, foots the bill for the school fees of a quarter of the world’s workforce, given the fact that a significant proportion of this future talent pool may end up living outside the country and working for non-Indian companies. “Human capital flight” from India is estimated to cost the country $2 billion for 2012 alone, and it’s on the rise.

Education is a global challenge that cannot be solved by improving a single education system in a single country. Nor can it be solved by one company or one industry, no matter of how well-heeled its CSR program is. The solution requires global collective action, specifically establishing a funding mechanism that funds education as a global public good. This type of funding mechanism could recognize and quantify the future economic value of human potential; both an economic and societal “return on investment” on capital that is very much required today. A mechanism with global reach, that would be outcome based rather than dependent on taxing the incomes of those who can least afford it.

So what’s the rationale? To multilateral donors, a funding instrument of this nature would be attractive from a value for money perspective. Indeed, there are successful precedents in other sectors in the world of development; the Global Alliance for Vaccines and Immunizations (GAVI) stands out in particular. GAVI’s innovative “Advance Market Commitment” or AMC addressed the market failure in the development of new vaccines by effectively setting a future floor price to attract private sector investment in R&D. Could the same GAVI principles of an AMC be applied to education? Providing an AMC around the future economic value of talent that would catalyze innovation and co-investment from the private sector, technology companies in particular, who are well placed to provide the hardware and the wiring for a state of the art education infrastructure.

Besides those companies whose core business is directly related, there is also an opportunity to incentivize the broader private sector around long-term investments in education - to create a market mechanism whereby a pooled investment today from a coalition of businesses and donors could give some enhanced access to the talent businesses will require for future growth.

As businesses increasingly look to emerging markets as new sources of growth, it would be naïve to assume that struggling public education systems on their own will be able to provide the talent and skills that employers need. Expecting an infinite choice of highly polished resumes will simply not happen on its own and as with other critical sources of raw material, businesses may need to “backward integrate” up the talent supply chain, far further than they have in the past. Make no mistake. This is not back door privatization of the education system on a global scale. Funding should not be conflated with service delivery. We are advocating an equitable and transparent funding mechanism that has a chance of giving a quality education to all children and youth.

Education is in the so-called pre-competitive space, and businesses, donors and governments alike have a mutual interest in co-investing in the outcomes which will benefit all. But it’s a long-term game, which means investing now to develop the talent base that businesses will need 10+ years from now.

Authors

Rebecca Winthrop
Gib Bulloch

India in Transition: The Pakistan Challenge for India and America

Bruce Riedel — Mon, 05 Nov 2012 00:00:00 -0500

As the United States and India grow ever closer as partners, they cannot escape the challenges posed by Pakistan, which has been a complication in the bilateral relationship between Washington and New Delhi since 1947. The next American President and his Indian counterpart will find it impossible to ignore the dangers and opportunities posed by Pakistan today. Cooperation between Washington and New Delhi on how to deal with these challenges is crucial and fortunately seems to be improving especially as we prepare for the 2014 transition in Afghanistan.

Both India and America have strained and complex relations with Pakistan. The terror attack on Mumbai on November 26, 2008 brought India and Pakistan to the brink of another crisis. Fortunately, cool heads prevailed, especially in New Delhi, but four years later, a gradual détente has begun. Visa restrictions have been loosened on travelers between the two countries, trade is increasing, and there is talk of a genuine free trade zone. These measures benefit both countries but especially help Pakistan with its weaker economy. President Asif Ali Zardari visited India and seems genuinely committed to improving ties. A September Pew poll shows Indians understand the paradox. 77 percent of Indians see Pakistan as an enemy, yet 77 percent also believe it is important to resolve the Kashmir dispute to improve relations with Pakistan.

What is unclear is how committed the Pakistani army and its intelligence service, ISI, are to détente. Traditionally, they have seen India as the enemy and the justification for their disproportionate share of the national budget. They remain closely aligned with the spoilers in Pakistan, the jihadist groups determined to fight India, not to make peace with it. Lashkar e Tayyiba’s boss, Muhammad Hafeez Saeed now has an American bounty for information leading to his arrest but he operates openly in Pakistan. The mastermind of the Mumbai massacre travels the country, appears at large ISI sponsored rallies and regularly appears on talk shows demanding jihad against India and America. There is every danger that another major attack is coming, ironically made more likely if détente deepens since the dark forces in Pakistan are determined to halt it.

Read the full article »

Authors

Bruce Riedel

Publication: University of Pennsylvania

Prospects for Indian Internationalism

Thu, 25 Oct 2012 14:00:00 -0400

Event Information

October 25, 2012
2:00 PM - 3:30 PM EDT

The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

On October 25, the India Project held an event with C. Raja Mohan, distinguished fellow at the Observer Research Foundation, moderated by Teresita Schaffer, nonresident senior fellow with the 21st Century Defense Initiative, on prospects for Indian internationalism. His remarks and a summary of the following question and answer session can be found below.

1. Expansive Internationalism:

India’s heritage of internationalism contributed to the Indian independence movement. The Bengali literary giant Rabindranath Tagore expressed a vision broader than nationalism, with a spiritual emphasis that, far from being anti-Western, included Western spiritual movements and found echoes there. Socialism and Communism were at their height as international movements during this time. Wendell Willkie’s One World, which built on the shattering disillusion after World War I, had influence in India.

When India became independent, one of the first big events was an Asian unity conference. This showed both the dimensions of Nehru’s international vision and its limitations. Nehru called for observance of universal human rights, and expounded an interventionist approach to the United Nations declaration on human rights. India’s opposition to racism and specifically to apartheid was one of the leading features of the internationalism of this period. India broke diplomatic relations with South Africa as early as 1948.

But even in this early period, Nehru’s expansive vision was tempered. The Kashmir crisis made clear the need to defend Indian sovereignty. India’s policy toward intervention was inevitably inconsistent. India opposed the UK/French/Israeli Suez operation but not the Russian invasion of Hungary. India itself used force in Goa, despite Nehru’s peace policy and rhetoric.

2. Dysfunctional multilateralism (the post-Nehru period, into the 1980s):

During this phase, India’s internationalism became less idealistic and more ideological. The Non-Aligned Movement became more radical, and this influenced India’s positions. This was the period of the United Nations resolution equating Zionism with racism, which India supported. This coincided with a period of populism at home, with Indira Gandhi’s “abolish poverty” efforts.

India’s engagement with the world diminished during this period. Its economy became less international; its economic engagement with its neighbors also dropped. The memories of the 1970s still live on in some of the sensibilities on the Indian scene and, importantly, in the image of India’s policies held by non-Indians.

3. Defensive internationalism and regionalism (late 1980s through 1990s):

During the initial post-Cold War decade, India’s policies on international engagement were largely negative. India resisted international urgings to use “preventive diplomacy” to resolve Kashmir. Its response to assertive nonproliferation was hostile. It was largely negative toward the new United Nations agenda. All these initiatives were seen as threats to India’s sovereignty.

At the same time, the groundwork was being laid for a new and more dynamic phase of international engagement. India became more deeply involved in regionalism during this time. Its relaunch of closer relations with East and Southeast Asia was especially significant, along with its having joined some of the ASEAN-linked groups.

4. Responsible multilateralism (since 2000):

Between 1980 and 2011, India’s two-way goods trade grew from $22 billion to $750 billion. The growth would be even more striking if one included services. Imports and exports grew to about 45 percent of India’s GDP.

This increased economic engagement with the world paralleled increased political engagement. Relations with the United States were transformed; this decreased Indian fears that the United States would try to “roll back” its nuclear assets, and India in turn softened its opposition to international nonproliferation, seeking to join the nonproliferation-related export control groups. The United States also muted its “activism” on Kashmir.

At the regional level, India’s outreach in East Asia strengthened. India also deepened its involvement in selective international groupings, such as BRICS and IBSA. It continues to participate actively in the Non-Aligned Movement, but Dr. Mohan regarded this as an inconsequential ritual.

Globally, India somewhat softened its position on climate change. It continued to seek a permanent seat on the United Nations Security Council, this time with United States support. India’s term in a non-permanent seat, however, had turned out to be a big disappointment for the United States, largely because of problems the Council faced in the Middle East.

India is changing from a rule-defier or rule-taker on the international scene to a rule-maker. As it does so, it is insisting on some level of accommodation.

5. The problem of the Middle East:

The Middle East poses a particular problem for Indian foreign policy, one which constrains India’s engagement with the international community. The large Indian Muslim population has been a matter of great sensitivity for India’s rulers even during the time of the Raj. Post-Independence, Pakistan has further constrained India’s policy. India’s goals are to protect India’s secularism and to ensure that Pakistan is not accepted as the spokesman for Muslims in opposition to India.

On the international scene, on issues that are framed between the West and Islam, India will tilt toward Islam or remain on the sidelines. Issues that are framed between Sunni and Shia-majority Muslim countries give India more space, hence India’s ability to support the Arab League mission in Syria.

Discussion:

During the discussion period, the following key points came up:

• India has massive economic interests in the Middle East, including dependence on that region for 70 percent of its energy imports and the presence of some 6 million Indians in the Gulf and elsewhere. It also has an active relationship with Israel. Saudi Arabia has become a more important economic partner than Iran.

• Why was India’s position on Libya at the UN so anti-Western? This was a case of delayed Indian adaptation to changed circumstances.

• India’s interest in permanent membership of the United Nations Security Council reflects its longstanding view that India should “be a member of any club that exists.” It may not happen soon; if India gains in strength, that will transform the situation.

• India has had difficulty finding the right style for engaging in Asean. Economic engagement in East Asia is important. India has free trade areas with Japan, Korea and Asean, but Indian politics are not yet ready to handle the Trans Pacific Partnership.

• India wants the United States to remain engaged in East Asia, and has supported the U.S. agenda on freedom of navigation.

• India and the U.S. have come a long way in their security relationship. The 2005 Defense Cooperation Agreement is an important milestone, as are service-to-service cooperation, defense industrial cooperation, and now shared missions. Trilateral and regional security cooperation in Asia are expanding. India has urged the IORARC to admit the United States and included the U.S. as observer in the Indian Ocean Naval Summit. This is still a subject of internal disagreement in India. India under the Raj was a “security provider”; it may move back to that position.

• India may be starting to move away from its classic insistence of a UNSC mandate for military operations. (“do you want to get Chinese permission every time you use Indian forces?”)

• India is skeptical of international disarmament negotiations. The international community needs to take on new issues: use of space, and how to create new rules of the road.

• India is a trading power and now emphasized keeping sea lanes of communications open. China has not yet shifted to giving priority to this issue in the South China Sea.

• Institutions and interests shape India’s policy more than personalities. There are few Indian internationalists on the right side of the political spectrum. We need to build up the realist discourse on foreign policy.

• Nonalignment 2.0 does not constrain government policy. If India doesn’t have “a US game,” it can’t have a “China game.” It can’t hang back indefinitely.