“War is an ugly thing, but not the ugliest of things. The decayed and
degraded state of moral and patriotic feeling which thinks nothing is worth a
war, is worse.” – John Stuart Mill, before the battles of Somme and Verdun
during the First World War
India has a geopolitical problem
with Pakistan and with China also an economic one. The fact these two also
happen to be its two largest neighbours also means that they will possibly never
go away, it needs better management.
Ancient Greek philosophy believed
conflict is omnipresent and in that environment, being prepared is the only deterrence.
Neither empathy, understanding or good intentions can resolve the issue. We saw
this in operation during the recent Doklam crises as China undertook an
operation to change the status on the ground Indian forces with better force
posture locally and political support ensured that the status quo was
maintained. In Schelling's 1966 work on deterrence, it argued the concept that
military strategy can no longer be defined as the science of military victory. Further,
that military strategy was now equally, if not more, the art of coercion, of
intimidation and deterrence. But to be coercive or deter another state,
violence must be anticipated and avoidable by accommodation. So simply put,
deterrence is not only defined by capacity but also by the desire and ability
to use it. Capacity in today’s day and age is complex (Complex because a single
missile fired means coordination between local intelligence, satellite based
locations, missile launch command, missile tracking systems, damage assessment)
and expensive (just to pick up some hardware – B-2 bomber over $1bn, Abrams
tank over $4m, 1 GPS guided artillery shell ~$150,000 or assault rifles over
$1,000). India has shown limited ability to inflict damage (except the 2016
cross border raid into Pakistan) despite grave provocations be it Mumbai
attacks of 2008 or continued Chinese incursions. Deterrence has limited meaning
when one state shows no desire or ability to exercise its might whereas another
state can continue to call it unauthorised and uncontrolled action by non-state
players.
A continued economic
well-being is important to capacity building in the society. One can see
the detrimental effects of a stagnant economy in Europe – how state structures
are collapsing as pressure from unemployment is dissipating and changing the
political landscape. The massive stimulus program the Chinese adopted in 2008
was in response to this potential social pressure where exports fell 25% (or 8%
of GDP) and 25m migrant workers returned home. As India pushes to formalize its
economy through GST and demonetization, taking measures to reduce the subsidy
burden like free pricing of fuel, or pushing financial assets as against
physical assets, the savings capacity of the country and, therefore, our local
investment capacity should improve significantly. Higher investment during the
2004-2008 period is what created the conditions for high economic growth. But
in a world of Chinese over-investment as I have pointed in my earlier articles,
this investment can only be achieved by erecting trade barriers or non-trade
ones in areas of national importance like pharma, semi-conductor, electronics or
government giving additional incentives. While China will face the detrimental
effects debt and of precipitous decline in working age population (and is
therefore investing heavily in robotics and AI), India can have a social
disaster if it does not provide jobs for its expanding work force.
China’s best partners in Asia are
Pakistan and on a good day North Korea. India needs to exercise its national
might on the geographic advantage that it enjoys. It sits between the Middle
East and the Far East astride the Indian Ocean, practically allowing it
dominion on all that transits in between allowing it to exercise influence Africa
to Indonesia. It is protected by the Himalayas in the north and the dense forests
in the east, which is why China and India never before have fought wars. Only
now technology allows each other to inflict damage but creating logistical
lines through the Himalayas or via the Indo-Pacific is still a herculean task. Using
the Andaman Island chain, India can very effectively bottle up Chinese navy or
trade. The only territory that has ever threatened India has been territory via
Pakistan. This is the only practical and sustained power projection into India
and outside by India. And, this is where China wishes to build the China
Pakistan Economic Corridor allowing greater capability on India’s western
borders. India needs to shed its reluctance and mindset where alliances meant
giving up sovereignty and build firmer alliance structures as PM Abe has
suggested with US, Japan and Australia. This alliance structure will not only
allow it to improve its defence capability through technology sharing and
training but also build specific mutual defence arrangements which could range
from simple arms assistance at times of conflict to NATO like joint defence
pacts.
The final and most important aspect
in this is strategic patience.
- Pakistan has sought project itself as pivot to this part of the world to the best benefactor it can find in town since it came into existence. While it did this in a continuous effort to allow it parity with India, both its economic as well as social stability now lies threatened. It’s credit rating is the same as Rwanda or Jamaica, with debt over $82bn, reserves less than $20bn and a rising current account deficit (exceeding $3.5bn in the previous quarter). The decline in oil prices have reduced the inflow of aid and remittance from the Middle East, further impacting economic stability. There is the largest concentration of terrorist group that any country has with rising ethnic divide between Punjabis and other constituents like Balochs or Sindhis. In addition, the CPEC corridor with its market rate loans will exacerbate the current account deficit. China also tends to bring its own people for the construction activities and managing the plants allowing for limited local capacity building. Further, if there is a bias in internal distribution of projects it will also cause further dissension. China believes that it can control the outcomes in a politically disturbed country while allowing it to stabilise Xinjiang and helping it work around the Malacca dilemma. Pakistan believes that it will bring it greater control over Baluchistan and allow it to use China more effectively to balance against growing Indian capability.
- While Pakistan faces a political and economic crisis, China believes it can defy the laws of economic gravity. China’s Tier 1 housing costs are between 50-100 times household income with the likelihood China residential property value may have already surpassed value of the entire world. The stimulus economy it’s created has pushed debt in China to 330% of GDP which has resulted in interest expense being more that incremental nominal GDP since 2011!! At current pace China household debt which is about 60% of GDP in June 2017 is expected at current pace to be 90% of GDP – same as US pre-crises debt levels. In 2014, China forex reserves was 20% of money supply and 55% of household savings. Both these numbers have dropped now to 10% and 30% respectively, which heighten the risk of any panic by households. With continued forex outflow through the trade channel despite the severe restrictions on capital outflows, any issue in this can only be stemmed with a politically problematic devaluation. Recently, Governor Zhou of the China central bank outlined the rising financing risk in the system (https://www.bloomberg.com/news/articles/2017-11-04/china-s-zhou-warns-on-mounting-financial-risk-in-rare-commentary). As China puts capital restrictions so will it restrain FDI which despite be a small proportion of total capex in China (~2.5%) is important given its impact. For example, Enright, Scott & Associates estimates that the impact of US firm Procter & Gamble alone – with its supply chain and distribution channels – was more than US$11 billion on China’s GDP and 600,000 on the nation’s employment in 2014. Why should someone bring in money if they cannot withdraw? The One Belt One Road construct which will mean spending of US$1trillion in countries with low credit rating and still lower abilities to absorb such investments given the high levels of corruption and low human capital base, unlike the Marshal plan post WWII which was in countries with deep human capital and long history or rule of law. Further, it is not that the Chinese are looking to open opening up their markets for cheaper imports to allow these countries to expand their productive capacity. It is unlikely that OBOR will succeed. The Chinese, I am sure, understand their economic predicament of excess debt and bad demographics and they are dealing it in exactly the opposite way the Soviet Union under Gorbachev dealt with it, consolidating control under Xi than loosening as in the case of Perestroika.
It is in India’s interest to keep
building internal capacity and global partnerships, and allow the forces to
nature to do their work. Chinese economic slow-down/recession will stall
military expansion and consequently change behaviour of not only its own but
also Pakistan’s which will see the retreat of its 3rd benefactor
after US and Saudi Arabia.
In summary, Deterrence, Economic Growth, Partnership and Patience are the four
pillars on which India needs to build the next 5-7 years of its global and
regional politics. And, when it gets the opportunity change the ground status
in its favour be it in Tibet or in Pakistan or its immediate neighbourhood. Clausewitz, On War, “We can also undertake a
limited defensive war, of which there are two distinct kinds. In the
first, we aim to keep our territory inviolate and hold it as long as possible,
hoping time will change the external situation and relieve the pressure against
us. In the second, we adopt the defensive to help create the conditions
for a counteroffensive and the pursuit of a positive aim.”
"If
you love me as you say you do,' she whispered, 'make it so that I am at peace.”
― Leo Tolstoy, Anna Karenina
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