The Hindu : Budget and the neighbours

Online edition of India's National Newspaper
Thursday, Feb 27, 2003

Opinion

Opinion - Leader Page Articles

Budget and the neighbours

By C. Raja Mohan

Economics remains the missing link in India's strategy towards its neighbours.

DIPLOMACY AND foreign affairs might not be at the top of his mind when the Union Finance Minister, Jaswant Singh, presents the budget in Parliament tomorrow. But they should occupy at least a small portion of his attention. Mr. Singh surely knows that economic instruments have emerged as potent tools of diplomacy in the age of globalisation. An imaginative economic strategy towards the neighbours could do more than all the negotiating skills at the Foreign Office, the posturing of the Home Ministry and the macho rhetoric from the armed forces in changing the political dynamics of the Subcontinent. Mr. Singh could use the budget to put out the message that New Delhi is now ready to use the clout of its market to alter its bilateral relations with the neighbours that have got into such a difficult groove.

Mr. Singh is fully aware that it was economics that gave a new cutting edge to India's foreign policy in the last decade. Without the reforms which generated high growth rates of the mid-1990s, New Delhi could not have managed the political costs of its nuclear tests in 1998. India's image as a big, emerging market and its capabilities in information technology have helped change its international standing over the last decade. In the absence of these factors, nuclear weapons alone could not have given India the weight it seeks in world affairs.

The slowdown of reforms and the reduced pace of growth in the last few years has made economics the missing link of India's changing relations with the United States and other major powers. The U.S. Ambassador to India, Robert Blackwill, has pointed to the fact that Indo-U.S. trade relations are "flat as a chapatti".

At a time when Indo-U.S. security and political relations are beginning to improve, the stagnation in commercial relations has been a cause for worry. The world will be waiting to see if Mr. Singh gives the much-needed push for reforms that will revitalise India's national security strategy. Economics remains the missing link in India's strategy towards its neighbours.

The only diplomatic signal that went out to the neighbours from the annual budget exercise was the amount of resources allocated to defence. The increase in defence spending along with the rhetorical flourish of the Defence Minister that no expense would be spared on matters of national security are picked up in the region and magnified. For the international media, it is one more occasion to draw attention to the arms race between India and Pakistan and the potential nuclear flashpoint in the Subcontinent.

But there are many other diplomatic signals that could be generated from the budget, in particular measures to promote economic integration in the region. These include incentives and facilities to promote border trade between India and its neighbours, reduction of tariffs for goods from the rest of South Asia and removal of restrictions on investments from India in the markets next door. Surely, the Foreign Office and the Commerce Ministry see access to the Indian market as a leverage that must be used to extract other concessions from the neighbours and do not want it to be squandered in unilateral gestures.

But as India has found in recent years, such negotiations are cumbersome, take a long time and get caught up in a whole range of other political difficulties. As a result, the talks on trade liberalisation in the South Asian Association for Regional Cooperation have gone nowhere. Without insisting on negotiated access to the Indian market in SAARC, New Delhi can effectively use its economic clout to unilaterally change the commercial dynamics of the region. The very suggestion of unilateralism raises eyebrows across the Government. However, if India looks at the strategic significance over the long term of economic integration, it should be more than eager to unilaterally force the pace of creating a single market in South Asia and end the economic partition of the Subcontinent.

Unlike in the past, all the countries of the Subcontinent are seeking to globalise their economies. The era when all South Asian countries tried to build "socialism in one country" is long over. All of them are under compulsion to take full advantage of the natural imperatives for market integration with India. The logic of globalisation does not square with Pakistan's continued attempts to avoid economic cooperation with India. That contradiction is for Islamabad to resolve. India can, through its unilateral economic actions, make the contradiction unsustainable.

While Pakistan remains reluctant to seek shared economic prosperity in the region, our other neighbours are beginning to see the implications of the logic of globalisation and the consequent need to become part of the Indian economy. Colombo is seeking deeper linkages with flourishing South India. Bangladesh wants duty free access for its goods to the Indian market. Nepal and Bhutan, which are already tied into the Indian economy, are seeking a modernisation of this relationship and removal of many distortions that have crept into the trading regime between them and India.

International analysts see the inevitability of the economic reintegration of the Subcontinent. A recent report of the U.S. Central Intelligence Agency on global trends in 2015 predicts that the smaller economies of the Subcontinent will increasingly depend on the Indian market for growth. South Asian states can hope to draw large amounts of foreign investments only on the basis of having an access to the Indian market which has become the engine of regional growth. The economic success of our neighbours is linked with that of our own trade and fiscal policies. The question is no longer whether the region will integrate. The unanswered questions are about how effectively and quickly India will take advantage of this altered reality in the Subcontinent over the last decade.

By facilitating regional integration through unilateral measures, India is not merely doing a favour to its neighbours. It also helps itself. India cannot hope to prosper amidst collapsing economies and failed states in its neighbourhood. Nor can it hope that a unilateral, security-oriented approach will resolve the many political difficulties with its neighbours.

Whether it is illegal immigration from Bangladesh or the challenge from Maoist insurgency in Nepal, these problems can only be addressed within an overarching strategy that involves a significant economic component. India can put a million troops on the border with Bangladesh, but will yet find it impossible to put an end to the flows of economic refugees. Altering the economic conditions across the border and working with the interests of the people along both sides of the border are crucial for the reduction of illegal migration.

The Government has increasingly come to see the importance of putting trade and commerce at the centre of India's regional diplomacy. Mr. Singh's successor in the Foreign Office and his predecessor in the Finance Ministry, Yashwant Sinha, has promised to focus on economic diplomacy. He has talked of unilateral actions by India to transform the international relations in the Subcontinent. Mr. Sinha has put across India's renewed commitment to push the region towards an early economic union. But these words have little meaning unless matched by deeds in recasting our trade policy towards the neighbours. Mr. Singh's maiden budget could show that India is willing to put its money where its mouth is.

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