The inaugural Asian Infrastructure Finance report, released by the AIIB (Asian Infrastructure Investment Bank) made a very significant point that after the 2019 general election, India may change its attitude towards the China-led Belt and Road Initiative (BRI), and may even consider becoming part of the project.
The report also drew attention to the significant slowdown in infrastructure transaction activity between 2014 (estimated at more than USD 72 billion) and 2016 (dropped significantly to USD 40 billion). The collapse of Indian infrastructure development and the finance company known as Infrastructure Leasing and Financial Service (ILFS), as well as the high rate of non-performing assets were highlighted in the report and cited as some of the crucial reasons for a drop in funding of infrastructure.
The report also brought up another crucial point: AIIB’s lending rates were low, and India was beginning to pay attention to these.
There is not an iota of doubt that the issues flagged by the AIIB report are likely to emerge as significant challenges for the Indian economy. Irrespective of whichever political party comes to power after the 2019 election, the task of the next government is clearly cut out as far as dealing with some of the economic challenges flagged by the report is concerned.
Obstacles to India Joining the BRI
Yet, to argue that India would join the BRI after the 2019 election is a bit optimistic. In the long run this may happen, but Beijing needs to address a number of India’s apprehensions, while New Delhi need to be pragmatic.
So far, New Delhi has rejected BRI. In 2017, it was one of the few countries which did not send a representative to the Belt and Road Forum. Similarly in June 2018, India was the only member of the Shanghai Cooperation Organisation (SCO) not to endorse BRI at the 18th SCO Summit held at Qingdao, China. This was only two months after the Wuhan Summit where Chinese President Xi Jinping and Indian Prime Minister Narendra Modi met, and both sides had sent a clear message that they were in a favor of a thaw after the Doklam conflict.
Interestingly, during the course of the Wuhan Summit, Chinese vice foreign minister Kong Xuanyou had said that Beijing would not be “too hard” on India to join BRI, though the fact that India was one of the founding members of AIIB was an illustration of the point that both New Delhi and Beijing were committed to interconnectivity.
India’s opposition to BRI is driven by two factors. First, it passes through disputed territory (Gilgit, Baltistan) and second the lack of transparency in projects, and the fact that many of them are economically unsustainable. Modi, while speaking at SCO, stated that India welcomed “new connectivity projects that are inclusive, sustainable, transparent, and those that respect the sovereignty and territorial integrity of nations”.
Debt Trap Diplomacy & BRI
Significantly, with Malaysia and some other countries standing up to BRI, the optics don’t look particularly great for China currently. Malaysian Prime Minister Mahathir Mohammad even went to the degree of saying that China was practicing “neo colonialism”. It is not just Malaysia which has taken a firm position by scrapping important projects. Maldives, where a pro-China regime led by Abdullah Yameen was ousted in the September 2018 elections, is re-considering some of the projects signed by the earlier government. Senior officials of the new Ibrahim Mohamed Solih administration had unequivocally stated that some of the projects were overpriced. Finance Minister Ibrahim Ameer had stated that the cost of Chinese projects was inflated and they were thus being re-examined. Solih was also seeking to improve ties with India.
India-Japan Cooperation in South Asia & beyond
While New Delhi’s record in big-ticket infrastructure projects is not stellar, it has decided to work jointly with Japan. Japan International Cooperation Agency (JICA), which provided soft loans for the construction of the New Delhi metro, is also providing loans for numerous other infrastructural projects, including the Ahmedabad-Mumbai bullet train and highway projects in the Northeast (through the North East Road Connectivity project).
Both countries are also working on the Asia-Africa Growth Corridor. Here, it would be important to mention that JICA has been pro-active in providing soft loans for infrastructure and capacity building for a long time. There is now a strategic thrust to Japan’s involvement in both South Asia and Southeast Asia. Examples of this change are the Matarbari Port in Bangladesh as well as Japan’s involvement in the crucial Thilawa Special Economic Zone Project in Myanmar.
All Doors Not Closed
First, India and China post-Wuhan Summit will work jointly in Afghanistan. They are training diplomats jointly and the first such program was in fact held in New Delhi in October 2018. Indian Foreign Minister Sushma Swaraj and Chinese Foreign Minister Wang Yi met in Delhi in December 2018, and a gamut of issues pertaining to people to people contact, trade relations and military cooperation were discussed during the course of the meeting.
While the BRI is not just about Chinese expansionism and debt trap, Beijing on its part cannot be dismissive of alternatives to the mega project and neither should it dismiss legitimate concerns not just of India, but of many other countries.
Significantly, in 2018, Modi and Xi had four meetings. Swaraj and Wang co-chaired the First Meeting of China-India High-level People-to-People and Cultural Exchanges Mechanism. Greater people to people interactions have an important role to play in removing mutual misunderstanding, but also paving the way for cooperation in spheres like connectivity.
Second, even in the context of the Indo Pacific, India has been cautious in recent months. India has not excluded China from the Indo-Pacific, and neither has it used this strategy as means of targeting China. This was evident from Modi’s address at the Shangri La Dialogue in June 2018, where he said that his country does not believe that the Indo-Pacific region is “directed against any country”.
This of course does not mean that New Delhi will toe Beijing’s stance on the Indo-Pacific. Beijing has been dismissive of the Indo-Pacific strategy, and the Chinese media has been alluding to the point that New Delhi’s interests do not converge with Washington’s on a number of economic and strategic issues.
Third, the improvement of Japan-China ties in spite of numerous divergences should be an important lesson for India. While some pragmatists in India have realised this, it is for others to pay closer attention as well. Firstly, Japan-China ties has witnessed an improvement, with Japanese investors showing a keen interest in the Chinese market since the trade wars between China and US started. Secondly, Japan has expressed support for BRI, subject to the fact that the terms and conditions are transparent. A number of Japanese private sector companies are actually participating in BRI.
What China Needs to Realise
In the long run, New Delhi needs to remove its blinkers vis-à-vis BRI as countries such as Japan, despite having serious dissonance on critical issues with China, already have. China on its part too needs to bear in mind a few points.
First, China has not invested even a fraction of the USD 20 billion which it had committed to invest over a 5 year period during Xi’s India visit in 2014. Second, projects need not be under the rubric of “BRI”. The BCIM (Bangladesh, China, India, Myanmar Forum) for instance was proposed two decades ago, and has been under discussion way before the BRI project was conceived.
One of the crucial differences between India and China is whether or not BCIM should come under the umbrella of BRI. During the 5th Economic Strategic Dialogue held at Beijing in April 2018, this issue was discussed. If this project moves ahead, it could benefit Eastern India, and also boost India’s outreach towards Southeast Asia, but China needs to understand Indian apprehensions.
Finally, there is need for a nuanced understanding on both sides. While the BRI is not just about Chinese expansionism and debt trap, Beijing on its part cannot be dismissive of alternatives to the mega project and neither should it dismiss legitimate concerns not just of India, but of many other countries.
New Delhi and Beijing are expanding cooperation in a number of areas and connectivity cannot be ruled out in the long run. This may not necessary be under the umbrella of the BRI. New Delhi and Beijing have to find a middle ground, which may seem tough, but is certainly not impossible.
The AIIB report makes some important points, but its prediction of India joining the BRI after the 2019 elections may not come true.