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Tag Archives | India

China’s Central Asia Engagements

America’s entanglement in Middle East has given China the perfect ploy to increase its footprint in Asia. The much-hyped Asia Pivot is in doldrums, with no policy framework or strategy to manage China’s rise. China clearly senses that its power projection in the Pacific is limited by the vast US presence and its network of allies, but in Central Asia, a viable power vacuum gives it the opportunity to expand its presence and influence. Central Asia is critical for China in three sectors, mainly trade, energy supplies and the fight against terrorism emancipating from Xinjiang.

 Energy Heaven and Russia’s Backyard-

After the collapse of the Soviet Union, Chinese companies ran into Central Asia to chart out energy deals to secure China’s growing energy demands. Most of Oil and Gas Pipelines run through Caspian Sea, Central Asia and Xinjiang, deep into China. Russia continues to be the main geopolitical player in the region, with negligible US presence. But off late, it has been facing subtle yet stiff competition from China. With economic sanctions in place, it is becoming increasingly difficult for Russia to ward off China’s economic power play. China-Central Asia trade was valued at 50 billion dollars in 2014, a figure exceeding Russia’s for the first time. The China-Central Asia network of pipelines could supply up to 55 billion cubic meters of natural gas to China every year, or more than half of China’s total gas imports.

Xinjiang Factor-

Increasing terrorist activities in Xinjiang has put China on a high alert. Influx of the majority Han Chinese in the region termed as ‘Hanification’, and failure of developmental projects has angered the ethnic Muslim population to rise against Xi’s ‘Strike Hard’ campaign. Since most of the oil and natural gas pipelines pass through this region, China is concerned about the security of its investments, and has in recent years, tried to subvert the religious practices of the people in Xinjiang. Uyghur separatists used to move around the porous borders with other Central Asian states to reach Afghanistan, though in recent years their movements have been highly regulated due to increased Chinese clampdown. China’s domestic law enforcement agencies are coordinating with their counterparts in the region to capture the terrorists and bring them to justice. Stability and security is the buzzword in this region. China maintains a premium on stability, and will go at lengths to protect its trade interest in the region. After the killing of a Chinese hostage by ISIS, China has stepped up its counterterrorism efforts. Pakistan has also played a critical role in assisting China. Andrew Small’s ‘The China Pakistan Axis-Asia’s New Geopolitics’ provides a detailed description of their coordination on selective counterterrorism.

Trade-

Trade is a very important factor in China’s geoeconomic calculus in the region. President Xi Jinping unveiled the ‘One Belt, One Road’ initiative in 2013 to maximize trade and commerce between Europe and China, with Central Asia acting as a critical transit point. EU-China trade is worth around 580 billion dollars, with much of the trade traversing through Central Asia, a replica of the old Silk Road. During ancient times, China had become the most prosperous nation entirely out of trade with Europe and Middle East, and is using the old route to reemphasize its benefits to other nations. Furthermore, China wants to decrease its dependence on the lengthier sea route for trade with Europe, and hence has increased investment in infrastructure projects in the region. For this purpose, China has setup three institutions to fund the vast developmental projects in the region. AIIB, Silk Road Infrastructure Fund and New Development Bank will pool in a total of around 100 billion dollars, with the Silk Road Fund alone providing 40 billion dollars. They will mostly concentrate on connecting China to Europe through railway lines, roads and energy infrastructure. With slowing economic growth and output, OBOR is highly essential for China to succeed and provide the necessary impetus to bolster growth in coming years.

 

India is slowly engaging itself in Central Asia with oil deals and gas pipelines, the most notable being TAPI. But it continues to lag behind China in terms of investment and influence. India-Central Asia trade pegs at 800 million dollars, which would have been higher, if not for Pakistan. Lack of direct access to Central Asian region continues to be a hindrance in terms of trade, energy security etc for India. And as the Chinese say, India is still 2 decades behind them, more so in this region. Let’s see if India will be able to better engage itself in Central Asia, with its growing economic clout and energy demands. Prime Minister Modi visited all 5 Central Asian states in order to increase security cooperation and trade. As the TAPI pipeline finally materializes for India, another option for India is to let the pipelines pass from Xinjiang region through the disputed territory of Aksai Chin, though it is very less likely to get traction among policy makers on both sides. In choosing lesser of the two devils, China is a better option than Pakistan for energy trade.

Piyush Singh is Junior Research Associate at Takshashila Institution and a student of law at Hidayatullah National Law University, Raipur.He tweets at @Piyushs7

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Thoughts on India’s approach to China’s 1B1R initiative

How can India respond to a Chinese project that is aimed at creating a geo-strategic realm for itself?

By Pranay Kotasthane (@pranaykotas)

Last week saw two articles in Indian media on the challenges and opportunities for India posed by China’s One Belt One Road (1B1R) project. This post looks at the arguments made in the two reports and puts down thoughts on India’s response to 1B1R.

To understand what 1B1R is, look no further than this succinct The Wire article by Shyam Saran. Suffice to quote this section in the piece that points to the strategic angle of the project:

China sees the twin-dimensional initiative as a long-term project to secure its geo-strategic realm, which has both a continental and a maritime dimension. It is not just an economic initiative. It has obvious political and security implications. In any case, China’s strategists do not draw lines separating economic and security objectives. Each dimension reinforces the other, even though the economic dimension may sometimes mask the security imperative.

1B1R then, is likely to remain the anchor around which China’s global outreach will be shaped. How should it be seen from an Indian National Interest perspective? Two pieces that appeared in the Indian newspapers last week offer a few leads while responding to this critical question.

One Belt One Road Plan. Source: China Daily Europe

One Belt One Road Plan. Source: China Daily Europe

The first piece in The Hindu while conceding that “Chinese political expansion and economic ambitions, packaged as 1B1R are two sides of the same coin” argues:

India needs to match ambition with commensurate augmentation of its capacities that allows it to be a net security provider in the Indian Ocean region. This will require New Delhi to not only overcome its chronic inability to take speedy decisions with respect to defence partnerships and procurement, but will also necessitate a sustained period of predictable economic growth; OBOR can assist in the latter.

Besides resuscitating economic engagement with the world, there are other advantages of being a part of groups such as 1B1R. A thumb rule helps: in the amoral setting of geopolitics, it benefits an entity to be a member of many clubs, rather than being outside them. It is easier to be a part of the clubs and use them to build one’s own capacities, rather than spend inordinate efforts on opposing such formations. Hence, this author strongly supports India’s presence at other clubs like BRICS, AIIB and SCO as well. Applying this thumb rule to 1B1R, India is better off being a part of it, particularly because the capabilities for India to float a competing vision altogether, possibly in partnership with the Japanese PQI just don’t exist.

Even if India decides to be a part of 1B1R, two critical questions raised by the authors remain unanswered: Can India seek reworking of the CPEC (China Pakistan Economic Corridor) by Beijing in return for its active participation? Furthermore, for the stability of the South Asian arm of OBOR, can Beijing be motivated to become a meaningful interlocutor prompting rational behaviour from Islamabad?

On the first question, India finds it unacceptable that the China Pakistan Economic Corridor passes through Pakistan occupied Kashmir. However, as the second editorial on 1B1R in Mint rightly points, New Delhi might now find it too late to extract Chinese concessions on CPEC in return for support on 1B1R. Moreover, India’s opposition or otherwise to CPEC will have little impact on the project itself. A more realist approach would be for India to de-hyphenate the CPEC leg from the overall 1B1R initiative.

On the second question, it is highly unlikely that China will restrain Pakistani actions against India in any meaningful way. In fact, China is most comfortable keeping the India—Pakistan conflict on the boil: on one hand, the conflict keeps India focused on its western border. On the other, the conflict allows gaining Pakistani friendship at minimal costs.

Overall, India can look at 1B1R from the dual lens of competition and complementation: In the Indian sub-continent, visualise 1B1R as an aggressive competitor: use it as an excuse to accelerate India’s own projects of connecting markets in India’s own neighbourhood. Outside the Indian sub-continent, look at complementing 1B1R. For instance, in East Africa, India can work with China under the aegis of 1B1R to expand its own reach.

Pranay Kotasthane is a Research Fellow at The Takshashila Institution. He is on twitter @pranaykotas

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India’s West Asia policy — is it losing out to China?

India needs to inject fresh thinking into its West Asia policy to further its national interest and avoid being left out due to China’s foray

The Chinese president Xi Jinping’s recent visit from January 17-23 to Saudi Arabia, Iran and Egypt signal Beijing’s intentions to play a proactive role in this region. China’s ravenous appetite for energy notwithstanding, it has been very astute in dealing with the countries in West Asia. The visit was all the more significant because tensions had arisen between Iran and Saudi Arabia due to execution of a Shiite cleric, Sheikh Nimr al-Nimr by Saudi Arabia in early January 2016. This led to break in diplomatic relations between Saudi Arabia and Iran. Unfazed, China went ahead with the visit.

What is of interest is how once a staunch anti-communist nation like Saudi Arabia warmed up to China’s overtures.  Saudi Arabia established diplomatic ties with China in 1990.  This was preceded by China offering CSS-2 intermediate range ballistic missiles to the Saudis. In 2007, China sold Dong Feng(DF) 21 medium range ballistic missiles with the tacit approval of the US Central Intelligence Agency(CIA). Saudi Arabia is the largest supplier of crude to China. According to the International Monetary Fund(IMF), trade between the two countries increased from US $1.28 billion in 1990 to US $ 74 billion in 2012.   China’s demand for oil is expected to grow from 6 million barrels per day to 13 million barrels per day by 2035. In order to diversify its sources, China has naturally looked towards Iran.

China played an important role in lifting the UN sanctions against Iran. It was a key negotiator with US and other permanent members of the UN to persuade Iran in capping its nuclear program.  So it was not a surprise that Xi Jinpeng was the first world leader to visit Tehran after sanctions were lifted on January 17, 2016. China and Iran have agreed to enhance security cooperation through intelligence sharing, counter-terror measures, military exchanges and coordination.  Iran is a crucial link in the strategically ambitious China’s ‘One Belt One Road'(OBOR) project. According to a Chinese government report, OBOR aims to connect China with Central Asia, Russia and Europe (Baltic).  It will connect China with the Persian Gulf and Mediterranean Sea. With the US practically vacating the Middle East, China seeks to step in to fill the vaccuum.

As the US seeks to pivot to Asia-Pacific through Japan, allies in South East Asia and India, it is natural for China to enhance the contours of its relationships with countries in West Asia. China is in for the long haul. On the other hand, India has been trying to play catch up. It did not balance the relationships between the West and Iran during the economic sanctions. Suitably placed for negotiations role, it ceded space to China. With Chabahar project also getting delayed due to slow progress on India’s part, it shouldn’t surprise us if we lose it. Least of all to China.

 

Guru Aiyar is a research scholar with Takshashila Institution and tweets @guruaiyar

Featured Image: Khezr beach, Hormuz(Iran), licensed from creativecommons.org

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Changes in FDI Regulation in 2015

An overview of the significant changes in FDI regulations in 2015. 

2016 saw the highest FDI inflows into India. Amount in USD million. Data source: RBI, chart by author

2015 saw the highest FDI inflows into India. Amount in USD million. Data source: RBI, chart by author

The financial year 2015 has been an exemplary one for foreign investments. Both FDI and FII have peaked in 2015. Net FDI inflows into India were a staggering $35billion, a 62 per cent jump from the previous fiscal year, which saw $21.6 billion. A report by the Japanese brokerage firm Nomura calculated that FDI forms 1.7 per cent of GDP, up from 1.1 per cent in the previous year.

  • The report attributes the higher net FDI to two factors: growing investor confidence in the country and lower outbound FDI following weak balance-sheet of domestic companies coupled with a weak global growth outlook. “We expect FDI inflows to pick up further in FY 2016, driven by an improving domestic growth outlook, recent liberalisation of FDI limits and government efforts to improve the ease of doing business,” the report says.
  • A sector wise breakup of the FDI inflows reveals interesting information. FDI into manufacturing, which the government has been trying to promote, has been modest. The auto industry has been an exception. Telecom, pharma and financial and business services were the largest recipients over the first three months of this fiscal year. The report speculated that some of the inflow was due to fund-raising in the e-commerce sector.
  • The government’s ‘Make in India’ campaign and higher FDI in the defence, insurance and other sectors are likely to see a further fillip in the net inflows.
  • The government’s move to put most of the sectors onto the automatic route and out of the RBI purview, as part of the grander plan for FDI liberalisation, has helped immensely. Further, increased caps on many sectors such as defence and insurance have helped.
  • FDI limits have been hiked in teleports (uplinking hubs), DTH (direct-to-home) and cable networks to 100 per cent with government approval required beyond 49 per cent. Further, news and current affairs TV channels and FM radio companies can now bring in up to 49 per cent FDI under the government route compared with 26 per cent earlier. For non-news and down-linking of TV channels, 100 per cent FDI has been permitted under the automatic route.

Apart from increasing the ceiling, the government has undertaken other steps towards FDI liberalisation. Some of them are:

  • Companies need not approach the Foreign Investment Promotion Board (FIPB), which is the nodal agency for attracting foreign investment, for M&As in sectors where FDI is allowed under the automatic route.
  • The circular also said the government permission will not be required for issuing ESOPS (employees’ stock option scheme) in sectors under the automatic route.
  • Allowed the Foreign Investment Promotion Board (FIPB) to clear proposals up to Rs 5,000 crore from Rs 3,000 crore earlier.
  • In construction industry, where India has traditionally fared poorly, area restriction (20,000 sq m) and minimum capitalisation requirement of $5 million to be brought in within six months of commencement of business have been removed. Further, foreign investors can exit and repatriate investments before a project is completed, but with a lock-in of three years.
  • In banking, the government has introduced full fungibility, meaning FIIs/ FPIs/ QFIs can now invest up to the sectoral limit of 74 per cent subject to the condition that there is no change in control and management of the private bank.
  • Manufacturers have been allowed to sell their products through e-commerce without government approval.
  • Another major booster for companies such as IKEA, a single-brand retail company with 100 per cent FDI, has come in the form of dilution in sourcing norms. Earlier, such companies had to ensure sourcing to the extent of 30 per cent of the value of goods from the date of FDI receipt. Now, it has been changed to opening of the first store.
  • In case of “state-of-the-art” and “cutting-edge technology” ventures under the single-brand route, sourcing norms have been relaxed. Further, single-brand retail companies can also undertake e-commerce business, not allowed at present.

Anupam Manur is a Policy Analyst at the Takshashila Institution and tweets @anupammanur

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The Afghan conundrum and India’s national interest

India’s interest is to find a way to play the role of mediator to negotiate with Taliban towards  stability in Afghanistan

With the exit of US a fait accompli, there is a clear signal to engage with Taliban for an enduring peace in Afghanistan.  A meeting under the auspices of Pugwash Conferences on Science and World affairs was conducted on January 23-24, 2016 at Doha. This was not the first time that a solution was being sought by the concerned parties at Doha. In May 2015, Pakistan, China and US tried to broker a peace between the Afghan government of Ashraf Ghani and Taliban without success. The failure of official mechanism has led to efforts on a track two level.

The argument to engage with a terror entity seems counter intuitive. More so, because India’s relations with the outfit have been patchy especially after the Kandahar hijacking incident in 1999. Dealing with Taliban is the least bad option in the present circumstances. With Taliban controlling almost one third of Afghanistan’s districts, it cannot be dismissed as a fringe player. The US too does not have much leverage to control the violence with a token force of just 10,000 troops. With the reconstruction expenditure from the start to date pegged at $ 113 billion, enough flak is being faced by Obama administration for continued presence and aid to Afghanistan.

Can the Taliban be trusted? They have given assurances of their willingness to share power with the Unity government in the conference at Doha. What is most worrying of its attributes is the extremist interpretation of Islam and denying of equal rights to women. Even if the Taliban assurances were to be trusted, there needs to be a guarded approach of dealing with them. For instance, will they be willing to disarm if brought into the power calculus? This will need to have iron clad guarantees. While advising the Afghan government, India has a bitter experience on this with the LTTE when Prabhakaran made only a token effort to disarm after the accord in 1987. So the Ashraf Ghani government has to have guarantees and make sure that the Taliban does not go back to its old ways once in power. This will be a long and torturous road to travel.

Vanda Felbab-Brown, a Brookings expert on Afghanistan believes that even though Taliban has been actively supported by Pakistan, many within the Taliban resent their Pak benefactors deeply because of Pashtun nationalism. The US usually wants Pakistan to take action against Taliban which it does as a charade against some elements. The Taliban, in turn want to assure India that their foreign policy will not be dictated by any outside power (a reference to Pakistan). The coming months will be closely watched as the cycle of violence repeats itself in Afghanistan. India will have to come up with an out-of-the-box strategy to engage with Taliban and the Unity government.

 

Guru Aiyar is a research scholar with Takshshila Institution and tweets @guruaiyar

Featured Image: Lake Band-e-Amir by Carl Montgomery, licensed from creativecommons.org

 

 

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India-Pakistan Rendezvous: Will terrorist attack destabilize the relation

 

Prime Minister Modi has called for a prompt and decisive action against those involved in the terror attack at Pathankot air base. Speaking to Prime Minster Nawaz Sheriff, Modi expressed his grave concern on the terror activities on the Pakistan soil and has called for an actionable response. Disrupting bilateral talks between India and Pakistan could be attributed as the key reason to this attack and a similar pattern has been sighted in the past.

A noticeable interface at the recent Paris Climate summit, on the sideline was the India-Pakistan Prime Minister talks that paved the way for a crucial Ministerial level dialogue. The rare meeting of the NSA (National Security Advisor) between India and Pakistan was described as cordial, open and positive. This was followed by the visit of India’s Foreign Minister Sushama Swaraj to the Heart of Asia Conference at Islamabad. Prime Minster Modi’s visit thereafter to Pakistan and meeting his counterpart Nawaz Sheriff, was seen as a significant bilateral development and an unprecedented progress in India-Pakistan relations. Interestingly this was followed several engagement like the cricket diplomacy and  the assurance by Modi to attend the SAARC summit to be held in Pakistan next year.

Despite the recent terror attack at the Pathankot Air Base and the Indian Consulate at Mazar-i-Sharif, Afghanistan with several reports confirming the involvement of Pakistan militant outfit Jaish-e-Mohammed (JeM), the rendezvous between India and Pakistan continues. However, Prime Minster Modi has reiterated the fact that such a dastardly terrorist attack was carried out from the Pakistan soil and has insisted firm action. Normalization could succeed only if action on perpetrators are taken as promised by Pakistan. There is no ambiguity in the terrorist attack and India has provided specific information to Pakistan to investigate the strike. Prime Minster Modi has demanded stern action to be taken against the perpetrators.

On the face of hope, there is a movement for comprehensive bilateral dialogue as against a composite dialogue. The Foreign Secretary talks as of now does not stand cancelled. Instead of confrontation and antagonism there is an unruffled silence. There is a regional implication to this reticence, both India and Pakistan are competing for influence and stabilization in Afghanistan. Several common interest like trade, security, energy and terrorism underpins this relationship. Modi’s address at the Afghan Parliament dawned a ray of hope, positive spirt and an earnest effort to dispel the Pakistani notion of distress on India’s involvement in Afghanistan.

There are several drivers to this stabilization process and some of the key factors would be energy assets and viable Central Asian markets for both India and Pakistan. Afghanistan is a key promoter of regional stability and is looking forward to an era of economic and security cooperation. With an emerging India-Afghanistan-Pakistan triangular relation, each of them are exhibiting high level of maturity and commitment. The recent inauguration of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline is yet another important strategic calculi.

Regional rapprochement has not been very successful and largely the South Asian politics have been dominated or clouded by India-Pakistan relations. Prime Minister Modi on assuming office has committed to sustain normalcy in the region. Earnest effort to adhere his commitment was seen in several of his initiatives towards the region. The recent   Modi’s visit enroute from Kabul to Pakistan is an important milestone in the process of regional stabilization.

Terror attacks and threats have been the key destabilizing factor in the area. Several terror outfits coexist and cohabit in the region and they have been supported largely by fundamental and fanatic groups. Countering terrorism has been a daunting task and several peace process to find a solution to this enduring problem has dominated the past years. Thus countering terrorism as a regional phenomenon would succeed only if there is a single peace process outcome in which both India and Pakistan are involved. Pakistan counter terrorism operation in the tribal region along Afghan border is underway. A step to regional balance and progress is on cards and India’s involvement is seen as positive step in this initiative. South Asian diplomacy has been advancing well in the past few months with several rounds of talks at the Government level and the impromptu visit by the Indian Prime Minister.

Balancing the regional stability is a daunting task, there are several glitches to this progress. It is not the very first time that peace process or normalization talks have been stalled. The question that remains is, will the recent terror attack at Pathankot air base set the clock behind in India-Pakistan Relations.

 

Priya Suresh is a Research Scholar at the Takshashila Institute.  She tweets@priyamanassa

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Let there be open green spaces in cities

The open green spaces are not just the nature reserves, but also serve as a gateway to other needs of the people living in the city. 

Mumbai, the financial capital of India, was in news last year for the protest between the civil society and the government bodies. The reason for the protest was Brihanmumbai Municipal Corporation’s (BMC) plan to make Aarey colony one of the limited open green space into a growth hub. Although, BMC’s plan also involved a theme park and various small recreational parks, it was highly opposed by the civic bodies. In order to understand the anger amongst the citizens better it is important to answer the question of what purpose do the open green space serve in a city.

Jacquelin Burgess, Carolyn M. Harrison and Melanie Limb tried to answer this question by looking at the popular meanings and values for open spaces in the city. As per their study, the open green spaces in the city like the parks and natural reserves act as “gateways to a high quality sensory and natural world.”

Their study involved conducting in-depth discussion, neighbourhood based social survey, and interviews. Based on the in-dept study, the authors mention the three important aspects of the role open spaces play in people’s lives:

First, open spaces are experienced holistically as an integral part of the built environment rather than isolated from it. These places include the neighbourhood parks where you go for jogging, the garden in your backyard, the central park in the city like Cubbon Park in Bangalore. The integral nature of such spaces makes them a part of the everyday life of people living in the city.

Second, parks and open spaces are filled with personal and social meanings. The open spaces in the city are havens for social interaction amongst the citizens themselves, and between the citizens and the nature. As the authors of the paper mention, it is in these spots that children can explore, learn and play together in safety, and the adults can come to escape the stressful urban life. Example being the Aarey colony, which has been an important “picnic spot” for decades now.

Finally, beyond and above the previous points, people also look for a variety of environmental features and leisure facilities in open spaces. Generally, people living in the cities also want to experience various aspects of nature not very far from home. Most of the wildlife sanctuaries and National Parks in India cater to this need of the society.

The green spaces in the city are undoubtedly as essential to a city as are the built up spaces. Hence, in this trade off between open space and growth hubs, it is time that proper weightage is given to open spaces. The relevance of these green spaces is best summed up by the authors of the paper.

“The value of green spaces is not to be measured in physical terms: the sum total of acreage or facilities do not provide any indication of the social and symbolic meanings associated with them.”

Devika Kher is a policy analyst at Takshashila Institution. Her twitter handle is @DevikaKher.

 

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Start -up India

Prime Minster Modi on 16 January 2016 started the new government  initiative called “Start-up India”. This initiative is a venture towards new enterprises and investments in India. This initiative is a movement to bolster innovative new ventures in India. The Government hopes that it would be able to tap ideas and innovation as an effective driver for India’s transformation. The new venture if effectively utilised could help generate employment opportunity in the country .

Action_Plan_Yourstory-01-01

The new endeavour  encompasses innovation and development of new products or services. The government is offering several tax benefits  and there is a lighter regulatory burden. This probably could result in innovation-driven companies . Since start-ups often faces several impediments, the new programme seems to be a very positive initiative.

Several Indian entrepreneurs are keen to play a new role in the economy .Start-up ventures triggered by the Silicon Valley successors  is a new trend and with the government support seem to draw several investors. Today Indian entrepreneurs are moving from a safe vault initiative to take up challenges.

India’s tech savvy Prime Minster has set up a $300 million fund for start-ups and also has eased restrictions for Indian’s living abroad who want to invest in venture capitals in India. The adage is “old money, new money-everybody wants a piece of our start-up-boom”.  The start-up India is to be promoted through bank finance and incentive to boost entrepreneurship, job creation and an conducive environment to set up start-ups. Withs several plan drawn, innovation in research is a key are that the government would call for investments.

This has raised a sense of hope amongst the Indian investors and is seen as an important landmark for  emerging India. An action plan is created to this effect drawing several government officials and entrepreneurs. They are  working towards hassle and barrier free environment conducive to investment.The action plan kick starts a new era in building entrepreneurs thus laying a foundation for New India.

The visibility of the initiative is at an infant stage. How is it going to be nurtured and developed  is a question that remains to be seen. Started with a major fanfare the success or the credibility of the vision “Start-up India”  is something that has be watched .

 

Priya Suresh is a Research Scholar with the Takshashila Institute. She tweets@priyamanassa.

 

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India’s Pacific Ambition

In many ways India is not a traditional or a significant power in the Asia Pacific region, but today India is making a concerted effort to look eastwards. There is a divided opinion on India’s Pacific ambition, while some call it as an emerging aspiration, while others call it as a deficit action. However it would be a misnomer and premature to  decipher  India’s  geo-strategic and geo-economic interest as simply void. With US strategic pivot in East Asia, and with expanded US-Japan alliance system, India is drawn into this  power configuration partnership, probably an effort to counterweight  China.

 

India and east asia

There is a growing geo-strategic and geo-economic involvement of India in the region. Host of factors ranging from past history, economy, political and strategic has dominated India’s East and South East Asia dynamics.  Trying to connect the demands of the  post liberalisation era and to engage meaningfully in the region, India re-visited its Look East Policy. India’s engagement with ASEAN is yet another milestone of integrating into the global economy.

The United States as a part of its pivot strategy in Asia , is harnessing  India as an important player in the region.  This has resulted in India’s invitation for the East Asia Summit in 2005. There is a sense of  inclusion of India by Singapore, Indonesia, Thailand, Japan and South Korea despite China’s objection. Defence diplomacy is something that India is judiciously following and has conducted  joint naval exercises with South Korea. Thereafter there has been an greater political engagement with Seoul. There is a special strategic global partnership that is emerging between India and Japan,as both the countries remain very watchful of China.

There are several areas that India-Japan are networking together. The high speed railways between Ahmadabad and Mumbai is a very important initiative towards this effort. The cooperation on nuclear and defence between Japan and India is very significant imperative in Asia’s landscape. There is a crystallisation of trilateral partnership between India-Japan-United States. Maintaining Balance of Power  is extremely vital and the resultant factor is the changing countours in the strategic landscape of East Asia.The triangular relation is seen as a crucial geo-strategic alternative which could probably balance China.

Is the inclusion of India done on the pretext of a growing economy or as an intent to contain China.There is lot of uncertainty that prevails in the region, what is the position of Japan, China and United States over the future of East Asia. Can the emerging powers like India, Japan and Australia fit into the strategic gap as  a stabilising force in the region. There is an emerging power shift that is slowly unfolding , can India benefit from this strategic quadrangle is something that has to be carefully watched.

Priya Suresh is a Research Scholar with the Takshashila Institute. She tweets @priyamanassa.

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Taking Advantage of Lower Commodity Prices

By focusing on those industries that rely on oil as a producion import, India can take maximum advantage of falling global commodity and oil prices. 

The biggest headlines in the economic world over the past year has been news of slowdown in the Chinese economy and the resultant fall in commodity prices. The slowdown in China, which has been the engine of growth in the past decade, has had significant impact on most other economies. China has been the biggest consumer of commodities and oil and thus, a slowing Chinese economy will import lesser amounts and this reduced demand leads to a fall in prices. Commodity prices have fallen by over 40% since their peak in the early part of this decade. Apart from oil, copper, iron ore, zinc, and many metal prices have been declining consistently. Price of energy related commodities, such as coal, has also significantly dropped. The reduced prices have hit many commodity and oil exporting countries. Brazil, Russia, South Africa and many other emerging markets have had severe declines in their exports and consequently in their GDP growth.

Commodity prices have fallen by 40% since their peak.

Commodity prices have fallen by 40% since their peak.

How is India poised? Is it going to be hurt by the Chinese slowdown or can it be a tailwind to increase growth?

First, the negatives: Indian apparel and yarn exports have declined considerably. China has been a big importer of Indian textile products and its decreased pace of income generation has meant lesser demand for Indian exports. Further, with China devaluing its currency considerably as a means to improve their trade, Indian competitiveness has been further eroded. India’s exports have fallen in every single month from April to November 2015 in comparison with the same month a year ago.

However, with India being a net importer of oil and commodities, it should really focus on taking advantage of the lower global commodity prices and falling oil prices. Here’s a few things that India can focus on:

1. With oil prices set to decline further in the first half of 2016, this is the time for India to seriously consider building a large enough strategic oil reserve.

2. India should get its current account balance in line. The rupee has also been declining significantly and if India can increase its exports, and with a reduced import bill, the current account deficit can be corrected to an extent.

3. Lower oil prices will imply smaller oil, petroleum and fuel based subsidies. This should be a golden opportunity for the government to get its fiscal accounts in check.

4. A lower import bill will also have positive effects on inflation and inflation expectations. This should give more room for a more accommodative monetary policy.

5. Most importantly, the government should focus on those industries that uses imported material, commodities and oil, as raw materials for production. The Indian auto industry should get a considerable fillip due to lower input prices. If policy can be more accommodative, the auto industry can soar. Other industries that rely on oil, such as, plastic industries including pipes, chemicals and resins selectively, paints, footwear manufacturers etc can really benefit from oil prices and the government should focus on creating a friendly climate for these industries. Apart from oil, reduced price of iron-ore, copper and even coal should help a large number of Indian industries by lowering input costs.

6. Finally, since India’s nearest peers – Brazil, China, South Africa, and many other EMs – not faring well in terms of economic opportunities, it is poised to receive a lot more of global funds, both FII and FDIs. The next round of liberalising reforms cannot come soon enough to attract global capital into India.

After the stagflationary episode in 2010-12, India is finally getting back to the higher growth track and global conditions seem to be favouring India. It should do all that it can to take advantage of these conditions and accentuate the positives.

Anupam Manur is an economics Policy Analyst at the Takshashila Institution. Connect with him on Twitter @anupammanur

 

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