ISAS Working Paper 2012 by Institute of South Asian Studies ISAS

ISAS Working Paper 2012

ISAS Working Paper No. 139 – 13 January 2012 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

America’s Asia Policy Shahid Javed Burki 1 Abstract The groundwork for America’s new Asian approach, released as a part of its new defence strategy was prepared in the three visits the United States President Barack Obama has taken to the continent. In each of these the American leader’s position shifted, taking him slowly towards where he stands today. In the first visit in November 2009, centred on a visit to China, he was prepared to welcome Beijing to the front row of global policymaking. In the second, he welcomed India’s rise and expressed his country’s willingness to cooperate with New Delhi to craft a new world order in which the two large Asian powers, China and India, will play stabilising roles. In the third visit in November 2011, the American president began to articulate a policy aimed at containing China and making Asia a central American preoccupation. Now with the release of the Defence Strategy the United States has signalled a major shift in its geographic focus. It will now give more attention to Asia, in particular to the Pacific region. This paper examines the strategy and the implication of this move by the Obama administration for the South Asian subcontinent.

Asia’s Relative Economic Rise America’s new defence posture should be viewed in the context of the enormous changes taking place in the shape and structure of the global economy. There are changes not only in terms of a greater share of Asia in the global economy. There is also significant reordering among the economies in the Asian continent. High rates of economic growth by the two most populous countries in Asia – China and India – relative to GDP increases in the older 1

Mr Shahid Javed Burki is Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He can be reached at sjburki@yahoo.com. The views expressed are those of the author and do not necessarily reflect those of the institute.

economies of North America, Europe and Japan have brought about significant changes in the distribution of global product. The change has been most dramatic since the Great Recession of 2008-09. 2 While the recovery in the non-Japanese Asian economies was rapid, it was sluggish in what was once the richest part of the global economy. Europe continues to remain in economic turmoil, while the tepid recovery in the United States has created few new jobs. There is no sign of Japanese recovery; its economic downturn has lasted for two decades. It is the situation in Japan that will profoundly influence Asia’s economic development. For decades the Japanese economy remained central to the Asian economic system. Its model of economic growth with the state firmly guiding the private sector towards producing exportled growth was replicated by other Asian economies. However, this model ceased to work in Japan some two decades ago; the country now faces industrial irrelevance. According to one assessment, “since the country’s bubble burst in the 1990s, real income per worker has fallen by 10 per cent and the loss of more well paid manufacturing would accelerate the downward trend. Although official unemployment remains low, at a little more than four per cent, the government calculates that the rate would increase more than threefold if companies cut their workforces to match the actual level of demand.” 3 The Japanese manufacturing sector is now moving its operations abroad, mostly to the neighbouring Asian countries. “Since the yen began its 40 percent climb against the dollar in mid-2007, net outbound foreign investment has jumped from an average of US$30bnUS$50bn in the first half the 2000s to US$130bn in 2008. It remains above its long-term trend. Domestically, corporate capital investment has been falling”. 4 China has moved into the space vacated by Japan. While Japan has become a net exporter of capital, China remains the destination of large foreign direct investment. Not only did China surpass Japan in the first half of 2011 to become the world’s second largest economy after the United States. It has also become the economic engine for the Asian economies. Combined with its economic prowess is China’s growing military strength which has added to its influence in the Asian regime. Beijing is investing heavily in developing its navy and air force and has launched an ambitious space programme. It is this increasing focus on military build-up that has begun to worry Washington. It was the subject of President Obama’s most recent visit to Asia in November 2011, the third undertaken by him since becoming president.

President Obama’s Third Asian Visit President Barack Obama returned to Washington on 19 November, 2011 after concluding an eight –nine-day visit to Asia, counting the one day he spent in Honolulu, Hawaii, hosting the 2

This was the subject of inquiry in an earlier paper by the author. See Shahid Javed Burki, “Disorder in the global economic order”, ISAS Insight No.114, 21 October 2010, Institute of South Asian Studies, National University of Singapore. Jonathan Sable, Japanese Manufacturing: In search of salvation”, Financial Times Analysis, 5 January 2012, p.7. Ibid.

summit of the Asia-Pacific Economic Cooperation (APEC) forum. This was the American president’s third Asian visit. Each of these served a different set of American objectives as the country sought to redefine its role in global economic and political affairs. Each of these visits was marked by a different approach by Barack Obama in the way he views the world. He was accommodating new factors into his evolving world view while continuing to maintain that Asia was now the area deserving of most attention by the United States. In the first visit to the Asian continent in November 2009, he called himself the president of a Pacific country. The first visit, undertaken within the first year of his presidency, was aimed at recognizing the rise of China. In what will be seen as a historic speech made in Tokyo as he headed towards Beijing, President Obama invited China to join his country in leading the global system towards a new order. Implicit in this was the suggestion that global affairs could be ordered by creating a G2 arrangement at its apex with G20 made up of the world’s largest economies, developed and emerging, at the next level. The rest of the world will form the base of the suggested pyramid. Beijing was not particularly keen to play that role fearing that unless it consolidated its position in its immediate neighbourhood, it will end up playing second fiddle to the still dominant United States. Beijing believed that it could afford to wait. That said it was willing to participate in the annual dialogue with the United States on a variety of strategic issues. Three of these have been held since President Obama’s first visit to Asia in November 2009. Two of these took place in Beijing and the third in Washington. Several powerful foreign policy constituencies in the United States were taken aback by the new president’s eagerness to embrace China as his country’s equal. They mobilised to reassert what was viewed as “American exceptionalism” – the view that the United States came into being as a nation to influence the rest of the world: to have its values and political and economic systems not only be respected around the globe but to be seen as the models to be followed. The American right was not prepared to step back and accommodate China in the front rank. China may be on its way to becoming the world’s largest economy – overtaking the United States perhaps as early as 2015 – but its values and systems could not be more different from those that were American. Any suggestion that China could be treated as one of the two models for the world was not acceptable to the forces of conservatism in the United States. 5 The second visit was undertaken when there was a growing recognition that deep structural changes were taking place in the global economy with economic realignments proceeding much faster than anticipated even by those who had claimed that the 21st century will be the Asian century. 6 The second visit came a year later, and this time the American president 5

See Shahid Javed Burki, “President Obama’s first Asian visit”, ISAS Brief No.138, 9 November 2009, Institute of South Asian Studies, National University of Singapore, for a discussion of the first visit to Asia by President Barack Obama. See, for instance, Fareed Zakaria, The Post American World, New York, W.W. Norton, 2008 and Kishore Mahbubani, The New Asian Hemisphere: Irresistible Shift of Power to East, New York, Perseus Books, 2008.

seemed to have two related objectives. The first was to signal support of his country for the democratic regimes in the Asian continent. His visit was confined to the democratic countries in Asia, thus giving a clear message that Washington would support democracy in Asia’s political development rather than Chinese style of authoritarian rule. The second aim was to signal the arrival on the global scene of India as a near-superpower. The most noted statement of the second visit was to indicate that President Obama did not see India as a rising power but as a power that had already risen. 7 Obama also pleased his Indian hosts by promising that Washington will lend support to India’s efforts to gain a permanent seat in the United Nations Security Council. If that were to happen India would advance to the same status China has as a veto-wielding global power. The third visit factored in the extraordinary economic rise of China not foreseen when the first two visits were made. The first visit came while America and the West were still in the middle of an economic recession that, because of its intensity, came to be called “the Great Recession of 2008-09”. However, there was an expectation that the recession, like most others in the post World War II period, would end as quickly as it had begun. That did not happen. The second visit was undertaken when the United States and Europe had begun to slowly climb out of the great recession while the Chinese and Indian economies were galloping ahead. The third visit came during a period of great economic uncertainty in the United States and Western Europe. While America, with a growth of two per cent in the third quarter of 2011, seemed to have avoided a “second dip” recession, Europe had plunged into a deep existential threat. Large sums of money were needed to pull several members of the European Union out of a worsening financial situation. Unless large amounts of capital were committed to bolster the finances of some of the weaker economies in the area, there was a real fear that some of them could go into default and bankruptcy. A significant part of the new money needed was expected to come from China. Beijing, while willing to help, also demanded a larger role in international finance. At the same time it was also beginning to flex its military muscle in the Pacific, willing to enforce its perceived rights in the resource rich waters in its neighbourhood. The third Obama visit, acquired “containing and constraining China” as an implicit objective. This was reminiscent of the effort made by the administration headed by President Dwight Eisenhower when the objective was the containment of the Soviet Union which had expansionist ambitions. However, unlike the 1950s, Washington, in 2011, was not entirely focused on military alliances to constrain China. President Obama mixed a heavy dose of economics with politics in the third visit. While there was agreement to base a few thousand US troops in northern Australia, the decision to start work on a Pacific trading arrangement was given greater importance and will ultimately be of great consequence.

See Shahid Javed Burki, “President Barack Obama in Asia – Searching the basis for a partnership”, ISAS Working Paper No.102, 7 December 2009, Institute of South Asian Studies, National University of Singapore.

At the APEC meeting in Honolulu leaders from Canada, Japan and Mexico agreed to join nine Pacific rim countries – Australia, Brunei, Chile, Malaysia , New Zealand, Peru, Singapore, the United States and Vietnam – to create a new trading arrangement. Called, the Trans-Pacific Partnership, the TPP has the potential to rival the European Union in terms of its impact on global trade. It accounts for many more people and consumers than the EU, produces 40 per cent of world GDP, and has greater economic dynamism than the European Union. The TPP, by excluding China, aims to lessen China’s economic impact on the Pacific, while increasing that of America and Japan. If the TPP becomes a reality – and it is a large if – this will be the most important consequence of Barack Obama’s third visit to the Asian continent. The TPP will fundamentally restructure the international trading order. But this focus on having the United States become a trading and economic partner of the Asian nations was sidelined by the growing concern with Beijing’s military might. This is reflected in the United States’ new defence strategy made public on 5 January 2012.

US Defence Strategy review In a rare visit to the Pentagon, President Barack Obama revealed a major shift in his country’s defence strategy. This was the first time in the history of the Pentagon that a president had spoken from its briefing room. The eight page strategy document was the outcome of a series of meetings in which Obama took an active interest and laid out his views about the military strategy in Asia and the Middle East. It also reflected the need to bolster cyber-warfare capabilities, special operations forces and other elements that would emerge in the document. “Under the Budget Control Act, signed by Obama in August as part of the hard won deal with Congress to lift the borrowing limit, the Pentagon budget must be reduced by about US$487 billion in the next decade, a roughly 8 percent decrease. But under a process known as sequestration, that figure could double if Obama and Congress fail by the end of the year to cut an additional US$1.2 trillion in government spending in the next decade”. 8 By involving the top military brass in the preparation of the new strategy, Obama ensured that he would have their support when the inevitable confrontation came with the Republican Party dominated Congress. The president also gave clear indication that he and his administration will not accept any further cuts in military expenditures beyond those included in the new strategy document. However, even with the planned cuts, President Obama felt it was necessary to assure the American public that the country’s position in the world would not be hurt. “The United States of America is the greatest force for freedom and security that world has ever known, And in small measure, that’s because we’ve built the best-trained, best-led, best-equipped military in history – and as Commander-in-Chief, I’m going to keep it that way”, said the president in the opening part of his statement at the Pentagon. He said that the time had come to turn the page on a decade of war. He reminded his audience the role his country had played 8

Scott Wilson and Greg Jaffe, “A strong defense for Obama: Military’s support for his budget may outflank Congress”, The Washington Post, 8 January 2012, pp.A1 and A110.

in fighting terrorism – “we’ve delivered justice to Osama bin Laden” – and helping the Arab world move towards democracy – “we joined allies and partners to protect the Libyan people as they ended the regime of Muammar Qaddafi” – and promised that the Americans would remain actively involved in world affairs. He made clear that the strategy he was making public took shape with his active involvement. “But I just want to say that this effort reflects the guidance that I personally gave throughout this process”. His involvement along with that of the senior leaders of the military in shaping the defence strategy will ensure America’s dominance on the world stage. “Yes, our military will be leaner, but the world must know the United States is going to maintain our military superiority with armed forces that are agile, flexible and ready for full range of threats”. But he wanted his nation to fully comprehend the changes he and his administration were making. “I firmly believe, and I think the American people understand that we can keep our military strong and our nation secure with a defence budget that continues to be larger than roughly the next 10 countries combined.” 9 As was to be expected both expert and political opinion was divided about the wisdom of the new strategy. “Critics will also argue that a one-war paradigm could weaken deterrence” wrote Michael O’Hanlon in newspaper commentary. But the opposition was not pleased. He is the author of a well-regarded book, The Wounded Giant: America’s Armed Forces in an Age of Austerity 10. “We do not want to trigger aggression from those who believe that America is powerless to deal with more than one ground conflict at a time… Ultimately strategy is about minimising, not eliminating, risk. The threats from maritime contingencies in the Western Pacific and Persian Gulf, and from fiscal weakness exceed those from simultaneous ground wars. The U.S. budget should be adjusted accordingly.” 11 But the American right was not prepared to buy the Obama doctrine. “Here is what the lessons of past 70 years really teach us: We cannot pick our enemies but our enemies will pick us” wrote Robert H. Scales, a retired army general and a former commander of the U.S. Army War College. “They will, as they have always done in the past, cede to us dominance in the air, on sea and space because they do not have the ability to fight us there. Our enemies have observed us closely in Iraq and Afghanistan and they have learned the lessons taught by Mao Zedong and Saddam Hussein: America’s greatest vulnerability is dead Americans. So our future enemy will seek to fight us on the ground where we have traditionally been poorly prepared. His objective will be to win by not losing, to kill as an end rather than as means to an end. And we will enter the next war again tragically short of the precious resource that we have neglected for six administrations: our soldiers and Marines.” 12 P. McKeon, a Republican congressman who is chairman of the House Armed Services Committee was

Barack Obama, “Remarks by the President on the Defense Strategic Review”, The White House, Office of the Press Secretary, 5 January 2012. Michael O’Hanlon, The Wounded Giant: America’s Armed Forces in an Age of Austerity, Washington DC: The Brookings Institution, 2011. Michael O’Hanlon, “benefits of a one war posture: In order to confront different threats, we need specialized capabilities”, The Washington Post, 6 January 2012, p.A15. Robert H. Scales, “Forgetting the lessons of history”, The Washington Post, 6 January 2012, p.A15.

extremely critical: “This is a leads-from-behind strategy for a left-behind America” he told the press after President Obama released his strategy. 13 The new strategy has five major components, four of these deals with the military and the fifth with America’s role in the world. First, there will be reductions in the size of the Army, the Marine Corps and the nuclear arsenal. In the past decade, the Army increased to about 570,000 from 482,000 before the two wars in Iraq and Afghanistan. Its size will shrink to 520,000. The Marines will also have fewer soldiers. And under the New START pact with Russia, ratified by the US Senate in December 2010, the two countries are required to reduce their nuclear weapons deployed on long-range missiles from 5,000 to 1,550. Second, there will be a retreat from large-scale counterinsurgency operations as a way to stabilise war-torn countries. Instead, there will be greater focus on building the capacity of the special forces and improving the arsenal of unmanned aircraft – the “drones” – the assets that have been effectively used in Afghanistan and Pakistan. It was a combination of these two assets that killed Osama bin Laden in Abbottabad, Pakistan. Their continued – perhaps even increased – use will reduce the need for large forces. America will fight most future wars from the air than on the ground. Third, there will be scaling back of another Cold War strategic construct. “For decades the military has adhered to a policy of maintaining enough forces to fight two regional wars at once. The new strategy commits the Pentagon to being able to fight a single large-scale war while retaining enough forces to deter or impose unacceptable costs on an opportunistic aggressor in a second region”. 14 Fourth, the strategy aims to lower personnel costs through curtailing expenditures on pay, health care and other benefits for military personnel. This part of the strategy was to meet the requirement set out in the agreement between President Obama and the leadership of the Republican Party in August 2010 in connection with the fight over the debt ceiling. The changes in the defence strategy were motivated by a number of considerations. Paramount among them is the difficult fiscal situation in which the United States found itself after the Great Recession of 2008-09. The country could not afford to pay for the kind of military it had as a result of its involvement in two wars. As he has done before, President Obama cited President Dwight D. Eisenhower’s maxim that military spending “must be weighed in light of a broader consideration: the need to maintain balance in and among national programmes. After a decade of war, and as we build the source of our strength – at home and abroad – it’s time to restore that balance”. 15 However, as The Washington Post pointed out in an editorial that gave general support to Obama’s strategy “when Mr Eisenhower spoke those words, defence spending represented more than nine per cent of US 13

14 15

Craig Whitlock and Greg Jaffe, “Pentagon braces for a future of shrinking forces”, The Washington Post, 6 January 2012, pp.A1 and A14. Ibid. Barack Obama, “Remarks by the President on the Defense Strategic Review”, The White House, Office of the Press Secretary, 5 January 2012.

gross domestic product. Under Mr Obama’s plan it would drop from about 4.5 percent to under three per cent”. 16 As a percentage of gross domestic product, America’s military expenditure will decline and get closer to the world average.

Impact on South Asia Of special significance for the countries in Asia is the fifth element in the strategy – the declaration that there will be greater focus on the Asian continent. In his speech at the Pentagon, President reminded the audience of the steps he had already taken to strengthen the American presence in that continent during his third visit to Asia. “As I made clear in Australia, we will be strengthening our presence in the Asia-Pacific, and budget reductions will not come at the expense of that critical region” he said. 17 This is because of the increasing concern in Washington about rising China and Beijing’s commitment to increasing its military strength. That the United States was worried about China’s increasing military capacity and its intentions in the Asian and Pacific regions was signalled by the American president during that visit. However, in the public pronouncements about the new strategy, the American leadership focused more on the interests shared by Beijing and Washington rather than on the differences that may provoke military action. In a television interview Leon Panetta, the Secretary of Defence, said that both China and the United States were interested in peace and stability in the Korean Peninsula, in combating terrorism, and in keeping the sea lanes open for traffic. 18 There are likely to be several consequences for South Asia of this change in America’s strategic stance. The sub-continent could become the stage on which the large powers will play the new great game. India and Pakistan, South Asia’s largest countries, are likely to find themselves on the opposite side of the new great power divide. If the strategy works according to its design, this time around India will be more closely aligned with Washington than Pakistan. There is an irony in this since in the Cold War the Indians, under Prime Minister Jawaharlal Nehru, sought to distance themselves from the two superpowers of the day – the United States and the Soviet Union. Nehru and some other Asian and African leaders then developed a strategy that resulted in what came to be called the Non-Aligned Movement. Pakistan, on the other hand, sought a close relationship with the United States which it was able to obtain. But the situation has now changed in a dramatic way. Since the days of President Bill Clinton Washington has courted India to become its partner. Initially the American interest in India was for economic reasons. American businesses were attracted to the country because of its well-trained manpower that could provide all kinds of back-office support to the businesses in the United States. For many large corporations, India 16 17

The Washington Post, “A reduction in force”, 7 January 2012, p.A14. Barack Obama, “Remarks by the President on the Defense Strategic Review”, The White House, Office of the Press Secretary, 5 January 2012. Interview with Jeffrey Brown of the Public Broadcasting Service for the Newshour program on 5 January 2012.

became an important strategic partner. 19 As the Indian economic growth picked up and the country developed a large middle class with tastes for Western products, many businesses saw an opportunity to sell their goods in the Indian markets. For several years now large retailers such as Wal-Mart have tried to gain access to the Indian markets. If they have not succeeded it is because of the Indian political imperatives not for the lack of trying. President George W. Bush carried further the United States’ interest in India. He developed a close relationship with Manmohan Singh, the Indian Prime Minister, and used it to draw New Delhi closer to Washington. One of the rewards offered to India was an agreement that virtually bestowed the status of a nuclear power to the country, something that had been denied since India’s decision to develop nuclear weapon systems had defied the assumption on which the Nuclear Non-Proliferation Treaty was based. It was assumed that the possession of these weapons would be confined to the five countries that possessed them when the treaty was negotiated. India was now being effectively admitted into that exclusive club with the United States, Russia, Britain, France and China as members. During his visit to India in November 2011, President Obama completed the American turnaround by declaring his country’s support for the Indian wish to get a permanent seat in the UN Security Council. It would not be healthy for South Asia if the United States’ growing concern about China’s increasing influence results in promoting rivalry between China and India. A healthy competition between the two Asian giants will serve the two well. It will also promote Asia’s economic development. What would not help is Washington’s use of India to balance China’s rise and thus have New Delhi serve its strategic interests. The deteriorating relations between the United States and Pakistan as result of a series of events in 2011 have presented the policymakers in Washington with a choice. They can work to resolve the differences and remain engaged with the country that remains critical to its long-term – not just short-term – strategic interests. Or they can simply walk out of the country as was done in 1989 when Pakistan’s usefulness to the United States diminished after the Soviet Union was pushed out of Afghanistan. There is considerable temptation to adopt the latter approach. That is certainly the case in Congress which has already declared its intention to reduce the amount of military assistance and economic aid promised to Pakistan. The new United States defence strategy, by focusing so much attention on China, is bound to further complicate the situation and add another element in the American-Pakistani equation. With heavy dependence on external flows to retain some dynamism in the economy and with the Americans threatening to reduce their assistance, Islamabad reacted by attempting to draw even closer to Beijing. This effort was only partially successful; Beijing, with its eye on Washington, was not inclined to walk into Pakistan to fully compensate for the threatened American withdrawal. But Beijing may rethink its cautious approach. If the defence strategy sends the message to Beijing that China-containment had become the main interest for the 19

How corporate America discovered India is told in fascinating detail by the American journalist Thomas L. Friedman, The World is Flat: A Short History of the 20th Century, New York.

United States in world affairs, the Chinese may change the way they had reacted to Pakistan’s overtures and seek to list Islamabad as its partner to counter the American moves. And if the United States responds by getting even closer to India what will result is a four-power “great game” with America and India seeking to containing China and China and Pakistan working together to limit Washington’s influence in their geographic space. This will be unhappy development for South Asia. What is needed instead is a deep American and Indian involvement in helping Pakistan to develop its political system and its economy to guide the on-going revolution in the Middle East and several other Muslim countries into the right channels. Drawing a connection between the Arab Spring and Pakistan’s development as a way of helping the West’s strategic interests may, at first sight, seem bit of a stretch. But such a link becomes apparent when the dynamic unleashed by the events in the Middle East is put in a historical perspective. What is at issue now is the direction the Arab Spring is likely to take? The first series of elections in the Arab world – in Morocco, Tunisia and Egypt – following the street revolution has brought parties with strong Islamic roots into prominence. In Tunisia the party with strong Islamic leanings that was suppressed by the now deposed regime has won the most seats in the assembly that will write the country’s constitution. Egypt’s final round of elections will end in late January but it is already clear that the party affiliated with the Muslim Brotherhood will have the largest presence. It might win one-half of the seats while another quarter will likely be taken by the Salafists. The revolution was brought about by disaffected youth but its consequences will not bring them into political power. “So why are so many Arabs voting for parties that seem regressive to Westerners?” asks John M. Owen IV, a professor of politics at the University of Virginia and the author of an important book on the clash of ideas and politics 20. His answer: “Liberalism in the 19-century Europe and Islamism in the Arab world today, are like channels dug by one generation of activists and kept open, sometimes quietly, by future ones. When the storms of revolution arrive, whether in Europe or in the Middle East, the waters will find those channels. Islamism is winning out because it is the deepest and widest channel into which today’s Arab discontent can flow”. 21 But today’s revolutions are different from those that came earlier; they are taking place in full global view where those participating in them are in constant communication with those watching them. It is unlikely that the liberal forces that relieved the countries of absolutist leadership will easily give way to the dominance of political forces that may take the affected countries towards another form of control. This happened in Iran in the late 1970s. To ensure that Islamists, even if they win elections, will not dispense with liberal democratic forms, the liberal forces are looking for models in which religious parties are embedded within democratic systems. Pakistan could be a model of this if its fledgling democratic system succeeds. Pakistan, at this time, is deeply involved in containing the rise of Islamic extremism. One way to deal with it is to combine the use of force with accommodation. 20

John M. Owen IV, Religion, the Enlightenment, and the New Global Order, New York, Columbia University Press (Colombia Series on Religion and Politics), 2011. John M. Owen IV, “Why Islamism is winning”, The New York Times, 7 January 2012, p.A19.

Those not prepared to work within the established legal framework must be dealt with firmly while those inclined to use the norms of democracy to advance their agendas must be given accommodation. Pakistan’s difficult political evolution is being watched by many in the Middle East. If it succeeds it will be seen as an example to be replicated. However, the United States by withdrawing its support at such a critical time and forcing the new great game on South Asia, will unleash another dynamic that could seriously set back the Pakistani experiment. A strong anti-American sentiment would undoubtedly help the Islamic groups and inhibit the more liberal forces. There is another struggle going on in many parts of the Muslim world. That has to do with another type of accommodation: of the military within the evolving democratic systems. This struggle is manifesting itself in different ways in Egypt, Turkey and Pakistan. In Egypt the military that is in charge of the process of political transition is attempting to carve out a role for itself that is not acceptable to the political forces. These want the men in uniform to leave the political space altogether. In an interview with The New York Times on 8 January, Essam el-Erian the head of the Islamic party that won the most seats in the parliament said the Muslim Brotherhood does not expect the military rulers to relinquish all power on their own. The parliament’s first step in ultimately removing them would be to defend the elected body’s authority to choose, on its own, the members of a planned 100-person constitutional assembly. 22 In Turkey a political party with strong roots in the country’s Islamic tradition wants to limit the role of the military. The armed forces claim to have the mandate to protect the country’s more recent secular traditions. They have intervened in politics several times to defend Kemalism –the ideology that Mustapha Kemal, the founder of modern Turkey, left behind as his legacy. Kemal had turned his country away from Islam and moved it aggressively towards European style liberalism. In Pakistan the military, having governed the country for half of its 64 year history, is not prepared to give up its control over some aspects of policymaking. It is trying hard to retain its influence over the direction taken by the country’s evolving relations with India and the United States. This is one more area in which the struggle between the civilian political forces and the military would be set back by a major change in the American strategic stance. There is, in other words, a great deal that rides for South Asia on how Washington implements its new defence strategy.

Conclusion The new strategy will impact all parts of the world, not just Asia. How it will affect Europe was commented upon at some length by Financial Times in an editorial. “What this change in US policy must do is prompt Europe to think harder about its own capabilities. For the past half century, Europe has assumed that the US will rush to its aid in any crisis. That assumption no longer holds. In Libya, last year, the US warned that it expects European

David Kirkpatrick, “Islamists in Egypt back date of handover”, The New York Times, 9 January 2012, pp.A4 and A6.

nations to take the lead when crisis erupt in their own backyard. Yet Europe’s reaction to that warning – and to US shift towards Asia – has thus far been disappointing.” 23 Some of the consequences for South Asia might not materialise if the changes in the strategy hit ground reality. China’s threat and a political explosion in North Korea could draw the United States more deeply into Asia. These are the threats that President Obama and his team had in mind when they crafted the strategy. But the real threats may come from other parts of the world. As The Washington Post pointed out in an editorial quoted above, “the judgment that such [large ground] operations can be ruled out for the next decade strikes us as at odds with reality of a Middle East in revolution, an increasingly belligerent Iran and a North Korea undergoing an unpredictable leadership transition – to name just the most obvious threats. Afghanistan itself is due to be the site of US counterinsurgency operations until 2014, and tens of thousands of troops will remain for many years afterward if a pending deal with the Afghan government is completed”. 24 To deal with such eventualities, the strategy had incorporated the concept of reversibility which was based on the assumption that in reducing the size of the military, the Pentagon will maintain the capacity to quickly ratchet up in case there was the need for increasing the number of “boots on the ground”. It also became clear that a defence strategy focused mostly on the United States’ technological superiority would not deliver the results Washington was looking for. The strategy had to be broad-based and also embedded in the economic and political development of the area where the fight was against the non-state sector. An evidence of this was noted by The New York Times in a story published a few days after the new strategy was made public. According to the newspaper’s Eric Schmitt, “nearly two month lull in American drone strikes in Pakistan has helped embolden several Pakistani militant factions to regroup, increase attacks against Pakistani security forces and threaten intensified strikes against allied forces in Afghanistan.” 25 CIA last conducted an air strike 16 November, 2011. The lull in the attacks was the longest since July 2008 but came to an end on 11 January 2012 when “missiles fired from a remotely piloted aircraft struck a house outside of Miram Shah in the North Waziristan tribal area killing at least three militants”. 26 It was only partly the result of the successes scored in the past since the high value targets that attracted the drones were now fewer in number. A much more important reason was the deterioration in relations between the two countries following the arrest but subsequent release under American pressure in January of Raymond Davis a CIA operative who killed two Pakistanis; the Navy Seal raid on 2 May 2011 that killed Osama bin Laden; and the American attack on 26 November on two Pakistani military posts in which 24 soldiers were killed.

24 25

Financial Times, “Europe should heed shift in US defense: Its time the EU decided to look after itself militarily”, 9, January 2012. The Washington Post, “A reduction in force”, 7 January 2012, p.A14. Eric Schmitt, “Lull in strikes by U.S. drones aids militants, The New York Times, 8 January 2012, pp.1 and 12. Eric Schmitt, “Pakistan drone strikes resume”, The New York Times, 11 January 2012, p.A10.

In conclusion what can be said with some confidence is that the new strategy unveiled by President Obama at the Pentagon on 5 January will have significant consequences not only for the continent’s eastern part but also for its south. Depending upon how it is executed, it could destabilise South Asia or help to better integrate it with the rest of the world in the evolving economic and political systems. The former will be the outcome if Washington chooses to treat China as an adversary rather than as a partner. The latter would happen if America’s continued military predominance is used to put out the fires that will light up in many parts of an increasingly troubled and turbulent world. China’s immediate reaction was cautious while its senior leaders debated among themselves the implications of the new strategy for their country. “Xinhua, the state news agency, published a relatively muted response to the Obama plan. [It] warned the US to ‘abstain from flexing its muscles’ and avoid acting like ‘a bull in a China shop’, but added that if ‘fulfilled with a positive attitude and free from cold war style mentality’ the new strategy would ‘not only be conducive to regional stability and prosperity, but be good for China, which needs a peaceful environment in which to continue its economic development’.” 27 In other words, the Chinese response was in line with the main conclusion of this analysis: the real outcome of the strategy will be on how it is implemented. .....

Patti Waldmeir, “China’s media attacks US defense shift” Financial Times, 9 January 2012, p.3.

ISAS Working Paper No. 141 – 2 February 2012 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Migration between South and Southeast Asia: Role of Interstate Cooperation1 Rupa Chanda2

Introduction

Asia is the second most important host region for international migrants, next only to Europe. According to United Nations statistics, in 2010, the region was host to 61 million international migrants, or 29 percent of the world‟s migrant stock. Asia has exhibited the highest growth as a host region for migrants in the 2005-10 period with an annual average growth rate of 2.1 percent in the stock of migrants hosted by the region during this period.3 Asia is home to some of the most important destination and source countries for migrant workers in the world. The significance of Asia as a source region for migration is also indicated by the fact that several Asian countries figure among the leading recipients of remittances in the world. As in other regions, migration has been a sensitive issue in Asia, evoking periodic changes in immigration regimes and unilateral policy responses in receiving countries. Increasingly, however, the Asian countries like those in other regions have realized the need to move beyond unilateral 1

This is the second of two working papers regarding migration flows between South Asia and Southeast Asia. The first working paper discusses the trends and characteristics of this migration corridor while this second working paper builds on the earlier background discussion to focus on the nature of interstate cooperation between countries in these two sub-regions to manage migration. Rupa Chanda is a Professor of Economics at the Indian Institute of Management Bangalore. This paper is in part based on Rupa Chanda and G Sasidaran, Managing Migration in Asia: Role of Interstate Cooperation in IOM (ed), Immigration, Nation States, and International Cooperation, Routledge (2011). The author acknowledges the research assistance provided by Kirthiga Balasubramaniam, Abhishek Srivastava and Somenath Bera. The views expressed are those of the author and do not necessarily reflect those of the institute. United Nations, Department of Economic and Social Affairs, Population Division, “Trends in International Migrant Stock: The 2008 Revision”, United Nations database, POP/DB/MIG/Stock/Rev.2008.

responses. Under the auspices of the International Organization for Migration (IOM), other multilateral development agencies, and regional associations, several dialogues and inter-ministerial consultations have been held in the region to discuss the prospects and modalities for inter-country and intraregional cooperation in managing migration flows. The Colombo Process which began in 2003 and the Abu Dhabi Dialogue of 2008 have brought together key source and destination countries in Asia and identified key challenges and policy responses required to effectively manage migration flows in the region. Some of the Asian countries have also been pursuing cross-border cooperation in migration through bilateral labour agreements (BLAs) and Memorandums of Understanding (MoUs). These arrangements address specific issues and concerns associated with the management and impact of bilateral labour flows and are customized to suit host and source country specific migration characteristics and labour market requirements. Some of the recurrent issues that have been addressed in these regional consultations and arrangements, as in other parts of the world, include the tracking and documentation of migrants; screening, recruitment, and return of migrant workers; remittance management and reducing costs of remittance transfers; welfare and protection of migrant workers; training and capacity building; development of source regions; and inter-country institutional coordination between receiving and sending countries. A more recent development with regard to interstate cooperation in migration has been in the context of economic integration agreements. In recent years, with the establishment of broad ranging economic cooperation and partnership agreements that cover services, investment, and various regulatory and other issues, chapters and provisions specifically focusing on labour mobility have increasingly become a feature of regional and bilateral economic integration arrangements. These create a new avenue for coordinating migration flows and for addressing issues with a bearing on the larger objectives of trade and investment facilitation and economic integration. Hence, migration management has been pursued at various levels and through various administrative and institutional arrangements in Asia. This paper discusses the nature of migration management in Asia, with specific reference to migration from South Asia, namely, Bangladesh, India, Pakistan and Sri Lanka to selected countries in Southeast Asia. Section 2 following this introduction discusses the consultative processes and regional dialogues that have been held on migration in Asia are discussed. Section 3 discusses various bilateral labour agreements and MoUs concerning labour mobility that have been signed among the selected Asian countries. It highlights the main issues that have been addressed under these arrangements, assesses their strengths and weaknesses, and where possible, provides evidence on their outcomes. Section 4 outlines the labour mobility provisions that are covered under broad ranging regional trade, investment, and economic cooperation agreements that have been signed between some of the selected countries. It highlights the scope and features of these provisions and how they compare with the more narrowly focused bilateral labour agreements and MoUs. Section 5 focuses on the key features of national migration policies and frameworks in the South and Southeast Asian countries and how these have evolved in recent years. Section 6 summarizes the discussion and concludes by underscoring the criticality of intraregional cooperation in managing migration between these two sub-regions of Asia.

Consultative Approaches to Managing Migration

In Asia, migration has been mainly managed using national policies and legal frameworks. However, an important development in this region, including the South Asian and Southeast Asian countries, has been the conscious shift from a unilateral, national policy response-based approach to a more coordinated and consultative approach as well as bilateral cooperation mechanisms to manage migration. There are a growing number of regional consultative dialogues and increased participation by major host and source countries in Asia in international forums concerning cross-country and regional cooperation in migration management. The latter trend reflects the growing recognition among sending and receiving countries of the difficulties in tackling migration unilaterally, the importance of interstate cooperation to address long-term strategic interests and the problem of irregular migration in particular. What makes intaregional cooperation particularly important in Asia is the significance of low and semi-skilled flows within the region, which raises issues of worker rights and protection, remittance management, and return and reintegration, which need a coordinated approach. There have been several regional consultations and gatherings concerning migration starting in the 1990s.4 Though non-binding and non-committal in nature, these forums have provided countries with a forum to discuss broader issues surrounding migration as well as specific concerns affecting the region and to learn from the experiences of other regions. Two of the earliest initiatives were the Manila Process and the Asia Pacific consultations. The Manila process has been a forum for informal dialogue for several countries in East Asia and Oceania. The Asia Pacific consultations which were organized in cooperation with the UNHCR has involved participation by a broader range of countries and has focused on specific areas of regional cooperation in migration. One of its main outcomes was the Bangkok declaration of 1999 on irregular or undocumented migration, following the International Symposium on Migration “Towards Regional Cooperation on Irregular/Undocumented Migration”. This declaration underscored the importance of migration management for tackling irregular migration human trafficking. The Bangkok Declaration called for bilateral, regional, and multilateral consultations and cooperation on international migration and encouraged countries of origin, transit, and destination to enter into regular dialogue to exchange information and to address the problem of illegal migration. There have been other regional inter-ministerial dialogues on migration in recent years, some under the auspices of multilateral organizations such as the IOM. One of the key regional consultations in this regard has been the Colombo Process held in April 2003 involving ten labour sending countries of South and Southeast Asia, namely, Bangladesh, India, China, Indonesia, Nepal, Pakistan, Philippines, Sri Lanka, Thailand and Vietnam. The aim of this consultation was to provide a forum for the major Asian labour sending countries to share their experiences, to discuss issues and concerns, and to make recommendations on required policy responses. There was representation from officials

See Solomon, M.K., „International Migration through Inter-State Consultation Mechanisms‟, Prepared for United Nations Expert Group on International Migration and Development (July 2005), for a good overview.

responsible for foreign employment in each country or a high level representative and senior officials. Resource persons from the ILO and other organizations also participated in this dialogue. The Colombo process discussed the nature of migration in the region, including emerging subregional and occupational patterns, and also focused on the problem of irregular migration and issues of abuse and exploitation of low skilled and female workers. Participating countries recognized the need to manage migration flows in the region through bilateral and regional consultations and orderly migration policies through cooperation between countries of origin and destination. The dialogue addressed three main themes, namely, protection of migrant workers and services provided to them, optimization of the benefits from organized labour migration, and institutional capacity building and interstate cooperation. The process identified certain policies in these areas. Several resolutions and associated policy recommendations have emerged from this dialogue on each of these themes, including ratification of major international conventions pertaining to migration, providing services such as pre-departure information and orientation to migrant workers, incentivizing remittances through formal channels, preventing illegal migration through host and source country actions, taking assistance from international organizations like the IOM and ILO for capacity building, and developing common regional positions for multilateral negotiations, among other measures.5 The participating countries also agreed to have regular follow up consultations with assistance from the IOM. The Colombo meeting has been followed by a second meeting in Manila in September 2004 and a third meeting in Bali in September 2005. At the Bali meeting, Afghanistan joined the group and for the first time, destination countries also attended as observers. The Bali process was an important step forward as it formally agreed to engage in dialogue with destination countries in Europe and Asia. It was also an important event as it focused on the problem of smuggling and trafficking of migrants and also explicitly recognized the term “expatriate and contractual labour” as characterizing labour flows to GCC countries. More recently, in April 2011, the Fourth Colombo Ministerial Consultation for Asian Labour Sending Countries was hosted by the Government of Bangladesh in Dhaka. This meeting was attended by all the main labour sending countries in South Asia, namely, Bangladesh, India, Nepal, Pakistan and Sri Lanka. The participating governments focused on the issue of “Migration with Dignity” and all aspects of labour migration which impinge on the rights and welfare of migrant workers. They affirmed the mutual interest of sending and receiving countries in managing the process of migration and the need for sustained bilateral and regional dialogue to make this possible, along with support from relevant international organizations. Key areas for cooperation highlighted in the Dhaka Declaration were: (a) the development of employment and labour market policies and the formulation of rules and regulations which enable legal, humane, and orderly labour migration; (b) the development and streamlining of policy, legal, and institutional mechanisms to eliminate unethical practices concerning migrant workers, reduce migration costs, promote transparency in the recruitment process, and strengthen monitoring and supervision of recruitment practices; and (c) building capacity in home and host countries to promote the welfare of migrant workers through information exchange, investment 5

See „Labour Migration Ministerial Consultations for Countries of Origin in Asia‟, Summary of Statements and Recommendations of the Ministers, Colombo (April 2, 2003).

in skills and training, and regular consultations.6 Consultations were also held between the European and Colombo Process countries as part of the Asia-EU Dialogue on Labour Migration organized by the IOM. The focus was once again on managed labour migration between Asia and the EU with the objective of facilitating safe and legal labour mobility between the two regions and supporting development in both sending and receiving countries.7 The Abu Dhabi Dialogue on Overseas Employment and Contractual Labour for Countries of Origin and Destination in Asia, hosted by the UAE government in January 2008 was another important milestone in regional consultations on labour mobility in Asia. It brought together formally for the first time, both receiving and sending countries, following up on the Bali process resolution and reaffirming the importance of interstate collaboration and the joint responsibility of countries of origin and destination in managing migration flows. The participants in this dialogue included Afghanistan, Bahrain, Bangladesh, China, India, Indonesia, Kuwait, Malaysia, Nepal, Oman, Pakistan, the Philippines, Qatar, Saudi Arabia, Singapore, Sri Lanka, Thailand, United Arab Emirates, Vietnam and Yemen. One of the main focus areas in this dialogue was the growing temporary and circular labour mobility in Asia and the need to address long term developmental interests in receiving and sending countries through increased collaboration and partnership to manage such flows. The dialogue recognized the importance of facilitating labour mobility at all skill levels to compete globally and boost economic growth and agreed that to achieve the best economic and social outcomes, workers should be provided with good living and working conditions, that recruitment and employment policies and practices should be transparent and in accordance with national laws and regulations of countries of origin and destination, and that remittances should be facilitated. The dialogue also highlighted the need for multilateral cooperation to facilitate and benefit from temporary contractual labour mobility. Overall, many of the issues that were discussed and many of the resolutions and recommendations arrived at through this consultation were similar to those reached in the Colombo Process. It was decided to launch a new collaborative approach to address temporary labour mobility and specific partnerships were identified for this purpose with the objective of promoting information sharing, enabling capacity building, technical cooperation, and interstate cooperation. These identified partnerships included: (1) building a knowledge base in the region regarding labour market trends, skill profiles, and remittance policies; (2) capacity building to match labour demand and supply in the region; (3) preventing illegal recruitment practices and promoting welfare and protection measures for contractual workers in both origin and destination countries; (4) developing a comprehensive framework to manage temporary contractual mobility for mutual benefit of receiving and sending countries. As is evident, the identified areas for collaboration all relate to the maximization of mutual benefit to host and origin countries, with involvement of all relevant stakeholders. It was also decided to continue this dialogue with further consultations in the region with assistance from the IOM. Both the Colombo Process and Abu Dhabi Dialogue consultations indicate that there has been a gradual evolution in the approach to migration from unilateral management to regional dialogue among source countries and more recently to regional dialogue among both source and host countries. 6 7

See, Dhaka Declaration (2011). http://www.wapes.org/infos/file/attachfiles/pdf/2011-052-EN.pdf.

Thus, the ambit of cooperation has been gradually widened and the role of a wider range of stakeholders from the government, private sector, and civil society for managing migration effectively is being explicitly recognized in the region. Although these regional consultations are informal and non-binding in nature, they do provide a useful forum to discuss recurrent themes and concerns, such as those of remittance management, welfare and protection, repatriation, and the relationship between migration and development, themes which have also been the focus of bilateral agreements and wider international discussions on migration such as the Global Forum on Migration. They have also facilitated more open discussion on sensitive issues. But perhaps what is a specific characteristic of the regional consultations in Asia is the importance of temporary and low skilled contractual labour mobility within regional labour flows as well as the presence of some of the main destination and source countries for such movement within the region. This in turn makes issues of welfare, worker rights, irregular migration, and long term developmental issues all the more pertinent to any discussions on migration management in Asia, perhaps more so than for other regions given the magnitude of such flows within the region.

Bilateral Approaches to Managing Migration

Although countries have been increasingly engaging in regional dialogues and forums on migration, there has been little concrete action resulting from these consultations. There has been relatively more progress at the bilateral level, through the establishment of bilateral labour agreements and MoUs, formal and informal, binding and non-binding. In recent years, many Asian countries have signed bilateral agreements in the form of labour mobility and employment agreements or MoUs with key receiving or sending partner nations in the region. These agreements supplement national migration policies and legislative frameworks as well as the regional consultative mechanisms. One of the most active countries in this regard is Malaysia, which has signed MoUs with key source countries such as Bangladesh, Indonesia, Pakistan, Sri Lanka, Thailand, and Vietnam to regulate labour flows from these nations; Thailand has signed MoUs with Cambodia, Lao PDR, and Myanmar for intergovernmental cooperation in recruitment of migrant workers; and Korea has entered into MoUs with Indonesia, Mongolia, Philippines, Sri Lanka, Thailand, and Vietnam under its Employment Permit System. These agreements are being used by the receiving countries to address immediate and long term objectives. They are being used to facilitate and regulate labour mobility, keeping in mind political and strategic interests and cultural and historical links with partner countries, and also to address concerns specific to the bilateral relationship. These agreements also seek to augment the role of public employment agencies in the recruitment process and to ensure adherence to international conventions for the protection of migrant workers. Some governments such as Korea, Malaysia, and Thailand are also using these MoUs to address the problem of irregular migration. Important source countries for migrant workers, such as India, have entered into MOUs with major labour receiving countries, including the UAE, Kuwait, Qatar, Oman, and Malaysia, to ensure the protection and welfare of its workers abroad. Other South Asian sending countries such as Sri Lanka and Bangladesh have also entered into MoUs with destination markets in the Gulf and Southeast Asia. The BLAs and MoUs essentially draw upon the ILO Model Agreement on Temporary and Permanent Migration for Employment, including Migration of Refugees and Displaced Persons (annexed to

Recommendation No. 86 on Migration for Employment (Revised version, 1949). Most countries in the region have attempted to incorporate the broad objectives set out in the ILO Model Agreement including: a) b) c) d) e) f) g) h) i)

Regularization of interstate labour flows, Exchange of labour market information, Assistance in the process of recruitment, testing and certification of applicants, Working out the specifics of the work contract by identifying the sectors of occupation, provisions of quotas, required duration of work and possibilities of renewal, Protecting the rights and safety of migrants and enforcing fair employment conditions in the destination countries, Facilitating the process of return for the migrants, Building provisions to deal with migrants without documents, Designing social security arrangements for migrants, Building cordial working relationships between the different state actors, thereby bringing about a co-operation between the labour sending and labour receiving countries in monitoring and enforcing the mutually agreed provisions of the bilateral arrangements.

There has also been customization of the arrangements to address the specific interests and concerns of the labour sending and receiving countries, but the basic framework has by and large been adopted from the ILO Model Agreement. Special administrative schemes have also been introduced to ensure the smooth operation of these agreements with regard to recruitment, testing, certification, and exchange of information between the host and source countries. However, in general, these agreements have suffered from weak monitoring and enforcement mechanisms and have tended to focus more on recruitment and deployment than on welfare and protection issues. Table 1 provides a representative summary of various bilateral labour agreements and MoUs signed among Asian countries, including the countries under consideration here. It also outlines their main features and provides a comparative perspective on the approach taken by the Southeast Asian countries for managing migration versus that taken by another destination region for South Asian workers, namely the Gulf countries.

Table 1: Summary of Bilateral Labour Agreements and MoUs in Asia and their Key Characteristics Country taking Initiative

Primary Characteristics

Agreements Signed with

Type of Bilateral Agreement

Bangladesh

Labour sending

Malaysia, Gulf Countries

MoU

Key Features/Observations

- Promoting recruitment of manpower. - Safety and protection of migrants.

India

Labour sending

Jordan, Qatar

UAE, Kuwait, Oman, Bahrain, Qatar, Malaysia

BLA

MoU

- Facilitation of manpower recruitment. - Institutional framework for strengthening cooperation in the development of Indian workers. - Protection of workers in host country.

Nepal

Labour sending

Bahrain, Qatar, the UAE, Republic of Korea

MoU

- Manpower employment, occupational, training

Pakistan

Labour sending

United Arab Emirates

MoU

- Tackle problems of illegal recruitment agencies. - Facilitate recruitment of migrants.

South Korea

Sri Lanka

Labour sending

Jordan, United Arab Emirates, the Republic of Korea, Libya

â&#x20AC;&#x17E;Foreign traineeâ&#x20AC;&#x; programme BLA

MoU

Bahrain, Qatar

Indonesia

Labour sending

Malaysia, Korea, Japan, Syria, Qatar, Taiwan, Kuwait, Jordan, UAE

MoU

Malaysia

Labour receiving

Bangladesh, China, Indonesia, Pakistan, Sri Lanka, Thailand and Vietnam

MoU

- Manpower recruitment. - Respecting migrant worker rights. - Emphasise welfare and protection requirements of migrant workers. - Guarantee minimum standards of treatment. - Safeguarding against abuse of migrant workers by unauthorized employment agents. - Handling illegal migration.

- MoU has three basic elements setting out the responsibilities of employers, recruitment agencies, and workers. - Primary focus is to facilitate recruitment from source countries. - Leaves out domestic workers; No minimum standards specified for conditions of work. - Workers subject to national labour laws

Philippines

Labour sending

Libya, Jordan, Iraq, Kuwait

Labour, Employment and Manpower Agreement

Taiwan, Indonesia MoU

China

Labour sending

Bahrain, Mauritius, Malaysia

BLA

Taiwan

Labour sending

Thailand, Vietnam

BLA

Philippines, Mongolia and Indonesia

MoU

- Enhancement of welfare and protection of Filipino workers in receiving countries. - Special hiring facility with Taiwan without intermediaries. - Indonesia is a labour sending country. MoU designed to protecting the welfare of migrant workers in both countries. - Limited information available on MoUs. - Ministry of Commerce is the official authority. - Recruitment, training and safety of migrant workers. - Objective is to set up a nation-nation recruitment scheme that would facilitate the elimination of middlemen in recruitment. - Control the problem of missing workers.

Korea

Labour receiving

Philippines, Thailand, Vietnam, Indonesia, Mongolia and Sri Lanka

MoU (Employment Permit System)

- Addressing the problem of irregular migrant workers. - Promotion and protection of foreign worker welfare and rights. - Quota system of allocation to specific industry.

Thailand

Labour receiving

Cambodia, Lao PDR, Myanmar

MoU

- Protection of worker rights. - Institute proper procedures for worker employment. - Repatriation of workers who have completed their employment. - Avoid illegal border crossings.

Source: Compiled from various sources . http://india.gov.in/knowindia/overseas_indians_aff airs.php?pg=2 (accessed in November 2011); http://www.ceslam.org/migration-in-nepal/bilateral-agreements (accessed in November 2011);Kaur (2007), Go (2007), Wickramasekara (2006)

Several interesting and common features are highlighted in Table 1. These agreements are mostly limited to low and semi-skilled workers and do not cover professionals, confirming the recognized importance of temporary contractual labour mobility in the region. The issues addressed are therefore those which are most pertinent to such workers and are also similar to those addressed by the various regional consultations on migration. The main issues that have been addressed include the recruitment

of workers through intergovernmental cooperation, preventing irregular migration, regulating the role of private intermediaries, repatriation of workers, and respect of workers‟ rights and their protection. The countries which feature most commonly in these agreements are the UAE, Malaysia, Kuwait, and Qatar. It is also interesting to note that in the case of migration to the East and Southeast Asian subregion, the initiative has been taken mainly by the receiving countries of Korea, Malaysia, Thailand, and Taiwan, involving all the main source countries in Southeast and South Asia. On the other hand, in the case of migration to the Gulf countries, the initiative has been taken mainly by the sending countries in South and Southeast Asia. Although the issues addressed are similar across the different subregions, there are some interesting differences as well. The agreements involving the Gulf countries primarily tend to focus on workers‟ rights and welfare related issues while those involving East and Southeast Asian host countries also cover issues of recruitment, repatriation, and irregular migration. It is also worth noting that some of these MoUs are two-way in that they focus on orderly migration and respect of workers‟ rights in both directions, although by and large these arrangements tend to be unidirectional in their focus. Another interesting feature that emerges is that MoUs are more common than bilateral labour agreements, which indicates the preference of the Asian countries to negotiate MoUs more than formal BLAs. While BLAs are formal, legally binding treaties relating and tend to be more comprehensive in coverage with provisions for countries of origin to have better access to destination country labour markets, MoUs are non-binding with the extent of commitment depending entirely on the countries that sign them and the levels of co-operation they are willing to offer on a mutual basis. The preference for MoUs over BLAs among Asian countries most likely indicates the fact that MoUs are easier to negotiate and relatively more flexible, though they may be relatively less effective than BLAs due to their non-binding nature. BLAs on the other hand, while more rigid and harder to negotiate, are usually more comprehensive in their coverage and have provisions for the countries of origin to have better access to the destination labour markets. The experience with Asian countries suggests that there is greater willingness to cooperate through loose arrangements such as MOUs rather than binding commitments.8 As seen above, Malaysia, Korea, and Thailand have MoUs with several countries from the South Asian and Southeast Asian region. Singapore, however, has not entered into bilateral agreements on migration. 3.1

Case of South and Southeast Asian countries

Bilateral cooperation is highly relevant in the South Asian and Southeast Asian context given the occupational profile and trends in migration between these two regions. The predominance of low and semi-skilled migration (including in informal sector activities) between these two regions makes issues relating to screening, recruitment, capacity building, protection of migrant rights, return and reintegration, remittance management, and migration-development linkages important. Moreover, in light of the growing numbers of high skilled migrants from South Asia to these countries, issues such 8

See Go, S.P., “Asian Labor Migration: The Role of Bilateral Labor and Similar Agreements”, Paper presented at the Regional Informal Workshop on Labor Migration in Southeast Asia: What Role for Parliaments”, Manila, The Philippines (September 2007); Wickramasekara, P., “Labour Migration in Asia: Role of Bilateral Agreements and MoUs”, International Labour Organization Power point Presentation at the Japan Institute of Labour Policy and Training Workshop on International Migration and Labour Market in Asia, Tokyo (February 17, 2006).

as visa facilitation, taxes, recognition, and skill shortages are also relevant. Hence, there are clearly areas of common interest where interstate cooperation can be beneficial to both parties and can help to enhance the benefits of regional migration while also allaying some of the associated concerns. The following discussion provides some illustrative cases of BLAs and MoUs which involve the South and Southeast Asian countries under consideration in this paper. The discussion highlights the approach and underlying philosophy which has guided intergovernmental cooperation in migration management in this subregion. Where information is available, the discussion also highlights the inadequacies of these agreements. The cases discussed are those of (a) Korea and its MoUs with selected Asian countries (including Sri Lanka and Pakistan in South Asia) for hiring of foreign workers under its Employment Permit System; (b) Malaysia and its MoUs with the South Asian countries to regulate recruitment and deployment of low skilled workers; and (c) Thailandâ&#x20AC;&#x;s MoUs with its neighbouring countries of Laos, Cambodia, and Myanmar to illustrate the kinds of issues that are of concern to this country.

3.1.1

The Republic of Koreaâ&#x20AC;&#x2122;s Guest Worker Scheme

Korea has managed migration from other Asian countries through MoUs with selected countries such as Sri Lanka, Pakistan, Indonesia, Vietnam, and the Philippines, under its Employment Permit System (EPS) for Foreign Workers. As discussed in Chanda (2008), the system uses a strict quantity restriction based approach to regulate the admission of low skilled foreign workers from these sending countries so as to minimize labour market distortions and problems of unauthorized foreign workers. The EPS was introduced in 2003 to both address the growing labour shortages faced by Korean firms and the problem of illegal foreign workers in the country. 9 The scheme is administered under the Act on Employment of Foreign Workers which regulates the qualifications of businesses allowed to employ foreign workers, procedural issues, employment management, and the protection of foreign workers. The Korean Ministry of Labour concludes MoUs with sending countries, prepares a roster of job seekers, issues employment permits, grants permission to change business or workplace in case of closure of business or delayed wages, inspects workplaces employing foreign workers, and cancels and restricts the employment permits. The practical operational parts of the scheme are administered by the Local Employment Security Centres of the Ministry of Labour. The Ministry of Justice, under the Immigration Control Act is responsible for issuing the Certificate for Confirmation of Visa Issuance, its extension, issuance of the foreigner registration certificate, permission to change status of sojourn, extension of sojourn period, and deportation orders. The local Immigration Officers are in charge of these operational duties. Other agencies are also involved in a designated capacity. The EPS is not open to all employers. There are government stipulations on the type and scope of businesses that can avail of this scheme. Types of businesses that can bring in foreign workers under the EPS include businesses in the manufacturing, construction, fishery, and service industries where there is a high rate of labour shortage and poor chances of hiring a Korean worker. Where an 9

The Scheme aimed at meeting labour demand from small and medium enterprises while protecting foreign workers. This scheme allows foreign workers to stay in the Republic of Korea for three years and to change jobs. This scheme is seen as an integral part of the countryâ&#x20AC;&#x;s SME development strategy. However, foreign workers are imported only to supplement native workers and as an act of last resort.

employer states more than one industry in the Certificate for Business Registration, he is only permitted to hire the foreign worker in the main industry of his business, as determined by a defined classification system under the Employment Insurance or the Industrial Accident Compensation Insurance as well as factors such as wages and numbers required. Admission of foreign workers is based on quotas, which are determined by the supply and demand conditions in individual industries so as to limit any adverse effects on the domestic labour market and on the prospects for employment by Korean workers and to prevent dominance by foreign workers in any particular industry. Thus, the quota is specified industry by industry and the number of foreign workers to be allowed in each industry is determined based on the number of Korean employees under the coverage of the Employment insurance as well as the performance of various sending states. The quotas are determined by the Foreign Workforce Policy Committee established by the government. The assigned quota is then allocated across selected countries with which the government enters into MoUs. The number of job seekers to be allocated to each country is determined on the basis of a yearly assessment by the Ministry of Labour of the sending countryâ&#x20AC;&#x;s performance in terms of the numbers sent by that country in the past, the voluntary return rates, and the rate of illegal immigration from that country. These MoUs are meant to curb illegalities in the sending process. They are subject to regular assessment and can be renewed. Coordination with sending country governments is an important feature of the EPS. The government of the sending country selects candidates, a multiple of the number allotted under the quota to the country, based on objective criteria such as work experience and the score on the Korean Language Proficiency test. Following the stipulated period of 3-7 days for attempting to recruit a Korean worker and failure to do so, the employer can apply for an employment permit and the Employment Security Centre. The Centre then recommends foreigners that suit the recruitment conditions, based on the information received from the sending country governments. An employment permit is issued when the employer selects from among the recommended foreign workers. There is a standard labour contract which has to be signed between the employer and the foreign worker. This contract clearly states working conditions such as wages, working hours, holidays, and workplace conditions. The employer next applies for a Certificate for Confirmation of Visa Issuance which is then issued by the Ministry of Justice. The employer is required to send this certificate to the sending country based on which the foreign worker is issued an E-9 visa from the Korean mission overseas. Employers may authorize agencies such as the Human Resource Development Service of Korea and other non-profit organizations designated by the Ministry of Labour with the process of signing the labour contract, the entry and departure arrangement, and the application for the Certificate of Confirmation of Visa Issuance. All foreign workers entering the Republic of Korea under this visa are required to receive job training within 15 days of entry. The maximum duration of employment is three years from the workerâ&#x20AC;&#x;s entry into the Republic of Korea. A worker who has left Korea after employment, must spend at least six months back in his country before he can be re-hired. There are incentives for good performance in the form of name hiring by employers and easier re-entry conditions for good workers, facilitating circular migration for those who abide by the terms of the contract. Fines are imposed on employers who violate the standard labour contract. The Ministry of Labour reserves the right to cancel the employment permit for foreign workers in order to protect workersâ&#x20AC;&#x; rights and interests and to ensure effective employment management, if so required.

In order to ensure the smooth functioning of the program and efficient employment management, the Ministry of Labour carries out various functions in addition to their aforementioned role in the entry and return process. These include providing education to foreign workers and their employers, cooperating with public organizations in sending countries and with civic groups concerned with foreign workers, providing advisory services, promoting projects to help foreign workers adapt themselves to their lives in Korea, and any other important matters. Some of the expenses associated with the implementation of projects organized by groups that support foreign workers, such as medical care and cultural events, are met by the government. To ensure compliance with the terms and conditions on employment, safety, and health, an annual inspection is conducted of the business or workplace where there are foreign workers and violations are dealt with in accordance with related legislation either by the Ministry of Labour or by concerned departments, where so warranted. Nonprofit organizations are involved in some aspects of the EPS, specifically the administration of the Korean Language Proficiency test, employment training, and consultation services. The agency is designated by the Ministry of Labour. There are also mechanisms to track the employment of foreign workers during their period of stay. Any change in the employment of the foreign worker or any break out of contagious disease must be reported by the employer to the Ministry of Labour. To guarantee foreign workers with a retirement allowance and possibilities of overdue wages, the employer is required to buy the Departure Guarantee Insurance and the Guarantee Insurance. A foreign worker is entitled to getting the departure guarantee insurance money if they have worked continuously with the same employer for one year or more. Foreign workers are required to buy the Return Cost Insurance and the Casualty Insurance to meet the expense of returning to their home country and for cases of accident or disease unrelated to work. Overall, the EPS which is implemented based on MoUs signed by Korea with major sending countries involves considerable interministerial coordination within the country and across countries. It is backed by clear institutional mechanisms for legal enforcement, a mix of incentives and disincentives for employers and migrant workers, and clearly defined scope in terms of categories of workers, sectors, and occupations. It is difficult to say how well the program has worked to stem illegal migration and to address the local labour market needs. However, it remains an arrangement that is framed mainly from the receiving countryâ&#x20AC;&#x;s perspective with little bearing on source country benefits and developmental concerns.

3.1.2

MoUs between South and Southeast Asian countries on labour mobility

To facilitate the recruitment and selection of migrant workers, Malaysia has signed MoUs with many labour sending countries such as Bangladesh, Indonesia, China, Pakistan, Sri Lanka, Thailand and Vietnam. The MoUs with all these countries comprise three essential elements that include the responsibility of the employers in Malaysia, the responsibility of the government or the licensed recruitment agencies in source countries and the responsibility of its workers who are about to

migrate. These three components serve as a guiding framework for all the stakeholders involved in the process of monitoring the inflow of migrant workers into the country.10 The MoUs allow the employers to engage in direct recruitment through the Ministry of Labour of the source country. The employers are primarily responsible for obtaining the required approval for the applicants, bearing the costs involved in transporting them from their source country, preparing a comprehensive employment contract stating the terms and conditions, and providing accommodation and basic facilities in accordance with national employment acts. The licensed recruitment agencies in the sending countries are required to facilitate this process by providing and arranging for all the required documentation and information about the migrant to the country of destination and through pre-departure training. The prospective migrants have to co-operate with the employers and recruitment agencies to provide all necessary documentation and to abide by the laws and regulations of the country of destination. (i)

Malaysia-India MoU

The broad principle guiding this MoU signed in 2008 has been bilateral cooperation for the protection and welfare of workers, clarity on procedures for recruitment and conformity of recruitment and employment terms and conditions with laws of both countries, and establishment of a joint working group to ensure implementation of the MoUs with regular meetings and exchange of information to address bilateral labour problems. The MoU focuses on improving the conditions of recruitment and employment of Indian workers in Malaysia. One of its main objectives is to curb the unscrupulous activities of intermediaries who exploit poor workers and to improve the working and living conditions of these workers. Hence, the agreement sets out the procedures for employment of workers and delineates the responsibilities of workers, employees, and recruitment agencies. The MoU refers to intergovernmental cooperation on pre-departure orientation, skill upgradation and training in addition to the usual issues of recruitment and welfare. The Joint Working Group under this MoU is expected to help implement the agreement and to review employment opportunities and skill availability in both countries in addition to exploring new areas for cooperation in manpower development.11 The agreement also includes a social security deal to help Indian workers and professionals employed overseas. (ii)

Malaysia-Sri Lanka MoU

In 2003, Sri Lanka and Malaysia entered into a special pact to permit more low and semi skilled Sri Lankan workers find employment in Malaysia. This pact followed a MoU signed between the two countries earlier that year which upgraded Sri Lanka‟s status as a supplier of labour to Malaysia. The MoU allows Sri Lanka to offer skilled and unskilled labour to Malaysia under the General Worker category, which covers most service and industrial jobs, excluding professional services. (Malaysia has signed a similar MoU with other countries, including Vietnam, Thailand, China, and Pakistan). 10

See Dairiam, G., “Case Study: Malaysia”, Prepared for the Workshop on International Migration and Labour Markets in Asia, Japan Institute of Labour, Tokyo (February 2006), for a case study on Malaysia‟s BLAs and MoUs. Dattagupta, I., “Improving working conditions for Indian workers in Malaysia”, The Economic Times, 10 Jul 2008,http://economictimes.indiatimes.com/features/the-global-indian-takeover/Improving-workingconditions-for-Indian-workers-in-Malaysia/articleshow/3215855.cms

The Sri Lankan government has agreed to introduce and initiate special training and visa facilities (including on religious and cultural aspects) for Sri Lankans applying for jobs in Malaysia. A list of selected recruitment agencies has also been compiled, with preference to those having training facilities. In turn, the Malaysian government has agreed to introduce immigration processes for Sri Lankan workers once these source country conditions are in place and to monitor health and other facilities locally. The Malaysian government has also agreed to station an immigration official at its High Commission in Sri Lanka to monitor departures.12 (iii) Other MoUs 13 There are several other MoUs between the concerned subregions of South and Southeast Asia, most of them involving Malaysia. However, there is very limited substantive information available about their functioning or content. The limited information that is available suggests that for the most part these MoUs tend to be broadly defined and without defined administrative or institutional mechanisms to support their implementation. Some appear to have remained non-operational for several years, often undermined by changes in recruitment policies in the host country, and reinitiated many years later. Host country interests and policy changes rather than sending country interests appear to have been the determining factor in the initiation and implementation of these MoUs. Bangladesh and Malaysia signed a MoU in 2003 resuming manpower exports from Bangladesh to Malaysia, following suspension of such flows since 1997 on account of huge inflows of undocumented workers due to unscrupulous manpower recruiting agents. This MoU, however, remained unoperational and discussions were resumed in 2006 between the Malaysian Human Resources Ministry and the Bangladesh Ministry for Expatriate Welfare and Overseas Employment. Under this arrangement, the Malaysian government agreed to resume recruitment of Bangladeshi workers and appointed six Malaysian companies to recruit Bangladeshi workers through selected recruiting agents in Bangladesh. The main objective of this arrangement was to check fraudulent practices of recruiting agents. The Bangladesh Association for International Recruiting Agencies put out an advisory to inform prospective workers not to pay more than US $1,200 to any recruiting agencies. 14 Pakistan and Malaysia signed a MoU to facilitate the employment of semi-skilled and unskilled Pakistani workers in Malaysia. This MoU came after a more than decade long ban on recruitment of Pakistani workers in that country and was seen as benefiting around 200,000 Pakistani workers. One of the key issues which Pakistan agreed to address was to enforce merit and discipline in its manpower exports. Physical, medical, and security clearance requirements also have to be met under this MoU. Malaysia on its part assured the protection of workersâ&#x20AC;&#x; rights and good working conditions

Labour of Love, available at http://www.lankabusinessonline.com/fullstory.php?nid=1550402898, Lanka Business Online, accessed on Sept 14, 2010. There is scanty information about agreements that have been signed between recruitment agencies in host and source countries in these regions. For instance, a Memorandum of Agreement was signed between the Indian Personnel Export Promotion Council and the Foreign Maids Employment Agencies Association of Singapore for a total of 75,000 maids. No further details could be obtained on this agreement. However, it suggests that attempts have been made to manage migration at the agency level as well. Asia Pulse News, August 15, 2006.

for Pakistani workers. In addition, the two countries also discussed the exports of trained manpower, including doctors and software engineers from Pakistan to Malaysia. 15 Pakistan also signed a MoU with South Korea in 2006 to export manpower under the Korean Employment Permit Scheme. Under this MoU, Korea agreed to include Pakistan in its list of source countries for importing manpower and to increase the quota for Pakistani workers. Pakistan would send its workers to work in manufacturing, construction, agriculture, services, and other sectors where Korea is in need of workers. Earlier Korea had been importing Pakistani manpower under its Industrial Training and Work Permit Programmes. 3.1.3

Thailandâ&#x20AC;&#x2122;s MoUs in the Greater Mekong Region 16

Although Thailand does not have any MoUs or bilateral labour agreements with any of the South Asian countries, its MoUs with other Asian countries are important to examine as they illustrate the key concerns that Thailand has tried to address through such arrangements and the limitations in this approach. The Government of Thailand has entered into MoUs on Cooperation in the Employment of Workers with Lao PDR, Cambodia, and Myanmar, the basis for which was laid down by the Bangkok Declaration. These MoUs aim to provide a systematic approach to managing the flow of migrant workers between these countries through mutual cooperation on administrative procedures for recruitment, protection, repatriation, and prevention of illegal border crossing and employment of migrant workers. The MoUs specify consultative and institutional mechanisms. These include regular Senior Officials Meetings on a reciprocal and regular basis between the parties, meetings at technical and informal levels to agree on specific issues and joint actions, and establishment of procedures to integrate irregular migrants. The administrative procedures specified include those for sending and admitting workers, including exchange of information on job opportunities, required qualifications, working conditions and wages, and eligibility conditions for migrant workers. The MoUs also specify the administrative requirements in terms of visa, work permit, health insurance, taxes, and employment contract. There is also a thrust on promoting rotational migration through a variety of measures such as incentivizing voluntary return by migrant workers by easing re-entry conditions in the host country, providing portability of retirement benefits, and compulsory deductions from monthly wages towards a savings fund available to the migrant on return (and forfeiture in case of failure to do so). There is a strong thrust on the regularization of irregular migrant workers from these countries residing in Thailand. The governments on both sides have agreed to jointly engage in this regularization process by providing workers who have passed a nationality verification process, with an identity certificate or a temporary passport. The countries have also agreed to coordinate the 15

See, Pakistan, Malaysia sign Labour MoU, available at http://www.dailytimes.compk/default.asp?pag e=story_21-10-2003_pg7_30 , Daily Times, accessed Sept 14, 2010 and Over 20,000 to get job in Malaysia, available at http://www.pakdef.info/forum/showthread.php?4669-Over-200-000-to-get-job-in-Malaysia, accessed Sept 14, 2010. Much of the discussion in this section is based on Vasuprasat, P., â&#x20AC;&#x17E;Inter-State Cooperation on Labour Migration: Lessons Learned from MoUs between Thailand and Neighbouring Countriesâ&#x20AC;&#x;, Working Paper No.16, International Labour Organization (ILO) Asian Regional Programme on Governance of Labour Migration, Regional Office for Asian and the Pacific (July 2008).

processing of travel documents and approval of resident and work permits and to coordinate actions against illegal employment. The evidence on the implementation of these MoUs suggests that progress has been rather limited. A very low share of migrant workers from Lao PDR and Cambodia have obtained their travel documents under the MoUs. Many workers have later become irregular migrants due to the restrictive and complex conditions specified in the travel documents. High recruitment fees, long processing time for travel documents, and poor legal enforcement have made it all the more difficult to curb irregular migration. The nationality verification has not been possible to establish with the Myanmar government due to ethnic conflicts in that country and differences in views between the two governments on the legalization process. The statistics for demand and supply of workers further suggest that a large part of the demand by Thai employers has remained unmet, and there is evidence that they have turned to irregular migrants to meet their needs. Overall, these MoUs have not been effective in controlling the inflow of irregular migrant workers or better account for them. Institutional limitations in both receiving and sending countries have impeded successful implementation of the MoUs which have partly contributed to the difficulty in meeting the Thai employersâ&#x20AC;&#x; demand for migrant workers under these agreements. On the host country side, these limitations relate to the lack of experience in recruitment management, inadequate dissemination of information on employment opportunities abroad and on the recruitment process, lack of local level presence by the recruitment agencies to identify and screen prospective migrant workers, absence of a legitimate placement agency in the host country to assist employers in the placement process, and inadequate capacity of government agencies to provide support. On the origin country side, the main institutional limitations have been the inability to effectively integrate returning workers and difficulties in maintaining a database of workers recruited under the MoU and ensuring their return at the end of the contract due to inadequate human and financial resources to maintain such a database and the fact that they may need to maintain more than one such information base for different MoU host country counterparts. These institutional limitations are further compounded by administrative drawbacks such as the failure to adequately streamline the processing and issuance of documents in host and source countries, restrictive regulations in some sending countries which prevent recruitment in sectors such as domestic work, and high costs of recruitment for both prospective workers and employers. For example, a migrant in Lao PDR has to undergo several interviews at various levels for identity verification and at the host country it may take a long time for documents to be processed at different levels, resulting in a 3-5 month long recruitment process before the migrant can travel abroad. Despite regular consultative meetings among the countries, the cost, time, and requirements involved remain onerous for migrant workers and employers. Failure to address such procedural issues either forces migrant workers to become indebted and bound to their employers or causes workers and employers to resort to the irregular migration route, in turn undermining the MoUs. Several concerns have also been voiced about these MoUs. One of these is the insufficient attention to enhancing the welfare of migrant workers. A significant number of migrant workers have ended their contracts and returned home early or changed to new jobs, often unofficially due to a lack of information about actual terms and conditions of work and facilities, false promises of high wages by

private brokers and recruitment agents, lack of awareness and literacy among the migrant workers, violation of contract terms by employers, seizure of travel and identity documents by employer, and absence of mechanisms by which the workers can lodge their grievances. Legislations in host and sending countries have also not covered the rights and welfare of workers in sectors such as agriculture, fishing, and domestic service. Another point of concern has been the forced savings requirement which is seen as violating the provisions of the Thai Labour Protection Act of 1998. There has also been concern about double income tax on migrant earnings, with payments deducted by the employer in the host country and payments to the sending country government following the migrantâ&#x20AC;&#x;s return. Cooperation on issues of skill development, protection of rights, and occupational health and safety has also been weak. Pre-departure training and integration orientation have not been systematically provided in the sending and receiving countries, respectively. Enforcement of migrant workersâ&#x20AC;&#x; rights has been poor with violation of working conditions in sectors such as textiles, fisheries, and food processing. Migrant worker rights also continue to be violated on grounds of national security, with the seizure of travel documents and bans on gatherings and social networking. Interestingly, public perception in Thailand also reflects a lack of awareness about the need to protect the rights of migrant workers and their contribution to the Thai economy, indicating that the MoUs have not done much to change the mindset about migration in the host economy. In sum, the experience with the Thai MoUs with neighbouring countries in the subregion suggests that the focus has been on short-term measures to tackle a long standing problem of illegal immigration. Attention has not been paid to the links between migration and development and to the mutual benefits from migration. There has also been a failure to develop adequate institutional frameworks and introduce greater administrative flexibility and procedural efficiency to support the implementation of the MoUs. 3.2

Lessons from the Asian experience

The representative sample of MoUs and BLAs presented in Table 1 and the preceding discussion of selected interstate migration arrangements in Asia reflect some common patterns. While each country has clearly had its own agenda in mind and there is some customization to country-specific needs, preventing irregular migration and enhancing the welfare of migrant workers overseas have been two of the main objectives on the part of receiving and sending countries, respectively. Another key objective has been cooperation and facilitation of the recruitment process and ensuring safe repatriation on completion of contract. Certain common concerns and limitations are also evident from these bilateral arrangements. One of the main drawbacks is the absence of adequate institutional and legal mechanisms to ensure implementation. Structurally, there are problems with these arrangements as they tend to be driven by the interests of the host rather than the sending countries, with more emphasis on drafting comprehensive recruitment procedures and regulating migrant workers rather than on protecting their rights and improving their welfare. Non-specification of the minimum standards of employment in the destination countries, failure to cover certain categories of workers, lack of gender sensitivity, and

absence of redressal mechanisms are other common problems under these MoUs and BLAs. Thus, these cases provide some useful lessons about what is required for effective migration management.17 First and foremost, a broad perspective needs to be taken on migration, which goes beyond looking at one-sided interests and specific concerns to looking at mutual win-win outcomes and a longer term perspective that links migration with developmental concerns and national strategies. Such an approach would imply emphasis on skill development, training, and facilitation of opportunities in source regions of the labour sending countries through trade and investment. Second, the agreements should not put undue administrative burden and strain capacity particularly in labour sending countries. Moreover, in the case of sending countries with MoUs or BLAs with several countries, there should be an attempt to rationalize the requirements across these agreements to limit the institutional burden. Capacity building in sending countries at various levels is essential. Third, complex, costly, time consuming, and rigid processes need to be avoided if these agreements are to incentivize migration through legal channels. Sufficient thought should be given to streamlining administrative procedures and requirements and reducing the costs of recruitment for migrant workers. Fourth, for circular migration to be effectively managed, there need to be supplementary measures in the sending countries which ensure proper reintegration of the returning workers in their home countries. Moreover, to ensure temporariness and return migration, jobs need to be well specified in duration and host countries must promote access to the formal labour market and also use a mix of incentives and penalties need to be used to reward well performing workers by easing reentry and punishing those who violate terms and conditions, respectively. Fifth, to ensure the protection of the rights of migrant workers, there needs to be proper enforcement of national labour laws in both receiving and sending countries and both the judicial and labour ministries need to extend these rights. Finally, coordination needs to be strengthened between concerned government agencies in the labour sending and receiving countries and the wider role of other stakeholders including workers‟ and employers‟ organizations also need to be taken into account for collecting and disseminating information, drafting of employment contracts, and extending protection to migrant workers.

Labour Mobility under RTAs between South and Southeast Asia

As more and more Asian countries move towards comprehensive regional integration agreements, labour mobility has come to feature as one of the issues addressed under some of these arrangements, although this trend is relatively nascent and tentative compared to the cooperation witnessed under MoUs and BLAs. Several trade and investment agreements include provisions for facilitating and 17

See, Chanda, R., „Low-Skilled Workers and Bilateral, Regional and Unilateral Initiatives: Lessons for the GATS Mode 4 Negotiations and other Agreements‟, United Nations Development Programme Bureau for Development Policy, Poverty Group and Trade and Human Development Unit, Geneva(April 2008), for a detailed discussion on the best practices in migration management.

managing labour mobility. Some of the most important ones include the Asia-Pacific Economic Cooperation grouping, ASEAN, the India-Singapore Comprehensive Economic Cooperation Agreement, the India-Korea Comprehensive Economic Partnership Agreement, Japanâ&#x20AC;&#x;s FTAs with Thailand, Indonesia, Singapore, and the Philippines, and Chinaâ&#x20AC;&#x;s FTAs with ASEAN and Singapore. One of the main objectives of these agreements has been to liberalize the regional labour market by opening up selected sectors or occupations and to help member countries dampen the effects of country-specific shocks and alleviate labour market shortages. Table 2 highlights the nature of labour mobility provisions in some selected integration agreements among Asian countries, some involving South and Southeast Asian countries.

Table 2: Labour Mobility Provisions in Selected Asian RTAs

Agreement/Scheme

Country/Region Covered

APEC Business Travel Card Programme

Australia, Brunei, Chile, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Mexico, New Zealand, PNG, Peru, the Philippines, Singapore, Chinese Taipei, Thailand and Vietnam;

Type

Labour Mobility Provisions

Coverage

Facilitates the entry of business visitors to the region from the participating economies in APEC. Valid for three years and permits multiple short-term business visits for two or three months each.

High skilled.

US and Canada (transitional members) Japan-Philippines Free Trade Agreement

Japan and Philippines

BTA

About 400 to 500 Philippine nurses and caregivers will be allowed to work in Japan annually on condition that they pass Japanese qualifying exams

SemiSkilled.

Japan-Thailand Free Trade Agreement

Japan and Thailand

FTA

Japan will accept Thai nurses and caregivers with the condition that Thai caregivers will be required to obtain

SemiSkilled.

Japanese qualifications. Japan- Indonesia Economic Partnership Agreement

Japan and Philippines

EPA

India-Singapore Comprehensive Economic Co-operation Agreement

India and Singapore

CECA

Japan will accept 400 nurses and 600 care workers subject to meeting some conditions regarding graduation from high education institutions and completion of vocational training. The government will issue special visas for up to three-years to Indonesian nurses and four-year visas to care workers.

Semi-skilled.

Easing of visa restrictions for a list of 127 professionals, covering a variety of sectors. Short term service suppliers, intracorporate transferees, and business visitors

High-skilled

India-Korea Comprehensive Economic Partnership Agreement

India and Republic of Korea

CEPA

Temporary movement of professional workers such as computer programmers and engineers etc.

High skilled

Japan-Singapore Free Trade Agreement

Japan and Singapore

FTA

Chapter on Movement of Business Persons covering four major categories of business persons â&#x20AC;&#x201C; business visitors, intra-corporate transferees, engineers and investors

High skilled

China-Singapore Free

China and

FTA

Facilitates temporary entry of business

High skilled

Trade Agreement

Source:

Miscellaneous

persons for three categories â&#x20AC;&#x201C; business visitors, intracorporate transferees and contractual service suppliers

Singapore

sources

including,

http://www.fta.gov.sg/ceca/ceca_india_infokit.pdf; http://co

mmerce.nic.in/trade/INDIA%20KOREA%20CEPA%202009.pdf; http://www.apec.org/~/link.aspx?_id=9E3E68AE3A0D4631B8381E66C4E893CF&_z=z Senate Economic Planning Office (2007) http://www.senate.gov.ph/publications/PB%202007-01%20-%20Japanhilippines%20Economic%20Partnership%20Agreement%20(JPEPA),%20An%20assesment.pdf http://insaps.org/page.php?id=Mjkx ; http://www.mofa.go.jp/region/asia-paci/singapore/jsepa.html http://www.internationallawoffice.com/newsletters/detail.aspx?g=c92c1947-b6c0-4347-944d-3c88f53c506e

The representative set of RTAs and their labour mobility provisions given in Table 2 for the most part, they focus solely on highly skilled workers, such as business visitors, intracorporate transferees, and professionals in selected areas. These agreements mostly cover categories that are closely related to investment flows or where there are labour shortages which can be met by one of the partner countries. Hence, the scope of these RTAs in terms of skill and occupational categories is very limited. The approach to labour mobility is mainly as a complement to goods and capital market integration and to facilitate trade and investment flows among partner countries, a perspective that is not present in the MoUs and BLAs discussed earlier whose focus is on managing low and semi skilled migration, mostly of seasonal and contractual workers, and tackling irregular migration. Thus, the RTA provisions on labour mobility complement the BLAs and MoUs in terms of occupational and skill coverage. There is also a close resemblance between these RTA provisions on labour mobility and the GATS framework on movement of natural persons. The chapters on movement of natural persons and the commitments made on labour mobility under these RTAs mirror the structure and architecture of commitments on mode 4 under the GATS. Countries have mostly made horizontal and not sectorspecific commitments, limited to the aforementioned categories under these RTAs. The agreements also contain articles on mutual recognition and domestic regulation, very similar in scope and content as those under the GATS. These articles are meant to serve as the basis for discussions on issues of qualification, licensing, and standards which are pertinent to the movement of skilled and professional service providers covered by the RTAs. The following discussion highlights the features of the only two integration agreements involving South Asian and Southeast countries which cover labour mobility, namely the India-Singapore CECA and the India-Korea CEPA. Both are similar in their approach and objectives.

4.1

India-Singapore CECA and labour mobility

The India-Singapore CECA is an important agreement as it sets a benchmark for cooperation on services, investment issues, and labour mobility. The agreement came into force in August 2005 and

is the first comprehensive trade agreement that India signed with any trade partner. It has also undergone one review as per schedule. 18 Under the CECA, both countries have committed to go beyond their WTO commitments and to provide access to each otherâ&#x20AC;&#x;s service suppliers without recourse to quantitative restrictions on the number of suppliers. Furthermore, national treatment has also been provided to each otherâ&#x20AC;&#x;s service suppliers. The CECA has eased visa restrictions for professionals in 127 occupations (e.g., IT, medicine, engineering, nursing, accountancy, and university lecturers) by allowing them to apply for a visa period of up to one year. Short term service suppliers who provide a specific service are allowed to stay upto 3 months with possible extension of another 3 months. The aim of these provisions is to facilitate the movement of business visitors and professionals between the two countries. Another regulatory issue that has been addressed is that of wage parity. Under the CECA, there is a provision whereby the salaries of Indian professionals will be calculated by including allowances paid in India and Singapore to the basic pay in order to meet the benchmark criterion of equivalent wages, which would facilitate the entry of Indian professionals into Singapore. Earlier, failure to demonstrate equivalence of salary with professionals based in Singapore had led to denial of visas. Another important step under the CECA is the provision to conclude Mutual Recognition Agreements between India and Singapore for selected categories of professionals. The five initial sectors where these MRAs are to be concluded include accounting and auditing, architecture, medicine, dentistry, and nursing. Under these MRAs, educational and professional qualifications and licensing criteria are to be mutually assessed and recognized by authorities of both countries, thus enabling professionals from each country to practice in the other. Professional bodies such as the Institute of Chartered Accountants of India or the Medical Council of India are expected to work out the details for achieving mutual recognition. India is also pushing for the recognition of qualifications of capable professionals from second-grade Indian institutions, in reciprocity for the concessions made by India in the goods sector. Its objective is to leverage its advantage as a source of English speaking qualified workers for export to Singapore. However, this issue still remains to be addressed. However, progress on MRAs has been slow, mainly because the CECA does not set a deadline for concluding the MRAs and does not deem failure or delay in this regard as a breach of obligations under the agreement. Professional bodies have also not been very pro-active about MRA negotiations.

4.2

India-Korea CEPA and labour mobility

Although Korea is not one of the countries under consideration in this paper, the provisions concerning the movement of natural persons (MNP) under the India-Korea CEPA are worth

See, India- Singapore Comprehensive Economic Cooperation Agreement, available at http://www.fta.gov.sg/ ceca/ceca_india_infokit.pdf, accessed in September 2010.

discussing. The India-Korea CEPA contains a separate chapter on MNP.19 The agreement covers the categories of business visitors, intracorporate transfers, independent professionals, and contractual service suppliers, in line with Indiaâ&#x20AC;&#x;s interests in the WTO negotiations on MNP. Some noteworthy provisions under this agreement include access by contractual service suppliers and independent professionals in the Korean market for upto one year, admission for 2 years for ICTs without any numerical quotas or labour market tests, stay of upto 3 months for business visitors, and work permit and authorization for dependants of professionals, contractual service suppliers, and ICTs. The two countries have also identified a list of 163 professions, mostly involving IT professionals, engineers across a range of sectors (construction, automobile, marine, telecommunications, etc.), consultants in various fields, and English language teachers who would qualify for easier entry into each otherâ&#x20AC;&#x;s markets. The agreement also calls for regulatory transparency and regular exchange of information and establishment of enquiry points regarding MNP related policies and establishes dispute settlement procedures. While it is too early to assess the outcome of this CEPA, it is clear that this agreement benchmarks against the earlier India-Singapore CECA in terms of its approach and objectives. Both these agreements highlight a growing trend towards managing skilled migration under such integration arrangements on the part of countries like India which seek to leverage their strength in exporting skilled manpower.

Unilateral approaches in Southeast and South Asia

Although consultative and bilateral mechanisms are being used to manage migration, the primary means of regulating migration in Asia still continues to be national migration policies and frameworks. Several Asian destination countries have developed elaborate immigration systems to deal with migrant workers. The measures used have included visa controls, work permit systems, foreign worker levies on employers in the host country, and the aim has been to keep workers on a temporary basis and repatriate them during downturns. Low and semi skilled migrants have been admitted in selected sectors and occupations so as to protect local workers. By and large, these policies have tended to be short-term and needs-based in approach, with host countries introducing and removing visa restrictions and bans on migrant workers from time to time depending on economic conditions, domestic labour market considerations, and security concerns. In recent years, many host countries in Southeast and East Asia, including Japan, Korea, Malaysia, Singapore, Taiwan, and Thailand have moved towards a structural approach to migration in order to address long term labour market requirements. Singapore has introduced a policy specifically for foreign workers using an industry-specific quota system and levies on employers who hire less skilled foreign workers. The focus of immigration policy has mainly been to allow migrant workers to sustain economic growth but at the same time to limit dependence on unskilled migrants given the social and employment related concerns associated with such migration. As highlighted earlier, Korea has introduced a formal employment permit scheme to replace its industrial trainee program. Malaysia

See, India-Korea CEPA, available at A%202009.pdf, accessed in November 2010.

http://commerce.nic.in/trade/INDIA%20KOREA%20CEP

and Thailand have also moved towards formal policy and legislative frameworks for managing migration, although they continue to face a large body of undocumented migrant workers. Their governments have tried to cover more foreign workers officially through amnesties and periodic crackdowns on irregular migrants. Many of the labour receiving countries in Asia have also become more open to inflows of professional and highly skilled foreign workers in a bid to attract global talent and to consciously reduce dependency on low skilled migrant workers and shift their economies towards knowledge-intensive activities. Table 3 provides an overview of the legal frameworks and mechanisms used to manage migration in Southeast and East Asian countries. It shows clearly that the primary means of managing migration in this region has been through unilateral policies, including work and residence permit related policies, quotas, and selective facilitation of entry for preferred categories of foreign workers (typically those associated with investments or those meeting particular labour market needs). 20

Table 3: Legal framework of migration policies in East Asia Tempora ry permit for residenc e and working

Japan Korea China Hong Kong, China Chinese Taipei Singapore Malaysia Thailand Indonesia Philippines Vietnam

º º º º

Acceptance of permanent migrants directly from abroad

Positive list

º º

Quot a or maxi mum rate

Intracorporate transfer

Investment promotion with persons

º º

Change from student to worker after graduating

Trainee ship

Bilateral agreement

º X

º º

º []

º º º º º º º

Labour market testing

[]

º º º º º º

[]

º º

º º º º º º

X X X X X X

º º

Source: Y. Iguchi and Sho Ku (2004), Table 5, p.81 (Based on national laws and regulations).

Note: º: existent, X: non-existent, [] : special scheme, No marking: no information

5.1

Host country policies to regulate migration in Southeast Asia

There are differences in the immigration policies and approaches among the concerned destination countries of Singapore, Malaysia, Thailand, and Korea. While Malaysia and Thailand have entered into many bilateral agreements to regulate cross border migration into their countries, Singapore has not and has instead relied more on market forces. While Singapore‟s immigration policies have been integrated with its national development strategy in that they provide incentives for highly skilled

professionals and involve a system of migrant levies on low skilled workers, Thailand‟s policies for low skilled migrants have tended to be ad hoc, thus necessitating periodic regularization and repatriation drives to curb the inflow of undocumented migrants. Malaysia lies between these two countries, shifting its policies in line periodically with market demands and in recent years moving closer to Singapore‟s approach. Broadly, immigration policies and legal frameworks in these countries have addressed three kinds of migration flows: skilled, unskilled and semi-skilled (including female), and undocumented labour flows. The following discussion provides an overview of the policy frameworks adopted in each of these countries to manage migration flows. 5.1.1

Singapore

Rapid economic growth and consequent labour shortages led to the growth of a large migrant workforce in Singapore. The Singapore government permitted the recruitment of migrant workers from a range of countries including India, Bangladesh, Sri Lanka, and Indonesia starting in the late 1970s. Over time, with the country‟s growing dependence on foreign workers, the government implemented a comprehensive migrant worker policy and levy scheme in the late 1980s, in order to regulate the size and composition of its migrant workforce. Singapore has used three instruments to prevent illegal migration and to regulate the entry of migrant labour. These include a work permit system which categorized workers by their skill level, race, and gender and was adjusted (using quotas and dependency ceilings) in line with labour market demand; a foreign levy scheme to reduce dependence on unskilled labour by imposing higher levies for unskilled workers and employers with more than 40 percent unskilled workers; and internal enforcement measures using legal deterrents, effective immigration controls, stringent enforcement, and periodic amnesty and repatriation schemes. Singapore‟s immigration and border control regulations have been adapted in response to changing labour market requirements. One of the main characteristics of Singapore‟s migration policies is the graded approach to migrant workers. Singapore has a multi-layered system of work permits and employment passes for different categories of workers based on skills and income levels, providing more flexible and generous terms and conditions for skilled workers and imposing many restrictions on less skilled workers in order to reduce its dependence on unskilled migrant workers. For instance, less skilled migrant workers are required to post security bonds to ensure their repatriation on expiry of their contracts. They also face more restrictions on their personal freedoms and residence status. In contrast, skilled workers on employment passes are granted access to subsidized health care, education, and housing and are also eligible to apply for citizenship. In recent years, however, the government has taken some steps to prevent exploitation of less skilled workers, in particular, domestic workers who work outside the formal labour market and tend to be outside the purview of labour market regulations. The Singaporean government has for example, stipulated a ceiling on fees charged by employment agencies from low skilled workers. It has introduced an accreditation process for agencies involved in the recruitment, transport, training, and placement of domestic workers and discontinued licenses for non-accredited agencies. It has also taken steps to penalize employers who abuse their domestic workers and established assistance mechanisms for them and has introduced new legislative measures and a new standard contract to improve working conditions for such workers.

5.1.2

Malaysia

The countryâ&#x20AC;&#x;s immigration policies and labour recruitment strategies have mostly been based on its bilateral agreements with source countries, as discussed earlier. The Malaysian government has, however, oscillated a lot in its approach to managing migration, ranging from signing bilateral agreements with key source countries and introducing programmes to regularize foreign workers, to imposing bans on recruitment of foreign workers, cracking down on illegal foreign workers and deporting them, and subsequently relaxing such restrictions. The government has experimented with various mechanisms, including the setting up of a Special Task Force on Foreign Labour and regularization drives, introduction of an employment and location specific work permit system to categorize foreign workers more rigidly, and enacting legislation for the establishment of legal recruitment agencies for foreign contract labour. In recent years, however, the government has shifted to an approach similar to that followed by Singapore. It too has instituted a foreign worker levy system in order to reduce its dependence on less skilled migrant workers, introduced a graded work permit system to encourage skilled as opposed to less skilled foreign workers, and strengthened internal enforcement measures to regulate migration. Under the work permit system, foreign workers are recruited abroad and issued with calling visas for admission into Malaysia. These visas are then converted into work permits or visit passes for temporary employment. There are two types of employment-related work permits or visas, a work pass or employment pass for expatriates or professionals and a work permit or contract worker pass or visit pass for temporary employment of semi-skilled and unskilled workers such as in the manufacturing, construction, plantation, services, and domestic work sectors. A variety of restrictions apply for the less skilled migrant workers, including requirements to post security bonds and bank guarantees as well as requirements on employers regarding employment terms and conditions and adherence to standard employment contracts. As in the case of Singapore, the Malaysian government has in recent years introduced measures to protect domestic workers as they fall under the jurisdiction of their employers and are thus more prone to abuse than other migrant workers. But on the whole, Malaysiaâ&#x20AC;&#x;s migration management policies and frameworks have been subject to much criticism due to problems of implementation, poor coordination and conflicting policies across different government departments, and lack of consistency. 5.2

Source country policies to regulate migration

There is considerable variation in migration management policies and frameworks across source countries in South Asia. By and large these countries have not had comprehensive or integrated policies on migration or elaborate institutional mechanisms to manage migration. Their approach has tended to more laissez faire in nature, with private intermediaries playing an important role and rendering the migration process subject to problems of rent seeking, abuse, and violations, as also highlighted earlier. Table 4 provides a summary of the measures taken by India, Pakistan, Sri Lanka, and Bangladesh to regulate their labour exports and also to provide security for their overseas workers. The table also provides the measures taken by the Philippines, which is perhaps the most pro-active sending country in this regard, in order to provide a comparative perspective. Although the information is not very recent and there have been subsequent changes in migration policies, the table illustrates clearly that

the level of intervention has varied across the South Asian countries, in line with their individual concerns and priorities as well as their varying institutional capacities to oversee migration.

Table 4: outflows

Measures taken by South Asian countries and the Philippines to regulate labour

Item Recruitment and Replacement Emigration clearance to leave the country Ban/restriction on direct hiring Minimum standards for work contracts Licensing/regulation of work contracts Security bond requirement

Bangladesh

India

Pakistan

Sri Lanka

Ban/limit on recruitment fee charged to worker Contribution to welfare fund Restriction on passport issue Regulation of job advertising Trade test requirement Restriction on selected occupations

No objection certificate requirement Compulsory service in the country before departure Ban on female domestic workers Specification of transport carrier Periodic inspection recruitment establishment Pre-departure briefing Restriction on country of employment Renewal of contract clearance

Philippines

X X

Source: Kaur (2007), Table 2. http://intersections.anu.edu.au/issue15/kaur.htm (Based on M. Abella, â&#x20AC;&#x153;Overseas employment administration: a review of policies and proceduresâ&#x20AC;?,' in R. Owen, Migrant Workers in the Gulf, Report No. 68, London: Minority Rights Group, 1985, and Malsiri Dias, 'Overview of mechanisms of migration,' in The Trade in Domestic Workers. Causes, Mechanisms and Consequences of International Migration, ed. Noeleen Heyzer, Geertje Lycklama a Nijeholt & Nedra Weerakoon, Kuala Lumpur: APDC, 1994, p. 137)

Although migration has not historically been a focus area for the South Asian governments, in recent years, the latter have become more proactive about managing migration. They have been coordinating with host country governments and major employers to address issues of deployment, capacity building, welfare of migrant workers overseas, remittances, and repatriation. Some have also established separate ministries and cells to oversee these issues. Sri Lanka has perhaps been the most pro-active among the South Asian countries in managing labour outflows. The Foreign Employment Policy in Sri Lanka, like the overseas employment programme in the Philippines, aims at promoting employment opportunities for the countryâ&#x20AC;&#x;s workers. There is also a specific strategy to address the needs of domestic female workers, given the large number of female migrant workers from the country. The Sri Lanka Bureau of Foreign Employment, under the Ministry of Employment and Labour, is the nodal agency responsible for administering overseas employment related programmes, supported by other government institutions (Ministry of Foreign Affairs, Ministry of Women Affairs, and the Ministry of Vocational Training). The various government agencies regulate the recruitment process through registration and control measures on foreign employment agencies, and the registration of migrant workers and their monitoring at the point of departure. Model contracts have been introduced to curb exploitation and malpractice. Pre-departure orientation and training are also provided to workers in general and also specifically to housemaids. The welfare of overseas workers is ensured through overseas labour attaches posted in host countries. There is a welfare fund financed through an employer levy and the funds are used to provide welfare services to the migrant workers. There are also financial support measures such as provision of loans to meet departure expenses. Remittance transfer through formal channels is encouraged by permitting migrant workers to operate foreign currency accounts called Non-resident Foreign Currency Account. Reintegration is also supported through loan schemes for migrant workers wanting to invest in selfemployment activities and through a family development programme that helps families to invest their savings in self employment activities. Although India has not had an integrated migration policy, it has recently introduced several institutional mechanisms to address migration issues. For example, the Indian government has set up a separate Ministry of Overseas Indian Affairs as well as an Overseas Workers Resource Centre to provide information and assistance to emigrants about employment opportunities and risks involved in irregular migration. The government plans to expand the centreâ&#x20AC;&#x;s role to that of a one-stop shop for emigrants. A Council for Promotion of Overseas Employment has also been set up to identify employment opportunities in the global labour market, to disseminate information, and conduct research. A compulsory insurance system, the Pravasi Bharatiya Bima Yojana, has been introduced for overseas Indian workers since 2003 and a welfare fund has also been established to cover boarding and lodging for distressed overseas Indians engaged in domestic and other low skilled work. The focus areas for these initiatives include pre-departure orientation, controlling and monitoring the licensing of recruitment agents and intermediaries, protecting migrantsâ&#x20AC;&#x; rights overseas (through the Protector-General of Emigrants at the MoIA), maximizing remittances, and aiding reintegration of migrants on their return. The Indian government has also been negotiating bilateral agreements on the transfer of social security contributions. Pakistan and Bangladesh have similarly entered into bilateral agreements with key host nations to manage migration and also established institutions and enacted national legislation to oversee emigration. The Bangladesh government has set up a separate ministry to deal with overseas contract

workers and with the diaspora community. It has also introduced an Overseas Employment Policy and legislation on emigration. Pakistanâ&#x20AC;&#x;s Bureau of Emigration and Overseas Employment aims to promote overseas employment and orderly conditions of employment and return for its workers and to ensure their welfare and security. Notwithstanding the setting up of institutional mechanisms and coordination efforts with important host countries, there remain certain limitations in the migration frameworks of the South Asian countries. One major problem is the continued lack of proper and effective implementation of migration policies in South Asia, also evident from the earlier discussion on problems arising from unregulated private intermediaries and exploitative practices faced by South Asian workers. National migration policies in this region are also undermined by the absence of an overall regional migration framework given the fact that policies in one country have a bearing on migration into and out of the other countries in the region and the many common concerns that countries in this region are trying to address in the context of migration.

Conclusion

Given the scale of cross border migration in Asia and the presence of some of the most important source and host countries for migration within Asia, the potential gains from the management of regional labour mobility are significant. As discussed in this paper, the countries of South and Southeast Asia have been increasingly moving from ad hoc unilateral approaches to managing migration flows towards bilateral instruments and more recently towards regional instruments, though national migration policies remain the most important. The country experiences also indicate that entry into bilateral agreements and MoUs on migration alone is not sufficient. It needs to be supported by the establishment of country level institutional mechanisms, coordination with occupational bodies and private sector associations to gauge labour market needs, and strengthened administrative capacity in order to manage migration effectively. Such steps are increasingly being taken, albeit to different degrees, by governments in South and Southeast Asia with reforms in labour recruitment, deployment, repatriation, and governance processes. The country examples also reveal a dual approach to managing migration depending on the skill and occupational profile of migration. While the movement of skilled and professional workers is increasingly being addressed through economic integration arrangements, the migration of low and semi-skilled workers is being pursued through bilateral labour agreements and MoUs. The issues and concerns associated with these different categories of workers obviously differ, the focus being on protection, deployment, and repatriation related issues in the case of less skilled workers and on recognition, social security contributions, and visa facilitation related issues in the case of skilled workers. The former are generally covered under bilateral labour specific arrangements while the latter tend to be covered under broader economic cooperation arrangements. On the whole, the approach of the Southeast Asian countries has been largely market-driven, putting less emphasis on rights and welfare concerns and mainly working on the premise of a guest worker rotation policy in the case of less skilled workers while encouraging entry and stay of highly skilled workers.

Going forward, regional cooperation in migration can play an important role given Asiaâ&#x20AC;&#x;s growing economic and political significance as an engine of growth for the world economy. In this context, one can expect faster progress with regard to the mobility of high skilled and professional workers between South and Southeast Asia. The growing number of economic integration agreements spanning services and investment issues between countries in these two sub-regions are likely to address the liberalization of skilled labour mobility, as a complement to trade and investment flows among these countries. However, progress on low skilled labour mobility is likely to remain slow under such integration arrangements as well as under the WTO negotiations on mode 4. Hence, it may be useful for the countries in Southeast and South Asia to adopt the best practices from bilateral agreements signed by countries in other regions, such as between Canada and Mexico, Spain and Ecuador to regulate the movement of less skilled workers. Overall, agreements on labour mobility, both for skilled and unskilled workers, need to be pursued at the sub-regional and bilateral levels among the countries of South and Southeast Asia as there could be large spinoff benefits in terms of stronger political, social, economic, and cultural relations.

.....

ISAS Working Paper No. 142 â&#x20AC;&#x201C; 6 February 2012 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Moving to Europe: Bangladeshi Migration to Italy Md Mizanur Rahman and Mohammad Alamgir Kabir1

Abstract Reformation of immigration policy in Italy has paved the way for the emergence of some non-European emigrant communities in Italy including Bangladeshi community. This study addresses the Bangladeshi migration to Italy by highlighting the context of immigrant reception in Italy, characteristics of Bangladeshi emigrants, their channels of migration, role of intermediaries in the migration process, the economic cost of migration, and inflows of remittances and their implications for family dynamics in Bangladesh. This study draws from the Bangladesh Household Remittance Survey conducted by the International Organisation for Migration (IOM) - Dhaka in 2009. The study reports that opportunities in the Italian labour market translate into increased opportunities for the migrant families left behind in Bangladesh. Southern European countries especially Italy, Spain, Portugal and Greece have been a major migration destination region for both European and non-European migrants in the late 1970s and soaring through the 1980s (King et al., 2000; King, 2001; Anthias and Lazaridis, 2000; Bonifazi et al., 2008). Of these Southern European countries, Italy is a case in point. In the period 1990-2000, the stock of immigrants doubled in Italy; it increased from about 650,000 to almost 1,300,000 (Zontini, 2010: 3). According to another estimate, between 1986 and 1

Dr Md Mizanur Rahman is Research fellow at the Institute of South Asian Studies (ISAS) in the National University of Singapore (NUS). The author can be reached at isasrmm@nus.edu.sg. Mohammad Alamgir Kabir is Ph.D. Candidate, University of Malaya. The views expressed are those of the authors and do not necessarily reflect those of the institute.

2004, the legally resident foreign population rose from under 300,000 to an estimated 2.6 million, accounting for 4.5 per cent of the total population (Chaloff, 2006: 149). The number of immigrants in Italy reached a little more than 4.8 million in 2009 (Cesareo, 2009:11). With the fall in employment visas and the rise in family reunion visas (SOPEMI, 2010: 214), Italy has indeed transformed from a country of labour migration to that of family immigration and settlement in recent years. Italy has been one of the major destinations for the Bangladeshi migrants in southern Europe. For instance, Bangladeshi immigrants living in Italy were around 84,000 in 2009 (Blangiardo, 2009: 35). The number of (regular) Bangladeshi migrants is projected to reach 118,000 in 2015, 158,000 in 2020, and 232,000 in 2030 (Blangiardo, 2009: 49). In addition to regular immigrants, Italy also hosts a large number of irregular immigrants from both European and non-European countries (Russell, 2001). The number of irregular Bangladeshi emigrants was reported to have been 11,000 in 2009 (Blangiardo, 2009: 35). However, another source suggests that the number of irregular Bangladeshi emigrants was nearly 74,000 in 20092. This growing presence of Bangladeshi emigrants is indicative that Bangladeshis availed the immigration opportunity in Italy brought about by periodic changes in its immigration laws since the mid 1980s. Bangladeshi migrants in Italy are predominantly single and male migrants who are living under „transnationally split‟ (Yeoh, Graham, and Boyle, 2002) conditions and obligated to maintain economic and social relations with their family members back home. The obligation of maintaining sustained economic and social ties with home stems from the dominance of family in the social and economic affairs of the Bangladeshi society. Individual migrant is deeply enmeshed in a complex web of household relations and dependencies: He/she moves internationally for work as an envoy of the extended family that places the well-being of the extended family above the individual migrant‟s interests (Rahman, 2011). Whether it is temporary labour migration such as migration to the Middle East or more permanent form of migration such as migration to Italy, maintaining sustained economic relations with leftbehind families remain one of the key priorities for migrant members (Ullah, 2010, Rahman 2009). This is more and more evidenced in the annual inflow of remittances to Bangladesh, which has increased from around $4.2 billion in 2005 to nearly $11 billion in 20103. The economic relations between migrants and their families are often the centre of discussion in the migration-development debate. However, existing studies often tend to highlight the migration-development nexus in the context of some selected developed countries such as the USA, Germany, Netherlands, and the UK or of some popular labour migration countries in Asia and Africa (Papademetriou and Martin, 1991; Hermele, 1997; Piper, 2009). Southern 2

„The number of Bangladeshi migrants in Italy on the rise‟, 30 October, 2010, Amaderdesh, http://www.amaderdesh.com/desh/italy-on-rise/ accessed on 29 October, 2011 BMET, Government agency in charge of monitoring outflow of Bangladeshi migrants, Bureau of Manpower, Employment and Training (BMET), accessed on 28 October, 2011 http://www.bmet.org.bd/BMET/statti sticalDataAction,

European counties, being a new migration destination, are not adequately highlighted in the debate on migration and development. In particular, there is a dearth of research on the linkages between migrants and their families left-behind in some new source countries in Asia. This study attempts to close the gap in existing scholarship by highlighting the Bangladeshi migration to Italy and developmental implications on migrant households left behind in Bangladesh. After decades of pessimism and concerns, governments of source countries have put renewed hopes on transnationally-oriented migrants as potential actors of development (Schiller and Faist, 2010). Hopes are pinned on transnational migrants sending remittances to their families in origin countries (Faist, 2010). Scholars revisiting the debate on migration-development nexus increasingly see migration as a process and as an integral part of broader transformation processes in the society (Faist, Fauser and Kivisto, 2011). This research highlights migration as a process and explains remittance-induced changes at the household level in terms of development process. This is in the line with Amartya Sen‟s views on development as a process of increasing the freedoms of the people, in short „development as freedom‟ (Sen, 1999). From an empirical perspective, Sen has proposed three capabilities that are the proximate determinants of the basic freedoms: Health, education, and income. This study assesses the implication of migration-induced remittances in terms of these three determinants: Health, education and income. In particular, this study attempts to address the following research questions: What is the context of immigrant reception in Italy? What are socio-demographic profiles of Bangladeshi migrants in Italy? What is the trend of Bangladeshi migration to Italy? What is the trend of remittance flows from Italy to Bangladesh? What are the channels of Bangladeshi migration to Italy? What is the economic cost of migration? How do migrants finance their migration expenses? What are the implications of remittances on family dynamics? This paper starts by presenting the data sources for the study. The next section provides the context of immigrant reception in Italy in the light of the changes in immigration laws. This is followed by sociodemographic characteristics of Bangladeshi migrants in Italy. Subsequent sections focus on channels of Bangladeshi migration to Italy, and implications of remittances for family dynamics. The final section gives a summary of the findings of the study.

Data Sources This study is based on the „Bangladesh Household Remittance Survey (BHRS) 2009 conducted by International Organisation for Migration (IOM) in Dhaka with financial support from Department for International Development – the United Kingdom (DFID- UK). In addition to survey data, this study also draws from qualitative interviews of migrants, returnmigrants, and activists of migrant organisations in Bangladesh between 2010 and 2011. The Bangladesh Migrant Household Survey interviewed migrant households across the country 3

through a nationally representative sample of migrant households from all six administrative divisions of Bangladesh. The districts of the six divisions were divided into two strata, with one stratum consisting of „More Concentration of Migrant‟ (MCM) households and the other stratum consisting of „Less Concentration of Migrant‟ (LCM) households‟. Following this, clusters were formed with one or more mauzas (closely synonymous with a village), depending on the cluster‟s size as set in terms of number of general households. These clusters were selected independently from each stratum using the Probability Proportional to Size (PPS) method of selection. The total sample was made up of 457 clusters (i.e. 257 from MCM districts and 200 from LCM districts). All households in every selected cluster were listed, identifying only the migrant households. Household listings were done by taking a complete census of the households in each of the clusters. This involved visiting every household in the designated area. A migrant household has been defined as a household that had at least one of its members living/working abroad during the time of the survey. The selection of the migrant households was made independently of their current status (e.g. regular or irregular) in the country of destination. In total, the number of migrants in the survey was 12,893. The survey covered a wide range of migration issues encompassing socio-economic background, processing and economic cost of migration, remittances, and impacts of remittances on households that serve the scope of this paper. Of these 12,893 migrants, 177 migrants were working in Italy. This paper is based on the experiences of these 177 migrants‟ households in Bangladesh.

The Context of Immigrant Reception in Italy Italy was a major emigration country until the early 1970s when millions of Italians immigrated to North America as well as wealthy northern Europe. In the late 1970s and 80s, this migratory pattern changed dramatically and Italy started to receive foreigners from Eastern Europe, Northern Africa and Asia. Italy is the first country in Mediterranean Europe to acquire a positive migration balance in 1972 (Knights, 1996: 106) and by 1997 the net flow of remittances had reversed (Chaloff, 2006:149). It is often argued that Italy‟s position in the centre of the Mediterranean, extensive coastline and important tourism and pilgrimage industry have made the country relatively accessible for potential migrants from nonEuropean countries (King and Andall, 1999; Knights, 1996; Chaloff, 2004; Triandafyllidou, 2007). However, the sharp increase in immigrant population is also attributed to rapid economic and social transformations in Italy (King and Andall, 1999; King, 2001). Italy has passed several sets of immigration legislations since the mid 1980s to control migration flows, and regularise and integrate new immigrants (Chaloff, 2004; Cesareo, 2009; Blangiardo, 2009; Pastore et al, 2006). The first attempt was made in 1986 when Italy devised policy to control the entry of immigrants seeking employment and regularised immigrants who were already in Italy and could prove they were employed. This immigration 4

reform facilitated the regularisation of about 105,000 migrants (Cesareo, 2007). The second legislation, enacted in 1990 known as the „Martelli Law‟, was broad in scope; it introduced the annual planning of migratory flows (limited admissions of foreigners for work), and certain norms regarding the rights and obligations of foreigners in Italy, stay and work conditions, and other related matters such as family reunion and social integration. The Martelli Law offered immigrants the opportunity to regularise their presence irrespective of their employment status. A total of 217,000 immigrants regularised their status (Knights, 1996: 107) Immigration became a significant issue in the 1990s, leading to the passage of laws in 1995 and 1998. The 1995 law involved regularisation of 246,000 immigrants (Cesareo, 2007) and introduced the possibility of regularisation for family reunification purposes – a sign of transforming single migration to family and settlement migration in Italy. The reform law of 1998 also known as Turco-Napolitano law or Testo Unico, created a three-pillar immigration policy: (a) fighting illegal migration; (b) regulating legal migration; and (c) integrating resident foreigners (Chaloff, 2006:153). The first pillar focussed on bilateral agreements and criminal penalties, the second on a quota system, and the third on integration of new immigrants. New immigration for work was instituted within the national quotas and with either a job offer or „sponsorship‟. The quota system offered work opportunity for nonEuropean migrants from one to three years. In 2002, Italy passed the immigration law known as the Bossi-Fini Law that paved the way for regularisation of more than 700,000 immigrants in the country (Cesareo, 2007; Chaloff, 2006). However, the Bossi-Fini law imposed restrictions on two domains: Entry and the conditions of stay. The quota system emerged as a key tool to meet the demand for labour in the country. The quota system was designed to serve both source and host countries, as sending countries would benefit from remittances and Italy from foreign labour. However, soon after the introduction of quota system, it became increasingly evident that the quota system was not producing the desired outcome. Two common causes are often cited for this failure: Limited number of visas allowed under this category (imbalance between demand for labour and supply of labour) and complicated bureaucratic procedures involved in the quota visa processing (Zanfrini, 2003; Chaloff, 2006). The drawback inherent in quota system created a situation where many potential migrants found their own way to circumvent bureaucratic restrictions. They sneaked into Italy clandestinely and joined the labour market in order to establish a relationship with employers who might be willing to undertake the complicated bureaucratic procedure necessary for legal entry or to support their applications during regularisation drive. When clandestine entry into the country remains a challenge for potential migrants, the availability of work after entry and the possibility of securing regular immigration status during the frequent regularisation drives remain open to them, providing adequate incentive for seeking irregular entry into the country. In addition to quota, another important channel for regular migration is the family 5

reunion visa. Family reunion visa is allowed to dependents of immigrants, especially spouses and children. The current trend in Italy is the fall in employment visas and the rise in family reunion visas. For instance, between 2007 and 2008, the number of visas issued for family reunification rose 39 per cent from 89,000 to 123,000, while entries for employment fell sharply (SOPEMI, 2010: 214). This trend suggests that Italy has entered a new phase from single migration to family immigration and settlement.

Bangladeshi Migrants in Italy Bangladeshi emigration to Italy developed, according to King and Knights, as a â&#x20AC;&#x153;form of migratory opportunism provoked by the basic push forces back home and by lax entry controls and regularisation drives in Italyâ&#x20AC;? (King and Knights, 1994:128). Italyâ&#x20AC;&#x;s first three sets of legislation for immigration reform (the laws of 1986, 1990, and 1998) played an important role in the emergence of permanent Bangladeshi migrant community in Italy. Of these legislations, the Martelli Law of 1990 provided a huge impetus for Bangladeshi immigration to Italy. According to Knights (1996:109), the Martelli Law gave rise to three separate immigration processes for Bangladeshis: (i) opportunistic migration - Bangladeshis from other countries came to Italy to seize the opportunity of becoming regular migrants and subsequently permanent or renewable-status residents in Italy; (ii) recruitment migration (formal and informal recruitment business); and finally, (iii) family or kinship migration (because of adoption of family reunion policy). Thus, changes in immigration laws in Italy since the mid-1980s created an opportunity for both authorised and unauthorised Bangladeshi migration to Italy. The BMET (Bureau of Manpower, Employment and Training), Bangladesh Government agency in charge of monitoring outflow of authorised migration for work, started recording the outflow of Bangladeshis to Italy since 2002. As per the BMET source, nearly 33,000 migrants went to Italy through authorised channels between 2002 and 2010 (Figure 1). However, Bangladesh Bank, which is in charge of reporting inflow of remittances into Bangladesh started reporting annual inflow of remittances from Italy to Bangladesh in 2000. As per the Bangladesh Bank, Bangladeshi migrants remitted nearly US$1 billion from Italy to Bangladesh between 2000 and 2010 (Figure 2). However, before 2000, the inflow of remittances from Italy was predominantly through the informal channel called hundi - a popular informal channel of remittances used by global Bangladeshis (Rahman and Yeoh, 2008). The fear of terroristfinancing after 9/11 has mainly contributed to the increasing use of formal channel. Bangladesh Household Remittance Survey (BHRS) covered 172 male migrants and five female migrants in Italy. However, these females were dependent migrants who joined their spouses in Italy often in the dependent visa category. The mean age of these migrants was 33 years. Although these Bangladeshi migrants in Italy were predominantly single males, not necessarily all were unmarried. In fact, approximately 61 per cent of these migrants were 6

married. With regard to residence of married migrantsâ&#x20AC;&#x; wives, nearly 73 per cent of them were living in Bangladesh. In other words, nearly one-fourth of migrantsâ&#x20AC;&#x; wives had so far availed the family reunification programme. However, the rate of family reunification is relatively low because the reunification visa application procedure is complicated and lengthy. Nearly 30 per cent of these migrants had graduate and post-graduate credentials before their migration to Italy. This educational attainment is exceptionally higher than that of Bangladeshi migrants who are working in Asian countries, for instance, in Saudi Arabia. Approximately three per cent of Bangladeshi migrants had graduate degrees in Saudi Arabia (Rahman, 2011). In another study, Rahman reports that seven per cent of Bangladeshi migrants working in Singapore were graduates (Rahman, 2010:270). Thus, it can be safely concluded that Bangladeshis who choose to migrate to European countries are having higher educational credentials than those who are seeking temporary employment in the Middle East and South-east Asia. In terms of occupational background, 60 per cent of migrants were employed and the remaining 40 per cent were unemployed before their migration to Italy. After migration to Italy, about 10 per cent could not get jobs in Italy. Major categories of occupations that these migrants were engaged in Italy include factory work (19 per cent), hotel waiter or cook (14 per cent), general labour (24 per cent), agricultural labour (four per cent), business (15 per cent), salesman (four per cent). In total, 45 per cent of the Bangladeshi migrants were living in Italy between one and six years and the remaining 55 per cent between six and 21 years or more. The duration of stay suggests that both the recent and relatively early migrants, including those who migrated in the late 1980s and 1990s, are netted in the survey. In fact, 70 per cent of migrants in the survey were living for less than 10 years. The average duration of stay of migrants in Italy was eight years, which is likely to be sufficient to offer a clear indication of economic benefits of migration for the migrant households left behind in Bangladesh. Figure 1: Outflow of Bangladeshi Migrants to Italy, 2002-2010 12,000 10,000 8,000 6,000 4,000 2,000 0 2002

2003

2004

2005

2006

2007

2008

2009

2010-

Source: Bangladesh Bank, accessed on 20 October 2011 and July 2008

http://www.bangladesh-bank.org/econdata/wagermidtl.php 7

Figure 2: Inflows of Remittances from Italy to Bangladesh 2000-2010 250

Million (US$)

200 150 100 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-

Source: Bureau of Manpower, Employment, and Training, Bangladesh (BMET), Accessed on 20 October 2011, www.bmet.org.bd

Channels of Bangladeshi Migration to Italy As discussed earlier, there are three main channels of migration to Italy: Irregular migration, quota system, and family reunification. It is important to note that migrants who eventually ended up in Italy in the 1980s and even 1990s did not necessarily intend to do so when they first moved to Europe. Many Bangladeshis who were living in other parts of Europe on various status such as refugees, students, short-term trainees, and the last but not least irregular migrants chose to settle in Italy because of Italyâ&#x20AC;&#x;s liberal immigration policy and periodic regularisation drives. Most Bangladeshi migrants entered Italy clandestinely in the 1980s and 1990s and a good number of new immigrants still sneak into the country in an unauthorised way through all three routes â&#x20AC;&#x201C; air, land and sea. Migration through irregular channels usually involves the use of more than one route in the migration process. It is often a combination of air and land or air and sea routes and sometimes all of the three. In the journey to Italy, potential migrants typically fly to a nearby transit country first with a visa but later they become irregular in an attempt to enter Italy through land and sea routes. Bangladeshi migrants often use two land routes from the transit country. In the first route, potential migrants fly to south-eastern Europe and then travel overland to Italy. In the second route, potential migrants visit Turkey or north-eastern European countries and use the area of the former Yugoslavia as an entry point to Italy. Some popular transit countries are Poland, Hungary, Albania, Rumania, Russia, Turkey, Libya, Tunisia, Morocco and Algeria. Irregular migration to Italy through sea borders involves mainly three routes: The crossing of the Otranto Channel (Valona-Lecce coast), the Sicily Channel (the coast of North Africa to the Sicilian coast); the eastern Mediterranean channels (Eastern Mediterranean ports â&#x20AC;&#x201C; Turkey, Egypt, Syria, Lebanon - to Apulia, Calabria and Sicily route) (for details, see Pastore 8

et al. 2006; King and Knights, 1994; UNODC, 2010; Knights, 1996; Monzini, 2007). In the 1980s and 1990s, most Bangladeshis reached Turkey and flew to Morocco first to go onto Italy. However, in the last decade the overwhelming majority of Bangladeshis who used sea routes departed mainly from north African countries, especially Libya. As UNODC report suggests, the importance of Libya as a country of transit corresponds to the decrease in the importance of routes originating in Albania, Tunisia, and Turkey, and to the reduction of flows from Morocco to Spain migration channel (UNODC, 2010:11). After the opening-up of Italy‟s immigration policy in the second half of the 1990s, Bangladeshi migrants were allowed to enter Italy under the quota visa system. Since 2006, under the quota visa system, 3,000 Bangladeshis could annually enter Italy for work (IOM: 2006:102). In addition to quota visas, family reunification visas are the popular channel for migration of spouses and children of migrants. Approximately 3,000 family reunification visas are issued from the Italy Embassy in Bangladesh in a year (Zeitlyn, 2006:22). It is important to note that potential migrants are offered „Italy visa‟ to land in Italy but not „Schengen visa‟ that would have offered the right to land at any European Union country. As a result, all migrants from Bangladesh need to land in Italy first and claim immigration status as per visa offered in Dhaka.

Role of Adam Baparis in the Migration Process Migration to Italy is considered highly desirable but often inaccessible and unaffordable for potential Bangladeshi migrants because of lack of access to networks of adam baparis and exorbitant fees that a potential migrant is required to pay in the migration process. This section elaborates the role of adam baparis while the next section addresses the economic cost of migration. The role of adam baparis or intermediaries is crucial to migration occurrence in the Bangladesh-Italy migration corridor. Adam bapari is a Bengali term widely used by Bangladeshi migrants and local media to describe those people who are familiar with migration procedures and cash in on this familiarity, access or connection for economic advantage. The services of adam bapari are unavoidable in the migration process whether it is regular or irregular migration. A prospective regular migrant often requires the services of several adam baparis located at both ends of migration – Bangladesh and Italy. In Italy, they provide services to potential dependent visa or quota visa applicants. In Bangladesh, they also provide services to both groups of visa applicants in the area of passport application, air ticket booking, visa application, and so on. In addition to serving the formal visa applicants, they also serve irregular migrants by running transnational syndicates of irregular migration to Italy (Monzini, 2007; UNODC, 2010). More focussed research is needed to understand the transnational syndicate of irregular migration in the South Asia-Southern European migration corridor. 9

However, adam baparis usually emerge from the early migrants and their relatives and friends. The emergence of adam baparis from early migrants and their close-knit group makes migration almost a location-specific phenomenon. For instance, there are 64 districts in Bangladesh but migrants in Italy are predominantly from a few districts such as Faridpur, Comilla, Dhaka, and Noakhali. The survey also reveals how important the network of relatives and friends is in the migration process. In a response to a survey question on the people who provided assistance (primarily information and access to networks) in their migration to Italy, nearly 77 per cent of migrants reported receiving assistance from relatives and friends in the migration process. This overwhelming support from relatives and friends suggests why migration to Italy is a location-specific phenomenon in Bangladesh. To shed light briefly on the monetary benefits that Bangladeshi migration to Italy generates for adam baparis, this study examines areas of expenses for migration to Italy (Figure 3). The financial cost of migration to Italy was on average US$10,000 and this is further explained in the next section. For convenience, the study divides the financial cost of migration into the formal service fees that include government fees, passport fees, travel tax and other fees and the intermediariesâ&#x20AC;&#x; fees that include fees for adam baparis at different levels and different locations. A detailed investigation on the expenses for migration reveals that formal fees represent on average only 18 per cent of the financial cost of migration and the intermediariesâ&#x20AC;&#x; fees represent the remaining 82 per cent. In absolute terms, a migrant spent on average nearly US$1,800 for meeting the formal service fees and nearly US$8,200 for meeting the informal service fees charged by adam baparis in the migration process. In the Bangladeshi migration to the Gulf countries, Rahman also reports almost the similar distribution of expenses across formal and informal services (Rahman, 2011). Bangladeshi emigration thus seems to serve a group of intermediaries who enjoy enormous economic rewards from organising and facilitating migration of labour internationally.

Financing Migration to Italy The expenses incurred in the migration process are referred to as financial cost of migration. The financial cost of migration for a Bangladeshi migrant to Italy was on average BDT 682,839 or approximately US$10,000 (as per exchange rate of 2009). The expenses for migration varied sharply. The top 27 per cent of migrants paid more than US$15,000 and the bottom 27 per cent paid less than nearly US$4,400 (Table 1). The difference in the cost of migration can be attributed to several factors; (i) relationship with key adam bapari, (ii) nature of migration (irregular or regular migration), (iii) nature of visa (work visa, student visa, sponsored seasonal worker etc.) and duration of the visa, (iv) year of migration to Italy, and finally (v) nature of work and potential wages in Italy. Irregular migration is usually cheaper than regular migration. Early migrants who migrated to Italy in the 1980s and 1990s paid relatively small amount of cash compared to new streams of migrants.

Table 1: Cost of Migration To Italy

Cost of migration (in BDT) â&#x2030;¤150000

Percentages 11.3

150001-300000 300001-500000

15.8 16.7

500001-700000 700001-1000000

13.7 15.7

1000001 or more Total

26.8 100.0

Source: Bangladesh Household Remittance Survey 2009 Note: BDT (Bangladesh Taka), Bangladeshi Currency, Exchange Rate US$1= BDT 68.28 as in the late 2009

Figure 3 presents the economic cost of migration to Italy from a family perspective. The figure maps out two important layers that constitute the economic cost of migration such as contribution of multiple sources to the financial cost of migration, and the disbursement of financial cost of migration as formal service fees and intermediary fees. The average cost of migration to Italy was virtually beyond the personal and family savings of all migrants. As a result, most migrants had to rely on multiple sources to accumulate the funds for migration such as personal savings, landed property, loan from money lenders and loan from relatives and friends, personal savings, and other sources such as livestock, gold jewellery and so on. On average, land paid off nearly 19 per cent of the cost of migration and loans from money lenders accounted for 28 per cent. Relatives and friends contributed 33 per cent of the cost, personal savings paid off eight per cent and other sources accounted for 12 per cent. Emigration undermines family economics in two ways: The outflow of familyâ&#x20AC;&#x;s incomegenerating assets hampers family incomes and the loans from moneylenders put pressure on available family resources and use of remittances, as we will see in the next section. Figure 3: Economic Cost of Migration to Italy Disbursement Adam bapari (brokers) fees

Service Fees and other required expenses (18%)

(82 %)

Financial cost of migration to Italy: (BDT 682,839) US$10,000

Personal Savings 8%

Land

Loan

19%

28%

Relatives & friends 33%

Others 12%

Contribution of multiple sources to total financial cost of migration

Family Remittances and Family Dynamics Remittances are often shown as the most tangible benefit that international migration generates for migrants and their families (Hugo, 2003). Financial remittances are commonly categorised as „family remittances‟ and „collective remittances‟ (Goldring, 2004). Family remittance suggests financial flows from individual migrants overseas to their families in source countries while collective remittance denotes financial flows raised by a group of migrants in the remittance-sending countries for the welfare of a group or community in the remittance-receiving countries. Although collective remittance in the form of group contribution to the community cause is also noticed in the Italy-Bangladesh remittances corridor, this study is more concerned about family remittances, that is, individual migrants‟ financial contribution to their families and its implications for family dynamics. The size and frequency of remittances are important variables for the economic take off of the migrant families, especially when migrant households dispossess family resources and borrow cash from money lenders to finance their migration ventures. The size of the remittances is contingent on the monthly incomes of the migrants overseas. Therefore, this study investigates the monthly remuneration of migrants from family perspective. However, this study does not deny the difficulty of investigating individual migrants‟ remittances to their families in Bangladesh but stresses the fact that many migrants indeed share their wages with their immediate family members in a traditional society. On average, the monthly remuneration of the migrants was reported to be BDT 70,680 (US$1,050). This amount is several times higher than what a comparable job would have offered in Bangladesh. On average, migrants remitted approximately 3.5 times in a year. The average amount of remittances at a time was BDT 36,979 or nearly US$550. If average remittances and frequency of remittances are multiplied, a migrant household received on average approximately US$1,900 in a year. In other words, an Italy migrant household had US$1,900 as remittances for disposal in a year. Having investigated the annual inflow of remittances, this study moved further to examine the use of remittances at the family level (Table 2). The use of remittances is an important indicator for family development dynamics. Migrant families used the funds for a myriad of purposes, starting from family basic expenses (food and clothing mainly) to religious festivals such as Eid-ul-Fitr and Eid-ul-Azha. The five major areas of use of remittances, as per frequency of uses, are family expenses, followed by medical treatment, education, repayment of debts, religious festivals. As per frequency, 85 per cent of households used remittances mainly for family basic expenses, 29 per cent for medical treatment as well, 19 per cent for education too, 17 per cent for repayment of debts as well, and finally 12 per cent for religious festivals, too. The reason behind overwhelming use of remittances for family basic necessities is not surprising; migration is a family-funded project and involves pooling of existing family 12

resources that curtails familyâ&#x20AC;&#x;s ability to finance basic necessities. Remittances increase the ability of households to spend on basic necessities. However, in terms of use of remittances for medical treatment, we need to highlight the health care system in Bangladesh. Public health care system in Bangladesh is not adequate to meet the rising demand from rapidly growing population. Apart from this, the quality of public health care is much poorer than that of private health care (Andaleeb, 2000). This has forced people to seek private health care which usually caters to the needs of the privileged sections of the society. Since migrant families had access to disposable resources, many of them sought private health care for better treatment. In a separate set of questions on the impact of use of remittances on family dynamics, this study discerns that remittances have some visible impacts on the migrant families in terms of food consumption, educational attainment and local income generation. Nearly 72 per cent of families reported having improved food consumption and nearly 59 per cent reported having enhanced educational opportunities too. However, the role of remittances in income generation was mixed. Nearly 39 per cent of migrant families reported an increase in incomes through the generation of new sources of incomes. However, given the percentage of recent migrants in the sample, it is not surprising to see the low use of remittances for income generation. Go back to Amartya Senâ&#x20AC;&#x;s argument that development is a process of increasing the freedoms of people and the proximate determinants of the basic freedom that Sen suggests were health, education and income. Looking at the spheres of remittance use, especially health, education and income, it is obvious that migration-induced earnings (remittances) played substantial role to increase the opportunities of migrant families in an absolute term. Table 2: Use of Remittances at the Household Expenditure of remittance money

Percentages

For familyâ&#x20AC;&#x;s basic expenses

84.89

Purchase of land/property

2.88

Paying off debts

17.27

Savings

8.63

Construction/repairing of house

6.47

Repossession of Mortgaged land

0.72

For running a business

0.72

Sending brother abroad

0.72

Marrying off brother/sister

2.16

Education of children

19.42

Medical Treatment

29.50

Eid (Muslim religious) festivals

12.23

Others

3.60

Source: Bangladesh Household Remittance Survey, 2009 Note: The percentages are based on multiple responses and therefore do not add to 100

Conclusion This paper has attempted to provide insights into the Bangladeshi migration to Italy and its implications for families left behind in Bangladesh. Of the southern European countries, Italy pursued a liberal policy for migrants from non-European countries as early as the 1980s by introducing the regularisation initiative for unauthorised migrants. In the 1990s and 2000s, immigration laws were gradually reformed to meet the demand for foreign labour under quota system, to invite the dependents of regularised immigrants under family reunion category, and finally to integrate the new immigrants into the Italian society with more rights and privileges. The regularisation drives and subsequent changes in immigration laws paved the way for emergence of many non-European migrant communities in Italy including Bangladeshi community. The size of the Bangladeshi community grew substantially over time through irregular migration, recruitment migration (labour migration) and family reunion migration. This study has shed light on the routes of immigration for both early and recent Bangladeshi immigrants. In the 1980s and 1990s, Bangladeshi migration was largely irregular and a response to the opportunity created by frequent regularisation drives and immigration law reforms in Italy. Migration through irregular channels usually comprised of combination of air and land routes or air and sea and sometimes all of three. To put the routes in the order of use, in the early 1980s most migrants took air route and land route while in the 1990s and the 2000s, land and sea routes emerge as dominant channels for irregular Bangladeshi migration to Italy. For authorised migration since the late 1990s, the predominant route of travel has been air route. In the immigration process, the key players who facilitate regular and irregular migration are popularly called adam baparis (intermediaries) in Bangladesh. They cash in on their familiarity with the routes, access to Italyâ&#x20AC;&#x;s labour market and their connections with the local bureaucracy. The profit that migration generates for adam baparis is around 82 per cent of financial cost of migration. The financial cost of migration to Italy is reported on average to be US$10,000. As international migration is often a family strategy, families use all available resources including selling and mortgaging of arable land, borrowing from money lenders and extended family members. Inflow of remittances to migrant families represents the loyalty to and solidarity with families left behind in Bangladesh. The average amount of remittances was nearly US$550 and the frequency of remittances in a year was 3.5 times. In other words, a migrant household received on average approximately US$1,900 as remittances. Migrant households used this disposable resource for myriad purposes starting from basic consumption to religious and cultural ceremonies. This study reports some visible impacts of the use of remittances on food consumption, education, health care and local income generation. Presenting the wide spectrum of use of remittances, this study argues that remittances increase the opportunities of migrant families and contribute to their wellbeing.

This study should be seen as an early attempt to explicate the Bangladeshi migration to Italy and its implications for migrant families. While this study offers valuable insights into Bangladeshi migration to Italy, more research is required adopting two-way surveys -- Italy and Bangladesh - and ethnographic fieldwork for better understanding of the migration and settlement process in Italy and their implications for the left-behind families in Bangladesh.

Acknowledgement Authors wish to thank International Organisation for Migration (IOM) – Dhaka, Bangladesh for providing access to dataset on „Bangladesh Household Remittance Survey‟. Special thanks go to Rabab Fatima, Regional Representative, IOM-Dhaka, Samiha Huda and Disha Sonata Faruque, also of IOM-Dhaka, provided support and were a joy to work with.

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ISAS Working Paper No. 143 – 14 February 2012 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Sino-Pakistan Strategic Entente: Implications for Regional Security Rajshree Jetly1

Abstract Sino-Pakistan relations stand out as one of the few enduring friendships that have withstood the pressures of time and shifting geo-strategic conditions. This paper discusses the defence and security dimensions of the Sino-Pak relationship which have been based on shared strategic interests and geo-political goals. It analyses some of the important political and geo-strategic issues affecting this relationship. The paper also looks at the regional and international dimensions, in particular the relevance of India and the United States to SinoPak relations. It examines the trajectory of Indo-US strategic ties and the downward spiralling of US-Pak relations which triggers its own logic on Sino-Pak security dynamics. The paper argues that as long as India-Pakistan peace process remains grounded on the issue of terrorism and Kashmir, and Pakistan’s relations with US are a downward spiral, Pakistan would continue to view China as its most strategic ally in counterbalancing India, and to some extent the US. China will also have an inherent stake in shoring Pakistan’s political and military stability in terms of its long-term security interests in the South, Central and Western Asian region, and checking the rising presence and power profile of the US. Finally the paper concludes that notwithstanding some strains and pressures in the relationship, Sino-Pak friendship will endure in the foreseeable future.

Dr Rajshree Jetly is Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous institute at the National University of Singapore (NUS). She can be contacted at isasrj@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect the views of the Institute.

In the world of contemporary international politics, Sino-Pak relations stand out as one of the few enduring friendships that have withstood the pressures of time and shifting geo-strategic conditions. The two countries established diplomatic ties in 1951 and have never looked back. In 2011, they commemorated 60 years of diplomatic ties, which was also designated as the China-Pakistan Year of Friendship. As staunch allies and strategic partners for the past few decades, China and Pakistan have shared a friendship which has proved of great value in furtherance of their geo-political and strategic objectives. Their strong convergence in security interests has led to a multi-faceted strategic relationship which is reflected in a strong show of support for each other’s positions across a wide spectrum of bilateral, regional and international issues. Recently Pakistan’s Prime Minister Yousuf Raza Gilani described the relationship between Pakistan and China as being ‘higher than mountains, deeper than oceans, stronger than steel and sweeter than honey.’2 In 2006, Chinese President Hu Jintao had declared equally evocatively that ‘China can leave gold but not friendship with Pakistan’. Shorn of the hyperbole, these statements accurately capture the essence of the two countries’ long-standing partnership based on mutual trust and understanding.3 From China’s perspective, Pakistan serves many of its vital geo-strategic objectives in the region. First, friendship with Pakistan provides a useful counterbalance to India’s preeminence in South Asia, helping to check India’s growing presence and clout in the region. Second, Pakistan serves as an important gateway to the Muslim world. It also provides China an access to energy rich countries in Western Asia, helping China meet its growing energy requirements.4 It also provides a quick physical channel to China’s relatively less developed Western parts, particularly spurring development in the restive province of Xinjiang, which is crucial to China’s internal security. Third, it helps China in its long-term strategy of keeping US preponderent influence in the region at bay. From Pakistan’s perspective, China is an indispensable ally in helping Pakistan counter India with which it has had an acrimonious and unequal relationship for the last six decades. In addition, given US fickle track record as an ally in the past, Pakistan has a stake in reducing its dependence on the US and cultivating China as a reliable strategic partner in the regional security scenario. Pakistan is also heavily dependent on China for its vital defence supplies and critical help in augmenting its technological and nuclear capabilities. Last, but not the least, China provides it crucial moral and diplomatic support in the international arena in its time of need.

The statement was made during the visit of Chinese Public Security Minister, Meng Jianzho, to Pakistan in September 2011. See ‘Ties with China hailed: Gilani cautions US on negative messaging’ Dawn (28 September 2011) http://www.dawn.com/2011/09/28/ties-with-china-hailed-gilani-cautions-us-on-negativemessaging.html Accessed on 30 December 2011. Hu Jintao said this during a state visit to Pakistan in November 2006. See Dawn (26 November 2006), http://archives.dawn.com/2006/11/26/top3.htm. Accessed 1 January 2012 Pakistan projects itself as an important country on the crossroads of Central, South and West Asia. As Pakistan’s Ambassador to China, Masood Khan, succinctly observed, ‘we are also a conduit for China to reach out to the Muslim world’. See ‘Pakistan wants to develop further Gwadar port’, China Daily (13 August, 2011) http://www.chinadaily.com.cn/world/2011-08/13/content_13106717.htm Accessed 24 January 2012.

This paper discusses the defence and security dimensions of the Sino-Pak relationship and analyses some of the important political and geo-strategic issues affecting this relationship. The paper then looks at the regional and international dimensions, in particular the relevance of India and the US to Sino-Pak relations. It examines the trajectory of Indo-US strategic ties and the downward spiralling of US-Pak relations which triggers its own logic on Sino-Pak security dynamics.

Defence Cooperation: Military Procurement and Assistance The most consistent and enduring pillar of Sino-Pak relationship is the defence and nuclear cooperation between the two countries. Sino-Pak defence cooperation goes back to 1965, when, following an arms embargo imposed by the US in the wake of 1965 Indo-Pak war, China stepped in as a replacement for the US to supply arms to Pakistan. In 1966, China had supplied weapons to the tune of US$250 million that included Chinese made F-6 fighter planes, T-59 tanks and anti-aircraft guns.5 China has not looked back since and over the past few decades, in addition to continuing with T-59 battle tanks and Chinese made A-5 and F-6 aircrafts, its armaments also included naval vessels, portable surface to air missiles (Anza-2) and the Red Arrow anti-tank missiles (Baktar Shikan).6 It may be noted here that although Chinese arms did not match the range and sophistication of US weaponry, the sheer size and magnitude of Chinese delivery of weapons played a significant role in augmenting Pakistan’s military capabilities.7 From 1978-2008, the Chinese had sold US$7 billion worth of equipment to Pakistan.8 Today, China has emerged as Pakistan’s biggest arms supplier with almost 40 per cent of China’s arms exports headed for Pakistan. In addition to supplying arms to Pakistan, China has played an important role in the modernisation of its army, navy and air force. China has provided critical investment and technological support for Pakistan’s military-industrial complex helping it to build defence industries and factories, shipyards, power plants and communication infrastructure. 9 China and Pakistan have jointly developed fighter planes such as the FC-1 fighter planes (the equivalent of the F-16).10 China’s Chengdu Aircraft Industry Cooperation and Pakistan’s Aeronautical Complex are also co-producing the JF-17 single-engine, multi-role combat 5

7 8

Ahmad Faruqui, Rethinking National Security of Pakistan: The Price of Strategic Myopia (Hampshire, Ashgate Publishing, 2003), p.81. The Stockholm Institute of Peace Research Institute (SIPRI), SIPRI Arms transfer database data, Transfers of major conventional weapons from China to Pakistan http://www.sipri.org/databases/armstransfers Accessed 30 December 2011. Ahmad Faruqui, Rethinking National Security of Pakistan, op.cit., p.81. Bruce Reidel and Pavneet Singh ‘US-China Relations: Seeking Strategic Convergence in Pakistan’, Foreign Policy at Brookings, Policy Paper (January 2010), p.4. Rajshree Jetly and Iftikhar Lodhi, ‘Pakistan-China Relations in the 21st Century: Retrospect and Prospect’, in Tan Tai Yong ed., South Asia: Societies in Political and Economic Transition, (New Delhi, Manohar Publishers, 2010) p.164. B.R Deepak, ‘Sino-Pak ‘Entente Cordiale’ and India: A Look into the Past and Future’, China Report, Vol. 42, No. 2 (2006), p.136

aircrafts which are considered more economical than the European/American models. 11 The first consignment was released in 2007 and it is anticipated that a total of 250 aircrafts may be in the pipeline. The closeness of Sino-Pak strategic and defence ties was proved yet again recently when Pakistan vulnerable in the wake of US unilateral action to strike at Osama Bin Laden’s hideout, felt compelled to boost its military capabilities.12 China brought forward the delivery date of 50 JF-17 aircrafts to shore Pakistan’s air defence. In addition to the JF17, it also agreed to deliver 36 CAC J-10 multipurpose fighter aircrafts to Pakistan. Both countries have also collaborated on projects such as the K-8 Karakorum advance training aircraft, Al Khalid Tanks, Babur cruise missiles, and AWACS (Airborne Warning and Control System).13 Pakistan was also considering the purchase of surface to air missiles including the advanced HQ -18 from China.14 Besides this, the navies of the two countries have also been working closely with each other. Following an agreement signed by both countries in 2005, China agreed to supply four frigate ships to the Pakistan navy; three have been delivered since (the first was delivered in 2009) and the last is to be delivered by 2013.15 The agreement also envisaged the upgrading of the Karachi dockyard, assistance in the modernisation of Pakistan’s surface fleet and transfer of technology.16 Islamabad is also in the process of buying six new submarines from Beijing.17 China is also assisting Pakistan with space technology and has helped launch its first communications satellite PAKSAT-IR) in August 2011.18 According to some reports, Pakistan also has a functioning space communication facility in Karachi.19 Apart from close coordination in defence matters, mutual consultations and reciprocal visits by military delegations, defence cooperation is also buttressed through regular holding of 11

Pakistan Defence Forum, ‘China -Pak in MOU to develop stealth variant on JF-17 thunder’ http://www.defence.pk/forums/jf-17-thunder/66236-china-pak-mou-develop-stealth-variant-jf-17-thunder3.html Accessed 21 January 2011. ‘China to expedite delivery of 50 fighter jets to Pakistan’, Dawn (20 May 2011), http://www.d awn.com/2011/05/20/china-to-expedite-delivery-of-50-fighter-jets-to-pakistan.html Accessed 12 January 2012. The first of four Chinese ZDK-03 AWACS aircraft for the Pakistani air force was reportedly completed in November 2011. Wang Huazhong and Li Xiaokun, ‘Pakistan seeks closer military ties with China’, China Daily (18 November 2010) http://www.chinadaily.com.cn/usa/2010-11/18/content_11570282.htm. Accessed 12 January 2012. Eric Werthheim, ‘World Navies in Review’, (March 2010), pp. 47-48, http://www.ericwertheim.com/We rtheim_Mar_10.pdf. Accessed 12 January 2012. Shahzad Akhtar, ‘Sino-Pakistani Relations: An assessment’ Institute of Strategic Studies, Islamabad http://w ww.issi.org.pk/old-site/ss_Detail.php?dataId=501 Accessed 26 January 2012. ‘Pakistan moving closer to China: US Congressional Report’ The Nation (28 October 2011) http://www.natio n.com.pk/pakistan-news-newspaper-daily-english-online/Politics/28-Oct-2011/Pakistanmoving-closer-to-China-US-Congressional-report Accessed 26 January 2012. Also see Harsh V. Pant, ‘The Pakistan Thorn in China-India-US Relations’ Washington Quarterly, Vol.35, no.1 (2012), p.85. ‘PakSat-IR symbol of Pak-China cooperation in Space, Science and Technology : Masood Khan’ The Nation (8 August 2011) http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/politics/08-Aug2011/PakSatIR-symbol-of-PakChina-cooperation-in-space-science--technology-Masood-Khan Accessed 25 January 2012. Harsh V. Pant, ‘The Pakistan Thorn in China-India-US Relations’ op.cit., p. 84.

joint military exercises. Pakistan and China recently concluded the fourth counter-terrorism friendship exercise in November 2011 involving as many as 260 Chinese and 230 Pakistani soldiers.20 The Joint Anti-terrorism Friendship Exercise commenced in 2004 which according to one report was also the first time that China invited another country’s army to participate in a joint military drill in its territory.21

Building Pakistan’s Nuclear Capability It is widely accepted among informed circles that nuclear cooperation is a significant part of the ongoing Sino-Pak defence cooperation and China has contributed significantly to the development of Pakistan’s nuclear capability. Both China and Pakistan have, however, vociferously denied these charges. Given the lack of documented evidence and the two countries’ consistent denial, it is difficult to ascertain the extent of nuclear cooperation between the two countries. However, it is generally believed that Chinese nuclear assistance to Pakistan started in the 1970s and grew steadily in the 1980s and 1990s. India’s nuclear explosion in 1974 served as a further catalyst in Pakistan’s quest for nuclear prowess to counter India’s potential dominance in the region.22 During the 1980s, the US, which was wary of Soviet advancement in Afghanistan, chose to conveniently overlook Chinese nuclear assistance to Pakistan but by the 1990s, it mounted pressure on China to conform to international laws on exchange of nuclear technology and parts. China signed the Nuclear Non-proliferation Treaty (NPT) and the Comprehensive Test Ban Treaty (CTBT) in 1992 and 1996 respectively, undertaking to only make safeguarded nuclear transfers. However, despite these declarations, there has been widespread speculation that China continued to assist Pakistan. There were reports of 5,000 unsafeguarded ring magnets being sold to Pakistan in 1994/1995 to be used as gas centrifuges to enrich uranium.23 Other transfers included heavy water and high tech diagnostic equipment to build Pakistan’s nuclear capability. There have also been reports of China’s help in the development of missiles and transfer of technology to Pakistan.24 Both Pakistan and China have repeatedly denied these charges. Pakistan maintains that it has an indigenously developed missile programme. As a press 20

21 22

Samantha Hoffman, ‘China and Pakistan: Evolving Focus on Stability within Continuity’, China Brief ,Volume X1, Issue 22 (30 November 2011)., p.6. Ibid. See Shahid M. Amin, Pakistan’s Foreign Policy: A Reappraisal (Oxford, Oxford University Press, 2000), p.78. Also see George Perkovich, ‘The Nuclear and Security Balance’, in Francine Frankel and Harry Harding eds, The India-China Relationship (New Delhi, Oxford University Press, 2004) p. 200. Kan, A. Shirley, ‘China and Proliferation of Weapons of Mass Destruction and Missiles: Policy Issues’ CRS Report for Congress RL 31555, (Updated 9 November 2011), p.3 http://www.fas.org/sgp/crs/nuk e/RL31555.pdf. Accessed 20 December 2011. Despite lack of hard data or evidence, it is believed that Pakistan’s short and medium term ballistic missiles such as Shaheen (1 and 2) and Ghauri (1 and 2) were developed with active assistance of the Chinese. China has also helped Pakistan build the delivery systems for its nuclear weapons starting from Hatf-I and Hatf-II to ANZA. See Bhumitra Chakma, ‘Pakistan’s Nuclear Weapons’, (New Delhi, Routledge, 2009), pp.68-71. Also see Arpit Rajain, Nuclear Deterrence in Southern Asia: China, India and Pakistan, (New Delhi: Sage Publications, 2005), p. 159.

release from Pakistan stated, ‘Pakistan has an indigenous missile development programme which is part of our nuclear deterrent and indispensable to our security. This programme will be maintained and will not be affected by any discriminatory regimes such as MTCR’.25 Some Pakistani scholars also argue that the Western and Indian accounts of Sino-Pak nuclear collusion are exaggerated and not based on concrete evidence.26 Both Pakistan and China have also steadfastly maintained that all missile technology transfer from China has been within the ambit of Missile Technology Control Regime (MTCR). Despites these claims, the Clinton administration went ahead and imposed sanctions on China in 1993 for transferring some of the M-11 missile equipment to Pakistan.27 Presently, Chinese transfers to Pakistan are reportedly confined to dual use items in missile technology to keep within the letter of the law.28 In addition to transfer of technology and materials, China has also contributed to the development of nuclear power plants in Pakistan. Apart from its widely speculated help with the construction of the unsafeguarded Khushab reactor which produces weapons grade plutonium in 199529 China has built two nuclear plants (Chashma I and II). Interestingly, China agreed to build Chashma II in May 2004, just prior to it joining the NSG. In 2010, China agreed to sell two additional plutonium producing heavy water reactors (Chashma 3 and Chashma 4) to Pakistan despite international concerns that China was flouting NSG rules.30 Beijing, however, stood up to the pressure and justified the deals on the basis that they were grandfathered at the time of the 2003 agreement, prior to China joining the NSG. 31 That it chose to go ahead with the deal, despite international pressure, underlines its unwavering commitment to Pakistan’s security in the overall framework of its own strategic vision for the region.

Cited in Naeem Salik, The Genesis of South Asian Nuclear Deterrence: Pakistan’s Perspective (New York, Oxford University Press, 2009), p. 213. Pervaix Iqbal Cheema, ‘The China Threat: A View from Pakistan’ in Herbery Yee and Ian Storey eds, The China Threat: Perceptions, Myths and Reality (New York, Routledge Curzon, 2002), p. 305. Kan, A. Shirley, ‘China and Proliferation of Weapons of Mass Destruction and Missiles: Policy Issues’ op.cit, pp.8-9. By some accounts, Chinese nuclear transfers to Pakistan have reduced of late in the wake of greater international scrutiny accounts. Some believe that this is because Pakistan may not be critically as dependent on Chinese assistance as in the past. TV Paul, ‘Chinese–Pakistani Nuclear/Missile Ties and Balance of Power Politics’, The Nonproliferation Review Vol.10, no.2 (2003), p.25. Brahma Challaney, ‘Pak fuel Chinese Bomb’, The Hindustan Times cited in Swaran Singh, China-South Asia: Issues, Equations, Policies, op. cit, pp. 196-97. Under NSG rules, China is obliged to not supply nuclear fuel, reactors and technology to countries that do not have full-scope safeguards. China, however took a cautious approach, and did not fight for broad NSG exemption like the US did for India following the Indo-US nuclear deal. See Sharad Joshi, ‘The China–Pakistan Nuclear Deal: a Realpolitique Fait Accompli’ (11 December 2011), http://www.nti.org/analysis/articles/china-pakistannuclear-deal-realpolitique-fait-accompli-1/. Accessed 23 December 2011, p.4.

All-Weather Partners China and Pakistan have an enviable record of shared geopolitical goals which is amply reflected in their mutual support for each other in regional and international affairs. A highpoint of this cooperation has been the landmark ‘Treaty of Friendship, Cooperation and Good-neighbourly relations’ signed by the two countries in January 2005 underlining the ‘allweather friendship’ and ‘all direction cooperation’ between the two countries. The treaty stipulates that ‘neither party will join any alliance or bloc which infringes upon the sovereignty, security, and territorial integrity of the other side’ and bound both countries to ‘not conclude treaties of this nature with any third party.’ 32 Pakistan has been an unequivocal supporter of China on issues of vital interest to it including Taiwan, Tibet, human rights and East Turkestan. China, likewise, has stood behind Pakistan on its most important security issues like Kashmir, Afghanistan and rising Islamist militancy. At a time, when Pakistan has come under intense international pressure for its inability to root out terrorism, China has proved a staunch ally and stood up for Pakistan, firmly supporting it on its counter-terrorism strategies. It has categorically affirmed that it would ‘continue to staunchly support Pakistan formulating and implementing counter-terrorism strategies based on its own national conditions’.33 The two countries have also supported each other’s position in various regional and international groupings. Pakistan pushed China’s case for membership of SAARC (South Asian Association for Regional Cooperation) - it was later admitted as an external observer while China extended full support to Pakistan’s entry into the ASEAN Regional Forum, Asia Europe Summit and as an observer in the Shanghai Cooperation Organisation (SCO).34

Energy Cooperation Given its critical and spiralling demand for energy resources, energy security has emerged as a top priority concern for China in its regional strategic vision. By some accounts, China is expected to become the largest consumer of the global supplies of oil and gas in the coming years. Pakistan’s strategic location at the gateway to energy rich regions and along the major sea lanes is thus an important factor for China seeking close cooperation with it. China’s heavy investment in the deep sea port of Gwadar that was inaugurated with great fanfare by 32

See People’s Daily (6 April 2005) http://english.peopledaily.com.cn/200504/06/eng20050406_17962.html Accessed 12 January 2012. Also see Du Youkang , 60 years of Friendship, China Daily, 17 May 2011. http://usa.chinadaily.com.cn/opinion/2011-05/17/content_12523535_2.htm Accessed 20 December 2011. Ministry of Foreign Affairs, People’s Republic of China, Foreign Ministry spokesperson Jiang Yu’s Regular Press Conference (3 May 2011) http://www.fmprc.gov.cn/eng/xwfw/s2510/2511/t820162.htm Accessed 12 May 2011. Mohan Malik, ‘The China-Pakistan Nexus’ in John Wilson ed., Pakistan: The Struggle Within, (Pearson Longman, Delhi, 2009), p. 182.

former Pakistani President General Pervez Musharraf in 2007 highlights growing Sino-Pak cooperation in this sector. 35 Gwadar is important by virtue of its unique strategic location, straddling Central, Western and South Asia, and is envisioned as a major trade and energy hub for the region. Through a rich overlay of roads, railways, and oil and gas pipelines, it is expected to become a conduit for trade and energy to the landlocked Central Asian states, as well as Iran and China. This will in the process open up tremendous opportunities for both Pakistan and China. As a key transit actor, Pakistan can amass huge revenues in transit fees. Also, as a third port, (the other two being Karachi and Qasim) Gwadar would allow Pakistan to diversify its options in the event of a naval blockade from India, as it occurred during the 1971 crisis, and as it was feared during the Kargil crisis in 1999. From China’s perspective, Gwadar could serve an alternative energy supply route from the Middle East to western China. Presently, most of Chinese supplies flow through the Malacca Straits, which is vulnerable to piracy. The Gwadar port could open another route for movement of energy and other resources to China, circumventing Indian and US influence in the Indian Ocean and the South China Sea.36 Shipments carrying oil from the Persian Gulf to China via Gwadar (only 400 km away from the Straits of Hormuz where 80% of the world’s energy supplies pass) are also expected greatly to benefit China in terms of cutting down considerably on travel time and costs. Additionally, it helps China to develop its relatively backward Western provinces through increase in trade and developmental activity. China hopes that the physical proximity of the Western provinces with Gwadar could help in the transformation of its backward areas to more developed regions.37 China has invested heavily in the construction of the Gwadar port and other infrastructural projects in Pakistan. It provided 80 per cent of the US$248 million for the first phase of the project.38 China has also provided US$200 million for the construction of the Coastal Highway linking Gwadar with Karachi in addition to the financial and technical assistance for the upgrading of the Karakoram highway and Pakistan railways. It may be noted in passing that the construction of the Gwadar port has not been without problems for China. There have been instances of attacks on Chinese workers by Baluch

For details on other notable Sino-Pak infrastructural projects see Mathias Hartpence, ‘The Economic Dimension of Sino-Pakistani Relations: An Overview’, Journal of Contemporary China, Vol.20, no.71, (2011), pp. 587-92. Rosheen Kabraji, ‘All Weather Friendship?’ The World Today, Volume 67, Number 12 (January 2012), p. 8. http://www.chathamhouse.org/sites/default/files/TWT0112p7PakChin.pdf Accessed 25 December 2011. To give an example, the distance between the city of Kashgar on the Western side of China to the Eastern side is 3,500 km as compared to Gwadar which is only 1,500 km. See Jian Yang and Rashid Ahmed Siddiqi, ‘About an All Weather Relationship: Security foundations of Sino-Pak relations since 9/11’ Journal of Contemporary China, Vol.20, no.71 (2011), p.575. According to one source, out of the US$248 million extended by China, US$50 million was given as a grant and US$198 million was given as soft loan. See Durnaz Baloch, ‘Gwadar port issue becomes knotty, trickier’, Pulse (Islamabad) (10 June 2011) http://www.weeklypulse.org/details.aspx?contentID=789&s torylist=16. Accessed 24 January 2012.

insurgents, who are demanding a greater share from the Gwadar project for Baluchistan.39 Despite the risks to its own nationals, China is persevering with the Gwadar project and overlooking the short-term obstacles for longer-term benefits in terms of trade, investments and energy routes. It also remains keenly aware of the fact that disturbances in Xinjiang, stemming partly from its isolation and relative under-development, if left unchecked would not only threaten its internal security, but also disturb its trade and access to vital energy routes in the Middle East.

Xinjiang and Counter-terrorism An issue which has acquired urgency in recent years and can have long-term security implications for China is the rising extremism in Pakistan, and its spread to China’s Xinjiang province, bordering Pakistan. Xinjiang is China’s largest province and the second largest producer of gas and oil respectively and therefore its importance to China is critical in more ways than one. Xinjiang is an autonomous region of China, that houses over 40 ethnic groups, the largest being the Uighurs, who are mainly followers of Islam. The Uighurs have been fighting for a separatist state for a long time, but in the last few years, Xinjiang has visibly become the centre of revolt against the Chinese central authorities. China fears that religious fervour could further inflame separatist sentiments among the Uighurs against it, and undermine its national integrity and control. It is particularly wary of violent incidents such as the riots of July 2009 and the more recent clashes of July 2011, which embarrassed China internationally. China clearly has long-term concerns of possible links between Uighurs and extremist groups operating in and around the border regions of Pakistan. There are growing reports of the Uighurs receiving training in Pakistan and having linkages with Islamist militant sections including the Al-Qaeda.40 One reason why China has resisted from openly criticising Pakistan is because Pakistan has gone out of its way to ensure that rising extremist sentiments in Pakistan do not spiral out of control and jeopardise Chinese interests in Xinjiang. Realising the importance of this issue for China, and its propensity to drive a wedge in SinoPak relations, Pakistan has worked hard to keep the situation from deteriorating any further. Pakistan, of course, has its own reason also for ensuring stability in the region as a peaceful

Ziad Haider, ‘Baluchis, Beijing, and Pakistan’s Gwadar Port’ Politics and Diplomacy, Georgetown Journal of International Affairs (Winter/spring, 2005), pp. 100-101 http://www.stimson.org/images/uploads/researchpdfs/GWADAR.pdf Accessed 12 January 2012. ‘Xinjiang Connection’, Dawn (3 August 2012) http://www.dawn.com/2011/08/03/xinjiang-connection.html Accessed 24 January 2012.

Xinjiang acts as an indirect lever in its getting China’s support on Kashmir.41 During the military regime of General Musharraf, Pakistan took some very strong action against these separatist groups, including targeting Uighur settlements in Pakistan and eliminating key East Turkestan Islamic Movement (ETIM) leaders, including Hasan Mahsum.42 The Lal Masjid operation of July 2007 was reportedly also partly driven by the need to address China’s concerns about the fate of its nationals in Pakistan.43 In addition, following the first antiterrorism military exercise named ‘Friendship 2004’ in Xinjiang, three more exercises were held in 2006, 2010 and 2011 to crack down on ETIM activities in Xinjiang. In July 2011, as many as 10 ETIM militants were captured by Chinese troops with the help of the Pakistani military.44 Notwithstanding Pakistan‘s full cooperation, China remains deeply concerned about the longterm implications of the growth of extremism in Xinjiang. It is known to have made its displeasure felt in private, although it has refrained from making it a point of contention between the two countries. China’s studious silence changed with the July 2011 attacks in the city of Kashgar in Xinjiang. The attacks drew a stern reaction from local Kashgar authorities, who for the first time implicated Pakistan by suggesting that the ETIM leaders in Xinjiang had received training in Pakistan-based camps.45 While this was later retracted by the Chinese Ministry of Foreign Affairs to placate Pakistani sentiment, it was nonetheless a departure from earlier Chinese policy which Pakistan would scarcely have failed to take note of. Pakistan is leaving no stone unturned to reinforce the importance of Sino-Pak relations in Islamabad’s calculations and is going ahead in full steam to cooperate with China on the Uighur issue. After the July attacks of 2011, the Pakistani government immediately sought to defuse a potentially challenging situation by publicly declaring that, ‘terrorists, extremists and separatists in Xinjiang constitute an evil force’. Three high-level visits by the Foreign Minister of Pakistan, Hina Rabbani Khar, President Asif Ali Zardari and ISI Chief Lt Gen Ahmed Shuja Pasha followed in quick succession to soothe Chinese concerns on this matter.46 In December 2011, the two countries signed three Memoranda of Understanding to

42 43

Jian Yang and Rashid Ahmed Siddiqi, ‘About an All Weather Relationship: Security foundations of SinoPak relations since 9/11’ op.cit.,p. 576. Raffaello Pantucci, ‘China’s Afghan Dilemma’, Survival,Vol.52, No.4 (August-September 2010), p. 23. Lisa Curtis, ‘China’s Military and Security Relationship with Pakistan’, (26 May 2012), p.3, http://www.heritage.org/research/testimony/chinas-military-and-security-relationship-with-pakistan Accessed 3 January 2012. ‘China-Pak Planning Joint Military Action Against Terror Groups’ Deccan Herald (3 July 2011) http://www.deccanherald.com/content/79028/china-pak-planning-joint-military.html Accessed 30 December 2011. Han Hua, ‘Fight Terrorism with Pakistan’, China Daily (12 August 2011), http://www.chinadaily.com.cn /cndy/2011-08/12/content_13097293.htm Accessed 3 December 2011. ‘China absolves Pakistan of Kashgar attacks’, Pak Tribune (12 October 2011), http://paktribune.com/ne ws/China-absolves-Pakistan-of-Kashgar-attacks-244301.html Accessed 3 December 2011.

strengthen military cooperation, strategic communication and intelligence-sharing between the two countries to stamp out terrorism.47 Despite Pakistan’s efforts, China is not sure that the threats emanating from Xinjiang would recede any time soon, especially if Pakistan remains embroiled in fighting rising militancy on its own turf. According to some media reports, though officially denied by China, Beijing was considering acquiring military bases in Federally Administered Tribal Areas (FATA) to keep a close watch on extremist activity along the Pakistani borders to prevent it from reaching the sensitive Xinjiang province.48 Pakistan’s political uncertainties and inability to effectively rein in terrorism both within and outside its borders, could have long-term ramifications on Sino-Pak relations at the political level and also in terms of investment and economic cooperation. Increased militant activities across Pakistan could threaten China’s long-term economic and commercial interests as its investments in Pakistan have continued to grow apace in sectors such as defence, transportation, space programmes, telecommunications and energy, much of this with state patronage.49 By some accounts, China is to invest to the tune of US$35 billion in Pakistan over the next five years. Complementing these investments is a rise in bilateral trade which is expected to touch US$15 billion by 2015 from a modest US$1 billion in 1998. The Currency Swap Agreement between the two countries in December 2011 is expected to further boost bilateral trade and investment between the two countries.50 Recently, as a result of the worsening security situation in Sindh, a Chinese mining firm, Kingho, withdrew from a US$19 billion project for development of coal mines and power and chemical plants.51 Some reports suggest that with the exception of the Karakorum highway, where security has been guaranteed by the Pakistani army, progress on projects such as the Gwadar-Xinjiang pipeline might also be affected due to security concerns.52 Political instability and growing terrorism in Pakistan is clearly going to engage China’s close attention in the coming days as it could have a major bearing on its ‘long standing calculus’ in Pakistan which has so far ‘yielded a remarkable intimacy between Beijing and Islamabad’.53

48 49

52 53

Sultan M Hali, ‘Pak-China defence cooperation enhanced’, Pakistan Observer (2 Jan. 2012), http://pakob server.net/detailnews.asp?id=33354. Accessed 12 January 2012. Amir Mir, ‘China seeks military base in Pakistan’, http://atimes.com Accessed 30 December 2011. Mathieu Duchatel, ‘The Terrorist Risk and China’s Policy toward Pakistan: Strategic Reassurance and the United Front”, Journal of Contemporary China, Vol. 20, no.71 (2011), p. 557. ‘Pakistani President says China ties vital’, China Daily (26 December 2011), http://www.chinadaily.com.cn/cndy/2011-12/26/content_14324810.htm Accessed 26 December 2011. Evan A. Feigenbaum, ‘China’s Pakistan Conundrum’ Foreign Affairs (4 December 2011). http://www.fore ignaffairs.com/articles/136718/evan-a-feigenbaum/chinas-pakistan-conundrum Accessed 27 December 2011. Mathieu Duchatel, ‘The Terrorist Risk and China’s Policy toward Pakistan’ op.cit., p. 557. Evan A. Feigenbaum, ‘China’s Pakistan Conundrum’,op. cit, p. 2.

The Regional Dynamics Looking at the wider implications of Sino-Pak ties on the region and beyond, the two most important players that have an impact on, and which in turn are affected by, Sino-Pak entente are India and the US. These four countries are interconnected through a series of complementary and conflicting interests in the region. The security dynamics of China, US, Pakistan and India, whose power and influence intersect at various points of the strategic landscape in the region, is an integral part of South Asian regional security. China and US engagement with the two South Asian powers, India and Pakistan, in some ways, remains at the heart of the regional security conundrum. Just as shared antipathy towards India has historically been a common factor in sustaining Sino-Pak ties, Sino-Pak entente has in no small measure proved a vexing issue in Sino-Indian normalisation. Right from the outset, the US played an important role in sustaining the myth of Indo-Pak parity and helped in the evolution of US-China-Pakistan friendship in the seventies. The warming of Indo-US relations in recent years, particularly the Indo-US nuclear deal, has not surprisingly been met with heightened concern by both China and Pakistan. Today, Pakistan is witnessing one of the lowest phases in its relations with the US and is increasingly leaning on China for greater moral and material support. China and India, despite improvement in ties since 1988, continue to have strategic differences on a wide variety of issues which makes for inevitable undercurrents of power contest and rivalry between them. At the global level, China and the US, while sharing common interests in economic and technological development, have key strategic differences on their respective global role and influence. This has major implications for the security dynamics and power equations in the region.

The Role of the US As the most powerful economic and military global power, the US has played an important role in influencing and shaping the India-China-Pakistan security matrix. US relations with Pakistan have waxed and waned over the years. During the Cold War years, US’s massive military aid and strong diplomatic support for Pakistan on Kashmir gave Pakistan the much needed leverage vis-a-vis India. However, after the 1965 Indo-Pak war, the US stopped supporting Pakistan militarily. Relations were restored during the 1971 Indo-Pak war but dipped again until the Soviet invasion of Afghanistan in 1979 when US needed Pakistan to fight against the Russians. After the Afghan war ended, the US invoked the Pressler Amendment and imposed military and economic sanctions against Pakistan.54 It refused to deliver military equipment, particularly the F-16s for which Pakistan had already paid in advance.55 54

See piece by former Pakistani Ambassador to the United States Maleeha Lodi ‘The Pakistan-US relationship ’, http://www.defencejournal.com/april98/pakistanus.htm Accessed 24 January 2012. See Rajshree Jetly and Iftikhar Lodhi, ‘Pakistan-China Relations in the 21st Century: Retrospect and Prospect’ op.cit., p.158.

The immediate aftermath of 9/11 saw US-Pak relations grow dramatically as they collaborated in the war on terror. Pakistan was designated as a major non-NATO ally and received massive economic and military aid as a front line state. In recent years, US and Pakistani strategic interests have however, steadily diverged over Pakistan’s role in the US war on terror. To US dismay, Pakistan has been reluctant to extend full and unqualified support to US efforts to root out terrorism. In particular it has been reluctant to target the militants’ strongholds such as the Haqqani network in North Waziristan or the Afghan Taliban, which US considers essential for its success. Pakistan has its own reasons for proceeding with caution as it may in future have to deal with these very parties if they come to power in Afghanistan after US withdrawal.56 In addition, a series of incidents over the last year, including the US unilateral action in the killing of Osama Bin Laden on Pakistani soil, the Raymond Davis affair, the increase in drone strikes, the memo-gate affair and the killing of 24 Pakistani soldiers in a US airstrike have brought ties to a new low and led to an increase in anti-US sentiments in Pakistan. Anger over US clandestine raid on Osama’s hideout has led to a widespread demand for reexamination of Pakistan’s relations with the US. As the partnership has begun to unravel, the US is widely seen to be acting purely out of selfinterest and not a genuine friend. Even after realigning with the US in the war on terror, Pakistan has essentially not forgotten the desertion by the US after the Soviet withdrawal, and fears a similar fate with the anticipated US withdrawal from Afghanistan in 2014. Thus despite the huge amounts of money and arms that the US has poured into Pakistan since 9/11 (Pakistan has received US$22 billion in military and economic assistance since 2001) it is seen as an opportunist who has used Pakistan at will in pursuance of its own strategic agenda.57 With the sharp deterioration in Pak-US relations, Pakistan has drawn closer to China which is seen as being more consistent and forthcoming in its support.58 First, after the US fickle approach left Pakistan in a lurch, China promptly responded to Pakistan’s demand for defence supplies at a time it was feeling vulnerable vis-a-vis its security. Second, by remaining a steadfast friend of Pakistan at vulnerable moments, China has won greater appreciation in the eyes of the Pakistani administration and the Pakistani people. (Not 56

These types of complications do not confront Sino-Pak ties where the targets are Baluch insurgents and Uighurs in Xinjiang, who are less likely to challenge Pakistan’s national interests. See Rosheen Kabraji, ‘All Weather Friendship?’, op.cit., p. 9. US aid is seen to come with conditions that are often at variance with Pakistan’s perceived national interests and its defence sales with few exceptions, are seen as being mainly geared towards dealing with counterterrorism and therefore primarily aimed at US interests. See Mathieu Duchatel, ‘The Terrorist Risk and China’s Policy toward Pakistan’ op.cit., p. 559. According to recent reports, the US defence authorisation bill for 2012 seeks to suspend 60 per cent of the US$1.1 billion military aid to Pakistan - under the category Pakistan Counter Insurgency Fund till the Pakistan makes progress in the war on terror. Jane Perlez, ‘Pakistan pulls closer to a reluctant china, The New York Times (6 October 2011), http://www.nytimes.com/2011/10/07/world/asia/pakistan-pulls-closer-to-a-reluctant-china.html Accessed 12 January 2012.

surprisingly, in a survey carried out by the PEW Research Centre in 2011, only 12 per cent of the Pakistanis held a favourable view of the US as compared to 82 per cent for China.)59 More important, Beijing’s defence sales to Pakistan is seen as working towards enhancing Pakistan’s defence profile capabilities. Chinese assistance is also long-term and aimed at development projects and up-gradation of infrastructure including railways, ports and roads that would ultimately benefit Pakistan. Although, both China and the US have viewed and supported Pakistan as a strategically significant state, the crucial difference between China and the US from the Pakistan perspective is that whereas the US has shown itself to be inconsistent, not hesitating to drop it midstream if its own strategic interest so demanded, China has by and large remained a steady friend to Pakistan throughout the last half century. During Pakistan Prime Minister Yusuf Raza Gilani’s visit to China in May 2011, just after the raid on Osama, at a time when Pakistan was suffering from a crisis of credibility in international circles, China was the first country to publicly demonstrate its support for Pakistan. Chinese Premier Wen Jiabao asked for Pakistan’s ‘independence, sovereignty and territorial integrity’ to be respected and reassured Pakistan of its friendship despite changes in the international landscape. 60 In a joint statement, China recognised the tremendous effort and the great sacrifice that Pakistan has made in fighting terrorism, while Pakistan reiterated that it would never allow its territory to be used to attack any country and would continue to support international counter-terrorism cooperation.61 China, of course, has its own reasons for its steadfast support to Pakistan at this crucial juncture. As a major global power set to play an increasingly pivotal role in Asian regional security, China remains wary of US growing presence and involvement in the region. It feels that US interests in the region apart from counter-terrorism are also dictated by other longterm factors, such as securing energy routes, and countering China’s growing influence in the region.62 It remains particularly watchful of US moves in the strategically vital Central and South West Asia, where the US is continually strengthening its presence and influence. 63 More important, as Huan Hua notes, China remains wary of the implications of US intensified presence in South West and Central Asia after 9/11 on the South Asian Region. ‘With the US military comeback, China, now is facing a brand new strategic configuration in

See PEW Global Attitudes Project, Pew Research Centre http://www.pewglobal.org/database/?indica tor=1&country=166 ,http://www.pewglobal.org/2011/07/13/chapter-4-views-of-china/ Accessed 12 January 2012. Li Xiaokun and Li Lianxing , ‘Pakistan assured of firm support’, China Daily (19 May 2011). http://usa.chi nadaily.com.cn/china/2011-05/19/content_12538441.htm Accessed 24 December 2011. ‘China applauds Pakistan role in the war on terror’, Dawn (21 May 2012) http://www.dawn.com/2011/05 /21/china-applauds-pakistan-role-in-war-on-terror.html Accessed 1 January 2012. Andrew Small, ‘China’s Caution on Afghanistan-Pakistan’, The Washington Quarterly, Vol.33, No.3 (2010), p.88. It has acquired military base in Kyrgystan and is engaged in a number of infrastructural projects. See Jiang Yang and Rashid Ahmed Siddiqi ‘About an All-Weather Relationship’ op.cit., p.569.

the subcontinent after a decade long direct interaction between China and South Asian countries without super power intervention.’64 Not surprisingly, China has remained reluctant to be dragged openly into the PakistanAfghanistan imbroglio. US hopes that China would use its special friendship with Pakistan to combat terrorism and boost counter-insurgency efforts in Afghanistan and the border areas of Pakistan have clearly not materialised.65 China draws a clear distinction between those militant groups that could impact upon its security situation in Xinjiang, and those that it has less to fear from. It does not actively seek to antagonise groups for whom it remains at best a secondary target.66 China, in any case, is also known to maintain extensive contacts with extremist groups to ensure that they do not target its interests.67 However, China also is aware that a complete exit of the US from Afghanistan may not be in its interest as it may find itself having to take on some of the onerous tasks that the US has so far been undertaking. China has deep concerns about the spread of radical Islam and terrorism from the Pakistan Afghanistan region in the highly sensitive Xinjiang province, which covers one sixth of the country’s landmass. Some of the US air strikes have also been directed at the training camps in Waziristan which were training Uighur rebels from Xinjiang. So even if Pakistan turns increasingly to China for greater economic and military aid, it remains to be seen how far China would be willing to commit itself in a future scenario where the US has withdrawn from Afghanistan with little or no aid money forthcoming from the US. China may not be willing to play substitute to the US and ‘bail out Pakistan with loans, investment and new untied aid as its involvement will be in accordance with its own priorities and evolving risk assessments.’68 Chinese assistance is, in any case, limited to public sector investments and loans and is not on the same scale as the US (Chinese assistance was estimated at US$217 million between 2004 and 2009).69 It may also be pointed out here that the US itself has a vested interest in befriending Pakistan and would not let its ties with Pakistan slide downwards at a time when its support is vital for its ongoing war on terrorism. Therefore, barring any unfavourable developments, both China and the US would continue to have a stake in the present status quo and would move with extreme caution in not upsetting the present Sino-Pak-US equilibrium. 64

67 68 69

Huan Hua, ‘China and South Asia’ in K. Santhanam and S. Kondapalli eds., Asian Security and China 20002010, (New Delhi, Shipra Publications, 2004), p. 296. China’s ambivalence of course does not help the US which bears the full brunt of extremist elements in Afghanistan and the border areas of Pakistan, while China rides on its support and does not pressure Pakistan to fight Afghan militant groups in Afghanistan. Even though following the 2009 riots in Xinjiang, Al Qaeda in the Islamic Maghreb threatened to attack Chinese interests in Algeria, it is highly unlikely that Al Qaeda would actually invest resources to help the Uighurs and diffuse its efforts against the US by drawing in China. See Brian Fishman, ‘Al-Qaeda and the Rise of China: Jihadi Geopolitics in a Post-Hegemonic World’, Washington Quarterly, Vol.34, No.3 (2011), p.58. Andrew Small, ‘China’s Caution on Afghanistan-Pakistan’, op.cit., p. 86. Evan A. Feigenbaum, ‘China’s Pakistan Conundrum’, op. cit, p. 4 Rosheen Kabraji, ‘All Weather Friendship?’, op.cit., p. 9.

India as a Factor India, with whom both Pakistan and China have shared adversarial relations resulting in armed hostilities, remains an important if not the most important factor in sustaining and cementing Sino-Pak relations. Historically, Pakistan-India relations have remained adversarial over a number of issues, particularly Kashmir, over which both have gone to war four times. In recent years cross-border terrorism has emerged as the major bone of contention between the two countries.70 It is clear that India-Pak relationship will not witness any qualitative improvement unless the issue of terrorism is addressed and resolved to mutual satisfaction. Whilst talks have now resumed between the two countries, there are many challenges ahead. How Pakistan and India bridge the mistrust between them on issues such as Kashmir, terrorism and Afghanistan, which are of equally vital strategic interest to both of them, would be crucial to the future of Indo-Pak relationship. China and India, on the other hand, have moved a long way from the hostilities generated by the 1962 war and have been engaged in negotiations to resolve the vexed border issue. Over the years, the two countries have embarked on a number of confidence building measures to ensure peace and tranquillity on their borders.71 India has witnessed a dramatic growth in its trade and investment with China, which has overtaken the US as India’s largest trading partner.72 However, despite the positive areas of engagement, there are many significant hurdles along the way. For example, the border issue remains unresolved leading to periodic flare-ups in Arunachal Pradesh. Dalai Lama’s presence in India only heightens the tensions between the two countries. Most important, given their geopolitical rivalry and power potential, the two countries inherently see each other as long-term contestants for power and influence in Asia. This acquires added significance because of India’s rise and steady emergence as a major player poised to play an increasingly important role in the coming decades. China is particularly watchful of India forging strong strategic and economic links with important countries in South East and East Asia including Australia, Japan, Singapore and Vietnam signalling both its will and capability to play a more proactive role in these major 70

The terrorist attack on Indian Parliament in December 2001, claimed by India to be masterminded by Pakistan-based militant organisations, brought Indo-Pak relationship to a new low. Relations dipped precariously again with the 2008 Mumbai blasts which, according to India, pointed to the involvement of the Pakistan based Lashkar-e Taiba group. Pakistan, however, has categorically denied these allegations. These include agreements for the resolution of the border issue such as Landmark Agreement on Maintaining Peace and Tranquility along the Line of Actual Control of 1993; An agreement on Confidence Building Measures in the Military Field along the Line of Actual Control in the India-China Border Areas (1996), and an agreement for spelling out the political parameters and guiding principles to delineate and demarcate the lines of actual control (2005). In addition to this, there are military CBMs such as reduction of troops on both sides, prior notification of military exercises, and regular meetings between the local commanders and joint military exercises. See David Scott, ‘Sino-Indian Security Predicaments for the Twenty-first century’, Asian Security, Vol. 4, No. 3 (2008), p. 252. India’s total trade with China during 2010-2011 was to the tune of US$63 billion as against US$45 billion for the US. See Government of India, Ministry of Commerce and Industry, Department of Commerce, http://commerce.nic.in/eidb/iecnt.asp Accessed 24 January 2012.

regions, which are of vital security interest for China.73 Concerned about India’s strategic profile and growing influence in these regions, China has embarked on a ‘string of pearls’ strategy to protect its maritime interests and to secure vital energy supplies for itself. India, however, sees the strategy as not only significantly boosting Chinese naval capabilities in the region where India has vital strategic, geopolitical, economic and energy interests but also encircling India all across its maritime borders.74 China’s biggest pearl in South Asia is its deep water sea port in Gwadar, which is capable of offering berthing facilities for the Chinese Navy. Pakistan’s hostility to India gives an extra edge to China’s potential to keep India constrained within South Asia and also outmanoeuvre it in the strategic region at the entrance point to the oil rich gulf and energy rich central Asia. Pakistan’s Defence Minister Ahmed Mukhtar’s recent statement that Pakistan had invited China to build a naval base at Gwadar, 75 gave rise to speculation that China might use this to gain a foothold in the Indian Ocean to challenge Indian and American naval dominance in the region. These speculations were laid to rest when China denied any such intention.76 In recent years, Indo-US strategic dialogue has given even greater credibility to India as a regional influential, which is bound to play a more assertive role in South Asia. During the Cold War years, India’s relations with the US remained generally cool and distant under the weight of differing ideologies and security perspectives.77 The end of the Cold War has allowed India and the US to pursue a bilateral strategic relationship. The US recognition of India as a natural partner in 2003 signalled support for its rise as a major power in the new century. Not surprisingly, China sees US strategic partnership with India as being dictated by the US larger strategy of containment of China, which as a rising global power could threaten its supremacy in the Asia-Pacific region. Given their own long-standing concerns regarding India regional predominance, both China and Pakistan predictably reacted coldly to the Indo-US nuclear deal. China, of course, has its own reasons to be concerned about the deal as it gives an edge to India which could potentially threatens its own position in the region. Pakistan, not surprisingly, was unhappy that the US was giving preferential treatment to India. For Pakistan, the fact that despite being a long time-time ally it was not considered for a similar deal, was a clear signal that the

For a comprehensive discussion of this issue, see John Garver and Fei-Ling Wang, ‘China’s Antiencirclement Struggle’ Asian Security, Vol.6, No.3 (2010), pp. 238-61. Some Chinese scholars have argued that India’s fears are misplaced and that China’s interests in South Asia and the Indian Ocean are purely economic and not targeting India. See, Zhang Guihong, ‘The Rise of China: India’s Perceptions and Responses’, in South Asian Survey, Vol. 13, No. 1 (2006), p. 99. Some Indian scholars also support this view. See Amardeep Athwal, China-India Relations: Contemporary Dynamics, (Alingdon, New York: Routledge, 2008), p. 65. Beijing agrees to operate key port, Pakistan says, Tehran Times (28 May 2011), http:/www.tehran times.com?NCms/2007.asp?code=241514 Accessed 3 November 2011. ‘China says it is unaware of Gwadar port proposal’, Dawn (24 May 2011), http://www.dawn.com/2011/05 /24/china-says-it-is-unaware-of-gwadar-port-proposal.html Accessed 29 December 2011. US not only supported Pakistan but also spearheaded the Sino-Pak-US axis in the 1970s that had major implications for both India and Pakistan and India and China relations.

US had finally moved away from the myth of Indo-Pak parity that it had upheld over decades.78 It is clear that a strong Indo-US strategic entente is likely to push China and Pakistan even closer. India’s growing economic strength and political muscle cannot be ignored by China, and any strategy to force India to stay tethered to its own backyard can only be good for China. For China, arming Pakistan and providing help to enhance its nuclear capabilities has a strategic benefit of stretching India’s defences by ensuring that India has to divert its military capabilities to the borders with Pakistan, thus diluting India’s capacity on its borders with China. It also keeps India from effectively realising its full economic and geopolitical potential.79 For Pakistan, China’s support remains crucial for countervailing India’s regional predominance and protecting its long-term security interests. Kashmir remains the bone of contention between India and Pakistan, and is often seen as a barometer for measuring China’s relations with India and/or Pakistan. The Chinese endorsement of Pakistan’s position on Kashmir following the outbreak of hostilities between India and China in 1962 gave Pakistan a decisive edge over India.80 However, a steady improvement in Sino-Indian relations in the 1980s and 1990s saw Beijing move from its extreme position of supporting a plebiscite in Kashmir to adopting a more nuanced stance on the issue.81 This was interpreted by some as China moving to a pro-India position on Kashmir.82 However, events in the last two years suggest that China is diluting its position on Kashmir and inching back to supporting the Pakistan line. A significant move was China’s decision to grant visas to residents of Jammu and Kashmir on a separate sheet stapled to the passport rather than on the passport itself.83 China has also been increasingly involved in road and infrastructural 78

Pakistan argued that ‘the proposed exception for India will not be helpful to the shared objectives of stability in South Asia and a strong global non-proliferation regime. The agreement, which keeps a large number of facilities and reactors, including breeder reactors, outside safeguards, would only encourage India to continue its weapons programme without any constraint or inhibition.’ See K J M Varma , ‘India's Special Status will have Serious Implications for South Asia: Pakistan’ (18 March, 2006) http://www.rediff.com/news/2006/mar/17ndeal4.htm Accessed 31 December 2011. Huma Yusuf, ‘Higher than the Himalayas’ Dawn (23 May 2011), http://www.dawn.com/2011/05/23/higherthan-the-himalayas.html Accessed 24 December 2011. Much to India’s chagrin, in 1963, Pakistan and China signed the Sino-Pakistan Frontier Agreement whereby Pakistan ceded 5180 sq km of land in Northern Kashmir and Ladakh to China. In 1996, Chinese President Jiang Zemin made an official statement urging Pakistan to settle its dispute over Kashmir in a peaceful manner. China urged a similar approach during the Kargil war (1999) and the December 2001 crisis when it advised both countries to exercise restraint. This view is shared by Garver who believes that ‘improvements in Indian -Chinese relations led to a weakening of China’s endorsement of Pakistan on this key issue’. See John W Garver, Sino-Indian Rapprochement and the Sino-Pakistan Entente, Political Science Quarterly, Vol.111, No.2 (Summer 1996), p.326. Notwithstanding Pakistan’s public stance there was some disappointment about China’s shift on Kashmir. See Samina Yasmeen, ‘China and Pakistan in a changing world’ in K. Santhanam and Kondapalli eds. Asian Security and China, 2000 - 2010, op.cit, pp. 313-36. This was aggravated by the fact that Lieutenant General B.S Jaswal, Head of the Northern Command of the Indian Army, was denied a Chinese visa prompting New Delhi to cancel a high-level defence visit to Beijing. Sujit Dutta, ‘Managing and Engaging Rising China: India’s Evolving Posture’ in Washington Quarterly, Vol.34, No.2, (2011), pp. 132.

projects in Pakistani-administered Kashmir. China is reportedly assisting Pakistan with the construction of the Bunji Hydroelectric project in Pakistan-administered Kashmir, and is also planning a rail line that connects the Khunjerab pass with the Chinese city of Kashgar. In 2010, there were reports of 11,000 Chinese troops stationed in Gilgit in Pakistanadministered Kashmir. This was denied by both China and Pakistan, who insisted that it was a Chinese humanitarian team that was in Gilgit to assist the flood victims, but India remained concerned.84 From India’s perspective, Chinese presence in Kashmir brings China closer to its borders, with long-term implications for India. In the ultimate analysis, it needs to be understood that unlike both Pakistan and India, China is operating from a position of strength and its support for Pakistan is going to be governed by its own strategic objectives and regional agenda as a major global power. Mathieu Duchatel, for example, sees China’s priorities in Kashmir shifting from ‘weakening India, to tacitly accepting Indian power, to vigilance that Pakistan not become too weak.’85 China’s more balanced position on Kashmir had less to do with its dilution of support for Pakistan than with its own strategic interests in cultivating India at a time in the 1990s, when India offered tremendous economic opportunity.86 Similarly, its seemingly rigid stance on the visa issue could be its way of exercising leverage over India, rather than merely reinforcing its special ties with Pakistan. As Jingdong Yuan notes astutely, ‘China’s support of Pakistan’s position signal its political intent rather than exercise an unswerving commitment…which explains Beijing’s largely moral and political support rather than direct military involvement in the Kashmir conflict.’87 Ashley J. Tellis is even more circumspect about China’s unqualified support for Pakistan vis-a-vis India. Besides diplomatic and moral support, he argues, ‘China might even be willing to provide it with the military instruments necessary to preserve its security, but it will neither provide Pakistan any formal guarantees of security nor extend deterrence. Nor will it prepare joint defences that imply coordinate military action against India’.88 It is clear from the foregoing that China has its own security agenda for the region and it would be China’s own regional and global priorities that would determine the limits of its support for Pakistan. It is interesting to note that when following the Indo-US nuclear deal there were expectations in Pakistan about a similar deal with China, China voiced criticism against the deal, but made no tangible effort to redress the balance for Pakistan in a similar way. At the same time, as long as it suits China’s own strategic interests, it will not scale down its moral, diplomatic and military support for Pakistan in any way. 84

85 86

87 88

China denied troops presence in PoK (2 September 2010), http://ibnlive.in.com/news/china-denies-troopspresence-pok/130139-2.html Accessed 12 January 2012. Mathieu Duchatel, ‘The Terrorist Risk and China’s Policy toward Pakistan’ op.cit, p.560. Jingdong Yuan, ‘Beijing’s Balancing Act: Courting New Delhi, Reassuring Islamabad’, Journal of International Affairs (Spring/Summer 2011), Vol.64, No.2, p.41. Ibid. Ashley J. Tellis, ‘China and India in Asia’ in Francine R. Frankel and Harry Harding eds., The India China Relationship, op.cit., p. 147.

Concluding Remarks To conclude, shared strategic interests and geopolitical goals will continue to be the most important cementing factor in Sino-Pak security and defence relations. The trajectory of Indo-US strategic ties and the downward spiralling of US-Pak relations will also trigger its own logic on Sino-Pak security dynamics. China’s support for Pakistan from its long-term strategic perspectives, would primarily be in three broad areas: Pakistan’s geo-strategic significance in ensuring access to the vast emerging resources in West Asia and Central Asia; its value in containing India’s power and influence; and its usefulness to China in its longterm bid to counter US global dominance in the context of changing strategic alignments in South Asia and South-west Asia. For Pakistan, friendship with China will remain the cornerstone of its foreign policy, impacting as it does on the promotion of its vital national interest vis-a-vis India. China is today its largest benefactor in the economic, strategic and geo-political spheres which has effectively bolstered Pakistan’s regional strategic capabilities. As long as India-Pakistan peace process remains grounded on the issue of terrorism and Kashmir, Pakistan’s relations with US are a downward spiral, and Sino-Indian relations remain a mix of cooperation and contest, Pakistan would continue to view China as its most strategic ally. Pakistan would need Chinese support in counterbalancing India’s regional predominance and also to some extent the US growing influence in power profile in the region to some extent the US in the South, Central and Western Asian region. The only potential challenge to the close relationship between the two countries could come not so much from external environment as from the growing Islamist fundamentalism and the looming threat of political instability in Pakistan. Should militancy rise and start to inversely impact Beijing’s economic and security interests, including energy routes and infrastructural investments, it could place some burdens on the Sino-Pak relationship.89 This, however, does not seem to be on the cards any time in the near future. First, Pakistan although facing grave political uncertainties, is not anywhere near a political and economic meltdown as feared by some. Second, the Pakistani government has an inherent stake in not allowing radicalism within its borders to affect its ties with China and will do everything in its means to keep the relationship on an even keel. China, on its part, would continue to need Pakistan’s help in reining in Islamic fundamentalists on its sensitive western flank. Third, and the most important, both China and Pakistan share a symbiotically advantageous relationship - with China having the military and economic muscle and Pakistan the geo-strategic advantage - to further their security interests. Given the fact that the strategic advantages that Pakistan and China derive from each other would far outweigh any negative developments, there is very little likelihood of any dilution in their ties. This bodes well for Sino-Pak strategic entente in the foreseeable future. ..... 89

Aamir Qureshi, ‘China’s Post-bin Laden Relationship with Pakistan’, (May 4, 2011), http://www.s ratfor.com/print/193454 Accessed 20 December 2011.

ISA S Working Paper No. 144 – 20 February 2012 469A Bukit Timah Road #07-01 Tower Block National University of Singapore Singapore 259770 Tel: 6516 4239 / 6516 6179 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

From Isolation to Partnership: The Evolution of India’s Military Diplomacy C. Raja Mohan1

Introduction On the face of it, ‗military‘ and ‗diplomacy‘ belong to two very different realms. Diplomacy is peaceful interaction between nations aimed at resolving differences and promoting cooperation. If diplomacy is the first line of engagement between states, military is seen as the last and involves use of force. The connection between diplomacy and use of force, however, should not be seen as two ends of a spectrum. States have long used demonstration of military capabilities and threats of use of force as instruments to boost negotiating leverage with other states. ‗Gunboat diplomacy‘ is a well-established tradition in modern statecraft. Military diplomacy, as a term, has gained currency in recent years, especially after the Cold War, when Western powers began to more frequently deploy armed forces for a range of new missions—from peace-keeping and peace-building to humanitarian assistance and disaster relief. The practice of military diplomacy must also be seen in the context of Western countries attempting to reform the security sector in Eastern Europe after the collapse of the Soviet Union and in the developing world after the Cold War. With the prospect of a conventional conflict with other major powers ruled out for all practical purposes and the

C. Raja Mohan is a Visiting Research Professor at the Institute of South Asian Studies, an autonomous institute at National University of Singapore, and a Senior Fellow at the Centre for Policy Research, Delhi. He can be contacted at isascrm@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect those of the institute.

focus shifting to internal conflicts and civil wars in the developing world, military diplomacy has emerged as a new international priority. One simple definition of military diplomacy is the ‗use of armed forces in operations other than war, building on their trained expertise and discipline to achieve national and foreign objectives abroad‘. The phrases military and defence diplomacy are often used interchangeably. While the term ‗military‘ denotes exchanges and interactions between uniformed services, ‗defence diplomacy‘ could be used to identify activities undertaken by the entire defence establishment, including its civilian bureaucracy and the research and development establishments.2 While military diplomacy has acquired a special political connotation in the post-cold war environment, many of the activities involved are not different from the great power practice of using armed forces for a range of political and humanitarian missions. This tradition has included the projection of force into a conflict situation, responding to humanitarian crises and natural disasters, protecting sea lines of communication, ability to assist other military forces through training, and local capacity building through arms transfer and intelligence support. These functions have been largely performed by the Western powers until now. As their military capabilities grow rising powers like China and India are beginning to join the older powers in the arena of military diplomacy. ‗As the global reach of their interests grows—as trading nations, strategic powers and mother countries to massive diasporas—and as they accumulate capabilities for power projection, so too will increase their willingness and ability to use conventional military instruments to provide simultaneously for their own interests and the common weal.‘3 While there have been some studies of Chinese military diplomacy,4 academic literature on India‘s defence diplomacy remains scarce. This paper does not undertake a comprehensive review of India‘s growing use of military instruments to promote its national security and foreign policy objectives in recent years. The paper is an attempt at gauging the dimensions of India‘s military diplomacy that has included the signing of a large number of military cooperation agreements and defence memoranda of understanding with other nations and significant expansion of joint military exercises with major powers and regional actors in the Indian Ocean and East Asia. The paper is the first cut at developing an analytical framework to assess the dynamics and consequences of India‘s military diplomacy. It will identify some of the current limitations that constrain India‘s military diplomacy and evaluate its future prospects. The paper will examine the enduring 2

For a discussion of the definitions see, K.A. Muthanna, ‗Military Diplomacy’, Journal of Defence Studies, Vol. 5, No. 1, January 2011, pp. 1-15. Rory Medcalf, ‗Unselfish Giants? Understanding China and India as Security Providers‘, Australian Journal of International Affairs, July 2011, DOI:10.1080/10357718.2011.570244. See for example, Bates Gill, Rising Star: China’s New Security Diplomacy, Revised Paperback Edition (Washington DC: Brookings, 2010).

political tensions in India‘s world view between the traditional ideas of nonalignment and the new imperatives of a rising power.

Nonalignment and Military Isolation As India became independent in 1947, the Cold War divisions were beginning to congeal in Europe and expand into Asia. As India sought to insulate itself from the impact of Cold War, Delhi was deliberate in its choice of ‗military isolationism‘. Independent India‘s isolationist impulse was, in part, a reaction to the expansive external use of Indian armed forces during the 19th and the first half of the 20th centuries. As the Indian nationalist movement gathered strength after the First World War, it rejected the use of Indian military manpower for imperial purposes and without the consent of the Indian people.5 At the end of the Second World War, many Asian nationalist leaders complained to Jawaharlal Nehru, who was heading the interim government in Delhi, about the use of the Indian army to protect British and European interests rather than the national liberation forces. Given his strong solidarity with the anti-colonial struggles everywhere in Asia, Nehru was not going to accept the use of the Indian army for repressing the liberation movements. Once the Indian army came under the full control of the new nation, Nehru explicitly rejected its use for expeditionary operations. As Cold War military blocs confronted India, Nehru declared that India will not align with either the East or the West and will pursue an independent foreign policy. Besides defining the national orientation as non-alignment, India moved towards the construction of a broader forum of solidarity among the newly liberated nations. What began as the Asian Relations Conference in Delhi (1947), the effort moved towards the organisation of Afro-Asian conference in Bandung (1955) and the eventual formation of the Nonaligned Movement which met at the summit level, for the first time, in 1961. If rejecting bloc politics was central to India‘s national perception of nonalignment, the NAM membership was limited to those countries which did not have foreign military bases on their soil. In the years after independence, India slowly wound down its external military links with Great Britain forged over a period of nearly 200 years of colonial rule. While London and Washington would have preferred to see a measure of coordination among the armies of the Commonwealth against the emerging global Communist threat, India‘s new approach of nonalignment ran counter to it. Nehru chose to remain a part of the Commonwealth, but only after making it clear that India will have nothing to do with the Western military alliances.

For a discussion, see Stephen P. Cohen, The Indian Army: Its Contribution to the Development of a Nation (Berkeley: University of California Press, 1971), pp. 88-113.

The Indian Navy did participate in the Joint Exercises off Trincomalee of the Commonwealth until 1964, but those links too got severed after that. To be sure, Great Britain was a major source of arms supplies to independent India, but little more than that in the first years after independence. Other European arms suppliers like France were eager to enter the Indian market. But it was the Soviet Union that eventually became the main defence partner for India in the Cold War period. If non-aligned India disentangled itself from the military relationship with Britain, it was not going to allow itself to be tied down by the new partnership with Soviet Union. As it sought weapons from the Soviet Union at the turn of the 1960s, India was careful to circumscribe its military engagement with Moscow. Despite being bound to the Soviet Union, through the friendship treaty of 1971, India carefully avoided undertaking joint exercises or other service to service contacts with Moscow.6 India was also reluctant to offer military cooperation and support to friendly countries that sought them. The case of Singapore in the mid 1960s easily comes to mind. That India signed a defence cooperation agreement with Singapore in 2003 underlines the unfolding transformation in India‘s defence diplomacy.

India’s Peace-keeping Preference One major exception to India‘s military isolationism in the Cold War period was Delhi‘s active participation in the international peace-keeping operations authorised by the United Nations Security Council (UNSC). This would seem to be a continuation of the Raj legacy of expeditionary operations in a different form after decolonisation. The huge ‗military surplus‘ of the Subcontinent created during the British rule seemed to endure despite all the political changes of the past six decades: partition, permanent Indo-Pak conflict, the occupation of Tibet by China and the resultant Sino-Indian military tensions on the Indo-Tibetan border. Despite these challenges, the now-separate armies of India, Pakistan and Bangladesh are among the major contributors to the United Nations peace-keeping forces.7 But this extraordinary role is widely overlooked in international debates on peace-keeping, particularly in India‘s case.

P.R. Chari, ―Indo-Soviet Military Cooperation: A Review‖, Asian Survey, Vol. 19, No.3, March 1979, pp. 230-244; see also, S. Nihal Singh, The Yogi and the Bear: The Story of Indo-Soviet Relations (New Delhi: Allied Publishers, 1986). See for example, David Axe, ―Why South Asia Loves Peacekeeping‖, The Diplomat, December 20, 2010, available at http://the-diplomat.com/2010/12/20/why-south-asia-loves-peacekeeping/?all=true. Accessed on February 14, 2012.

While China‘s more recent contributions to international peace-keeping are widely noted and assessed, there is less appreciation of India‘s sustained and significant participation in the UN military operations. After the domestic political controversy over the participation in the UN intervention forces in Korea backed by the West, India carefully avoided joining great powers in their military activity during the Cold War period. Delhi squared its new commitment to international peace-keeping with the policy of non-alignment by conspicuously limiting its participation to only those operations which had the mandate of the UNSC. India became one of the biggest contributors to international peace-keeping from the 1950s.8 A second and equally important exception to India‘s military isolationism during the Cold War was New Delhi‘s continuing role after independence as a security provider to the smaller states of the Subcontinent. In the colonial era, the British Raj was the preeminent power in the Indian Ocean and was the guarantor of security for a number of states abutting the Subcontinent. This primacy of the Raj has been described as the ‗India Centre‘ in the system of British imperial defence. Yet, the Raj was not merely an extension of London‘s policies in the Indian Ocean littoral. It devised and implemented policies that arose out of the geographic and political imperatives of securing India.9 Partition had ruptured the strategic unity of the Subcontinent and enormously weakened the so-called ―India Centre‖ in Asian security affairs. The Cold War between the United States and Soviet Russia, and the re-emergence of a centralised China in control of Tibet and Xinjiang, likewise chipped away at the presumed primacy of New Delhi in the region. Yet India sought to preserve all it could of its once impressive glacis in the Subcontinent. Independent India revived the British Raj‘s protectorate arrangements with Nepal, Bhutan and Sikkim in 1949–50. Sikkim was eventually integrated into India, and New Delhi saw itself as responsible for both the external and internal security of the Himalayan kingdoms.10 While military diplomacy was an important component of India‘s engagement with Nepal and Bhutan, Delhi also used coercive diplomacy as well as military force in its immediate neighbourhood. India‘s military interventions in East Pakistan and Sri Lanka and other use of force, however, are not part of the discussion here. Like the Raj, independent India claimed an exclusive sphere of influence in South Asia. An Indian version of the Monroe Doctrine for the Subcontinent, aimed at preventing other major powers from intervening in the region, became an integral element of India‘s policy, although not always a successful one. It also argued that its own conflicts with neighbours should be managed in a bilateral rather than a multilateral context and viewed with great suspicion the interests of major powers in its

8 9

Satish Nambiar, For the Honour of India: A History of Indian Peacekeeping (New Delhi: Lancer, 2009). For a discussion of the concept of the ‗India Center‘ see, Peter John Brobst, The Future of the Great Game: Sir Olaf Caroe, India’s Independence and the Defence of Asia (Akron: University of Akron Press, 2005). Srikant Dutt, ―India and the Himalayan States‖, Asian Affairs, Vol. 11, no. 1, 1980.

neighbourhood. To the extent it could, New Delhi also sought to prevent its neighbours from granting military bases and facilities to great powers.11

After the Cold War After the Cold War, as India reconfigured her economic and foreign policies, it was inevitable that it would take a fresh look at its military isolation of the previous decades. The logic of economic globalisation as well as the need to reconfigure its relations with the major powers after the collapse of the Soviet Union were imperatives that India had to deal – with a measure of urgency. Soon after the demise of the Soviet Union, India launched a military engagement with the United States (US). The basis for the interaction between the Indian and US armed forces was provided by the so-called ‗Kickleighter‘ proposals of the early 1990s.12 Named after the then US commander of the Pacific Armies, they provided a framework for service to service interaction between the armed forces. After that the floodgates of India‘s defence diplomacy opened up. Although it was subject to many hiccups, political and bureaucratic, the vector of India‘s military engagement with the rest of the world has been on a rapid upward trajectory. India has bilateral defence cooperation agreements with more than 40 countries from Brazil in Latin America to Australia in the Pacific and from Mozambique in Africa to Mongolia in inner Asia.13 These agreements, which vary greatly in their scope and intensity, can be grouped into three categories—major powers, immediate neighbours, and other actors of interest to India in the Indian Ocean littoral and beyond. Starting with the major powers, India‘s defence cooperation with the United States is probably the most expansive in terms of the areas covered. It has also, not surprisingly, been the most politically controversial at home and of special interest to the world. For a country which had little defence interaction with India since independence, except for a brief period between the late 1950s to early 1960s that was marked by Sino-Indian tensions, Washington has emerged as a major defence partner of India. The US now conducts more military exercises with India than with any other partner. After a period of stop and go interaction between the armed services, they have taken off since the Bush Administration came to power in 2001. India which never bought a single weapons platform from the United States in the Cold War period, has acquired since 2005 a number of 11

Devin T. Hagerty, ‗India‘s Regional Security Doctrine‘, Asian Survey, Vol. 31, No. 4, April 1991, pp. 35163. For a review see John H. Gill, ―U.S.-India Military-to-Military Interaction‖, in Sumit Ganguly, Brian Shoup, and Andrew Scobell, eds., Beyond Words: U.S.-Indian Strategic Cooperation into the 21 st Century (New York: Routledge, 2006), pp. 113-30. For a broad survey, see Brian K. Hendrick, India’s Strategic Defence Transformation: Expanding Global Relationships (Carlisle, PA: Strategic Studies Institute, 2009).

systems including the LPD ship Trenton, C-130 and C-17 military transport aircraft, and has ordered P-8 maritime surveillance aircraft in the last few years. Starting from a zero base at the turn of 2000s, India‘s FMS purchases from US have reached nearly $6 billion at the end of 2011.14 Even more significant has been the 2005 framework agreement that defines a number of political missions, including peace-keeping, humanitarian relief and maritime security, for operational cooperation. The agreement was a clear departure from the tradition of India‘s defence engagement in one important sense. None of independent India‘s defence cooperation agreements with other powers in the past identify explicit political missions. The agreement also calls for greater defence industrial collaboration.15 While India and the United States have made much progress on defence cooperation in the 2000s, its trajectory has not always been along predicted lines and is moving ahead only in fits and starts. India‘s forward movement on defence engagement with the United States has opened the door for a similar, but on a much lower scale, interaction with Great Britain, France and Russia. The new relationship with Washington has been absolutely instrumental in deepening defence ties with the US allies in Asia like Japan, South Korea and Australia. 16 India has also begun tentative military exchanges with China that includes high level exchanges, port calls and joint exercises. Larger political mistrust, however, continues to limit the Sino-Indian military exchanges.17

Security Diplomacy India‘s security diplomacy with the neighbours falls into a separate category of its own. If inherited political legacies make Delhi a hesitant partner for defence cooperation with great powers, India‘s smaller neighbours have had problems of their own in drawing close to India in the military arena. In the case of Pakistan, there are additional problems with great significance of their own. Since the end of the Cold War and amidst their emerging nuclear capabilities, India and Pakistan have been encouraged by great powers to embark on greater military and nuclear confidence-building measures (CBMs). The international community was deeply concerned about the prospect of a conventional military conflict escalating to the nuclear level and the inadequate arrangements for crisis management in South Asia. From the

14 15

16 17

U.S. Department of Defense, Report to Congress on U.S.-India Security Cooperation, November 2011. For the text of the agreement, see Embassy of India, ‗New Framework for the U.S.-India Defence Relationship‘, Washington DC, June 28, 2005, available at http://www.indianembassy.org/press_rel ease/2005/June/31.htm. Accessed on February 14, 2012. For a review, see David Brewster, India as a Pacific Power (New York: Routledge, 2012). See R. N. Das, ‗The Sino-Indian Defence Dialogue: Addressing the Persistent Security Dilemma‘, IDSA Comment (New Delhi: Institute for Defence Studies and Analyses), December 7, 2011, available at, http://www.idsa.in/idsacomment/TheSinoIndianDefenceDialogue_rndas_071211. Accessed on February 10, 2012.

late 1980s to the end of 2000s, the two countries negotiated a range of nuclear and military CBMs.18 But Delhi and Islamabad have found it hard to institutionalise any contact between the two military establishments outside of hot line that operates between the two headquarters.19 One problem is the reluctance of the Pakistan Army for service to service interaction with its Indian counterpart. Given its exalted position in Pakistan‘s political system, Rawalpindi does not see Indian Army as an equivalent. Not surprisingly, the Pakistan Army has been reluctant to embark on even the simplest military CBMs, like exchange of military bands or visiting each other‘s staff colleges. The military CBMs between the two sides are negotiated by the Foreign Secretaries of the two countries. India‘s military engagement with the armed forces of Bangladesh too had been virtually nonexistent until the late 2000s. With the cooling of the relationship since the mid 1970s, Delhi too did not make much of an effort at military diplomacy in Dhaka. That has changed in the last few years. India has recognised the importance of engaging the army as an institution and has actively sought to intensify its ties since 2008. The broad framework agreement for cooperation signed by Manmohan Singh and Sheikh Hasina in 2011 has provisions for substantive military and security cooperation. In an interesting development in 2011, India signed a strategic partnership agreement with Afghanistan that includes the option of substantive Indian military support to Kabul. 20 The agreement came amidst the impending US withdrawal from Afghanistan and unresolved tensions between Kabul and Islamabad. While the agreement might have considerable geopolitical possibilities, the military cooperation between Delhi and Kabul is constrained by geography and the hostility of Pakistan. India‘s military ties with the smaller states too have begun to acquire some traction. After the failed intervention in the Sri Lankan civil war in the late 1980s, Delhi has returned to engage the armed forces of Lanka. While Colombo has responded positively, Delhi is constrained by the opposition of the Tamil Nadu state government in India. Colombo‘s inability to resolve the Sri Lankan Tamil ethnic question after its victory in the civil war had made it difficult for Delhi to be seen as extending military cooperation. In Nepal, while India maintains close relationship with the national army, there is widespread political opposition to the 1950 India-Nepal treaty, seen in Kathmandu as unequal and hegemonic, that provides the political basis for a close military partnership. Delhi has been willing to revise the treaty, but is yet to find a stable interlocutor that can change the terms of the pact. Meanwhile, India

For a review see, Michael Krepon, ‗Prospects for Nuclear Risk Reduction in South Asia‘, Strategic Analysis, Vol. 33, No.3, 2009, pp. 426-32 For a discussion see, Ali Ahmed, ‗India-Pakistan Relations: Military Diplomacy vs. Strategic Engagement‘, Journal of Defence Studies, Vol. 5, No. 1, January 2011, pp. 147-54 For a review of these agreements, see C. Raja Mohan, ‗Modernising the Raj Legacy‘, Seminar, No. 629, January 2012.

has revised its 1949 treaty with Bhutan in 2007 to make it more in tune with contemporary realities but retaining the essence of the security partnership between a large state and its tiny partner. In 2011, India also signed a new partnership agreement with Maldives that focuses on deepening maritime security cooperation. Despite the many difficulties, Delhi is on the road to modernising its security ties with most of its neighbours, except Pakistan.21 Unlike the major powers and immediate neighbours, where political issues limit the possibilities for military diplomacy, the context has been far more welcoming for Delhi‘s defence diplomacy towards major regional actors and critically located small states in the Indian Ocean littoral that India considers its extended neighbourhood. The enthusiasm for defence cooperation with India has been widespread in Africa, the Indian Ocean littoral, East Asia and the Pacific.22 In fact the early focus of India‘s defence diplomacy after the Cold War was Southeast Asia. The objective was to reverse the mistrust that had accumulated during the 1980s, when India was seen as a proxy of the Soviet Union and hence a threat to the region. In the last two decades, India has gone way beyond that initial objective to establish substantive defence cooperation and military exchanges with all the major Southeast Asian countries including Thailand, Malaysia, Singapore, Indonesia and Vietnam. Indian Navy has been at the forefront of lending a military dimension to India‘s Look East policy unveiled in the 1990s.23 Over the years, India‘s military diplomacy has expanded to cover Mongolia in inner Asia, Northeast Asia and the South Pacific. Some have characterised this engagement as an effort to counter-balance China, Delhi is a long way from becoming a challenger to Beijing in Southeast Asia and the Pacific.24 India‘s current focus is on establishing itself as a player of some relevance over the longer term in the East Asia and the Pacific. Delhi is acutely conscious of its severe limitations in projecting power into the Pacific littoral.

Indian Ocean Focus The Indian Ocean, however, is another matter. It has attracted much attention from India‘s defence diplomacy in recent years.25 Given its geographic centrality to the Indian Ocean, Delhi is determined to consolidate its strategic advantages in the littoral. The entry of China into the Indian Ocean has added yet another incentive for India to step up the pace and intensity of its defence diplomacy. In recent years, India has concentrated on deepening

21 22

Ibid. For a brief overview, see David Scott, ‗India‘s ‗Extended Neighbourhood‘ Concept: Power Projection for a Rising Power, India Review, Vol. 8, No. 2, April-June 2009, pp. 107-43. Pankaj Kumar Jha, ‗India‘s Defence Diplomacy in Southeast Asia‘, Journal of Defence Studies, Vol. 5. No. 1, January 2011, pp. 47-61. Iskander Rahman, ‗Keeping the Dragon at Bay: India‘s Counter Containment of China in Asia‘, Asian Security, Vol. 5, No. 2, May 2009, pp. 114-43. See David Brewster, ‗An Indian Sphere of Influence in the Indian Ocean?‘, Security Challenges, Vol. 6. No.3, Spring 2010, pp. 1-20.

security cooperation with Mauritius, Seychelles, Mozambique and Madagascar in the Western littoral, Oman, Qatar and United Arab Emirates in the Arabian Sea, and Myanmar in the Bay of Bengal. India‘s security diplomacy is not confined to the nations on the littoral. India has sought to develop military cooperation with Central Asia, and there has been much speculation about an Indian military base in Ayni, Tajikistan. But the reports have never been confirmed.26 India has also sought to develop military cooperation with medium powers outside its extended neighbourhood. These are largely middle powers such as Brazil and Poland outside India‘s extended neighbourhood. After the Cold War, India‘s military diplomacy has not been limited to bilateral engagement. India began to shed some of its earlier political hostility to multilateral security initiatives. Much of its traditional suspicion of multilateral security arrangements arose from its opposition to US alliances like the SEATO (South East Asia Treaty Organisation) and CENTO (Central Treaty Organisation) that were set up in the 1950s. India was also deeply sceptical of collective security proposals that emanated from the Soviet Union. India did not welcome Brezhnev‘s 1969 proposal for Asian collective security and was not willing to see its own bilateral treaty of 1971 as part of such a system.27 India also remained ambivalent of the Soviet leader Gorbachev‘s proposal for Asian collective security in 1988.28 India‘s traditional preference for defence bilateralism was slowly complemented by a number of new multilateral initiatives. In its outreach to the Southeast Asian countries in the 1990s, Delhi unveiled the Milan multilateral exercises in 1995. It has now been institutionalised as a biennial event that draws in a large number of countries in the Indo-Pacific littoral.29 In 2008, India took another initiative by convening the Indian Ocean Naval Symposium that brought together all the navy chiefs from the Indian Ocean area. 30 In 1996 India joined the security forum of the ASEAN (Association of Southeast Asian Nations) – the ARF (ASEAN Regional Forum). In 2005, the ASEAN leaders invited India to join the East Asia Summit process that was to focus on broader political and security issues facing Asia. In 2010, India participated in the first expanded gathering of the ASEAN Defence Ministers Meeting that was dubbed ADMM Plus.31 In assessing India‘s new security multilateralism, it is difficult to miss one paradox. While India has been eager to join the new Asian multilateral institutions, its participation in 26 27

29 30

Sudha Ramachandran, ‗India Airbase Grounded in Tajikistan‘, Asia Times Online, December 10, 2010. R.V.R. Chandrasekhara Rao, ‗The Brezhnev Plan and the Indo-Soviet Treaty‘, Economic and Political Weekly, Vol. 8, No. 46, November 17, 1973, pp. 2059-65. Elizabeth Wishnick, ‗Soviet Asian Collective Security Policy From Brezhnev to Gorbachev‘, East Asia, Vol. 7, No. 3, 1988, pp. 3-28. Jha, op. cit., n. 23. For a discussion, see Yogesh V. Athawale, ‗The IONS Initiative and the Prospects for Security Cooperation within the IOR‘, Maritime Affairs, Vol. 6, No. 1, 2010, pp. 98-115. Jha, op. Ibid.

these forums has been quiet and low-key. Many leaders of the ASEAN have often complained about India‘s lack-lustre performance in the East Asian multilateral institutions. Yet, India has also shown leadership in creating new institutional mechanisms like the Milan and the IONS. Delhi seems far more comfortable in multilateral military institutions set up under its leadership rather than those where the agenda and direction are set by the others. India has also begun to let its military forces occasionally participate in multilateral coalition operations. In the Tsunami relief operations at the end of 2004, Indian Navy joined the forces from the United States, Japan and Australia. This was probably the first time that India was participating in a military coalition. But the enduring opposition to any multilateral military activity came to the fore in September 2007, when India conducted joint naval exercises with the United States, Japan, Australia and Singapore. Amidst the Chinese objection to these exercises and the protests by communist parties at home, the political leadership of the defence ministry sought to step back from multilateral defence diplomacy.

Constraints: Organisational and Political The scale and scope of India‘s defence diplomacy has steadily expanded since the end of the Cold War. Nevertheless a number of factors—including organisational and political— continue to constrain the reach and effectiveness. At the organisational level the shortage of staff in the headquarters of the Ministry of External Affairs (MEA) and the Ministry of Defence (MoD) remains a major impediment. While India‘s defence engagement with other countries has grown manifold in the last two decades, the number of officers servicing it in the two headquarters remains virtually the same. Second, the MEA and the MoD do not appear to be on the same page when it comes to defining the objectives of India‘s military diplomacy. While the leadership of the Foreign Office has come to value the possibilities of military diplomacy, the MoD remains deeply conservative and has been reluctant to plunge deep into military diplomacy. Linked to this is a third problem that is rooted in the peculiar structure of India‘s civil-military relations. Few democracies have the kind of overwhelming dominance by the civilian bureaucracy over the military services that have been institutionalised in India. Not surprisingly, the civilian bureaucracy is none too enthusiastic about giving the military services greater room for international engagement. If India needs a new tool kit for military diplomacy that is in tune with its rise on the world stage, Delhi is some distance away from developing effective policy instruments and institutions. While there is growing demand for security assistance from India, Delhi is yet to put in place adequate domestic capacities for military training and arms production. While India has large training establishments that can be ramped up to service the new global demand, India‘s capacity to supply arms has been severely constrained by the absence of a domestic defence industrial base. While India has been a major importer of 11

weapons system on the world market, it is yet to develop domestic capacities to export them to other countries and leverage it as part of the nation‘s defence diplomacy. Beyond the organisational challenges, Delhi will need to resolve a number of political and strategic ambiguities to strengthen its military diplomacy. We identify here at least three contentious issues in India‘s national security debate that constrain its defence engagement with other nations. The first is the tension between India‘s notions of ‗strategic autonomy‘ and ‗military partnership‘ with great powers, especially the United States. Since limiting military entanglement with other powers was central to the conception of India‘s nonalignment, India‘s expanding defence diplomacy with the United States has repeatedly run into political roadblocks from the left and right of the political spectrum. India‘s UPA (United Progressive Alliance) government and its main constituent, the Congress party, themselves, have not been united in their understanding on how far to go with the United States in the military sphere. The idea of ‗interoperability‘ with the US armed forces remains a taboo for the political establishment. Many in Delhi associate this with the danger of becoming a military subaltern to the United States. Part of the problem also stems from the entrenched suspicion of the US intentions towards India. While the political mistrust in the United States has significantly come down, there is enough residue that limits India‘s military diplomacy. It is interesting to note that the many political objections raised in relation to the United States are rarely put forward in dealing with other powers. The second tension is between the traditional imperative of territorial defence and the new logic of securing India‘s growing interests far from its shores. The Indian political and bureaucratic leadership continues to recoil at the ideas of ‗power projection‘ and or developing ‗expeditionary capabilities‘ for the Indian armed forces. Yet, they frequently call upon security forces to cope with emergencies in distant lands. The Indian Navy had to evacuate thousands from Lebanon during 2006 and Libya during 2011. While the logic of a widening security perimeter for a globalising India begins to impinge on Delhi, the Indian security debate tends to be reticent about acquiring and deploying the instruments of power projection. The third tension is between the logic of India‘s own forward military presence amidst expanding global interests and the traditional opposition to foreign military bases. To be able to operate in distant waters, the Indian Navy will need what might be called ‗turn-around‘ facilities around the Indo-Pacific littoral. To acquire such facilities, India will have to develop a range of special political relationships and military partnerships. It was precisely these arrangements of the superpowers that the Indian security discourse had rejected outright during the Cold War. The Indian strategic community now objects to China‘s efforts to develop maritime access in the Indian Ocean. While India‘s ideology of nonalignment prevents it from accepting a junior partnership with a larger power, the logic of Delhi‘s expanding interests demands developing military presence in and security cooperation with 12

smaller countries. In fact many smaller nations which face threats from other powers are beseeching India to contribute more to their security. The logic of this universe is indeed very different from the one that India is coming from and its national security debate will be under pressure to adapt. Looking ahead, it is indeed reasonable to assert that Delhi‘s military diplomacy will acquire greater traction in the coming years. There will be greater regional and international demand for India‘s military services, support and cooperation. Besides the pull factor, there is also the push factor in India‘s defence diplomacy. As its interests expand and India will have to secure them far from its shores, Delhi will reach out and build defence partnerships with countries big and small. India‘s defence diplomacy is a rewarding area of academic inquiry. Investigations into India‘s defence diplomacy will throw much light on India‘s new selfperception as a rising power and its contribution to the security of others and the international system as a whole. As Delhi resolves the tension between the new national security imperatives and the inherited ideology of nonalignment, it should reveal the emerging relationship between military power and political purpose in India‘s global strategy.

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ISAS Working Paper No. 145 – 16 March 2012 469A Bukit Timah Road #07-01 Tower Block National University of Singapore Singapore 259770 Tel: 6516 4239 / 6516 6179 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Stabilising the Neighbourhood? : India’s Flip Flop Approach to Maldives Crisis S.D. Muni1

It has gradually dawned on the Indian policy makers that neighbourhood is strategically critical for India’s stability, development, security and also its regional and global aspirations. Since the beginning of this century, a clear admission of this reality has been articulated officially; from foreign secretaries to the prime ministers. An independent group of strategic analysts in their latest report says: Interstate politics in South Asia has direct spill-over effects into domestic and regional politics in India. India’s ability to command respect is considerably diminished by the resistance it meets in the region. South Asia also places fetters on India’s global ambitions.2 There is however a persisting gap between the realization of the significance of neighbourhood and the crafting of a sustainable strategy to deal with the crises in the

Professor S. D. Muni is Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He can be contacted at isassdm@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect those of the institute. ‘NONALIGNMENT 2.0: A Foreign And Strategic Policy For India in The Twenty First Century’, This report is authored by Sunil Khilnani, Rajiv Kumar, Pratap Bhanu Mehta, Lt.Gen(retd.) Prakash Menon, Nandan Nilekani, Srinath Raghavan, Shyam Saran, Siddharth Varadarajan. The Report was released in New Delhi on 28 February 2012 in the presence of India’s National Security Adviser, his two deputies and his predecessors.

neighbouring countries that threaten to jeopardize India’s vital interests. The latest example of this gap was evident in case of the Maldives where India fumbled and faltered in its approach towards the sudden exit of the democratically elected Maldivian president Nasheed. Attempts have since been made to apply course correction, but the situation in that archipelagic country seems to have slipped out of the grip of Indian policy makers.

Maldives and its Crisis Maldives is located some 300 miles off India’s southern coast, covering 820km long and 120km wide spread of strategic Indian Ocean. It is a country of 1192 Islands of which just more than fifteen per cent i.e. 199 islands, is inhabited with a total population of 315,000. Population is dominantly Sunni Muslim and non-Muslims are not accepted as citizens of the Maldives. The Maldives’ first major political transition took place in 1968 from a Sultanate to a republic. Maumoon Abdul Gayoom became the third president of the republic in 1978 and survived three coup attempts against him in 1980, 1983 and 1988 respectively. During the last one, he was rescued by an active Indian military intervention (under an India Navy’s operation called ‘Sandhya’) undertaken on his specific request. He eventually had to give up power in the face of a struggle for democracy during 2007-08 against his authoritarian ways to govern, after losing in a popular election in 2008. Nasheed of the Maldivian Democratic Party (MDP), declared a ‘prisoner of conscience’ by the Amnesty International for his ordeal of detention by the Gayoom regime for nine years on 27 different occasions, led the struggle and became the first popular president of the Maldives. President Nasheed was forced to resign and hand over power to his Vice-President Mohammad Waheed Hassan Manik on 7 February 2012, in the face of a revolt from the security forces comprising of the country’s Police Force and the Maldives National Defence Force (MNDF). While the succeeding President Waheed has projected it as a constitutional and peaceful transition of power, Nasheed and his supporters have termed it as a coup claiming that President Nasheed was forced to resign at the ‘point of gun’. After his resignation, Nasheed told a group of reporters: “Yes I was forced to resign at gunpoint…There were guns all around me and they told me they would not hesitate to use them if I didn’t resign”.3 Whether one accepts Nasheed’s description of his ouster as a coup or not, there is little doubt that his resignation was not entirely a voluntary affair and that circumstances were created to force his exit. There has indeed been a simmering power struggle between Nasheed and his MDP on the one hand and his opponents led by Gayoom and his PPM (Progressive Party of Maldives) on 3

BBC News Asia, February 08, 2012. http://www.bbc.co.uk/news/world-asia-16945764?print=true. Accessed on March 05, 2012.

the other. The principal political detractors of President Nasheed, the former president Gayoom’s PPM, the conservative Islamic formations the Adhaalath Party and Dhivehi Quamee Party (DQP) and Dhivehi Rayyithunge Party (DRP), along with other Islamist nongovernmental organisations had joined hands in what they called as the ‘Coalition of 23rd December’ to oust Nasheed. They started agitations and protests against his alleged ‘unIslamic acts, corruption, autocratic functioning and mal-governance’. They also blamed him for violation of the Constitution and proximity to Israel. On the night of January 29th they met the then Vice-President Waheed to urge upon him to take over the functions of Presidency and called upon the MNDF and the Maldivian Police Force to defy Nasheed and instead, pledge allegiance to Waheed. Vice-President Waheed was reported to have agreed to all the ‘terms proposed by the ‘December 23 Coalition’ which presumably included rehabilitating Gayoom protégés back in power under Waheed’s leadership.4 Prompted and supported by the consolidated opposition to Nasheed, sections of MNDF and Police Force stormed President Nasheed on 7 February 2012 and forced him to resign. Nasheed had clearly lost the confidence and control of the security forces. He should also take the responsibility for creating conditions that emboldened his political opponents and united them due to his lack of governance abilities and his various acts of commission and omission. Soon after coming to power, Nasheed’s somewhat arbitrary style of politics alienated many of his erstwhile parliamentary allies. His moderate approach to Islam was always an anathema to the conservative religious forces. Over the past decade, conservative Islam has been gaining ground in the Maldives with support from Saudi Arabia and Pakistan. The Islamic conservative forces had started opposition to President Gayoom also initially but with the democratic opposition becoming stronger, Gayoom accommodated these Islamist forces for his political survival. Over the years, the language and idiom of politics in the Maldives has come to assume a strong religious flavour. The most controversial act of President Nasheed, which became a trigger for the public criticism and protests against him, was his arrest of the judge of Criminal Court, Abdulla Mohammad on 16 January 2012. President Nasheed and his MDP were unhappy with judge Abdullah, a committed Gayoom protégé, for his role in delaying the prosecution of corruption cases against many proGayoom businessmen as also in releasing DQM Vice-President Jameel. Jameel had been detained for his relentless personal attacks on Nasheed. Nasheed’s allegations against the judiciary was that it was “handpicked by the former president…these powerful judges provided protection for the former president, his family members and political allies many of whom are accused of corruption, embezzlement and human rights crimes”.5 The arrest of the judge turned the entire judiciary against Nasheed. In mobilising opposition to Nasheed, others 4

Haveeru online, ‘Vice president agreed to all terms proposed: December 23 coalition’, January 31, 2012, http://www.haveeru.com.mv/news/40026. Accessed on March 05, 2012. Lasanda Kurukulasuriya, ‘Maldives coup – too close to call?’ The Sunday Times, (Colombo) February 12, 2012.

alienated by him on different occasions earlier also contributed significantly. For instance, a Sandhurst- trained Col. Mohammad Nazim, sacked from MNDF in 2009, had mobilised a section of the MNDF and police to revolt against Nasheed. Rising prices and declining economic prospects added to the growing public perception of Nasheed’s government as unresponsive and incompetent. The judiciary, however, was deeply involved in the power struggle between Nasheed and his detractors. Nasheed was keen on reforming the judiciary and purging it of the influence of Gayoom protégés through parliamentary legislation in the new session which was about to begin later in February 2012. Nasheed could not do it earlier for want of a required majority in the Majlis. He acquired this majority only recently. It may be of interest to note here that the opposition struck against Nasheed on 7 February 2012 just before this purge could begin. There were nearly a 100 cases of human rights violations filed against Gayoom, of which 25 were filed only on a day before the ouster of Nasheed, and the Member of Parliament Moosa Manik, who filed these cases, was physically assaulted on the day after the Nasheed’s exit. A Presidential Commission appointed to investigate an oil-deal scam by a company of a PPM politician-businessman Abdullah Yameen and Gayoom brothers, was also to give its report a day after Nasheed’s ouster. This company was dealing in OIC (Organisation of Islamic Conference) subsidised oil imports through Singapore since time of the Gayoom regime. 6 The ouster of Nasheed thwarted the release of this report which might have passed strong strictures against the pro-Gayoom company. Some of Nasheed’s acts, accordingly, were driven by his desire to get a grip over the levers of power in the Maldives which have traditionally been nursed by his nemesis and predecessor Gayoom. While the idiom of politics in the Maldives, as mentioned earlier, is religious, its financial sustenance and support comes significantly from the tourism sector which constitutes one-third of the island-chain nation’s economy. Rich and powerful resortowners who control the tourism sector have a close nexus with political parties and their leaders, mostly of the bygone regime of Gayoom. In order to weaken the hold of his opponents on this sector, Nasheed had opened up the tourism sector for greater competition. He took initiatives to bring more of the isolated Islands under the resort economy. Nasheed wanted to streamline the tax net to cover the rich resort-owners. He also expanded the tax net to bring the resort-owners under it. Besides curbing the monetary power of the politicallyoriented resort-owners, there was also a need to raise national revenues in the face of declining income from the tourism sector owing to the economic slump in the West (United States and Europe) from where most of the rich tourists came in. All this was hurting the

This is based on the comments made by ‘Narxym’ from Male on March 5, 2012 in media report on the Maldives. See DNA (Daily News & Analysis), (Mumbai-India), March 05, 2012, http://www.dnaindia.com/india/report_dont-meddle-in-our-affairs-maldives-home-minis. Accessed on March 07, 2012.

entrenched resort-owners. They therefore came forward to fund opposition to and to change the Nasheed regime. Some prominent resort-owners were in the forefront of the anti-Nasheed protests and rallies before and after the dramatic political change. Commenting on the role of the resort-owners in ousting him, Nasheed mentioned that at least four of them were involved, one being Gasim Ibrahim owner of the Villa Group, in this respect. Nasheed also said: They liked the old order of corruption. We were rocking the boat, taxing them. When we came into government revenue was $600million, today it is $1.2billion. We have introduced a general sales tax, corporate profit tax and income tax and reduced import duties. They did not like that but the government needs money. We have businessmen here who are richer than the government.7 On the whole, the ouster of Nasheed underlines the persisting power struggle in the Maldives which did not die out with the end of the Gayoom regime. Much before the democratic regime could consolidate, the old regime struck back and there are no signs that there would be an early end to this internal power struggle.

India’s Role India seems to have misread the real dynamics of this internal power struggle despite its deep strategic and economic stakes in the Maldives. Strategically, the Maldives occupies a critical position in the Indian Ocean Sea Lanes of Communication (SLOC) through which thousands of merchant and naval ships transit. During the Second World War, British had established an operational base in the southern Gan Island of the Maldives. This base was handed over to the Maldives only in 1976 when the US had established a senior Naval Command in Diego Garcia, some 600 miles further south of Gan. In 1977, the then Soviet Union approached the Maldives for setting up naval facilities to counter the US Diego Garcia base but without any success. In 1988, when India rescued the Gayoom regime, the attempted coup was suspected to have been led by a Sri Lankan Tamil militant group, Peoples’ Liberation Organisation of Tamil Eelam (PLOTE). In 2001, during Chinese Prime Minister Zhu Rongji’s visit to the Maldives, a proposal was made for establishing a Chinese submarine base in Marao coral island of the Maldives, located about 40 km south of the capital Male.8 Though such a submarine base has not been established, China entered into a defence cooperation agreement 7

The Telegraph, (London) February 13, 2012. http://www.telegraph.co.uk/news/worldnews/africaandi ndianocean/maldives/9077446/...13/2/2012. For some details on the role of other resort owners in the crisis see ‘Money behind the 07 February Coup in Maldives’, http://haruge.com/?p=220. Accessed on February 13, 2012. Gurpreet Khurana, ‘China’s String of Pearls and its security implications’, Strategic Analyses, January 2008 (IDSA, New Delhi).

with the Maldives, signed during the Gayoom regime that lasted until 2009. India’s concerns about the adversarial use of the Maldives’ strategic location were further heightened following the November 2008 cross-border terrorist attack in Mumbai from across the sea. There were already reports that Pakistan’s notorious terrorist outfit, Lashkar-e-toiba was seeking a foothold in the Maldives by exploiting the Islamic connection.9 This has led India to conclude a close defence cooperation agreement with the Maldives. In August 2009, during the visit by Indian Defence Minister A.K. Antony, India agreed to set up 26 radar stations across 26 Atolls of the Maldives. These stations will be linked to Indian Coastal Command. India will also establish an air force station for surveillance flights to monitor the ‘movement of pirates, terrorists, smugglers’ and such peace-threatening forces. This cooperation will ensure the security of the vast Indian and Maldivian extended economic zones in the Indian Ocean.10 Security cooperation between the two countries was reinforced and extended along with the overall Cooperation for Development, for which a Framework Agreement was concluded during Indian Prime Minister Manmohan Singh’s visit to the Maldives in November, 2011. Addressing Maldives’ Parliament (Peoples’ Majlis) on 12 November 2012, Singh underlined the stakes that the two countries had in Indian Ocean security: India’s security like that of Maldives is closely linked to what happens in the Indian Ocean. The challenges we face are well known – extremism and religious fundamentalism, piracy, smuggling and drug trafficking to name a few…Our two countries have agreed upon a multi-pronged approach to deal with these problems… Bilaterally we have entered into arrangements on combating terrorism, drug trafficking, disaster management and coastal security and transfer of sentenced persons… At a regional level, we shall enhance our cooperation to increase maritime domain awareness and surveillance. We should have better exchange of information, more training programmes and work towards a cooperative security framework in the Indian Ocean region.11 Economically, India’s trade with the Maldives has witnessed a steady increase, from Rupees 307.95 crores in 2005-06 to 395.57 crores in 2009-10. The Maldives procures many of its consumer requirements from India. India’s investments in the Maldives have registered an 9 10

Author’s interviews in Male with senior Maldivian officials during 2007. ‘India Maldives agree to step up defence cooperation’, The Indian Express, (New Delhi), August 21, 2009. Also see, Balaji Chandramohan, ‘India, Maldives and the Indian Ocean’, IDSA Comments, October 13, 2009, Siddharth Srivastava, ‘India drops anchor in Maldives’, Asia Times, September 2, 2009, http://www.atimes.com/atimes/south_Asia/K102Df02.html. Accessed on March 5, 2012. Text of the speech. http://www.rediff.com/news/report/text-pm-manmohan-singh-s-historic-spech-in-maldi... Accessed on March 6, 2012.

impressive growth from US$60-65 million until 2008 to nearly a billion US dollars at present.12 GMR Infrastructure of India, in a consortium with KLIA of Malaysia, is involved in building the Male International Airport on a 25-year BOT (Build-Operate-and-Transfer) basis. Suzlon Energy of India is setting up a 25MW wind energy farm and the Taj Group of India is operating two resorts in the Maldives. The State Bank of India has extended generous loan assistance to Maldivian entrepreneurs, accounting for 42 per cent of all such loans. In view of internal political crisis in the Maldives, the State Bank of India, on 16 February 2012, temporarily suspended all its loan operations. There are about 30,000 Indians working in the Maldives in various fields.13 The spread and depth of these stakes did not get reflected in India’s response to the latest crisis of political change in the Maldives. The sudden ouster of the popularly elected President Nasheed was initially described by India as an ‘internal development’. It viewed the change in guard as a peaceful and constitutional transition of power. Indian officials were quoted as saying that “Waheed was Nasheed’s running mate. He has strong administrative and political credentials. This is an internal issue and not a security issue for India”. 14 India even claimed that it had facilitated this transition. Political recognition was quickly accorded to the new President. Prime Minister Singh spoke to the new Maldivian President and offered to extend “any support or assistance that the people of Maldives might require”. In a letter sent to the new President, Prime Minister underlined the “common destiny and common security interests” shared by the two countries, adding that “India is committed to working with you and the Government of Maldives, to further enhance our close, bilateral cooperation to mutual benefit and for the continued security, progress and prosperity of our two countries”.15 India also encouraged the United States, Sri Lanka and other countries to recognise the new Maldivian President. However, New Delhi was soon to realise that the recognition of the new regime and exchange of pleasantries with the new President were somewhat hasty steps. Policy makers in India were taken by surprise at the ousted President Nasheed’s labelling of the political change as a ‘coup’ and at the show of support that he still enjoyed. As it turned out, the latest change in the Maldives was neither peaceful nor orderly. There were violent clashes between Nasheed’s supporters and police, which threw the law and order situation into utter disarray in the capital, Male, and other atolls like Nasheed’s strong-hold of Addu. There was also international support coming to Nasheed, particularly from the United Kingdom, which set up 12 13

‘Indian Investments in Maldives safe, say officials’, Business Line, New Delhi, February 09, 2012. These details have been taken from a Note on ‘India-Maldives Relations’ prepared by the Ministry of External Affairs, Government of India, January 2012. (MEA website). Archis Mohan, “India guides Maldives shift – ‘Obama of the East’ steps down after hardline protests trigger coup fears”, The Telegraph (Calcutta, India), February 08, 2012. Press Releases issued on Maldives situation by the Ministry of External Affairs, New Delhi on February 08, 2012.

a Commonwealth Ministerial Action Group (CMAG) to investigate the circumstances of this political change. India feared that its political initiative in the context of this Maldivian crisis would be grabbed by others. New Delhi was also worried if India’s strategic interests and investments would be affected by the violence as also by the fact that the new administration included known India-baiters like the defence and home ministers. It therefore decided to send a Special Envoy to assess the ground reality afresh. Why then did New Delhi not delay the recognition of the new Maldivian President for a while until a proper assessment of the developments in the Maldives could be authentically made? Secretary (West) M. Ganapathy of India’s External Affairs Ministry, who went to the Maldives on 10 February 2012, as Prime Minister’s Special Envoy, had extensive discussions with all the party leaders and brought back the impression that Nasheed’s ouster was not entirely peaceful; that he was still hugely popular and that the immediate need in the Maldives was to restore peace and stability. Ganapathy was assured by the new regime that all foreign investments including Indian investments, were safe.16 On the basis of such new assessment, and to wrest political initiative back, India followed the Special Envoy’s visit with that by Foreign Secretary Ranjan Mathai, who visited Male on 15 -16February 2012. After discussions with the ousted President Nasheed , leaders of all major parties and other leaders from the judiciary and parliament (Majlis), a ‘Roadmap for a Possible Way Forward’ was prepared. As claimed by Mathai, under this ‘Roadmap’, all the parties concerned agreed that: …in the interests of national reconciliation and to encourage harmony between our citizens, the Government of National Unity will hold discussions with all relevant parties to conduct elections by an early date. The Government of National Unity will work towards [creating] the conditions that will permit such elections to take place including any Constitutional amendments.17 This ‘Roadmap’, however, remained largely on paper except for the abatement in violence and agitations. Nasheed and his party refused to join the National Unity government of President Waheed. His party’s contention was that if Nasheed’s resignation had to be taken as a constitutional transition of power then the rest of the executive and administration would need to be retained and there was no need for a new National Unity government. However, as the new President himself was in league with the anti-Nasheed movement, he has changed the entire government, bringing in hard-line detractors of the ousted regime and former Gayoom allies into powerful political positions. The All Party Consultative Committee (APCC) established for dialogue between the rival political forces has not been able to deliberate meaningfully on the questions of early elections and any constitutional amendments to facilitate such elections. While Nasheed’s MDP has been unwilling to talk to 16 17

The Hindu, February 11, 2012. ‘Foreign Secretary’s remarks to media in Maldives’, Speeches/Statements, Ministry of External Affairs, New Delhi, February 16, 2012.

the government on anything except the holding of early elections and the necessary constitutional amendment to facilitate that, the government seems to be in no mood to discuss the election dates before legitimising the regime through the presidential address to the Majlis. They sought assurances for MDP’s cooperation in this and also for floor management in the Majlis for the desired constitutional amendment. MDP was opposed to all this as that would amount to giving legitimacy to what they called an ‘illegitimate government’. Rallies by the new regime and the ousted MDP criticising each other and mobilising public support to consolidate their respective political positions continued, with tensions running high. This prompted another visit by the Indian Foreign Secretary in less than a fortnight. The second visit failed to break the deadlock between the ruling regime and the ousted one. There have also developed differences within the ruling coalition on India’s role. India’s acceptance of early elections and concern for the protection and security of Nasheed and his close associates were seen as being a partisan intervention. The hard-liners in the ruling coalition were getting resentful of India ‘interference’ in the Maldives’ internal affairs. They objected to Mathai’s participation in APCC which was explained by the Indian side as being in response to a specific invitation from President Waheed.18 Some of them, such as the daughter of former President Gayoom and Minister of State for Foreign Affairs in the new administration Dunya Maumoon, along with Home Minister Mohammad Jameel had, even before Mathai’s second visit, started saying that the government did not give any assurances on holding an early presidential election.19 A day after Mathai’s departure from Male, on 1 March 2012, Nasheed’s MDP did not allow Waheed to hold the scheduled Majlis session. Subsequently Home Minister Mohammad Jameel stressed that “as long as India does not interfere in the internal affairs of Maldives, all other efforts put by India will be seen as constructive. However, India must not be seen as a friend only of one party or political individual”.20 In another report, Jameel was quoted to have issued a veiled threat to India saying that “it will be a moral obligation on the part of India to see that democracy is sustained at Maldives, and if not, it will be a blow to India as well, as it is the closest ally of our country.”21

Joint Secretary incharge of Maldives in MEA, Mr. Harsh Vardhan Shringla, who had accompanied Mathai to Male held a press conference to say that ‘President Waheed requested Mathai to participate in the APCC talks and an official invitation was extended for this by Mujuthaba, coordinator of the talks’. ‘India pushes for early elections in Maldives, parties agree’, India Today March 1,2012. http://indiatoday.intoda y.in/story/india-pushes-for-early-election-in-maldives-parties ag... accessed on March 06, 2012. ‘Ranjan Mathai in Maldives for the second time’, IBN Live February 28, 2012, http://ibnlive.in.com/gene ralnewsfeed/news/ranjan-mathai-in-maldives-for-the-second-ti..., The Indian Express, February 29, 2012. http://www.indianexpress.com/story-print/918156/. Accessed on March 06 and 07, 2012. ‘Don’t meddle in our affairs, Maldives home minister tells India’, DNA (Daily News & Analysis) (Mumbai) March 06, 2012. http://www.dnaindia.com/india/report_dont-meddle-in-our-affairs-maldives-home-minis... . The Hindustan Times, March 06, 2012, ‘India has obligation to safeguard democracy in Maldives’. http://www.hindustantimes.com/Story/Page/Print/821523.aspx .

Appraisal The foregoing narrative of India’s moves underline two aspects. One, that India is trying to make a course correction of its initial hasty move of going all out to legitimise the exit of Nasheed and two, India has, in the process,trapped itself deep in the Maldives’ domestic power struggle, as the new regime refuses to relent on its hold on power. A number of factors accounted for India’s initial position. To begin with Nasheed himself was responsible to some extent for misleading New Delhi to believe that the transition of power was within constitutional parameters. He was in direct contact with Indian authorities and did not give the impression that he was being forced to resign. When asked if he needed any help from New Delhi, his answer was in the negative.22 It is possible that in his weaker moment, under the pressure from MNDF and Police Force, which had refused to obey him, he decided to resign. However, when he went to his party, he was asked to retrace his step and challenge the legitimacy of the transition. India was certainly not prepared for his volte face. New Delhi did not plead with him not to resign as it had its own reservations on the way he was functioning. New Delhi was not quite comfortable with his abrasive style of politics and governance which alienated his former allies and strengthened his opponents. It was taken in by the constant criticism voiced against him by his opponents. Even during Prime Minister Manmohan Singh’s visit to Male in November 2011, Nasheed’s opponents had voiced allegations of undemocratic and unconstitutional functioning by his administration in conversations with various members of the Indian delegation.23 The Indian strategic establishment also suspected that the Nasheed administration was hobnobbing with China behind India’s back on the possibility of granting projects of naval significance. The Chinese interest in developing some of the Maldivian islands as a ‘submarine base’ has been noted earlier. The question of ‘Nasheed’s proximity to China’, particularly of his defence minister’s, was reportedly brought up by India’s intelligence agencies, in a high-level meeting of the Defence Crisis Management Group in New Delhi when it discussed the question of India’s intervention in the Maldives to rescue Nasheed from the violence and chaos that marked the aftermath of political transition.24 The Indian security establishment was also uneasy with the Nasheed administration’s proximity to the UK and the presence of British advisers around him. There were suspicions that the UK, either for its own sake or on behalf of the US, for the latter was expanding and consolidating its presence in the Asia-Pacific region, could persuade the Maldives to grant naval presence to it. If that were to happen, it would blunt, if not neutralise, Maldives’ emerging defence cooperation

22 23 24

Interviews with highly placed Indian Officials in New Delhi, February 18-26, 2012. Ibid. Rakesh K Singh,‘China connection stalled Indian help to Nasheed?’ Daily Pioneer, (New Delhi), February 13, 2012., http://www.dailypioneer.com/pioneer-news/todays-newspaper/422766-china-connection. Accessed on February 13, 2012.

with India. There were also signs of tardy response from the Maldives side in executing sensitive aspects of this cooperation.25 Notwithstanding these sensitive strategic considerations, India should have taken a cautious and dispassionate approach towards regime change in the Maldives. What India failed to understand was the intensity of the simmering power struggle in which the stakeholders of the pro-democracy regime were trying to oust Nasheed. The opposition against Nasheed was building up for the past few months. India claims to have advised him to adopt a consensual approach towards his detractors, which was easier said than done realistically in a situation of a sharpening power struggle. There was surely a need for Nasheed to have been careful in not getting isolated and in smoothening the rough edges of his political and governance style mentioned earlier. But towards that end, India either did not exercise its quiet diplomatic weight properly and fully, or could not do so effectively. India should have kept in focus the fact that, on the whole, no previous regime in Male had promoted Indian strategic and economic interests, mentioned earlier, in the Maldives on the scale done under Nasheed’s presidency. Nasheed has also publicly denied the charge that he was soft towards China’s attempts towards establishing its strategic presence in the Maldives. He has now disclosed that in 2008, when he came to power, China had a defence agreement with the Maldives. This agreement was due for renewal in 2009, but he refused to go ahead with that. “I had this paper on my desk even two weeks back. The MNDF sent me the letter saying I have to sign it”. Now that he was out, China “will certainly play an active role now. They will play muchmuch more active role” in the Maldives, he added.26 Replying to other Indian misgivings about him, and contrasting himself with the Gayoom regime and his PPM which forced his ouster, Nasheed in an emotional outburst said: My question to Indian establishment is that if they think that we did not perform, do they think this (change of regime) is a better option?...Unlike PPM we are a group of people who strongly believe in India, their role and functions in Indian Ocean and the relationship that we want with India…The thing is India takes us for granted unlike the PPM. I think this is the biggest reason, a more logical reason (for India’s failure in understanding the situation in the Maldives). They know we will be with them. It is an ideological thing for us…Did we disturb Indian sensitivities? You can’t find a bigger Indian lover than me. Even if they say a thing against India, that is like saying it against me…We never articulated anything anti-Indian and my party has also not done that…. 27 (Italics added)

25 26

Interviews in New Delhi. ‘Ousted Maldives president warns India it would lose influence to China’, The Times of India, February 14, 2012. http://timesofindia.indiatimes.com/world/south-asia/Ousted-maldives-president-warns-... Ibid.

Prospects In view of the recent visits by India’s Foreign Secretary and the earlier visit by India’s Special Envoy, New Delhi now seems to be in a better position to grasp the dynamics of the latest regime change in the Maldives, and there are clear signs of a course correction in India’s approach. Under this course correction, India has taken a position that Nasheed and his party should not be victimised and that elections should be held early to bring about a stable and legitimate government. The ousted President Nasheed has broadly endorsed this position, expressing his satisfaction with India’s approach as explained to him by Mathai during his first visit on 15 February 2012.28 However, controlling the damage done to India’s policy and leverage in the Maldives may not be easy as India has lost considerable initiative and isolated itself somewhat as a result of its initial hasty moves. In a sharply polarised political situation like that in the Maldives now, there are generally three options for any external power that wants to play a role. First: to go along with those who are in control of state power. This is evident generally in what China has been doing in cases like Nepal and the Maldives. Second: take the contending forces along and help evolve a compromise, and third: stand by such forces that are your reliable allies and that can serve your long-term interests, as Britain has done in extending consistent support to Nasheed. India has been switching gears on all the three options. Its initial move was compatible with the first. Then in the course-correction of its approach, it has been trying the second option of compromise while being inclined to prefer the third option. In the process, New Delhi’s goodwill and credibility with Nasheed and his MDP stands eroded and it has come in for strong criticism now from those who ousted Nasheed and are in control of state power in the Maldives. The second option of helping evolve a compromise and consensus between the principal contenders may look like being the best in the long run but India is severely constrained in taking this course due to the prevailing sharp polarisation in the Maldives and because of the flip flop in India’s own position. Those who are in power in Male now do not seem to be prepared for any compromise. Only a couple of days before the second visit by Foreign Secretary Mathai, President Waheed addressing a pro-government ‘National Symposium’ organised by PPM and its allies, in Male on 26 February 2012 said: This is no longer the age of colonialism. Today no foreign country can influence the Maldives. Today we will maintain our sovereignty with bravery. Be courageous. We will not back down an inch. Today, the change (in power) in the Maldives is what Allah has willed. This did not happen because of one or two people coming out into the streets. No body had been waiting for this. Nobody even saw this 28

‘Much more satisfied with India’s stand says Nasheed’, The Hindu, February 16, 2012.

day. The change came because Allah willed to protect Islam and decent Maldivian norms.”29 President Waheed has also appointed his own Commission to inquire into the circumstances of political change in the Maldives since Nasheed has called it a ‘coup’. This Commission is headed by Ismail Shafeeu, who was Minister of Defence and National Security under the Gayoom government. There is little doubt that this Commission will endorse the legitimacy of the transition of power as being constitutional. India’s initial hasty moves have become a formidable liability for its attempts to evolve a desirable compromise. All that India can now do is to work gradually towards isolating hardliners in the contending camps, mobilising the moderate forces that seek stability and progress in the Maldives and creating conditions for a fresh presidential election as soon as possible. Meanwhile, India has to make sure that Nasheed and his MDP are not subjected to revenge and oppression at the hands of the State forces. Any marginalisation of the forces of change and the emerging aspirations in the Maldives represented by Nasheed and his MDP may not be in the long-term interests of India. This may require all of its diplomatic resources to be put to their optimum and calibrated use. India will also have to ensure that its initiatives and leadership in the resolution of Maldivian crisis are fully backed by the international community. The US continues to back Indian initiatives and the UK and the Commonwealth group has reiterated their stand in favour of early elections as stipulated by India. The CMAG visited Maldives on 17 February 2012 and called for the holding of early elections. But the possibility of China and Pakistan extending support to the new regime in view of the latter’s tensions with India, cannot be ruled out. This will surely encourage the new regime to harden its stand against early elections and make moves to marginalise Nasheed and his party politically. The dilemma that Indian policy confronts in dealing with the Maldives situation epitomises a broader challenge for India in its South Asian engagements. South Asia has been going through a process of democratic transition since the first decade of the twenty-first century. In this process, democratic transitions of varying degrees at the level of institutions have taken place almost in every country but the substantive transition to the democratic institutions has not been completed. There is a complex struggle for power going on in almost all of these countries where the emerging forces of change are pitted against those of status quo. While in Pakistan, the army is using judiciary and dividing civilian politics to keep its dominance, in Nepal and in Bangladesh the army is being used as an ally by the opponents of the forces of change. The challenge before India is to decide where its long-term interests lie. It has supported, encouraged and facilitated the forces of change in the process of transition. These 29

Minivan News, (Maldives), February 26, 2012.

forces of change like the Maoists of Nepal or the Nasheed(s) of the Maldives may not be adaptive and well-versed in handling the levers of political power entrenched by the discarded status quo regimes. India has to make a critical choice in deciding if it has to continue to stand by the forces of change even at the cost of short-lived stability and order or whether it has to forge compromises by helping those of status quo to re-emerge and sabotage genuine hopes and aspirations of the peoples of these countries. Any failure to make the right choice and letting things drift in the neighbourhood will not only hurt its vital national interests but also embolden its rivals and adversaries in the region.

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ISAS Working Paper No. 147 – 20 March 2012 469A Bukit Timah Road #07-01 Tower Block National University of Singapore Singapore 259770 Tel: 6516 4239 / 6516 6179 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

India’s Unilateral Tariff Withdrawal for South Asian Countries Pratima Singh1 (Assisted by Asha Abraham and Deepa Karthykeyan2) Abstract This paper studies economic integration in the South Asian region using an India-centric approach. It recommends that the gains from India withdrawing its tariff on imports from South Asian countries hugely outweigh the losses for the region. The four bilateral trade relationships analysed cover India-Pakistan, India-Bangladesh, India-Sri Lanka and IndiaNepal. The Indo-Pakistan relationship shows Pakistan’s exports to India contribute much less to India’s total imports than to Pakistan’s GDP. The benefits of India unilaterally withdrawing tariffs, thus, are much greater than the costs. Similarly, the India-Bangladesh trade relationship, despite having many complementary characteristics, is not very well established. India announced duty free access to some textile imports from Bangladesh in September 20113 and should be encouraged to declare ‘zero tariff’ rates on all major Bangladeshi imports. The India-Sri Lanka relationship, despite having a Free Trade Agreement (FTA), is restricted in many ways. Similarly, the Indo-Nepal trade relationship, despite a 60 year FTA, is still protectionist in nature. It is important that these protective criteria be removed in favour of improving trade between the countries. Each of the countries mentioned in the paper will gain immensely if India opens up its borders to their imports. These gains will outweigh the minor losses for India which will be more than compensated for by its increased goodwill. Economic integration is important to maintain stability in this region and the four bilateral relationships described above are crucial. 1

2 3

Pratima Singh is Research Associate at the Institute of South Asian Studies (ISAS), an autonomous institute within the National University of Singapore (NUS). The author can be reached at isasps@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect those of the institute. Asha Abraham and Deepa Karthykeyan are Consultants at Athena Infonomics India ‘PM announces duty-free import from Bangladesh’, LiveMint.com, 7 September 2011, Viewed on 15 September 2011, http://www.livemint.com/2011/09/07105023/PM-announces-dutyfree-import.html.

The South Asian region is said to be the least economically integrated region in the world. Given that India is one of the world’s fastest growing economies, this comes as a bit of a surprise. The smaller countries of the region look to India to take initiative in this regard and promote bilateral and multilateral trade. This paper promotes the unilateral tariff withdrawal by India for its South Asian neighbours, thereby benefiting the entire region. The paper looks at four countries in South Asia and studies their bilateral trade relations with India to prove this hypothesis. The time frame for this study is the last six years, starting from 2005-2006 to 2010-2011(from April to December). Data is extracted from the Export Import Data Bank of the Ministry of Commerce, Government of India. The first bilateral trade relationship studied is that of India and Pakistan. Since this study is more India-centric, the first step is to determine the commodity-wise import into India from Pakistan in the last six years. The first stage is using trade data at the two-digit level in order to give an overall view of the trade relationship. This figure is then divided by India’s total imports of that commodity, from all countries, to determine Pakistan’s share in India’s imports categorised by commodities. This helps in two ways, not only is it easy to determine Pakistan’s importance as India’s import partner, it also helps determine the major commodities India imports from them. It is at this stage that the India’s imports from Pakistan that form a negligible share, i.e. less than 2%, of its total imports of that specific commodity are deleted. Table 9 in the Appendix shows India’s share of imports from Pakistan after deleting negligible import commodities at the two-digit level. Looking at this data, 12 commodities that feature consistently and majorly in India’s imports are then identified. Sixdigit data for each of these 12 commodities is then extracted and the share of imports from Pakistan is calculated for each commodity as was done previously for each of the six years. Another exercise of elimination was then conducted at the six-digit level in order to make the study more rigorous. This was done based on two criteria: consistency and quantity. If a particular commodity appeared in four or more years as an import from Pakistan and if its share in India’s total imports of that commodity was larger than 5%, it was deemed important. The rest of the commodities were then deleted, leaving 69 commodities at the sixdigit level as shown in Table 10 in the Appendix. As the six-digit level for data goes into extreme detail, the 69 commodities are clubbed together into 26 commodities at the four-digit level. Table 1 shows the four-digit figures. Table 1: Pakistan’s share in India’s total imports of major commodities at the four-digit level (per cent) No

HSCode

306

713

804

Commodity Crstcns W/N In Shl,Live,Frsh,Chld,Frzn,Drdsltd/In Brine;Crstcns,In Shl,Ckd By Stmng Or Boiling,W/N Chld,Frzn,Drd,Sltd/In Brine Drid Leguminous Veg Shld W/N Skinned/Split Dates, Figs, Pineapples, Avocados, Guavas, Mangoes, And Mangosteens, Fresh Or Dried

20052006 %

20062007 %

20072008 %

20082009 %

20092010 %

20102011 (AprDec) %

0.65

0.00

2.24

9.33

14.71

16.72

10.49

0.14

0.01

0.00

0.24

0.40

37.72

54.82

33.84

34.83

33.20

38.15

806

813

1207

1211

2009

2501

2523

2526

4104

4105

4106

4107

4112

4113

5101

5205

5206

5208

5209

23 24 25 26

5210 5212 6116 7801

Grapes, Fresh Or Dried Fruit, Dried, Other Than That Of Headings 0801 To 0806; Mixtures Of Nuts Or Dried Fruits Of This Chapter Other Oil Seeds And Oleaginous Fruits, Whether Or Not Broken

0.30

50.22

4.97

0.05

0.53

0.87

0.72

50.98

1.02

1.51

1.50

1.56

0.00

0.24

1.55

6.03

0.62

8.66

6.32

10.20

13.74

12.71

8.97

0.00

6.42

2.87

8.33

6.94

6.74

93.10

92.23

83.33

70.93

67.20

71.76

Portland Cement Almnous Cement("Cement Fondu")Slag Cement Etc & Smlr Hydrlc Cements W/N Clrd/In The Form Of Clinkers

0.00

1.02

55.92

73.56

34.28

45.10

Natrl Steatite W/N Roughly Trmmd/Merely Cut By Sawings/Othrwse Into Blks/ Slabs Of A Rectnglar Shape

0.00

4.94

11.79

12.61

37.99

0.37

0.98

3.45

3.34

2.83

2.30

0.02

0.04

0.71

1.21

0.13

0.34

3.31

0.85

3.58

4.36

0.35

0.32

Leather Further Prepared After Tanning Or Crusting, Including Parchment-Dressed Leather, Of Bovine (Including Buffalo)

0.83

3.90

8.69

5.09

6.95

4.75

Leather Further Prepared After Tanning Or Crusting, Including Parchment-Dressed Leather, Of Sheep Or Lamb, Without Wool On

0.00

3.40

11.51

2.03

0.72

3.17

1.42

2.48

4.53

1.52

1.42

12.63

1.04

1.57

1.92

1.52

1.88

2.81

45.43

67.42

61.48

65.08

44.09

22.70

15.20

68.43

41.27

0.00

60.66

57.94

7.58

8.17

5.34

3.69

8.25

4.45

13.47

20.84

21.60

21.18

26.35

19.12

1.51 13.45 21.43 1.29

0.65 7.48 16.26 2.94

6.73 6.81 19.28 6.74

5.46 10.82 18.21 0.69

0.00 6.75 21.90 4.07

0.35 1.01 20.59 3.55

Plnts & Prts Of Plnts Incld Seds & Fruts Usd For Prfumry Phrmacy/Insctcidl Or Smlr Purposes Frsh/Drid W/N Cut Crshd Or Powdrd Fruit Juices (Incl Grape Must)/Vgtbl Juiceunfrmntd & Not Wth Added Sprt,W/N Sweetnd Salt (Incl Table Salt & Denatrd Salt) & Pure Sodim Chlrde W/N Aqs Soln Sea Wtr

Taned/Crust Hide & Skin Of Bvne(Inclding Buffalo) Or Equine Animal Without Hair Wonsplt But Nt Further Prepared Taned/Crust Skin Of Sheep Or Lamb Without Wool Whether Or Not Split But Not Further Prepard. Taned/Crust Hide & Skins Of Other Animls Wout Wool/Hair Won Split But Not Furtherprepared.

Leather Further Prepared After Tanning Or Crusting, Including Parchment-Dressed Leather, Of Other Animals, Without Wool Wool Not Carded Or Combed Cotn Yrn(Othr Thn Swng Thrd)Cntng 85% Or More By Wt Of Coton Nt Put Up Fr Retl Sale Coton Yrn(Othr Thn Sewng Thrd)Contng Coton Wovn Fbrcs Of Coton Contng>=85% By Wt Of Coton Weghng Nt More Thn 200 G/M2 Wovn Fbrcs Of Cotton, Contng >=85% Cotn By Wt Weighing>200 Gm Per Sqm Wovn Fbrcs Contng<=200g/M2 Other Woven Fabrics Of Cotton Gloves, Mittens And Mitts, Knitted Or Crocheted Unwrought Lead

Source: The Export Import Data Bank, Department of Commerce, Ministry of Commerce and Industry, Government of India. Retrieved from http://commerce.nic.in/eidb/Default.asp on 20 September 2011.

Up till now, the story has been fairly one-sided by using India’s total imports of a commodity as the denominator. This helps to foretell the impact of India’s unilateral tariff withdrawal on its imports. To complete the analysis, it is important to consider the situation in Pakistan as well. Here it is assumed that India’s imports from Pakistan are exactly equal to Pakistan’s exports to India. To determine the importance of its exports to India, Pakistan’s export figures are divided by its Gross Domestic Product (GDP) as shown by Table 2. 3

Table 2: Pakistan’s share in India’s total imports and Pakistan’s exports as a share of its GDP

Pakistan's Exports to India (US$ million) India's Total Import (US$ million) Pakistan’s share of India's Imports (per cent) Pakistan GDP (US$ million) Pakistan’s Exports as a share of Pakistan GDP (per cent)

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011 (Apr-Dec)

179.56

323.62

287.97

370.17

275.94

244.27

149165.73

185735.24

251654.01

303696.31

288,372.88

258,843.59

0.12 %

0.17 %

0.11 %

0.12 %

0.10 %

0.09 %

127500.00

143171.18

163891.68

161989.98

174799.15

0.141 %

0.226 %

0.176 %

0.229 %

0.158 %

Source: The Export Import Data Bank, Department of Commerce, Ministry of Commerce and Industry, Government of India. Retrieved from http://commerce.nic.in/eidb/Default.asp on 20 September 2011. And The World Bank development indicators. Retrieved from http://data.worldbank.org/indicator on 21 September 2011.

It’s clear that, although Pakistan’s exports to India contribute only a very small percentage to its GDP, these exports contribute lesser to India’s total imports. Thus, although India will lose some revenue through customs by withdrawing tariffs, Pakistan stands to gain much more. To make the study more comprehensive, Pakistan exports of the 12 major commodities identified at the two-digit level are divided by its GDP to analyse how much each of the commodities contribute to Pakistan’s total output. This is shown by Table 11 in the Appendix. Pakistan is studied using more relatively general data because it is understood that it will gain if India unilaterally removes tariffs. This degree of gain can be gauged through Pakistan’s exports to India as a percentage of its GDP. Referring to the four-digit data shown in Table 1, we can identify some of the major commodities in which Pakistan has a relative comparative advantage and which are, therefore, likely to be impacted in case of unilateral tariff withdrawal by India. The most obvious of these are fruits, salt and sodium chloride, types of cement, natural steatite, types of cotton and gloves and other woollen apparel. Removing tariff will result in increased supply of these goods. Given the high inflation seen in food articles, including fruits and vegetables, increasing import of fruits will help bring prices down by increasing supply. An increased supply of salt and sodium chloride will not negatively harm India as the country has a limited supply of salt and needs to import the commodity anyway. An increase in cement supply is needed with the large infrastructure projects taking place in India today, thereby increasing demand. So, in effect, cotton is the only sensitive commodity being imported from Pakistan with the India government trying to protect its small and marginal cotton growers by levying 4

import tariffs on the commodity. Certain Non-Tariff Barriers (NTBs) may be put in place to limit cotton import from Pakistan if necessary, but as is clear from the above analysis, the benefits of India unilaterally withdrawing tariffs are much greater than the costs. More economic cooperation between the countries is important as India did not even feature in Pakistan’s top six exporting partners. Economic cooperation between these two countries is crucial for integration of the entire region. Moving on to another large economy, the bilateral relationship between India and Bangladesh is studied. Using the same methodology as in the case of Pakistan, we analyse the importance of Bangladeshi goods in India’s imports. The share of Bangladesh in India’s imports at the two-digit level is analysed, commodity wise and goods that contribute less than 2% to India’s imports of a particular commodity are then deleted. This leaves the 17 commodities shown in Table 12 of the Appendix. Again, six-digit data for the 17 commodities identified is used to calculate share of Bangladeshi goods in India’s imports. To comprehensively identify the import commodities, more items are deleted at the six-digit level based on the same two criteria of consistency and quantity. A commodity that appeared less than four of the six years of data it was deleted. From among the remaining, if a commodity contributed less than 5% to India’s imports of that commodity, it was deleted. This left us with 53 items at the sixdigit level as shown in Table 13 of the Appendix. These criteria ensure a comprehensive understanding of India’s dependence on imports from Bangladesh. The 53 items are then combined into 38 commodities at the four-digit level to explain the larger picture. Table 3 shows the four-digit figures for Bangladesh. Table 3: Bangladesh’s share in India’s total imports of major commodities at the four-digit level (per cent) S. No.

Hscode

Commodity

20052006 %

20062007 %

20072008 %

20082009 %

20092010 %

2010-2011 (Apr-Dec) %

302

Fish Fresh Or Chilled Excluding Fish Fillets & Othr Fish Meat Of Hedng No 0304

96.22

96.13

95.76

98.49

97.41

98.03

305

Fish Dried Salted Or In Brine;Smoked Fish Cooked Or Not Before Or During The Smokingprocess;Fish Meal Fit For Consumption

44.78

34.26

46.62

57.82

62.07

73.26

506

Acided/Dglitnsd Bones&Hrn/Cors,Nt Shaped, Deftd,Unwrdk,Smply Prpd;Pwdr&Wste Thereof

73.08

86.96

50.00

14.29

20.00

38.10

1703

Molses Rsltd From The Extrctn/Rfng Of Sugr

6.41

32.26

57.89

52.82

8.20

1.46

2001

3.85

7.69

14.93

7.00

2004

0.45

0.59

7.26

0.77

2008

0.37

1.71

3.96

4.42

2009

1.31

3.96

6.99

1.40

Veg Fruts Nuts & Othr Edbl Prts Of Plnts Prpd/Prsvd By Vinegar/Acetic Acid Other Vegetables Prepared Or Preserved Otherwise Than By Vinegar Or Acetic Acid, Frozen, Other Than Products Of Heading 200 Fruits Nuts & Other Edible Parts Of Plantsothrwise Prepd/Prsvd, W/N Sweetnd N.E.S. Fruit Juices (Incl Grape Must)/Vgtbl Juiceunfrmntd & Not Wth Added Sprt,W/N Sweetnd

3.14

0.49

0.32 1.15

1.18

4101

4104

4107

5202

5205

5208

5209

5212

Raw Hides And Skins Of Bovine (Including Buffalo) Or Equine Animals (Fresh Or Salted, Dried, Limed, Pickled Or Otherwise Taned/Crust Hide & Skin Of Bvne(Inclding Buffalo) Or Equine Animal Without Hair Wonsplt But Nt Further Prepared Leather Further Prepared After Tanning Or Crusting, Including Parchment-Dressed Leather, Of Bovine (Including Buffalo) Coton Wast(Incl Yarn Wast & Grnted Stock) Cotn Yrn(Othr Thn Swng Thrd)Cntng 85% Or More By Wt Of Coton Nt Put Up Fr Retl Sale Wovn Fbrcs Of Coton Contng>=85% By Wt Of Coton Weghng Nt More Thn 200 G/M2 Wovn Fbrcs Of Cotton, Contng >=85% Cotn By Wt Weighing>200 Gm Per Sqm Other Woven Fabrics Of Cotton Jute & Othr Txtl Bast Fbrs(Excl Flax,True Hemp & Ramie)Raw/Prcssd Butnt Spun;Tow & Waste(Incl Yarn Waste & Garnttd Stock)

0.41

0.51

0.18

0.70

3.05

1.31

1.03

1.31

1.57

3.39

3.07

3.55

2.12

2.70

2.34

2.84

2.55

2.30

45.30

54.26

71.79

81.73

92.22

94.43

0.57

1.28

3.01

2.58

0.17

0.29

0.01

0.11

0.61

0.21

0.35

1.90

0.01

0.03

0.50

1.03

1.83

3.91

0.62

1.26

0.33

2.40

0.41

94.44

96.97

97.17

95.44

99.01

99.41

93.91

92.99

97.33

98.36

99.33

98.46

14.05

38.28

25.66

25.04

40.61

44.92

19.32

21.59

13.11

8.39

11.83

16.27

4.44

12.32

5.12

3.21

4.54

2.94

4.00

0.52

1.44

0.57

1.26

36.19

0.53

1.03

6.19

12.73

21.69

19.84

9.23

11.25

0.50

3.17

4.43

10.12

3.65

2.98

2.69

9.49

5303

5307

5310

5607

6002

6006

6103

Men's Or Boys' Suits, Ensembles, Jackets, Blazers, Trousers, Biband Brace Overalls, Breeches And Shorts (Other Than Swim Wear)

6105

Men's/Boys'shirts,Knitted/Crocheted

6107

Men's/Boys'underpants,Briefs,Nightshirts, Pyjamas,Bathrobes Etc,Knttd/Crchtd

6109

T-Shrts,Snglts & Othr Vests,Knttd/Crchtd

1.90

6110

Jerseys, Pullovers, Cardigans, Waistcoats And Similar Articles, Knitted Or Crocheted

1.38

6203

6204

6205

Men's Or Boy's Shirts

6209

Babies Garments And Clothing Accessories

6304

6305

6307

6310

Yarn Of Jute Or Of Other Textile Bast Fibres Of Heading 5303 Woven Fabrics Of Jute Or Of Other Textile Base Fibres Of Heading 5303 Twne,Cordge,Rop & Cbls,W/N Pltd/Brdd & W/ Nimprgntd,Cotd,Covrd/Shthd Wth Rubr/Plstcs Knitd Or Crocheted Fbrcs Of Width =5% By Wt , Excpt Hdg No 6001 Other Knitted Or Crocheted Fabrics

0.50

3.05

0.83

0.30

1.65

1.38

8.30

7.74

12.59

13.94

1.73

2.77

1.18

3.58

5.86

8.23

1.26

3.25

4.98

10.87

5.48

6.52

0.63

1.98

1.06

6.36

11.30

10.33

14.86

10.03

3.35

76.45

79.66

37.17

70.38

66.46

54.22

Other Made Up Articles, Including Dress Patterns

0.07

0.53

0.49

3.19

1.27

4.63

Usd/New Rags,Scrp Twne,Cordge,Rope & Cbls & Worn Out Artcls Of Twne,Cordge, Rope/Cbls,Of Textile Materials

0.13

3.87

15.69

26.37

29.76

21.06

Other Furnishing Articles, Excluding Those Of Heading 9404 Sacks And Bags, Of A Kind Used For The Packing Of Goods

5.94

6501

Hat-Forms, Hat Bodies And Hoods Of Felt, Neither Blocked To Shape Nor With Made Brims; Plateaux And Manchons (Including Sl

47.62

18.42

25.00

4.35

13.79

3.33

6505

Hats And Other Headgear, Knitted Or Crocheted, Or Made Up From Lace, Felt Or Other Textile Fabric, In The Piece

2.08

3.70

6.98

2.02

10.60

0.90

6506

Other Headgear, Whether Or Not Lined Or Trimmed

2.81

26.07

31.07

23.91

Source: The Export Import Data Bank, Department of Commerce, Ministry of Commerce and Industry, Government of India. Retrieved from http://commerce.nic.in/eidb/Default.asp on 30 September 2011.

Similar to the Pakistan analysis, we now use Bangladesh’s exports to India to explain India’s importance in Bangladesh trade. Bangladesh exports to India are divided by its GDP to show the percentage share these exports contribute to Bangladesh’s economy. These figures are shown in Table 4. Table 4: Bangladesh’s share in India’s total imports and Bangladesh’s exports as a share of its GDP

Bangladesh's Exports to India (US$ million) India's Total Import (US$ million) Bangladesh’s share of India's Imports (per cent) Bangladesh GDP (US$ million) Bangladesh’s Exports as a share of Bangladesh GDP (per cent)

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

2010-2011 (Apr-Dec)

127.03

228

257.02

313.11

254.66

286.66

149,165.73

185,735.24

251,654.01

303,696.31

288,372.88

258,843.59

0.09

0.12

0.10

0.09

0.11

61901.12

68415.42

79554.35

89359.77

100075.93

0.21

0.33

0.32

0.35

0.25

Source: The Export Import Data Bank, Department of Commerce, Ministry of Commerce and Industry, Government of India. Retrieved from http://commerce.nic.in/eidb/Default.asp on 30 September 2011. And The World Bank development indicators. Retrieved from http://data.worldbank.org/indicator on 1 October 2011.

The table very clearly shows India’s importance to the Bangladeshi economy. From India’s perspective, Bangladesh imports constitute around 0.1% of its total imports while from Bangladesh’s perspective, its exports to India contributing 0.2% – 0.35% of its GDP. Thus, there is much more to gain from India unilaterally withdrawing tariffs on imports from Bangladesh as the loss for India is negligible and outweighed by the gains for Bangladesh. To take the analyses even further, specific commodity-wise contribution to Bangladesh’s economy is calculated. The 17 major commodities in the bilateral relationship, which were identified at the two-digit level, are divided by Bangladesh’s GDP to analyse how much each of the commodities contribute to Bangladesh’s total output. These figures are shown in Table 14 in the Appendix.

Studying the four-digit data shown in Table 3, it is possible to identify some important commodities which India consistently imports from Bangladesh. It is these commodities that will be impacted the most if India withdraws tariffs on imports from Bangladesh leading to the logical conclusion that their supply will increase. The most apparent imports are textiles and all types of apparel. Other important imports are cotton, jute, fish, vegetables, fruits and nuts, raw animal hides and skin. Increasing jute imports is not controversial as India does not have a sensitive jute industry. Similarly, increased fish imports and raw animal hides and skins will not harm the Indian economy. An increase in vegetables, fruits and nuts will benefit India in helping control inflation by increasing supply. And again, cotton is the only sensitive commodity imported from Bangladesh. Thus, to protect domestic producers, NTBs can be used to limit cotton imports as both Pakistan and Bangladesh export the commodity to India. The Bangladesh-India trade relation, despite having many complementary characteristics, is not very well established. India did not feature in Bangladesh’s top five export partners in 2010 and was second to China in Bangladesh’s importing partners with 12.7%. To improve this trade deficit for Bangladesh, India announced duty free access to 46 textile commodities from Bangladesh in September 20114. Thus, as India is already removing tariffs on its main import from Bangladesh, i.e. textiles, the other important imports, not accounting for much in India’s imports, can also be made ‘zero tariff’ without much harm. The Bangladesh-India bilateral relationship is one with a lot of potential that needs to be realised. As the two stable economies in the region, increased trade between them would result in benefits for the entire region. The third relationship is between India and Sri Lanka. After the end of a long civil war in the country, Sri Lanka is now in a position to concentrate on its economy. The two countries already have a trade agreement in place, the Indo-Sri Lanka Free Trade Agreement (ISFTA), which was signed in 1998 and took effect from 1 March 20005. However, there are still a number of items in India’s negative list for imports from Sri Lanka, mentioned in Annexure D (I)6. These Sri Lankan exports are not entitled for duty concessions from India. The number of items on India’s negative list has been consistently increasing over the last few years with Weerakoon and Thennakoon estimating that the list increased from 30 items in 1999 to 70 in 20067.

‘PM announces duty-free import from Bangladesh’, LiveMint.com, 7 September 2011, Viewed on 15 September 2011, http://www.livemint.com/2011/09/07105023/PM-announces-dutyfree-import.html. ‘India-Sri Lanka Free Trade Agreement’, Department of Commerce, Ministry of Commerce and Industry, Government of India, Viewed on 14 October 2011, http://commerce.nic.in/trade/international_ta_indsl.asp. ‘Duty Concessions’, Indo-Sri Lanka Free Trade Agreement, Department of Commerce, Sri Lanka, Viewed on 14 October 2011, http://www.doc.gov.lk/web/indusrilanka_freetrade_dutycon.php. Weerakoon, D and J Thennakoon J (2006): ‘India-Sri Lanka FTA: Lessons from SAFTA’, Paper written under a research grant from the Commonwealth Secretarial, London to CUTS International, Jaipur.

To understand this bilateral trade relationship we follow the same methodology as was the case in the previous two relationships. Sri Lanka’s share in India’s imports is calculated, commodity wise, at the two-digit level. Items which contribute less than 3% to India’s imports of a particular commodity are then deleted. This leaves the 20 commodities shown in Table 15 of the Appendix. The share of Sri Lanka in India’s imports is then calculated at the six-digit data level for the 20 commodities identified as important. To make the study more thorough, the six-digit data is filtered through the same two criteria used before: consistency and quantity. A commodity that appears in anything less than four out of the six years specified is deleted to ensure consistency. From those remaining, a quantity check is to delete any commodity that contributes less than 5% to India’s imports of that commodity. This left 56 items at the six-digit level as shown in Table 16 of the Appendix. These criteria ensured a holistic and detailed analysis of Sri Lanka’s contribution to Indian imports. To present a slightly more macro picture, the 56 items are then categorised into 41 commodities at the four-digit level. Table 5 shows the four-digit figures for Sri Lanka. Table 5: Sri Lanka’s share in India’s total imports of major commodities at the four-digit level ( per cent) Commodity

2005 2006 %

2006 2007 %

2007 2008 %

20082009 %

2009 2010 %

20102011 (AprDec) %

508

Coral And Similar Materials, Unworked Or Simply Prepared But Not Otherwise Worked; Shells Of Molluscs, Crustaceans Or Echinod

40.30

42.47

23.69

26.44

35.75

32.47

902

Tea

3.64

2.14

6.11

2.38

5.71

1.80

36.81

41.56

39.65

38.39

33.31

45.01

47.00

25.43

41.02

56.14

57.11

63.98

19.09

27.54

13.12

21.80

20.98

21.85

85.71

92.00

86.79

77.33

89.87

78.26

62.96

63.82

66.03

40.59

2.88

0.87

95.93

86.90

98.36

54.64

0.00

53.87

31.58

7.56

6.14

0.29

0.00

83.33

94.12

93.33

95.89

96.35

100.00

6.61

5.76

6.77

6.94

1.05

0.73

0.32

0.39

0.74

2.70

3.00

1.88

S. No .

Hsco de

1 2 3

904

907

908

1106

1516

1517

1520

1601

1905

2008

Pepper Of The Genus Piper; Dried Or Crushed Or Ground Fruits Of The Genus Capsicum Or Of The Genus Pimenta Pepper : Cloves (Whole Fruit, Cloves And Stems) Cloves (Whole Fruit, Cloves And Stems): Nutmeg, Mace And Cardamoms Flour, Meal And Powder Of The Dried Leguminous Vegetables Of Heading 0713, Of Sago Or Of Roots Or Tubers - Heading 0714 Anml/Veg Fats & Oils,Its Fractns Prtly Or Wholy Hydrogenated Intr-Estrfied Re-Estrfdelaidinsd W/N Refnd But Nt Furthr Prpd Margarine; Edible Mixture Or Preparations Of Animal Or Vegetable Fats Or Oils Or Of Fractions Of Different Fats Or Oils Glycerol, Crude; Glycerol Waters And Glycerol Lyes Sauses & Smlr Prdcts Of Meat Meat Offal Or Blood Food Prpns Based On These Prodcts Bread, Pastry, Cakes, Biscuits And Other BakersWares, Whether Or Not Containing Cocoa; Communion Wafers, Empty Cachets Fruits Nuts & Other Edible Parts Of Plantsothrwise Prepd/Prsvd, W/N Sweetnd N.E.S.

2302

2306

2309

4202

5805

5806

5807

5808

6001

6002

6003

Bran Sharps & Othr Residus W/N In The Formof Pellets Drvd Frm The Siftng Mllng/ Othr Working Of Cereals/Of Leguminous Plan Oil-Cake And Other Solid Residues, Whether Or Not Ground Or In The Form Of Pellets, Resulting From The Extraction Of Vegetable Preparations Of A Kind Used In Animal Feeding Trunks, Suit-Cases, Vanity-Cases, Executive-Cases, Brief-Cases, School Satchels, Spectacle Cases, Binocular Cases Hnd-Wvn Tapestries Of The Type Gobelins, Flndrs Etc & Needle-Wrkd Tapestries (E.G. Petit Point Cross Stitch),W/N Made Up Narrow Woven Fabrics Other Than Goods Of Heading 5807; Narrow Fabrics Consisting Of Warp Without Weft Assembled Labels, Badges And Similar Articles Of Textile Materials, In The Piece, In Strips Or Cut To Shape Or Size, Not Embroidered Braids In The Piece; Ornamental Trimmings In The Piece, Without Embroidery, Other Than Knitted Or Crocheted; Tassels, Pompon Pile Fabrics Including"Long Pile" Fabrics And Terry Fabrics,Knitted/Crochetted Knitd Or Crocheted Fbrcs Of Width =5% By Wt , Excpt Hdg No 6001 Knitd Or Crocheted Fbrcs Of A Width Knitd Or Crocheted Fbrcs Of Width.30cm , Contng Elastomeric Yarn/Rubr>=5% By Wt, Excpt Hdgno. 6001 Warp Knit Fabrics (Including Those Made On Galloon Knitting Machines), Other Than Those Of Headings 6001 To 6004

45.63

52.32

46.67

43.03

63.68

73.99

0.30

7.61

7.70

11.64

17.02

12.03

0.64

13.73

19.42

28.74

28.56

27.05

7.11

4.52

0.78

0.01

0.02

0.00

4.12

2.13

9.64

7.69

0.00

4.03

6.57

5.90

6.29

5.98

11.40

0.44

0.38

0.58

2.26

1.69

5.65

1.44

2.18

1.86

6.34

1.73

0.83

2.96

3.09

0.43

0.07

0.00

0.35

2.46

2.02

0.26

1.02

13.90

0.31

0.00

0.35

12.56

2.35

3.79

1.19

0.49

12.21

3.64

0.20

0.53

1.21

3.09

2.12

1.52

0.46

0.23

6004

6005

6006

Other Knitted Or Crocheted Fabrics

0.56

3.67

1.30

2.24

5.29

3.00

6105

Men's/Boys'shirts,Knitted/Crocheted

1.67

1.32

6.32

7.93

5.01

5.59

6108

WomenS Or GirlsSlips, Petticoats, Briefs, Panties, Night Dresses, Pyjamas, Negligees, Bathrobes, Dressing Gowns And S

0.00

1.63

4.91

10.26

9.83

26.15

6109

T-Shrts,Snglts & Othr Vests,Knttd/Crchtd

3.33

4.64

4.22

5.28

5.87

3.96

6116

Gloves, Mittens And Mitts, Knitted Or Crocheted

4.29

0.81

4.93

6.29

6.20

4.36

6203

3.73

2.92

2.82

3.05

14.86

21.63

6204

1.04

1.11

2.12

2.41

5.37

6.15

6206

1.86

0.50

1.25

1.46

2.54

3.26

6208

0.00

4.92

8.16

2.74

7.14

6212

0.00

0.63

17.34

32.31

34.67

59.39

Men's Or Boys' Suits,Ensembles,Jackets Blazers,Trousers,Bib & Brace Overalls Breeches & Shorts(Other Than Swimwear) WomenS Or GirlsSuits, Ensembles, Jackets, Blazers, Dresses, Skirts, Divided Skirts, Trousers, Bib And Brace Overalls, WomenS Or GirlsBlouses, Shirts And Shirt-Blouses WomenS Or GirlsSinglets And Other Vests, Slips, Petticoats, Briefs, Panties, Nightdresses, Pyjamas, Negliges, Bathrobe Brssrs,Grdls,Corsts,Brcs,Suspndrs,Grtrs & Smlr Artcls & Prts Throf,W/N Kntd/Crochtd

6217

6802

7403

39 40 41

Other Made Up Clothing Accessories; Parts Of Garments Or Of Clothing Accessories, Other Wrkd Monmnt/Bldg Stone (Excpt Slate)Etc Excpt Hdg 6801 Mosaic Cubes Artfcly Colrd Grnls Etc Of Natrl Stone (Incl Slate)

0.27

0.34

0.32

13.14

0.81

0.93

26.56

34.15

19.49

6.30

4.87

5.87

Refined Copper And Copper Alloys, Unwrought

59.90

32.68

17.69

3.16

1.82

8.47

7601

Unwrought Aluminium

4.39

0.65

0.12

0.04

0.06

0.13

8007

Other Articles Of Tin

77.01

40.54

4.00

2.05

0.00

890110

Cruise Ships,Excrsn Boats & Smlr Vssls Prncply Dsgnd Fr Trnsprt Of Persons, FerryBoats Of All Kinds

0.50

0.00

14.48

0.00

0.01

0.87

Source: The Export Import Data Bank, Department of Commerce, Ministry of Commerce and Industry, Government of India. Retrieved from http://commerce.nic.in/eidb/Default.asp on 10 October 2011.

Table 17. Sri Lanka’s share in India’s total imports and Sri Lanka’s exports as a share of its GDP, commodity-wise (in per cent) S . N o

Hs co de

Commodity

Products Of Animal Origin, Not Elsewhere Specified Or Included. Coffee, Tea, Mate And Spices. Products Of The Milling Industry; Malt; Starches; Inulin; Wheat Gluten. Animal Or Vegetable Fats And Oils And Their Cleavage Products; Pre. Edible Fats; Animal Or Vegetable Waxex. Preparations Of Meat, Of Fish Or Of Crustaceans, Molluscs Or Other Aquatic Invertebrates Cocoa And Cocoa Preparations. Preparations Of Cereals, Flour, Starch Or Milk; Pastrycooks Products. Preparations Of Vegetables, Fruit, Nuts Or Other Parts Of

2005 2006 (S)

2006 2007 (S)

2007 2008 (S)

2008 2009 (S)

2009 2010 (S)

201011 (AprDec) (S)

20052006 (% Of Gdp)

20062007 (% Of Gdp)

20072008 (% Of Gdp)

20082009 (% Of Gdp)

20092010 (% Of Gdp)

20102011 (AprDec) (% Of Gdp)

0.59

0.62

0.68

0.93

1.28

1.26

0.0024 2

0.0021 9

0.0021 0

0.0022 8

0.0030 4

0.00254

34.01

28.51

46.20

42.27

53.81

42.70

0.1393 5

0.1008 6

0.1428 1

0.1038 2

0.1279 1

0.08617

0.06

0.23

0.46

0.58

0.71

0.18

0.0002 5

0.0008 1

0.0014 2

0.0016 9

0.00036

168.4 8

100.7 4

127.3 4

12.56

0.28

0.09

0.6903 3

0.3563 8

0.3936 2

0.0308 5

0.0006 7

0.00018

0.28

0.48

0.84

1.42

1.85

1.14

0.0011 5

0.0017 0

0.0026 0

0.0034 9

0.0044 0

0.00230

0.03

0.05

0.09

1.40

8.59

13.10

0.0001 2

0.0001 8

0.0002 8

0.0034 4

0.0204 2

0.02644

0.35

0.43

0.67

1.43

0.14

0.11

0.0014 3

0.0015 2

0.0020 7

0.0035 1

0.0003 3

0.00022

0.03

0.06

0.20

0.72

2.14

0.0001 2

0.0001 1

0.0001 9

0.0004 9

0.0017 1

0.00432

Plants. 9

1 0

1 1

1 2

1 3

1 4

1 5

1 6

1 7 1 8 1 9 2 0

74 76 80 89

Miscellaneous Edible Preparations. Residues And Waste From The Food Industries; Prepared Animal Foder. Articles Of Leather,Saddlery And Harness;Travel Goods, Handbags And Similar Cont.Articles Of Animal Gut(Othr Thn Silk-Wrm)Gut. Special Woven Fabrics; Tufted Textile Fabrics; Lace; Tapestries; Trimmings; Embroidery. Knitted Or Crocheted Fabrics. Articles Of Apparel And Clothing Accessories, Knitted Or Corcheted. Articles Of Apparel And Clothing Accessories, Not Knitted Or Crocheted. Articles Of Stone, Plaster, Cement, Asbestos, Mica Or Similar Materials. Copper And Articles Thereof. Aluminium And Articles Thereof. Tin And Articles Thereof. Ships, Boats And Floating Structures. Sri Lanka Exports (India's Imports From Sri Lanka) (US$ million) Sri Lanka Gdp (US$ million)

0.00

0.03

0.82

1.70

1.48

0.52

0.0000 0

0.0001 1

0.0025 3

0.0041 8

0.0035 2

0.00105

1.97

10.40

19.87

36.87

48.75

40.12

0.0080 7

0.0367 9

0.0614 2

0.0905 6

0.1158 8

0.08097

1.94

1.78

0.51

0.02

0.04

0.00

0.0079 5

0.0063 0

0.0015 8

0.0000 5

0.0001 0

0.00000

1.50

2.61

2.51

4.32

3.19

4.98

0.0061 5

0.0092 3

0.0077 6

0.0106 1

0.0075 8

0.01005

0.76

3.08

3.25

2.56

4.16

3.11

0.0031 1

0.0109 0

0.0100 5

0.0062 9

0.0098 9

0.00628

0.24

0.45

0.99

1.82

1.47

2.12

0.0009 8

0.0015 9

0.0030 6

0.0044 7

0.0034 9

0.00428

0.58

0.57

1.62

3.33

4.91

7.56

0.0023 8

0.0020 2

0.0050 1

0.0081 8

0.0116 7

0.01526

12.09

20.61

13.58

4.98

3.59

4.49

0.0495 4

0.0729 1

0.0419 8

0.0122 3

0.0085 3

0.00906

140.3 2

87.17

30.14

11.10

10.43

15.31

47.55

24.00

1.15

0.28

0.64

0.76

1.34

0.30

0.04

0.03

0.00

0.61

0.00

180.2 2

22.06

39.25

18.93

0.5749 5 0.1948 3 0.0054 9 0.0025 0

0.3083 8 0.0849 0 0.0010 6 0.0000 0

0.0931 7 0.0035 5 0.0001 2 0.5570 7

0.0272 6 0.0006 9 0.0000 7 0.0541 8

0.0247 9 0.0015 2 0.0000 0 0.0933 0

577.7 0

470.3 3

634.9 6

356.5 7

392.1 9

342.55

2.3670 6

1.6638 6

1.9627 1

0.8757 7

0.9322 8

0.69130

2440 5.79

2826 7.41

3235 1.18

4071 5.25

4206 7.97

49551. 751

100

Source: The Export Import Data Bank, Department of Commerce, Ministry of Commerce and Industry, Government of India. Retrieved from http://commerce.nic.in/eidb/Default.asp on 10 October 2011. And The World Bank development indicators. Retrieved from http://data.worldbank.org/indicator on 11 October 2011.

0.03090 0.00153 0.00000 0.03820

Table 18. Nepalâ&#x20AC;&#x2122;s share in Indiaâ&#x20AC;&#x2122;s total imports of major commodities at the two-digit level (in per cent) Commodity

20052006 %

20062007 %

20072008 %

20082009 %

20092010 %

20102011 (AprDec) %

Dairy Produce; Birds' Eggs; Natural Honey; Edible Prod. Of Animal Origin, Not Elsewhere Spec. Or Included.

19.40

8.58

13.56

7.02

2.84

0.77

Coffee, Tea, Mate And Spices.

10.01

6.66

15.05

16.14

10.60

16.58

Cereals.

2.62

0.02

0.08

7.24

1.36

0.69

3.80

2.19

2.69

1.63

1.45

1.12

52.23

41.58

41.91

67.67

74.79

59.30

0.67

3.49

2.23

0.87

0.03

0.04

15.04

6.05

21.94

30.89

24.09

21.90

2.37

3.79

0.93

1.02

2.83

1.18

Miscellaneous Edible Preparations.

2.92

1.05

4.35

2.46

0.91

0.62

Beverages, Spirits And Vinegar.

7.62

14.88

19.34

12.82

7.40

7.69

10.87

4.59

10.56

9.60

5.42

3.72

11.98

9.75

6.95

4.25

1.86

1.73

14.29

4.26

4.35

3.45

0.59

0.94

10.77

6.16

9.25

8.59

6.65

7.46

S. No

Hscode

Oil Seeds And Olea. Fruits; Misc. Grains, Seeds And Fruit; Industrial Or Medicinal Plants; Straw And Fodder. Vegetable Plaiting Materials; Vegetable Products Not Elsewhere Specified Or Included. Sugars And Sugar Confectionery. Preparations Of Cereals, Flour, Starch Or Milk; Pastrycooks Products. Preparations Of Vegetables, Fruit, Nuts Or Other Parts Of Plants.

Residues And Waste From The Food Industries; Prepared Animal Foder. Essential Oils And Resinoids; Perfumery, Cosmetic Or Toilet Preparations. Manufactures Of Straw, Of Esparto Or Of Other Plaiting Materials; Basketware And Wickerwork. Other Vegetable Textile Fibres; Paper Yarn And Woven Fabrics Of Paper Yarn.

Man-Made Filaments.

2.02

2.35

5.20

3.78

3.31

1.83

Man-Made Staple Fibres.

13.66

8.24

18.02

14.67

13.71

11.87

Wadding, Felt And Nonwovens; Spacial Yarns; Twine, Cordage, Ropes And Cables And Articles Thereof.

10.35

4.64

13.13

9.41

10.56

11.42

Knitted Or Crocheted Fabrics.

6.60

6.20

5.64

3.01

2.33

1.44

6.92

3.84

1.57

1.27

0.30

0.11

19.10

16.43

12.72

7.69

6.55

7.46

1.18

1.59

12.72

6.75

9.12

10.44

2.97

2.29

3.42

2.81

4.79

2.31

Articles Of Apparel And Clothing Accessories, Knitted Or Corcheted. Articles Of Apparel And Clothing Accessories, Not Knitted Or Crocheted. Other Made Up Textile Articles; Sets; Worn Clothing And Worn Textile Articles; Rags Footwear, Gaiters And The Like; Parts Of Such Articles.

Source: The Export Import Data Bank, Department of Commerce, Ministry of Commerce and Industry, Government of India. Retrieved from http://commerce.nic.in/eidb/Default.asp on 12 October 2011.

Table 19. Nepal’s share in India’s total imports of major commodities at the six-digit level (in per cent) Commodity

20052006 %

20062007 %

20072008 %

20082009 %

20092010 %

20102011 (AprDec) %

40590

Other :

86.55

11.69

95.98

15.82

3.82

1.54

40690

Other Cheese

13.19

26.90

14.53

13.87

12.57

0.94

40900

Natural Honey

0.00

6.15

4.83

0.25

0.62

0.00

90210

Green Tea In Packets Nt Excdng 3 Kg

15.00

17.57

13.56

9.09

6.06

0.00

90220

Other Green Tea (Not Fermented):

7.69

0.00

0.58

0.62

2.21

16.47

83.48

87.71

69.55

13.14

2.41

52.00

14.53

13.78

42.34

46.94

27.91

45.04

S. No

Hscode

90230 6 7

90240

Black Tea(Frmntd) & Prtly Frmntd Tea In Immdte Packng Of A Contnt Not Excdng 3 Kg Other Black Tea (Fermented) And Other Partly Fermented Tea :

90830

Cardamoms

89.00

20.00

88.54

94.76

92.00

94.17

91010

Ginger

34.04

67.41

61.70

56.13

60.13

32.42

91091

Mixtrs Of Two Or Mors Prodcts Of Diff Hdg

0.00

50.00

58.82

54.05

9.09

91099

Other : Seed :

2.54

1.56

0.00

11.64

8.00

19.86

100810

Buck Wheat

100.00

100890

Other Cereals :

61.11

95.00

100.00

120400

Linseed Whether Or Not Broken

100.00

93.33

100.00

121190

Other : Seeds :

9.88

4.81

6.47

3.63

6.13

2.95

121300

Cereal Straw & Husks Unprpd W/N Chopped Ground Pressed/In The Form Of Pellets

100.00

93.06

92.52

93.81

85.00

79.59

140190

Othr Vegtbl Matrls Excl Bamboo & Rattan

30.61

10.42

1.61

24.69

31.33

70.00

140490

Other Vegtble Materials

71.29

78.68

50.77

87.40

92.43

73.29

170240

Chmcly Pure Glucs & Glucs Syrp In Dry State With Fructose Content At Least 20% But Less Than 50%

46.51

69.81

37.17

14.63

6.97

24.24

170310

Cane Molses Rsltd Frm Extrctn/Rfng Of Sugr

6.24

28.00

42.15

22.71

2.12

0.00

170390

Othr Molses Rsltd Frm Extrctn/Rfng Of Sugr

9.49

27.93

33.33

55.36

0.00

190219

Othr Uncookd Notstfd/Othrwse Prpd Psta

87.31

60.27

88.84

88.56

78.97

72.79

190220

Stuffed Pasta W/N Cookd/Othrwse Prpd

0.00

52.94

34.29

30.00

20.00

190230

Other Pasta :

34.74

10.81

14.20

15.58

36.16

49.11

190240

Couscous Whether Or Not Prepared

31.25

12.50

33.33

6.25

3.13

3.33

190590

Othr Bread,Pstry,Rice Papr & Smlr Products

18.67

15.43

15.23

21.35

6.32

6.05

200290

Other Prpd/Prsvd Tomatoes

0.44

1.51

4.83

7.38

6.78

6.05

200980

Juice Of Any Othr Single Fruit Or Vegtbl

6.56

12.69

0.81

1.19

5.99

4.22

200990

Mixtrs Of Juices Unfrmntd Nt Contng Spirit

7.00

12.65

2.07

1.19

8.27

0.00

210690

Other Food Preparations

5.96

2.12

8.57

4.14

1.55

0.95

220290

Other Sweetnd Flavrd Waters

80.48

74.64

82.06

78.53

65.18

55.59

230230

Bran Sharps & Othr Residues Of Wheat

100.00

94.95

33.33

230240

Bran Sharps&Othr Residues Of Othr Cereals

100.00

2.22

8.33

6.03

3.14

0.53

230250

Bran Shrps & Othr Resdus Of Legminus Plnts

100.00

96.55

100.00

84.00

54.55

230620

Oil-Cake & Othr Resdus Of Linseed

100.00

0.00

100.00

0.00

100.00

230630

Oil-Cake & Residues Of Sun Flower Seeds

100.00

0.00

100.00

1.00

0.00

230690

Oil-Cake & Othr Resdus Resltng From Extrctn Of Othr Oil-Seed & Olegns Fruts

99.25

99.39

99.58

100.00

80.76

66.94

230990

Othr Prpns Of A Kind Used In Anml Feeding

15.71

1.84

2.40

2.54

0.94

0.76

330125

Essential Oils Of Other Mints

10.53

2.20

1.00

1.52

2.04

3.70

330590

Other : Hair Oil :

19.56

11.78

6.95

3.23

9.32

3.71

330610

Dentrifrices

98.05

96.92

96.50

87.80

77.84

81.33

83.99

56.59

72.64

73.76

56.32

53.03

5.05

1.22

0.51

0.38

0.00

0.21

36 37

531010

540232 43

Unblechd Woven Fabrics Of Jute/Other Textile Bast Fibres Texturd Yarn Of Nylon Or Othr Polyamides Measuring Per Single Yarn More Than 50 Tex

540233

Textured Yarn Of Polyesters

0.81

1.36

7.33

7.85

13.12

16.77

540239

Other Textured Yarn

9.09

5.89

2.11

2.40

1.52

9.86

540249

Other Yarn,Single,Untwisted Or With A Twist Not Excdng 50 Turns Per Metre

9.46

17.74

17.46

13.21

6.01

9.44

540269

Other Yarn,Multiple(Folded)Or Cabled

4.24

1.43

29.22

19.30

27.34

16.12

540310

High Tenacity Yarn Of Viscose Rayon

14.93

0.00

2.70

0.00

20.37

40.48

540710

Wovn Fbrcs Obtnd From High Tenacity Yrn Ofnylon Or Othr Polyamides,Or Of Polyesters

2.62

4.42

0.00

5.88

1.10

0.00

540720

Woven Fabrics Obtained From Strip/The Like

20.51

36.13

0.00

2.63

1.71

0.00

68.67

84.06

48.22

76.55

84.36

0.00

90.70

8.45

24.07

0.00

19.05

0.00

49 50 51 52

540730 540793

Fabrics Consistng Of Layers Of Parallel Textile Yarns Othr Synthtic Wovn Fabrcs Of Yarns Of Different Colours

550510

Waste Etc.Of Synthetic Fibres

0.23

0.94

1.94

0.90

3.58

5.19

550620

Staple Fibrs Of Polyesters,Carded/Combed

0.34

0.70

6.82

0.00

30.95

49.02

97.20

98.40

98.30

98.43

86.75

78.60

0.00

23.72

65.76

87.05

86.90

87.61

76.36

34.21

40.00

96.51

89.19

76.00

0.00

96.33

97.87

98.76

98.52

76.03

5.01

21.88

27.29

14.55

7.43

51.39

29.63

77.19

63.10

7.20

11.17

14.60

0.00

58.67

25.89

25.81

1.29

10.00

2.44

2.86

23.08

48.00

76.04

1.02

2.33

3.28

0.66

9.12

18.77

92.46

25.81

53.81

63.68

18.40

0.86

6.52

25.00

9.09

0.00

5.26

55 56 57 58 59 60 61 62

550921 550922 550931 550932 550941 550942 550951 550959 550999

63 64 65

551011 551012

Single Yrn Cntng 85% Or More By Wt Of Polyster Staple Fibres Multiple(Folded)/Cabled Yrn Cntng 85% Or More By Wt Of Polyestr Staple Fibres Single Yrn Cntng 85% Or More By Wt Of Acrylic/Modacrylic Staple Fibres Multiple(Folded)/Cabled Yrn Cntng>=85% Of Acrylic/Modacrylic Staple Fibres Single Yrn Cntng 85% Or More By Wt Of Other Synthetic Stapple Fibres Multiple(Folded)/Cabled Yarn Contng >= 85% Of Other Synthetic Stapple Fibres Othr Yarn Of Polystr Stpl Fibrs Mixed Mainly/Solely With Artificial Staple Fibrs Other Yarn Of Polyester Staple Fibres Othr Synthtc Yrn Mxd Mainly/Solely Wth Fbre Othr Thn Cotton/Fine Anml Hair & Wool Single Yarn Cntng 85% Or More By Wt Of Artificial Staple Fibres Multiple(Folded)/Cabled Yrn Cntng 85% Or More By Wt Of Artfcl Staple Fibres

551090

Other Yarn :

2.27

9.71

11.54

11.76

35.42

71.54

560729

Othr Twine,Rope Etc Of Sisal Or Other Textile Fibres Of The Genus Agave

25.00

0.00

14.44

2.86

10.17

560790

Other Twine,Cordage,Rope And Cables

0.00

1.98

68.90

57.38

63.24

60.63

600192

Other Pile Fabrics Of Man-Made Fibres

0.00

59.35

81.74

29.73

40.31

32.24

600199

Other Pile Fabrics Of Othr Txtl Materials

0.61

1.86

0.73

7.04

0.00

600240

Knitd Or Crocheted Fbrcs Contng Elastomeric Yarn>=5% By Wt But Not Rubr Thread

17.39

17.78

67.57

24.36

69.23

92.86

600290

Othr Knitdor Crocheted Fbrcs Of Width

14.23

13.64

18.74

8.18

24.34

25.43

611011

Jerseys, Pullovers, Cardigans Etc Of Wool

42.35

55.56

16.67

16.08

4.17

1.44

611219

Track Suits Of Othr Txtl Matrls

90.00

28.57

94.74

53.85

0.00

620322

Ensembles Of Cotton

0.00

100.00

0.00

96.97

97.14

90.91

42.21

3.54

16.47

18.47

6.67

9.53

19.64

0.00

26.26

24.69

6.56

1.79

0.00

45.37

31.68

12.99

1.25

0.00

66 67

76 77 78

620342 620343 620349

620520

Men's Or Boys' Shirts Of Cotton

7.40

30.27

9.66

11.32

10.26

25.97

620530

Men's Or Boys' Shirts Of Man-Made Fibres

44.55

26.09

66.96

37.70

4.55

8.70

620590

Shirts Of Other Textile Materials

71.67

53.08

36.50

6.56

49.33

61.45

621410

Shwls,Scrvs,Mufflers Etc Of Slk/Slk Wste

89.61

80.65

50.00

12.50

0.00

4.55

621420

Shwls,Scarves Etc Of Wool/Fine Anml Hair

91.46

71.01

78.82

71.66

56.39

53.73

7.66

8.16

58.91

25.68

29.68

43.13

44.90

38.49

61.04

54.56

64.29

35.87

0.00

20.00

42.39

55.56

46.38

55.29

84 85 86

630510 640419 640520

Sacks & Bags For Packing,Made Of Jute Or Of Othr Txtl Bast Fbres Of Hdg No.5303 Othr Ftwear Wth Outr Soles Of Rubr/Plstcs And With Upper Of Textile Materials Othr Ftwr With Uppers Of Txtl Materials

Source: The Export Import Data Bank, Department of Commerce, Ministry of Commerce and Industry, Government of India. Retrieved from http://commerce.nic.in/eidb/Default.asp on 12 October 2011.

Table 20. Nepal’s share in India’s total imports and Nepal’s exports as a share of its GDP, commodity-wise (in per cent) S. N o.

Hs co de

Commodity

Dairy Produce; Birds' Eggs; Natural Honey; Edible Prod. Of Animal Origin, Not Elsewhere Spec. Or Included.

Coffee, Tea, Mate And Spices.

1 0

1 1

1 2

1 3

1 4

1 5 1 6

Cereals. Oil Seeds And Olea. Fruits; Misc. Grains, Seeds And Fruit; Industrial Or Medicinal Plants; Straw And Fodder. Vegetable Plaiting Materials; Vegetable Products Not Elsewhere Specified Or Included. Sugars And Sugar Confectionery. Preparations Of Cereals, Flour, Starch Or Milk; Pastrycooks Products. Preparations Of Vegetables, Fruit, Nuts Or Other Parts Of Plants. Miscellaneous Edible Preparations. Beverages, Spirits And Vinegar. Residues And Waste From The Food Industries; Prepared Animal Foder. Essential Oils And Resinoids; Perfumery, Cosmetic Or Toilet Preparations. Manufactures Of Straw, Of Esparto Or Of Other Plaiting Materials; Basketware And Wickerwork. Other Vegetable Textile Fibres; Paper Yarn And Woven Fabrics Of Paper Yarn.

20052006 (N)

2006 2007 (N)

2007 2008 (N)

2008 2009 (N)

2009 2010 (N)

201011 (AprDec) (N)

20052006 (% Of Gdp)

20062007 (% Of Gdp)

20072008 (% Of Gdp)

20082009 (% Of Gdp)

20092010 (% Of Gdp)

20102011 (AprDec) (% Of Gdp)

1.80

2.19

2.39

1.79

2.00

1.35

0.02214

0.02413

0.02325

0.01424

0.01551

0.00860

19.11

11.78

38.08

39.69

33.42

38.35

0.23505

0.12981

0.37051

0.31569

0.25913

0.24425

0.18

0.28

0.57

0.71

0.91

0.43

0.00221

0.00309

0.00555

0.00565

0.00706

0.00274

2.75

2.08

3.68

2.42

2.49

1.36

0.03382

0.02292

0.03581

0.01925

0.01931

0.00866

1.76

2.00

1.71

3.60

5.40

4.08

0.02165

0.02204

0.01664

0.02863

0.04187

0.02599

1.18

0.93

0.99

1.35

0.34

0.24

0.01451

0.01025

0.00963

0.01074

0.00264

0.00153

4.25

1.60

6.86

9.36

7.38

6.22

0.05227

0.01763

0.06675

0.07445

0.05722

0.03962

0.52

1.18

0.36

0.39

1.34

0.58

0.00640

0.01300

0.00350

0.00310

0.01039

0.00369

0.71

0.27

1.86

1.39

0.51

0.39

0.00873

0.00298

0.01810

0.01106

0.00395

0.00248

16.66

16.59

27.91

25.05

21.94

15.02

0.20491

0.18281

0.27156

0.19924

0.17012

0.09566

10.46

3.95

11.38

12.81

9.83

5.41

0.12866

0.04353

0.11073

0.10189

0.07622

0.03446

18.51

18.30

16.59

13.08

5.62

5.14

0.22767

0.20166

0.16142

0.10404

0.04358

0.03274

0.09

0.04

0.05

0.04

0.01

0.02

0.00111

0.00044

0.00049

0.00032

0.00008

0.00013

11.08

7.13

11.33

8.25

8.49

9.73

0.13628

0.07857

0.11024

0.06562

0.06583

0.06197

9.24

10.42

25.51

19.70

18.40

8.77

0.11365

0.11482

0.24821

0.15669

0.14267

0.05586

24.67

17.12

46.98

40.94

42.04

34.86

0.30343

0.18865

0.45711

0.32563

0.32597

0.22202

Man-Made Filaments.

Man-Made Staple Fibres.

1 7

Wadding, Felt And Nonwovens; Spacial Yarns; Twine, Cordage, Ropes And Cables And Articles Thereof.

8.72

3.95

13.83

8.90

10.74

11.80

0.10725

0.04353

0.13456

0.07079

0.08328

0.07515

1 8

Knitted Or Crocheted Fabrics.

6.63

6.24

7.98

4.46

3.71

2.74

0.08155

0.06876

0.07764

0.03547

0.02877

0.01745

1 9

Articles Of Apparel And Clothing Accessories, Knitted Or Corcheted.

1.20

0.96

0.60

0.65

0.13

0.06

0.01476

0.01058

0.00584

0.00517

0.00101

0.00038

2 0

2 1

2 2

Articles Of Apparel And Clothing Accessories, Not Knitted Or Crocheted. Other Made Up Textile Articles; Sets; Worn Clothing And Worn Textile Articles; Rags Footwear, Gaiters And The Like; Parts Of Such Articles. Nepal Exports (India's Imports From Nepal) (US$ million) Nepal GDP (US$ million)

7.54

8.02

9.51

6.73

4.16

5.43

0.09274

0.08838

0.09253

0.05353

0.03226

0.03458

1.26

1.67

15.58

16.27

18.18

22.30

0.01550

0.01840

0.15159

0.12941

0.14097

0.14203

2.75

2.88

5.21

4.49

7.27

4.87

0.03382

0.03174

0.05069

0.03571

0.05637

0.03102

379.85

306.0 2

628.5 6

496.0 4

452.6 1

397.92

4.67205

3.37219

6.11581

3.94540

3.50948

2.53435

8130.2 6

9074. 83

1027 7.62

1257 2.61

1289 6.79

15701. 06

100

Source: The Export Import Data Bank, Department of Commerce, Ministry of Commerce and Industry, Government of India. Retrieved from http://commerce.nic.in/eidb/Default.asp on 12 October 2011. And The World Bank development indicators. Retrieved from http://data.worldbank.org/indicator on 13 October 2011.

ISAS Working Paper No. 148 – 29 March 2012 469A Bukit Timah Road #07-01 Tower Block National University of Singapore Singapore 259770 Tel: 6516 4239 / 6516 6179 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Economic Reforms in India: Perpetuating Policy Paralysis Amitendu Palit 1 Abstract This paper examines the current state of economic reforms in India and the phenomenon of policy paralysis leading to almost complete lack of progress on reforms. It studies the qualitative aspects of reforms in India over the last couple of decades and explains how these have changed over time. It discusses the role of coalition governments, an increasingly regressive political economy and lack of strong political leadership in fostering the policy paralysis and expects the latter to prevail in the foreseeable future.

Two decades have passed since India announced its New Industrial Policy on 24 July 1991. The policy marked India’s intention to break free from an inward-looking economic strategy focusing on import substitution and an overarching presence of the state sector in production to encouraging greater private initiative, market-oriented economic principles and closer integration with the world economy. More policies announcing radical changes in economic rules and functions followed. As a result, the structure of the Indian economy has changed considerably during the last 20 years. The most visible outcome of the policy changes, or economic reforms, has been a decisive upward shift in the trajectory of India’s economic growth. With a trend rate of 8.5 per cent annual GDP growth recorded during a major part of the last decade, India has been recognised as one of the fastest-growing emerging market economies. The rapid growth made possible by reforms has also resulted in India becoming one of the 10 largest economies in the world 2. 1

Dr Amitendu Palit is Head (Partnerships & Programmes) and Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS) at the National University of Singapore. He can be reached at isasap@nus.edu.sg and amitendu@gmail.com. The views expressed in the paper are those of the author’s and do not necessarily reflect those of the institute. India was ranked the 9th largest economy in the world for the year 2010 measured in nominal GDP. India’s nominal GDP was estimated at US$1.6 trillion for the year. See World Economic Outlook (WEO) Database

Notwithstanding the impressive growth, of late, concerns are mounting over several pending reforms. During the last couple of years, many legislations aiming to introduce fundamental changes in different economic policies have got stuck in the Parliament. It appears that an intriguing ‘policy paralysis’ has afflicted the Indian economy. The affliction is manifesting in the inability of the government to clear major economic bills. The malaise has spread deep within the executive and legislatures making the future of economic reforms in India appear distinctly bleak. At the last annual India Economic Summit organised by the World Economic Forum (WEF) in Delhi in November 2011, businesses expressed their frustration over the almost complete lack of movement on economic policies 3. Two main reasons were attributed to the lack of progress on reforms. The first was the government’s preoccupation in warding off various allegations of corruption against its functionaries such as in the allocation of 2G spectrum for telecom service providers and the misappropriation of public resources during the 19th Commonwealth Games held in Delhi in October 2010. Social activist Anna Hazare’s success in mobilising large public support last year for an anti-corruption crusade also pushed the government further on the back foot. While these were visibly enough to put economic reforms on the backburner by engaging the government’s attention elsewhere, political differences, within the ruling coalition as well as between the ruling coalition and the opposition have ensured that bills proposing major economic changes have got stuck in the Parliament. Even the Finance Minister has pointed to differences in political opinion in the Parliament as the main hurdle in implementing policy reforms 4. This paper examines the current state of reforms in India for obtaining clearer insights on the lack of progress on economic reforms and the phenomenon of policy paralysis. It studies the qualitative aspects of reforms introduced in India over the last couple of decades and explains how these have changed over time. It deliberates on whether coalition governments are the main reason behind the policy paralysis and tries to determine the future prospects of economic reforms in India. Economic Reforms in India: Past and Present India’s economic policy reforms, till now, can be grouped into four periods according to their distinct characteristics. These are: 1) 1991-1994 2) 1995-2000 3) 2001-2003 and 4) 20042011.

September 2011, International Monetary Fund (IMF). http://www.imf.org/external/pubs/ft/weo/2011. Accessed on 9 March 2012. ‘End Policy Paralysis: India Inc’, The Times of India, 14 November 2011; http://timesofindia.indiatimes.com/business/india-business/End-policy-paralysis-India-Inc. Accessed on 7 March 2012. ‘Policy Paralysis in South Asia; Indian growth to slow: World Bank’, DNA, 18 January, 2012; http://www.dnaindia.com/money/report_policy-paralysis-in-south-asia-indian-growth-to-slow-worldbank_1639240. Accessed on 9 March 2012.

1) 1991-1994: The first ‘burst’ of economic reforms in India saw sweeping changes in industrial, external sector and financial market policies. There were also moves to introduce fiscal consolidation in central government finances by cutting subsidies, selling equities of public sector enterprises and introducing voluntary retirement schemes for retrenching labour. The economy acquired a marked outward-oriented look with foreign investment policies becoming more liberal, tariffs being slashed on imports, the exchange rate becoming more market-determined and the Indian Rupee becoming fully convertible in current account transactions. The external sector crisis of 1991 provided a strong ground for initiating several radical measures. It is noticeable that most of the reforms initiated involved changes in economic policies in areas exclusively within the domain of the Central government. There were hardly any reforms in areas that are ‘state’ subjects as mandated by the Indian constitution or ‘concurrent’ subjects that are joint responsibilities of the Centre and states. The early reforms did not extend to land, labour, education, health or even management of infrastructure, which involve a bigger role of states. 2) 1995-2000: Reforms ran out of steam after the first three years from their introduction with several factors contributing to the halt. The initial euphoria following relaxation of controls on production, trade and financial transactions resulted in sharp buoyancy in the stock market. Soon after, outbreak of manipulative practices led to heavy decline in market capitalisation and large losses of investor wealth highlighting the lack of effective regulation 5. From 1996 onward, the Indian economy moved into a moderate growth phase as investments suffered from excess capacity created earlier and high interest rates. Matters were complicated by a series of exogenous shocks including the catastrophic cyclone in Odisha (1997), imposition of sanctions following India’s nuclear weapon tests at Pokhran (1998), the Kargil conflict (1999) and the Gujarat earthquake (2000). The sluggish pace of reforms during this period can be attributed to these shocks as well as frequent changes in government produced by short-lived regimes 6. Nonetheless, there were still some attempts at introducing major economic changes. Notable among these were direct and indirect tax restructuring and fiscal consolidation measures announced in the ‘Dream Budget’ for 1997-98 and the repeal of the Urban Land Ceiling & Regulation Act (ULCRA), 5

The infamous stock market scandal triggered by ‘big bull’ Harshad Mehta broke out in late 1992 and dampened the markets heavily from late 1993/early 1994 onward. The 1996 Parliament elections produced a fractured mandate which saw the Bharatiya Janata Party (BJP) led by Atal Bihari Vajpayee coming to office for barely a fortnight in May 1996. The failure of the government to mobilize requisite majority in the Lower House of the Parliament (Lok Sabha) led to entry of the United Front government under H.D. Deve Gowda. This government lasted for only 10 months and was replaced by another edition of the United Front coalition headed by I.K.Gujral in April 1997. This government too could not last for a year forcing fresh elections in early 1998. The elections led to the BJP-led National Democratic Alliance (NDA) assuming power with Vajpayee as the Prime Minister. The NDA lost majority after the withdrawal of support by one of the coalition members forcing elections in September 1999. The latter returned the NDA to power and the coalition continued in office till May 2004.

introduction of a new Competition Law, establishing an Expenditure Reforms Commission (ERC) and bringing down government equity in non-strategic public enterprises to 26 per cent, which were announced in the Union Budgets of 1998-99, 1999-2000 and 2000-01 respectively 7. Another notable development was the establishment of the Telecom Regulatory Authority of India (TRAI) in 1997. 3) 2001-2003: Exactly a decade after the first burst of reforms, followed the second. This period was characterised by introduction of several policies that could be called the ‘second generation’ of economic reforms in India. Reforms during this period addressed many policies in areas involving coordination between the Centre and states. Two of the most notable reforms were the introduction of the state value added tax (VAT) and enactment of the Fiscal Responsibility and Budget Management (FRBM) legislations, both for the Centre and individual states. At the same time, efforts were made to introduce important regulatory changes in critical infrastructure services like electricity and telecommunications. The period witnessed the beginning of privatisation of electricity distribution services in states through establishment of state electricity regulatory commissions (SERC) authorised to set electricity tariffs. These reforms were consistent with a similar regulatory structure for telecom established through the TRAI. Fiscal consolidation was given a further boost through introduction of pension reforms. At the same time, economic growth was actively encouraged by sweeping liberalisation of the foreign direct investment (FDI) regime. Several public sector enterprises were taken up for strategic sales, which not only implied dilution of government equity, but also surrender of state ownership. 4) 2004-2011: The latest and on-going phase of economic reforms in India has gradually seen the process running into considerable difficulties and long delays in implementation. The current period has tended to impart a qualitatively different approach to reforms by focusing on inclusive growth and a rights-based approach. Recognising that reforms need to address priorities of all sections of the society for making India’s growth broad-based and economic changes politically acceptable 8, the emphasis has been on empowering rights holders by enacting appropriate legislations and ensuring that institutions providing public goods fulfil rights of individuals. This has led to enactment of landmark legislations such as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), the Right to Information (RTI) Act 7

The Union Budget for 1997-98 was presented by Mr P Chidambaram, the then Finance Minister in the United Front government. It was hailed as a ‘dream budget’ for outlining a road map for future economic reforms and the progressive fiscal restructuring measures. The budgets for 1998-99, 1999-00 and 2000-01 were presented by Mr Yashwant Sinha, the then Finance Minister in the NDA government. The NDA’s poor show in the 2004 general elections was explained by many as a result of its overt emphasis on ‘India Shining’ – a media campaign projecting India as a robust and vibrant economy due to reforms. It was felt that only selected communities had benefitted from reforms and the campaign aroused the angst of those who had not and whose ire translated into votes against the NDA. The incumbent United Progressive Alliance (UPA) government, right from the beginning of its tenure, focused on reforms with a ‘human face’ for selling reforms in as politically palatable a manner as possible.

and the Forest Rights Act. Other economic legislations inspired by the rights-based approach like the Food Subsidy Bill, the Land Acquisition, Resettlement and Rehabilitation (LARR) Bill, the Right of Children to Free and Compulsory Education Bill, and the National Identification Authority of India Bill, have been introduced in the Parliament. Most of these legislations are facing delays in passage. There are also other legislations proposing major economic changes such as the Insurance Laws Bill, The Companies Bill, The Foreign Educational Institutions Bill, The Direct Taxes Code Bill, The Mines and Minerals (Development and Regulation) Bill, The Prevention of Money Laundering Bill, The Pension Fund Regulatory and Development Authority Bill and The Banking Laws Bill. These bills are also stuck in the Parliament. While it is expected that legislations emphasising squarely on the rights-based approach such as the food security and land acquisition bills will be debated more extensively by the legislature and thereby face delays, it is not clear why less controversial and more techno-economic legislations like insurance, direct taxes and prevention of money laundering bills are getting stuck. A close look at the nature of economic reforms introduced during the early and later parts of the last two decades shows that those undertaken in the early 1990s focused more on policies in final product markets as opposed to policies governing factors of production. Industrial policy reforms reduced the scope of industrial licenses, freed industries reserved exclusively for the public sector, slashed the list of manufactures reserved for small scale producers, reduced tariffs on imports and allowed entry of foreign capital in domestic production. These were all aimed at augmenting capacities in production of final goods. Scant reforms were directed at factor markets like land and labour. Indeed, capital market was the only factor market to benefit from Indiaâ&#x20AC;&#x2122;s early reforms. This was because it was expected to help Indiaâ&#x20AC;&#x2122;s new entrepreneurs in mobilizing resources. It was also expected to serve as a conduit for channelizing idle physical savings of households into financial savings, which could be utilized for investment purposes. It must be noted though that the more far-reaching reforms in capital markets, particularly for institutionalizing effective regulations, occurred in the late 1990s. Though the Securities and Exchange Board of India (SEBI) was set up in 1992, it obtained statutory powers and became the regulator of capital markets only in 1998. An implication of targeting reforms towards product markets was that the emphasis was on changing policies pertaining mostly to economic subjects within the administrative domain of the Centre rather than states. Part XI of the Indian Constitution divides subjects between the Centre and States in terms of their exclusive responsibilities to legislate. The Union List has 96 subjects on which the Parliament can exclusively legislate, while the State List has 61 items. There is also a Concurrent list of 47 items where the Centre and states can legislate jointly9. Subjects like external trade and commerce, stock exchanges and futures markets,

Article 246 in the Seventh Schedule of the Indian Constitution illustrates the Union List, State List and the Concurrent List. See The Constitution of India (as modified up to the 1st December 2007), Government of

industries, customs duties, excise duties, corporation tax, and capital gains tax, which witnessed maximum reforms during the early years, are all in the Union list. Indeed, reforms were conspicuous by their absence in agriculture, land and mines, which are in the State list, and are also distinct in terms of relatively slow progress in education, electricity and industrial and commercial disputes, which belong to the Concurrent list. It must be noted that on subjects like agriculture, the Centre can only try to persuade, or at best engineer a consensus among states for taking appropriate policies. It cannot step in to design policies on behalf of the states. With critical factor markets such as labour and land figuring on the state list, there is little surprise in these having remained outside the scope of reforms in the early years. Clearly, consensus among India’s Centre and states on reforms has not always been forthcoming, except in certain segments of government finance, as witnessed through the introduction of the VAT and state FRBMs. Going by the two sub-phases most intensive in reforms, it is noticeable that both periods – 1991-1994 and 2001-2003 – were marked by relatively low economic growth and deceleration in economic activity. The year 1991-92 recorded GDP growth of only 1.4 per cent, which was not only an almost 10 percentage point drop from a high of 10.2 per cent in 1988-89, but was also the lowest GDP growth recorded since 1979-80. The low growth was due to the precarious circumstances in the economy, particularly the severe balance of payments (BOP) difficulties, which at a stage had brought down India’s foreign exchange reserves to a level where it could afford barely a fortnight’s imports. On the other hand, during early years of the last decade, there were two years – 2000-01 and 2002-03 – when GDP growth was as low as 4.4 per cent and 3.8 per cent respectively. Episodes of low economic growth or depressed economic activity could well be conducive to not only launching of economic reforms, but also hastening their pace. Indeed, in the Indian context, bad economic times could be good excuses for moving ahead on reforms without worrying much about their political fallout. Policy Paralysis: Are Coalition Governments the Main Reason? On 29 February 2012, the Central Statistical Organisation (CSO) announced the latest GDP growth rate for the Indian economy. Estimated at 6.1 per cent for the October – December quarter of the financial year 2011-12, the third quarter GDP growth shows a marked decline from 7.7 per cent in first quarter (April-June) and 6.9 per cent in the second quarter (JulyAugust) 10. The number has raised concerns over whether the Indian economy is entering a period of moderate growth and economic activity. The latest GDP growth is more than a two percentage point drop from a robust 8.3 per cent recorded in the third quarter of 2010-11. The rather disappointing growth rate has reignited discussions on why the Indian economy is

India, Ministry of Law and Justice; page no. 315-329; http://lawmin.nic.in/coi/SEVENTH-SCHEDULE.pdf. Accessed on 8 March 2012. ‘Estimates of Gross Domestic Product for the Third Quarter (October-December) of 2011-12’ Press Note, Press Information Bureau (PIB), Government of India; 29 February 2012; http://mospi.nic.in/Mospi_New/upload/nad_pr_29feb11.pdf. Accessed on 6 March 2012.

gradually moving into low gear. In this regard, the inertia on economic policies being referred to as policy paralysis, is being held chiefly responsible. Worries over policy paralysis have crossed India to figure in global discourses on the prospects of the Indian economy. Discussing South Asia’s economic performance in its latest analysis of global economic prospects 11, the World Bank attributes delays and uncertainty surrounding implementation of economic reforms as one of the key factors behind the decline in investment in India. In the same analysis, the World Bank projects a slowdown in South Asia’s GDP growth for the year 2012 due to deceleration in investment produced by domestic policy paralysis and uncertainty about regulatory reforms, inter alia. South Asia’s economic prospects are fundamentally determined by those of India’s and there is little doubt over the reference being directed at India. As mentioned earlier, the Finance Minister has indicated that divergence in political opinions in the Parliament is holding up progress on reforms by preventing passage of economic bills. This situation would probably not have arisen had the Congress – the single largest party in the ruling coalition - had majorities in both houses, which would have enabled it to pass bills easily. The fact that the Congress is repeatedly encountering opposition in passing bills has led to the belief that reforms are difficult to implement by coalition governments. Costs of running coalition governments can certainly be high for the single largest party in the alliance. Both the Congress and the BJP have experienced this on several occasions. One of the biggest costs is satisfying the demand of smaller partners extracted in return for their support. Indeed, this has been identified as one of the biggest challenges facing political governance in modern India 12. The dependence of the leading party in the coalition on smaller partners and this knowledge on part of the latter encourages them to pressurise the former in two ways. The first is in demanding key portfolios in the cabinet. Smaller parties try to make the most of the opportunity of being a part of the central government by maximising the political capital that can be derived from managing key ministries such as railways and telecommunications. In India, ministries like the railways and telecommunications have been held by the smaller members in the ruling coalition for several years now 13. The railways –the largest departmental undertaking of the Indian state – have been used by the smaller parties for extending various services (e.g. new rail links, more 11

Global Economic Prospects January 2012, South Asia Annex; http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1322593305595/82871391326374900917/GEP12a_SAR_Regional_Annex.pdf. Accessed on 7 March 2012. Instability and policy incoherence produced by multi-party governments is cited as a major reason behind India’s likely failure to become a superpower. See ‘Will India Become a Superpower?’, Ramchandra Guha, London School of Economics, UK; http://www2.lse.ac.uk/IDEAS/publications/reports/pdf/SR010/guha.pdf. Accessed on 10 March 2012 Incumbent railways ministers such as Rambilas Paswan, Nitish Kumar, Lalu Prasad Yadav, Mamata Banerjee, Dinesh Trivedi and Mukul Roy belong to small/regional parties like the Janata Dal (JD), Rashtriya Janata Dal (RJD) and the Trinamool Congress (TMC). The Dravida Munnetra Kazhagam (DMK), another critical part of the Congress-led UPA coalition, has held the telecommunications portfolio for a long time.

employment) to their regional constituencies. Operational efficiency and financial situation of the railways has progressively deteriorated over the years as none of the ministers from smaller parties have been keen on introducing corrective measures, which could be unpopular with people, such as revising passenger tariffs 14. Telecommunications, another attractive portfolio for smaller parties, has turned from being India’s most successful example of competition and reforms to one offering ample scope for rent-seeking 15. The second way in which the smaller parties extract the price for preserving the coalition is by blocking legislations, which they suspect could be politically damaging, at least in the short term. Blocking these bills in the Parliament helps them to earn political mileage as they advertise to their local constituencies their sincerity and earnestness in preventing adoption of ‘antipeople’ policies. The Trinamool Congress (TMC)'s resistance to legislations on allowing majority foreign equity in domestic multi-brand retail operation and the pension bill are relevant examples. There is no denying that the economic cost of coalition governments is becoming increasingly high given the wastage of key ministries and delays in implementing economic policies. But before attributing the policy paralysis entirely to coalition governments and divergence in political opinions, it is important to note that coalition governments are inevitable outcomes of the democratic process. Mandates in Indian elections have become increasingly fractured leading to outcomes where the large national parties – the Congress and the BJP – have no alternative to soliciting support of smaller regional partners. For almost two decades now, no national party in India has been returned to the Lok Sabha with a clear majority of 50 per cent of the total seats. As a result, coalitions revolving round the Congress and the BJP have become common structures of Central governments and would probably continue to be so in the foreseeable future. While reforms might be difficult to push through coalitions, they are certainly not impossible either. During the period 2001-2003, several reforms occurred in spite of the ruling NDA regime being a coalition. Similarly, during the first couple of years of the current UPA government’s first tenure, the momentum on economic policies was not lost. It is therefore incorrect to attribute the policy paralysis only to coalition governments. A more realistic explanation of the slow progress of economic reforms probably lies in the fact that several stakeholders in the economy continue to remain unconvinced about the benefits of greater competition and integration with the world economy. These are typically the interest groups and industry lobbies that continue to benefit from absence of reforms. The enormous unorganised retail trade in the country is wary of greater competition and strongly opposed to entry of foreign retailers. So are the large numbers of small informal sector low-

Dinesh Trivedi was ousted by the TMC for proposing moderate hikes in passenger tariffs for the railway budget of 2012-13. The scandal involving the allocation of 2G spectrum for telecom service providers is probably the biggest case of economic corruption in India in the post-reform period.

end manufacturers whose products are procured and marketed by the unorganised retail trade without stringent certification or quality requirements. Both the unorganised retailers as well as the small manufacturers enjoy considerable clout in influencing perceptions of political parties in opposing policies on foreign entry in retail. Similarly, employee federations affiliated to the mainstream political parties are averse to introduction of greater competition in the state-dominated banking and insurance industries. There are still many producer lobbies in India who clamour for protection from imports citing the ‘infant industry’ argument 16. These groups have succeeded in drawing up large negative lists during India’s external trade negotiations with other countries. All these groups and lobbies with interests aligned against market-based reforms find quick support from small parties in coalitions as they are able to plead their cases to these parties in a politically gainful manner. At the same time, the urge on part of opposition parties in the Parliament to secure quick political mileage encourages them to adopt postures on particular policies that are at variance with their earlier postures on these issues when they were in the government. For example, the BJP opposed foreign entry in retail though it had initiated the first moves in this respect in 2003. And finally the ruling parties are not committed to economic policies to the extent that they are unwilling to put additional efforts in forging consensuses on major issues. This is particularly true of the Congress, which in recent months has been so low on political capital due to charges of corruption and inefficiency that it has refrained from achieving cross-party consensus on certain policies, if the initial efforts have been unsuccessful. The success of various lobbies with defensive interests in gaining support from an increasingly myopic spectrum of political parties focused on short-term political gains through populist measures has led to inertia and lack of movement on economic reforms. Ironically, it was the Congress which ushered in economic reforms in India in the 1990s. It is paradoxical that the policy paralysis has set in at a time when the Congress is at the helm of affairs and Dr Manmohan Singh, the architect of India’s reforms, is heading the government. It is becoming increasingly clear that the current leadership of the Congress party is incapable of taking a bullish posture on reforms by biting the political bullet as Mr P V Narasimha Rao had done in the early 1990s. The lack of political courage in pursuing reforms has made the opposition from smaller parties and defensive interest groups appear more herculean than it actually is. Would Reforms Happen? There is little doubt that the Indian economy will continue to grow at 6-7 per cent per year unless affected by serious exogenous shocks. This trend rate of growth, while lower than the trajectory achieved during the earlier decade, will still be higher than that of most major

See ‘India’s Foreign Investment Policy : Achievements and Inadequacies’, A Palit (2009), Asie Visions 18, The Institut Francais des Relations Internationales (IFRI), Paris, for more details on the nature of opposition to entry of foreign investment in India; http://www.ifri.org/files/centre_asie/AV18_Palit_final.pdf. Accessed on 10 March 2012.

economies in the world. This might be taken by policymakers as a ‘comfortable’ growth trajectory, one which need not be upped further till the global economic situation corrects and creates favourable conditions for a step-up in India’s GDP growth. If that is so, then there is little possibility of the policy paralysis ending. The Central government is unlikely to push that ‘extra’ effort behind reforms given that the economy is as it is growing at almost seven per cent despite the delays in clearing legislations 17. Indeed, the current GDP growth rate is not as low as those witnessed in the early 1990s, or the early years of the last decade, for motivating a ‘big push’ on reforms. Furthermore, with the latest assembly election results 18 being particularly favourable for the ruling Congress coalition and the next Parliament elections barely a couple of years away, the Congress is unlikely to antagonise current and potential political partners by making much noise on ‘difficult’ reforms. As it is, the Congress leadership has been exceptionally careful in heeding sentiments of alliance partners, irrespective of the economic costs it involves, as was again evident during the recent saga over removal of the Railway minister on hiking passenger tariffs after almost a decade. For India’s dynamic modern entrepreneur class, continuation of policy paralysis is bad news. So it is for foreign investors influenced by major global investment confidence indices, which assign high ranks to India 19. Foreign investors are clearly at a loss to figure out why a US$1.6 trillion economy capable of growing at eight per cent or more annually, is unable to pass bills in its Parliament. For outsiders, the phenomenon is even more puzzling because the very fact that the government is introducing the legislations indicates that it believes in the changes it is proposing. Yet the changes remain proposed only on paper and fail to become rules and laws. Very rarely does one come across governments which can only propose and not dispose. Business and industry is also becoming increasingly worried over the ‘costs’ that certain proposed legislations imply for them. The compensations suggested in the new land acquisition bill and the mines and minerals bill for displaced communities is high enough to discourage industries from fresh investments. The government’s emphasis on the rights-based approach to development and the effort to ensure that economic laws are drafted accordingly has probably created a situation where regulations have begun becoming disincentives for industry. Without disputing the virtues of the rights-based approach, the government needs to be careful in not scaring away investors. Indeed, many investors would not like the land acquisition and mining bills to be eventually passed in their proposed forms. To that extent, paradoxically, the policy paralysis offers them some momentary respite. 17 18

The latest Union Budget (2012-13) pegs GDP growth at 6.9 per cent for 2011-12. Elections were held in February-March 2012 in Uttar Pradesh, Punjab, Uttarakhand, Goa and Manipur. Congress fared poorly in Uttar Pradesh – India’s largest state – and also lost in Punjab, another key state in Northern India. The A.T. Kearney FDI Confidence Index measuring attractiveness of different locations from the perspective of long term FDI has continued to rank India as the second most attractive location since 2007. The 2012 index ranks India second again, after China, and ahead of Brazil, US, Germany, Australia, Singapore, United Kingdom, Malaysia and Indonesia; http://www.atkearney.com/index.php/Publications/foreign-directinvestment-confidence-index.html. Accessed on 11 March 2012.

The inherent contradiction between the rights-based approach and fiscal consolidation has begun looming large over India’s economic prospects. These are reflected in concerns over fiscal implications of the MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme) and the proposed food subsidy bill. While the MGNREGS has ensured income growth for economically marginal rural households, both the quantity and quality of infrastructure assets created from such cash transfers in rural India are being debated. The programme is also being suspected to have cramped supply of labour for industrial enterprises since opportunity cost of migrating to urban areas for industrial employment is now being perceived as too high by rural households given their assured incomes. The food subsidy bill entails an aggregate outlay of around US$29 billion, which is more than double the budgeted food subsidy for the financial year 2011-12 20. One can hardly help sympathising with the Finance Minister who has to satiate the voracious appetites of these various schemes while still trying to adhere to the FRBM targets by pulling down an alarming fiscal deficit touching six per cent of GDP. Finally, discussions on economic reforms in India often tend to focus on actions by the Central Government and miss out on reforms by individual states. In this respect, though, the situation in recent years has not been particularly promising. Most Indian states, like the Centre, appear to be following ‘hands off’ policies on reforms and are not showing vigour and foresight in implementing reforms. Perhaps, reforms by ‘stealth’ – an influential concept in the political economy literature on India’s reforms that alludes to reforms being implemented skilfully and cautiously (like a stealth bomber) without affecting political sensitivities 21 – has become redundant in an era of pervasive populism shrouding the country’s political economy. Virtues of economic reforms have become distinctly marginal to those of ad-hoc populism so much so that political parties and personalities are uninterested in pushing reforms even stealthily or surreptitiously. Given the circumstances, policy paralysis and stunted progress on economic reforms appears inevitable. [Keywords: Economic reforms, reforms, India, economic policy, policy paralysis, reforms policy] .....

‘India’s Food Subsidy Bill: A Sustainable Option’, Rajiv Kumar and Soumya Kanti Ghosh, East Asia Forum, 7 March 2012; http://www.eastasiaforum.org/2012/03/07/india-s-food-subsidy-bill-a-sustainableoption/. Accessed on 28 March 2012. See ‘Political skills: Introducing Reforms by Stealth’, Chapter 6, Democratic Politics and Economic Reforms in India, Rob Jenkins (1999), Cambridge University Press, for a detailed analysis of reforms by stealth.

ISAS Working Paper No. 149 – 8 June 2012 469A Bukit Timah Road #07-01 Tower Block National University of Singapore Singapore 259770 Tel: 6516 4239 / 6516 6179 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Whatever Happened To ‘Land Reform’? One Big Question and Four Naive Little Answers Robin Jeffrey1

Abstract The paper traces Indian policy towards land use and ownership from pre-independence times till today. It notes that ‘land reform’ – an ill-defined term – began to disappear from political platforms and policy agendas from the 1970s and offers, as a heuristic device, four naive explanations. In dealing with each explanation, the paper exposes its inadequacy and analyzes essential features of land questions in India. The paper concludes that by the first decade of the 21st century ‘land’ for various socio-economic groups had become ‘real estate’ – a platform for people to buy, sell and build on, not a place on which to live and grow food.

Naive Little Answer No. 1: ‘Land Reform’ Succeeded Naive Little Answer No. 2: Demands for ‘Land Reform’ Were Extirpated Naive Little Answer No. 3: ‘Land Reform’ Was Defused Naive Little Answer No. 4: Socio-Economic Forces Made ‘Land Reform’ Obsolete ‘Land Reform Becomes Real Estate: The Developer Ate My Homestead’?

Professor Robin Jeffrey is Visiting Research Professor at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore, and Visiting Research Professor at the Asia Research Institute (ARI). He can be contacted at isasrbj@nus.edu.sg. The views expressed are those of the author and do not necessarily reflect those of the institute.

‘The single biggest reason for the kind of money visible in rural India is the skyrocketing price of land.’ – India Today, 15 February 2010, p. 37.

When I first lived in India in 1967, ‘land reform’ was a topic of conversation as prevalent as the weather or the state of Indian hockey. Today, the weather remains, but ‘land reform’ and Indian hockey have faded away like the Cheshire cat in Alice in Wonderland. If you google ‘land reform in India’ in 2012, you get about 55,000 hits; if you limit the search to the past year, you get about 200. On the other hand, if you google ‘real estate in India’, you get 1,050,000 hits – within the past year alone. This paper originates from my own puzzlement: ‘Whatever happened to land reform?’ At one level, the question is naive, as some friends have told me. ‘Land reform’ stopped being an issue with the beginning of ‘economic liberalisation’ in 1991, some will say. Others argue that it effectively went off the agenda once the CPI (M) government of West Bengal completed Operation Barga in the 1980s. Yet India in 2012 still has a ‘land question’. The 2011 census enumerated 69 per cent of the population as living in rural settings, even though only about 15 per cent of gross domestic product now comes from agriculture. Those numbers in themselves suggest a ‘land problem’: 69 per cent of the population generating, and in a sense depending on, only 15 per cent of the annual production of wealth. If we can formulate a convincing answer to the question of ‘What happened to land reform?’, we may learn something about the political and social dynamics of rural India and the degree to which changes that improve people’s lives are possible and what those changes might be. In 1969, a ‘peasant war’ raged in Vietnam. Eric Wolf published Peasant Wars of the Twentieth Century. E.M.S. Namboodiripad’s second stint as Chief Minister of a Communist government in Kerala came to an abrupt end, but left a significant land-reform bill for its successors to pass and implement. Naxalbari and Naxalite had become part of the national vocabulary since 1967, and scholars wrote books with titles that drew on Mao’s strategy in China in the 1930s: Kerala: Yenan of India.2 Settling and taxing the land in an orderly, efficient and thorough way had been central to British rule. It was, after all, the foundation of the finances that paid for the Indian empire. ‘Land’ therefore was a challenge and an invitation to the early nationalists. ‘The concept of land reforms was a part and parcel of our freedom struggle,’ a key West Bengal land-reform official, D. Bandyopadhyay, wrote in 2008 as he wrestled with the question that I am trying 2

Victor M. Fic, Kerala: Yenan of India. Rise of Communist Power, 1937-69 (Bombay: Nachiketa, 1970).

to address now.3 In the late 1960s, ‘land reform’ burned as hotly as an issue as it had at any time in the previous 100 years. It is fairly simple to divide the unfolding of land policy in India after independence into periods.4 The first might be called ‘the long 1950s’ from independence to the China war in 1962 when so much of the azadi dream seemed to be going wrong. There was a lot of legislation and some notable changes, though none attempting to transfer ‘land to the tiller’. The second period marks a time when the food shortages of the mid-1960s led governments to turn their attention to agricultural production and to make the ‘green revolution’ happen. Simultaneously, peasant insurgency, driven by local conditions and inspired by the Chinese revolution, led to the oft-quoted remark of Y. B. Chavan that there was a danger that the green revolution could become red. The third period represented a response to those conditions and a reflection of Mrs Indira Gandhi’s ‘socialist’ phase. A meeting of Chief Ministers in 1972, in the glow of the successful Bangladesh War, the 1971 election victory and Naxalite insurgencies, generated a wave of legislation addressing inequity in the countryside. The attempts to end bonded labour during the ‘emergency’ were part of such measures, though they were rarely implemented with persistence. The fourth period begins in the early 1980s with Mrs Gandhi’s return to power, the rise of a post-freedom struggle middle class, embodied in Rajiv Gandhi, and a growing belief within that class that the ‘socialist experiment’ (or ‘Nehruvian experiment’) had failed. Tentative steps towards deregulating the economy began in the 1980s and accelerated with the financial crisis of 1991 and the new government of P. V. Narasimha Rao (1921-2004). ‘Productivity’, ‘urbanisation’ and ‘land acquisition policy’ supplanted ‘land to the tiller’ as discussion topics in policy-making conclaves. Periodisation helps to organise facts and locate milestones, but seems to me less useful for getting to the root of my puzzlement: ‘What happened to land reform?’ How did its slippery meaning change? What did people at particular moments mean by ‘land reform’? And why did those meanings – and the actions of politicians, policy-makers and cultivators – change? To organise thoughts around a vast topic that has affected all of India across generations, I have tried to reply to the Big Question – ‘What happened to land reform?’ – with Four Naive Little Answers. None of them, of course, is ‘right’, but working through them may provide a

D. Bandyopadhyay, ‘Does Land Still Matter?’, Economic and Political Weekly [hereafter EPW], vol. 43, no. 10 ( 8 March 2008), p. 37. In a recent important essay, R. Vijay suggests three periods that capture the post-independence experience of rural India: land reform, green revolution and industrialisation-urbanisation . R. Vijay, ‘Structural Retrogression and Rise of “New Landlords” in Indian Agriculture: an Empirical Exercise,’ EPW, 4 February 2012, p. 37.

pinata to break open, help to tell a story and begin to isolate key events, policies and social changes.5

Naive Little Answer No. 1: Land Reform Succeeded This response is akin to one of the nostrums for wars in Vietnam, Iraq and Afghanistan: ‘Declare Victory and go home’ regardless of what conditions might look like on the ground. Indian state governments from the 1960s produced materials and legislation, that suggested ‘land reform’ was succeeding – had succeeded – in their jurisdictions. What was the record of ‘land reform’ after 1947? In north India, Uttar Pradesh (UP) and Bihar provided a striking contrast to Punjab. UP was a particularly noteworthy example since it produced not only a significant change in agrarian relations but also a body of literature analysing and sometimes celebrating ‘success’.6 Big landlords – zamindars – characterised land holding in much of UP and Bihar under the British,7 and some of the legendary struggles of the Gandhian Congress had occurred there. If we accept the conventional wisdom, the Congress mobilised substantial tenants, who had benefited from expanding cash crops and a monetised economy, against the British and their landlord allies.8 G. B. Pant (1887-1961) and Rafi Ahmed Kidwai (1894-1954), two of the most influential leaders of the post-independence Congress Party, were named as authors of Agrarian Distress in the United Provinces, a report commissioned by the UP Provincial Congress Committee in 1931.9 The report slammed British governments for accentuating rural distress and criticised zamindars for incidents where they had behaved badly, but it stopped short of discussion, much less advocacy, of land reform or redistribution.10 The Mass Contacts Committee of the Congress generated the Agrarian Enquiry Committee Report, published in 1936. Again, it had to tread carefully to maintain a broad social coalition 5

P. C. Joshi, Land Reforms in India (Bombay: Allied, 1975), p. 87, suggests another way to think about ‘changes in agrarian structure’: those that happen in response to ‘socio-economic forces’ and those that happen through the intervention of governments. Charan Singh, Land Reforms in UP and the Kulaks (New Delhi: Vikas, 1986). Paul Brass, An Indian Political Life: Charan Singh and Congress Politics, 1937-61(New Delhi: Sage, 2011). Peter Reeves, Landlords and Governments in Uttar Pradesh: a study of their relations until zamindari abolition (New Delhi: Oxford University Press, 1991). Stephen Henningham, Peasant Movements in Colonial India : North Bihar 1917-1942 (Canberra: Australian National University, 1982). Peter Reeves, Landlords and governments in Uttar Pradesh: a study of their relations until zamindari abolition New Delhi: Oxford University Press, 1991). Gyanendra Pandey, The ascendancy of the Congress in Uttar Pradesh, 1926-34 : a study in imperfect mobilization (New Delhi: Oxford University Press, 1978). Agrarian Distress in the United Provinces, Being the Report of the Committee appointed by the Council of the U.P. Provincial Congress Committee to enquire into the Agrarian Situation in the Province (New Delhi: Prabhu Publications, 1982; First published 1931). I am indebted to Maxine Loynd of the Australian National University for help with the discussion of UP. Ibid., p. 61.

opposed to the British government and capable of neutralising possible Indian adversaries.11 Rajendra Prasad (1884-1963), member of the Mass Contacts Committee and later President of India, explained the requirements: ‘The Congress is not a class organisation...the ideal of national independence is spacious enough for all...’12 After 1947, Congress governments had the delicate task of balancing the expectations of substantial tenants against the existing power and connections of the old landlord classes. The outcome in UP brought more fundamental change than in Bihar. The ‘land reforms’ in UP, for which Charan Singh (1902-87) took credit, broke up many of the old estates. Some of the landlord families lacked the skills and connections in law and administration to match the new rulers.13 In UP, wealthy tenants became substantial landowners; but the actual tillers of the soil – landless labourers – found no change to their position. That position may have worsened in that the people they worked for were more secure now than ever before and more confident in their position than they had ever been; there was no possibility of appealing over them to the noblesse oblige of an old aristocracy. The Uttar Pradesh Zamindari Abolition Act of 1952 and the Imposition of Ceiling on Land Holdings Act of 1960 pruned the old landlord class, though many families were able to preserve wealth and land through various stratagems. But large numbers of substantial tenantfarmer families became outright owners and employers of landless agricultural workers. In Land Reforms in UP and the Kulaks, Charan Singh presented himself as a key driver of the legislation enacted by the governments of Sampurnanand (1891-1969) (but always, one suspects, with G. B. Pant looking down from the Home Ministry in New Delhi).14 ‘Landlords,’ Charan Singh wrote, ‘performed no economic functions...and rendered no service in return for the rent they received and were...parasites...and thus contributed to lowering of the national character.’ In the sense that such landlords were dispossessed to the satisfaction of Charan Singh – a lawyer from a Jat peasant family – and his followers, ‘land reform’ in Uttar Pradesh could be declared accomplished. However, if land reform meant a wider distribution of holdings, little had happened. National Sample Survey data showed the bottom 40 per cent of rural households in UP holding 2.5 per cent of land in 1954 and 2.9 per cent in 1982.15

12 13 14

D. A. Low, ‘Congress and Mass Contacts 1936-1937’, in Low, Rearguard Action: Selected Essays on Late Colonial History (Cambridge: Cambridge University Press, 1996), p. 141. Quoted in ibid., p. 150. Brass on Charan Singh. Charan Singh, Land Reforms in UP and the Kulaks (New Delhi: Vikas, 1986), p. v. I am grateful to Maxine Loynd for this and other UP references. H. R. Sharma, ‘Distribution of Landholdings in Rural India, 1953-54 to 1981-82: Implications for Land Reforms,’ Economic and Political Weekly, 24 September 1994, Table 3, p. A-120.

In Bihar, similar public enthusiasm for land reform in the 1950s produced legislation that gave an appearance of commitment to agrarian change. The Bihar Land Reforms (Fixation of Ceiling Areas of Acquisition of Surplus Land) Act of 1961 was typical of the period, but its long parentheses suggested the legal tangles and political obstacles that stood in the way of wide and deep changes in land ownership. When the Communist Party of India held its 21st Congress in Patna in March 2012, it concluded that Bihar governments had ‘scrapped the previous land reform legislations’ and that ‘landlords are committing atrocities on the rural poor’.16 A Land Reforms Commission, which reported in 2008, found 75 per cent of the rural population was landless or ‘near landless’.17 The states of Punjab and Haryana presented a contrast and perhaps the closest thing to comprehensive land reform that post-1947 India experienced. Indian Punjab had a land reform imposed on it by the partition. The incoming refugees from Pakistan had left 6.7 million acres in West Punjab. The Muslim refugees driven from East Punjab abandoned only 4.7 million acres. How to resettle so many people on substantially less land? A carefully calibrated solution imposed a class-based level. Great landlords of West Punjab might have had their holdings reduced by 95 per cent, but they were allowed to remain larger than anyone else; someone with four hectares in the West got three in the East; someone with 60 hectares in the old place might have got six hectares in the new. At the same time, the post-partition upheaval allowed plots to be consolidated; land was precious and thereby conserved; such consolidation laid the foundations for increased productivity. The Punjab ‘land reform’ was unintended, but it was as profound and as acceptable as any in India.18 And of course it did not mean ‘land to the tiller’ nor did it give land to the previously landless. Definition, of course, is crucial. If ‘land reform’ means adjustment in patterns of ownership, India of the 1950s nibbled round the edges. Enough legislation, bearing the right sorts of titles, was passed in most of the states to give an impression that change was in the wind. However, as the UP and Bihar examples suggest, the large majority of rural people living on the land did not acquire land or rights to land. Whatever happened to land reform was not that it succeeded and everyone, having got a prize, went home happy.

http://cpixxicongress.blogspot.com/#!/2012/03/resolution-on-land-reform-in-bihar.html (downloaded 6 April 2012). Mainstream, 1 August 2009, http://www.mainstreamweekly.net/article1547.html (downloaded 6 April 2012). The account published by Mainstream was extracted from ‘ML Update, a CPI-ML (Liberation) weekly news magazine.’ M. S. Randhawa, Out of the Ashes (Chandigarh: Public Relations Department, Punjab, 1954), p. 97.

Naive Little Answer No. 2: Demands for Land Reform Were Extirpated Could demands for land reform have simply been crushed by the forces of the state, their advocates jailed or killed and their supporters cowed into submission? Independent India in its early years dealt sternly with two insurgencies founded on peasant grievance and resistance – the tebhaga movement in West Bengal and the Telengana movement in the old princely state of Hyderabad. The tebhaga movement grew out of sharecropper demands for two-thirds of the harvest from the land they cultivated. ‘The movement failed,’ wrote D. Bandyopadhyay, a Land Reforms Commissioner of West Bengal (and in 2012 a Trinamool member of the Rajya Sabha), ‘after tremendous sacrifices by sharecroppers and their allies, the landless labourers and petty artisans.’19 When the Naxalbari movement erupted in West Bengal in 1967, based in part on poor-peasant outrage at the inequity of land relationships, the Indian state crushed it in five years. A similar timeline might be discerned in Telengana and Andhra Pradesh. The Communist Party of India (CPI) found a safe haven in Telengana during and after the Second World War and leading up to independence. The government of the Nizam of Hyderabad, never particularly rigorous or effective, was losing both legitimacy and control, and the British, themselves about to decamp from India, were in no position to interfere in the domain of their longtime friend and ally, His Exalted Highness, the Nizam. By 1947, when the Nizam attempted to declare himself a sovereign ruler, areas of Telengana were being run as ‘soviets’ or ‘liberated areas’ where the CPI called the shots and rough-and-ready local land reforms were undertaken. The Indian army was sent to Hyderabad in September 1948, within days of the death of Muhammad Ali Jinnah (1876-1948) in Pakistan. As well as overthrowing the Nizam, the army suppressed the Telengana revolt over the next two years. In 1951, the CPI dropped its ideological support for peasant insurgency when it abandoned the so-called Ranadive Line, which had called for Communist revolt because India was ripe for revolution. As in West Bengal, agrarian discontent remained. A ‘Naxalite movement’ bobbed up in districts like Srikakulam in the late 1960s, and, as in West Bengal, police and para-military units suppressed these attempts to effect agrarian change through violence. Naxalite or ‘Maoist’ supporters retreated to the dry, underdeveloped Telengana districts and built bases that troubled landowners and distracted state governments until largely suppressed in the first years of the 21st century. Leaving Telengana, Maoist ideologues found refuge and followings, not in the agricultural plains of India, but in the hills and forests of the east among tribal people under pressure from mining, logging and dam-building.

D. Bandyopadhyay, ‘Tebhaga Movement in Bengal: a Retrospect,’ Economic and Political Weekly, 13 October 2001, p. 3901.

Peasant-based insurgencies, led by people deriving inspiration from Marx, Lenin and Mao, never vanished. They emerged in eastern India – Bihar, West Bengal, Madhya Pradesh, Orissa, Andhra Pradesh, Jharkhand and Chhattisgarh – through the 1980s and gathered support, under growing pressure from the extractive industries of a liberalised economy, in the 21st century. By 2006, the insurgency led by the Communist Party of India (Maoist) was often identified as the most serious threat faced by the Indian state. Control, ownership and use of land were at the heart of the insurgency. State governments replied in some cases with brutal and clumsy suppression, but rarely with effective measures to change patterns of rural power. The central government attempted to put into operation legislation like the Panchayats (Extension to the Scheduled Areas) Act (PESA) of 1996. PESA was a well-intentioned attempt of the Union government to give local governments at the level of villages, rights to decide on land use and development. The act depended, however, on state governments for its implementation, and state governments were often cool to the point of refrigeration. The Indian state and its components lurched between amelioration and suppression, and the Communist Party of India (Maoist) continued to lead a bloody resistance, ambushing armed police (more than 70 killed in a single trap in April 2010) and having their own leaders killed by the police or vigilantes (Azad in July 2010; Kishenji in 2011).20 The grassroots support of the ‘Maoist insurgency’ was based on grievance and fear about the control and use of land. Ideas about ‘land reform’ had not therefore been exterminated – driven underground and made unmentionable like religion in Soviet Russia. Ideas about what land reform would look like were canvassed in legislatures, proposed by inquiry commissions, published in newspapers and discussed by insurgents in jungle camps. Issues of ‘land reform’ flowed like hot lava just beneath the surface in many of India’s states. They erupted occasionally like little volcanoes, and revolutionaries inspired by Mao pondered about how to produce a Krakatoa.

Naive Little Answer No. 3: Land Reform Was Defused and Dismantled Could Congress governments, which had often confronted the British over questions of agrarian justice, totally abandon a cause that had been part of their rhetoric for more than 30 years? The Congress could not. But as the UP and Bihar examples showed, what constituted ‘land reform’ for the Congress after 1947 was a far cry from the slogan of ‘land to the tiller’. The sorts of ‘land reform’ carried out in UP and Bihar installed a broad base of wealthier peasants across a swathe of north India, and in the 1950s, they were expected to support, and

See the introduction to More than Maoism, eds. Robin Jeffrey, Ronojoy Sen and Pratima Singh (New Delhi: Manohar for the Institute of South Asian Studies, Singapore, 2012).

be part of, the Congress Party. If you were such a peasant, you might have endorsed Naive Little Answer No. 1: Land reform had succeeded. However, it was in Kerala, and perhaps West Bengal, that land reform as an issue may be seen to have been ‘defused’ in a particularly obvious and distinctive way. Communist parties did it, and in some ways, blunted the class-consciousness that had been their strength from the 1940s. The most ambitious attempt at comprehensive land reform in the 1950s was Kerala’s abortive Agrarian Relations Bill of 1957, which (along with challenges to Christian and caste-Hindu educational institutions) led to the dismissal of the Communist government and the declaration of President’s Rule in 1959. The agrarian legislation would have turned tenants, particularly in northern Kerala (the old Malabar District of the British-ruled Madras Presidency) into owners of the land they tenanted and all agricultural labourers into owners of the land on which their huts stood. After the dismissal of the Kerala government, the Congress-led coalition elected in 1960 followed an all-India pattern by enacting a weakened version of the Communist bill and then doing little to implement it. Landed supporters of the Congress smiled in 1963 when the Kerala High Court declared the Act unconstitutional.21 The legislative and legal contests of 1957-63 gave landowners warning of what might be coming. ‘Hectic sales and transfers occurred,’22 and by the time a Communist-led coalition government came to power in Kerala in 1967, many landholders had taken precautions to protect their assets and positions. Nevertheless, in the next two years, the CPI (M)-led coalition and then its successor, led by the CPI and the resourceful Chief Minister, C. Achutha Menon (1913-91), carried through the Kerala Land Reforms (Amendment) Act of 1969, which gave large numbers of people ownership of land. Tenants were transformed into landowners, but more importantly, landless labourers were given ownership of one-tenth of an acre of land on which their huts stood. This device – bestowing ownership rights on a tiny occupied house and small plot around it – became a favoured nostrum of other state governments thereafter. The West Bengal reforms that began in 1978 adopted it, and the Land Reform Commission in Bihar, which reported in 2008, recommended it. In West Bengal, the Communist Party of India (Marxist) government elected in 1977, pursued Operation Barga to record share-croppers and to ensure that they received fair treatment. The programme followed the Kerala model and granted ownership of huts and 0.8 of an acre around a hut to agricultural labourers, who previously had been landless and without any entitlement. Left-wing critics asked why a Communist government should try to 21 22

Robin Jeffrey, Politics, Women and Well-Being [hereafter PWWB] (London: Macmillan, 1992), pp. 173-4. Land Reforms Survey in Kerala, 1966-67: report (Trivandrum: Bureau of Economics and Statistics, 1968), p. 95

renovate what looked like a ‘feudal’ system of land control. Biplab Dasgupta, an intellectual leader of the CPI (M), replied that grinding poverty did not necessarily produce revolution and that the CPI (M) lived in a world of real politics in which bargadars were ‘a significant proportion of the rural population’.23 In the mid-1980s, Atul Kohli noted that ‘concrete achievements have been made’ and that ‘programmes for sharecroppers are especially noteworthy’.24 A large section of rural people in West Bengal were receiving tangible benefits. Neither Kerala nor West Bengal became places of agrarian equality. In 1977, as a decade of agrarian legislation and dispute subsided in Kerala, 96 per cent of all landholders cultivated less than two hectares; they accounted for only two-thirds of cultivated land. The other onethird of cultivated land was controlled by four per cent of landholders.25 Complete landlessness in Kerala, however, largely disappeared. In West Bengal, bargardars and small landholders appear to have stayed loyal in their support for the Communist Party of India (Marxist) party for more than 30 years until the state elections of 2011. The political influence of rural landowners, even though they were far from being a majority of the rural population in any state, was too tough in most states to tangle with successfully. Legislation got challenged in the highest courts, which were often sympathetic to owners. Even when legislation was enacted and validated, governments could choose simply to ignore it and not implement it, as Dasgupta argued Congress governments had done in West Bengal in the 1970s. ‘It is not easy to explain the dual character of the (Congress) regime of the period,’ he mused. ‘What motivated them to pass these progressive laws? And why, despite the passing of these laws, was their implementation blocked?’26 It was perhaps, he concluded, to enable Congress to play a double game: to claim to be the friend of the poor while protecting the class interests that were the essence of the party. In short, to defuse demand for agrarian change. One can interpret these ‘land reforms’ as examples of such defusing. In turning tens of thousands of landless households into tiny landowners, Kerala had, in the words of an old peasant leader, turned ‘slaves into owners’. He called his autobiography Atimakal Enngane Utamakal Aayi – How slaves became owners.27 By the 1980s, more than 90 per cent of rural labouring households owned the sites of their dwellings.28 Scholars and politicians debated 23

24 25 26 27 28

Biplab Dasgupta, ‘Sharecropping in West Bengal. From Independence to Operation Barga,’ Economic and Political Weekly, Review of Agriculture, June 1984, p. A-90. Atul Kohli, The State and Politics in India (New York: Cambridge University Press, 1987), p. 143. Jeffrey, PWWB, p. 175. Ibid., p. A-86. V. M. Vishnu Bharatheeyan, Atimakal Enngane Utamakal Aayi (Trivandrum: Prabath Book House, 1980). Report of the Survey on Socio-Economic Conditions of Agricultural and Other Rural Labourers in Kerala, 1983-4 (Trivandrum: Bureau of Economics and Statistics, 1985), p. 13.

whether the acquisition of ownership rights had turned potential supporters of radical political change into very-petty bourgeois whose political loyalties were far less radical and predictable.29 There was another facet to arguments about defusing demands for land reform. It relates to the campaigns of Vinoba Bhave (1895-1982), a follower of Mahatma Gandhi who acquired a following in the 1950s and 1960s by walking the countryside appealing to landowners to surrender land to the landless. Bhave’s claims to be carrying on a Gandhian tradition of appeals to the better instincts of humanity secured perhaps four million acres of not-verygood land and put him on the cover of Time magazine in 1953.30 The Bhave phenomenon can be seen as a diversion which directed energy and attention into efforts that had little effect on patterns of landholding, security of the landless or the productivity of land. But in absorbing the time of officials and the fascination of journalists, Bhave’s campaigns suited those who had no wish to see repetition in other states of the bitter class conflict generated by the Kerala Agrarian Relations Bill of 1957.

Naive Little Answer No. 4: Socio-Economic Forces Made Land Reform Obsolete A fourth category of answers to the Big Question comes from what I might innocently call ‘an economist’s perspective’. A key measurement would be the declining share of agriculture in India’s gross domestic product. Agriculture made up 50 per cent of GDP in 1960. The countryside was where the action was – where voters lived and where most wealth came from. No politician or official could ignore such facts. By 2010, agriculture’s share had fallen to less than 15 per cent of GDP (Table 1). Though 69 per cent of people still lived in the countryside, the major sources of wealth had shifted elsewhere.

29 30

Jeffrey, PWWB, p. pp. 183-4. Time, 11 May 1953, http://www.google.com/imgres?imgurl=http://img.timeinc.net/time/ magazine/archi ve/covers/1953/1101530511_400.jpg&imgrefurl=http://www.tim.com/time/covers/0,16641,19530511,00.ht ml&h=527&w=400&sz=45&tbnid=KiwkSssgAl_GGM:&tbnh=90&tbnw=68&zoom=1&docid=0XG4PP0T bHf5KM&sa=X&ei=OpptT5rKOM2HrAeGr7igDg&ved=0CFQQ9QEwBg&dur=94 (downloaded 24 March 2012). http://www.mkgandhi.org/vinoba/bio.htm (downloaded 6 April 2012).

Table 1: Share of GDP, 1950-2010 Year Agriculture 1950-1 55.8 1960-1 45.8 1970-1 45.2 1980-1 38.1 1990-1 31.0 2000-01 25.8 2008-09 20.0 2010-11 14.4

Industry 15.2 20.7 21.9 25.9 29.3 23.8 26.3 n.a.

Services 29.0 33.5 32.9 36.0 39.7 50.4 53.7 n.a.

Sources: Statistical Outline of India, 1999-2000 [hereafter SOI] (Mumbai: Tata Services, 1999), p. 15 and SOI, 2008-09, p. 14. CA Club India, 11 December 2011, http://www.caclubindia.com/forum/share-ofagriculture-sector-in-gdp-179511.asp, quoting Central Statistics Office (downloaded 25 March 2012).

Government investment in public infrastructure for agriculture shifted from the 1990s. A rough indicator lies in the record of land irrigated by public resources. It reached a modest 17 million hectares in 1991, but had fallen to 15.3 million hectares by 2006. In the same period, land irrigated by private tube wells doubled from 17.7 million hectares to 35.4 million hectares.31 Prosperous landowners deepened and diversified their links to town and cities and to relatives and connections in politics, the police and administration. The collapse of the Soviet Union and the discrediting of ‘socialism’ and socialist parties in the West contributed to a decline in class-based rhetoric in Indian politics. Caste and religion, always factors in Indian elections, assumed great influence in the late 1980s, illustrated in part by the intense emotions generated by the Mandal Commission and the implementation of some of its recommendations. It had not always been this way. In Kerala in the 1950s and 1960s, and West Bengal from the 1970s, landless and land-poor people had to be taken note of because they consistently voted for Communist and Left parties that advocated land reform. Similarly, the Congress Party until the end of the ‘emergency’ in 1977 supported a ‘left wing’, including ex-Communists like Mohan Kumaramangalam (1916-73), who kept the rhetoric of land reform in the party’s platform. Until the 1970s, too, there were ‘socialist’ parties drawing on the inspiration of people like the UP politician Narendra Dev (1889-1956), Ram Manohar Lohia (1910-67) and Jayaprakash Narayan (1902-79). The leaders of such parties were close to rural issues. They were reinforced in their beliefs about redistributive justice by the vitality of Western socialist parties and the existence of a Soviet bloc that in their eyes retained some virtue and achievements. Dev died in 1956, Lohia in 1967 and Jayaprakash in 1979, each death 31

SOI, 2008-09, p. 49.

sounding a gong that signalled the progressive dilution of redistribution as an important component of Indian political argument. ‘Agricultural’ voices, never mind voices advocating land reform, had not been particularly strong among the elites of Jawaharlal Nehru’s India. Under Nehru, the Rudolphs concluded in 1987, ‘agricultural interests and values were poorly represented in New Delhi’. They argued that from Lal Bahadur Shastri’s prime ministership (1964-6), ‘agricultural producers have become increasingly visible and audible in national policy and politics’.32 But these producers were, at the very least ‘rich peasants’, beneficiaries of Green Revolution incentives. Many were on the way to becoming ‘farmers’ – people who sold what they grew and were keenly aware of markets and the politics that affect markets. If conditions were right, such people would be interested in ways to acquire land, not redistribute it. The growth of advocacy for rural capitalism from the 1960s, and the coming of the ‘green revolution’, led to the expansion of markets for land – to ‘land reform’ being replaced by ‘real estate’ as a discussion topic for Indian political elites. We get some sense of this shift from examination of the development of real-estate advertisements in Indian-language newspapers. It was only in 1992 that Eenadu, the king of Telugu dailies, launched a concerted programme to transform Telugu readers into ‘real estate’ advertisers. ‘We had absolutely nothing,’ an Eenadu executive said in 1993. ‘Zero real estate ads. Then we...started off an ad campaign...and a real estate page.’ Within a year, they had generated enough real-estate advertising to make it worthwhile to create ‘an entire new segment’ – a weekly supplement devoted to real estate.33 By 2012, daily newspapers in all languages carried weekly real estate supplements that made hefty contributions to a newspaper’s advertising revenue. Twenty years earlier, there had been almost nothing from this source. Such evidence indicates that substantial change flowed from the ‘liberalisation’ of the economy that began in 1991. Comparisons of the Sixth Five-Year Plan (1980-5) and the Eleventh Five-Year Plan (2007-12) illustrate the change. The Sixth Plan, drafted after Indira Gandhi returned to power in 1980 and with Manmohan Singh as the Member-Secretary, aimed to implement land reform policies, including enforcement of ceilings, ‘on a timebound basis’. States that lacked appropriate legislation were to do so by 1982; acquisition of land that exceeded the ceilings was to be completed by 1983; land records were to be compiled and updated by 1985; consolidation of holdings was to be completed within 10 years; and house sites for the landless – Kerala-1970 style – were to be provided within five

Lloyd I. and Susanne H. Rudolph, In Pursuit of Lakshmi. The Political Economy of the Indian State (Chicago: University of Chicago Press, 1987), p. 312. Interview, Piush Bahl, Assistant Manager (Advertising), Eenadu, Hyderabad, 1 March 1993.

years.34 By 1986, ‘these tasks still remain unachieved’, as Bandyopadhyay, tireless recorder of land-reform events, wrote.35 The statements of the Sixth Plan did not accord with either the political pressures as understood by Indira Gandhi or her son and successor, Rajiv Gandhi. The perceived popularity of ‘land reform’ as a rallying cry seems to have begun a long slow death about the same time as the deaths of two populists, Sanjay Gandhi in 1981 and Indira Gandhi in 1984. Indeed, Indira Gandhi herself had begun to move away from the ‘socialism’ espoused in the 1970s when 1982 was declared ‘productivity year’. By the time the 11th Five-Year Plan (2007-12) was produced in 2007 little more than lip-service was paid to ‘land reform’: The poor are geographically concentrated in India...without effective (i) land reforms and (ii) agricultural services, none of these regions are likely to be able to reduce poverty.36 Land reform, moreover, was portrayed as a way to increase productivity: Small-sized farms...have an advantage in using surplus family labour and saving monitoring costs, and this is the main argument for land reforms.37 And jostling with ‘land reform’ for a place in the mind of the planners and the Plan were the growing pressures of ‘real estate’: We have to evolve a National Land Policy which will allow both public and private developers to legally purchase land for conversion into urban habitats and townships through transparent rules and regulations. Inadequate availability of serviced land in the urban areas is a major constraining factor in taking up housing projects for the poor. From a focus in the early 1980s that still took as a starting point a vision of a Village India, the planners, representing an influential section of elite India, visualised a future India that by 2007 was proudly urban. Yet the drift to the towns and cities was not dramatic in percentage terms. Absolute numbers were immense by world standards: An additional 90 million Indians moved from the country to the city between 2001 and 2011 (Table 2). But still only 31 per cent of India was urban, 34

Sixth Five Year Plan (1980-5),para 9.100, http://planningcommission.nic.in/plans/planrel/fiveyr /6th/6planch9.html (downloaded 25 March 2012). D Bandyopadhyay, ‘Land Reforms in India: An Analysis,’ EPW, Review of Agriculture, 21-28 June 1986, p. A-50. Eleventh Five Year Plan (2007–2012), vol. 3, Agriculture, Rural Development, Industry, Services and Physical Infrastructure (New Delhi: Oxford University Press for the Planning Commission, 2008), p. 85. Ibid., p. 33.

and the annual urban growth rate averaged about 2.5 per cent for 30 years, only slightly greater than the overall rate of population growth. India was not yet a country of deserted villages. One cannot, therefore, argue that widespread migration from the countryside accounts for the diminution of interest in land reform in politics or in social movements. Table 2: Urban Growth, 1951-2011 Census Year Urban % Number Urban Number of (millions) urbanites added in the decade 1951 17.3 62.4 1961 18.0 78.9 16.5 1971 19.9 109.1 30.2 1981 23.3 156.2 47.1 1991 25.7 217.6 61.4 2001 27.8 286.1 68.5 2011 31.2 377.1 91.0

Decadal % of urban growth

21 28 30 28 24 24

Sources: SOI and Census of India, http://censusindia.gov.in/2011-provresults/paper2/data_files/india/paper2_at_a_glance.pdf (downloaded 25 March 2011)

R. Vijay in an impressive recent essay presents data that suggests that ‘non-cultivating peasant households...witnessed a phenomenal increase from 23.7 per cent (of rural households) in 1981 to 40.3 per cent by 2002’.38 These figures masked various possibilities, but one of them was a growth of tenancy: landowners choosing not to cultivate land themselves but putting it out to others – even though tenancy was, as a result of earlier land reform laws, illegal in many states. Vijay’s findings, based on National Sample Survey data, also showed little change since 1981 in the proportion of landless labourer families which remained at about 11 per cent of rural households. Vijay’s conclusions were sombre. The landless still needed access to land; they got it through (often illegal) leases from noncultivating peasant households which had little interest in improving productivity once they had a guaranteed rent. If this analysis were correct, Vijay concluded, ‘a different approach to dealing with the agrarian crisis’ was needed – ‘either going back to land reform kind of measures’ or finding ways to displace non-cultivating peasant households ‘through market interventions like corporate farming’.39

38 39

Vijay, ‘Structural Retrogression’, p. 40. Ibid., p.45.

Land Reform Becomes Real Estate: ‘The Developer Ate My Homestead’? The zeitgeist of the 1980s was marked by the despair of elites at the chaotic dissolution of the Janata Party government and the return to power of a shrewd, self-serving Mrs Gandhi. Rajiv Gandhi, an outward-looking airline pilot, aware of middle-class frustration, represented the first generation of adult Indians with no memory of the national struggle and British rule. Internationally, Margaret Thatcher rolled back ‘socialism’ and Ronald Reagan reduced regulation of financial institutions, airlines and telecommunications. India’s ‘year of productivity’ and the arrival of widespread colour television for the Asian Games in 1982, signalled that Mrs Gandhi too was leaving ‘socialism’ behind. Rajiv Gandhi ‘brought with him’, according to the author of Moguls of Real Estate, ‘an entirely new perspective for the economic development of the country’ and was convinced by K. P. Singh of DLF, one of India’s largest property developers, that ‘archaic laws that came in the way of private sector townships needed to be scrapped’.40 ‘The real estate industry is at the core of India’s growth story,’ runs the first sentence of Moguls of Real Estate, published in 2007 to celebrate five leaders of the industry. ‘The sector is booming with huge unmet demands, accelerating prices and increasing foreign investments. Growth, expansion, buy-outs and deals are the buzzwords.’41 To be sure, the words are part of the Foreword, written by someone from the ‘India Real Estate Practice’ at Ernst and Young. And they were written just before the financial crisis of 2008 began. Nevertheless they portray a very different spirit from that embodied in titles like Daniel Thorner’s Agrarian Prospect in India or P. C. Joshi’s Land Reforms in India two generations earlier.42 A further marker of changing concepts about land and its uses was a conference in 2003 while the BJP-led government of A. B. Vajpayee was in power. Held in Seattle, Washington, ‘Reforms in Land Policy for Accelerated Agricultural Growth and Rural Development’ was a collaboration of two departments of the Government of India and the University of Washington.43 The chief bureaucrat of the Department of Rural Development opened the conference with a statement that would have seemed glaringly inappropriate 30 years earlier. ‘In the past,’ he said, ‘we have achieved very limited success in land reforms and poverty alleviation.’ Emphasis ought therefore to shift to ‘new reform approaches such as contract farming, land leasing and home-stead-cum-garden plots’. His opposite number from the

40 41 42

Ibid., p. 26. Manoj Namburu, Moguls of Real Estate (New Delhi: Roli Books, 2007), p. ix. Daniel Thorner Daniel, Agrarian Prospect in India (Bombay: Allied Publishers, 1976) and P. C. Joshi, Land Reforms in India: trends and perspectives (Bombay: Allied Publishers, 1975). The Government of India’s Department of Agriculture and Cooperation and Department of Rural Development, and the Rural Development Institute at the University of Washington.

Department of Agriculture ‘highlighted the need for a paradigm shift from subsistence farming to market-oriented commercial agriculture’.44 Senior officials from a number of states echoed the need for change, including a new attitude to leasing and tenancy. Representatives from Andhra Pradesh told the conference that the ban on leasing out of agricultural land was probably relevant in the period immediately after independence when there was a demand and need for abolition of intermediaries/ zamindari. But in the present context, it was essential to liberalise land leasing in order to enable the large farmers to lease out land and take up non-farm activities, while allowing the marginal and small farmers to lease in land and improve their size of holding.45 From when do we date, and how do we explain, these changes in elite conceptions of what ‘land’ ought to be doing? As the halting discussion up to here may have indicated, I would suggest that change begins to become evident from the 1980s. In 1981, DLF, which by 2012 was India’s largest real estate company, ‘was given permission...to undertake a residential development...in Gurgaon’ where DLF had ‘managed to acquire 150 acres of land...from farmers’.46 The Ansals started their development of gated communities at Gurgaon a few years later.47 Another of the ‘Moguls’, Niranjan Hiranandani of Mumbai, also got out of the textile business and into real estate in Mumbai in 1980-1, and Irfan Razack, ‘Bangalore’s leading developer, sold his first piece of property in 1980’.48 At the 2003 conference in Seattle, the highest ranking official in the Department of Agriculture argued that ‘very limited success in land reforms’ in close to 60 years of independence dictated that ‘new reform approaches...should be properly examined and exploited’.49 ‘New reform approaches’ included contract farming land leasing land share company in agriculture allotment of homestead-cum-garden plots

45 46 47 48 49

T. Haque, ‘Reforms for Agricultural Growth and Rural Development,’ Economic and Political Weekly, 29 November 2003, p. 5031. Ibid., p. 5032. Ibid., pp. 24, 26. Ibid., p. 151. Ibid., pp. 69-70, 213. Haque, ‘Reforms’, p. 5031.

Vijay’s 2012 essay echoed one of these possibilities: ‘market interventions like corporate farming’ seemed one way out of rural distress. (This essay has not attempted to analyse the extent of such distress or one of its markers, rural suicide).50 Contract farming would involve cultivators in agreeing to plant particular crops, achieve a satisfactory crop quality and sell crops at a pre-agreed price to the company with whom they had made the deal. The advantages to the cultivator were said to be improved seeds and technology and guaranteed sale; the country would benefit from reduced spoilage and efficient movement of crops to markets. Land leasing proposed a retreat from one of the tenets of ‘land reform’ as understood in the past. Laws would be changed to allow agriculturalists to lease out land or lease it in. The idea, of course, was that knowledgeable cultivators would make the most sensible deal for themselves and their land, depending on market prices and their personal needs. The land-share company had echoes of the old cooperative: farmers would become shareholders in a company, run on modern business lines, which would pay dividends, based on harvests and prices, in proportion to the land farmers had committed. The homestead-cumgarden plots proposal was the old Kerala programme, repeated in West Bengal, of granting every hut dweller ownership rights to their hut and a tiny plot around it.51 This measure seemed to bring increased independence and confidence to the poorest people in the countryside; but even it was not easy. The Bihar government of Nitish Kumar received a report of its Land Reforms Commission in April 2008 which recommended the homestead initiative. Four years later the report appears to have been buried.52 ‘Reverse tenancy’ has also become a common practice. Capital-rich interests, either individual farmers or agricultural businesses, rent land from marginal holders and put the owners back to work to grow a particular crop on their own land.53 Montek Singh Ahluwalia alluded to this shift nearly 20 years ago when he pointed out that ‘the rights of the tenant may need redesigning in a situation where the landlord is actually the weaker party’.54

51 52 53

See, for example, P. Sainath in the Hindu, 29 October 2011, http://www.thehindu.com/opinion/ columns/sainath/article2577635.ece (downloaded 9 April 2012) and the accompanying table of rural suicide 1995-2010. Haque, ‘Reforms’, pp. 5032-3. Mainstream, 1 August 2009. N. C. Saxena, ‘Land for landed,’ Frontline, 21 October 2011, p. 21, for discussion of ‘reverse tenancy’ in the Approach Paper to the 12th Five Year Plan. Paraphrased in G. Parthasarathy, ‘The New Economic Policy, Rural Development and Land Reform’, in B. K. Sinha and Pushpendra (eds), Land Reforms in India, vol. 5, An Unfinished Agenda (New Delhi: Sage, 2000), p. 66.

Transition from agricultural societies to urban, industrial life has been painful in every country for 300 years. In 1770, Oliver Goldsmith lamented in ‘The Deserted Village’, the destruction of the English peasantry and the drive to the cities, which then was only beginning: If to the city sped – what waits him there? To see profusion that he must not share; To see ten thousand baneful arts combined To pamper luxury and thin mankind; To see each joy the sons of pleasure know Extorted from his fellow-creature's woe. One of the ‘Moguls of Indian real estate’ could count himself fortunate to have come from a family that anticipated rural agony. The grandfather of Sushil Ansal of the property developers Ansal API, noted for its ‘ability to “see and seize” opportunities in the real estate field’, had been ‘a sugarcane farmer’ of Jalandhar.55 In the past 30 years, land in India has steadily become as important for what you put on it as what you grow on it. Legislative energies have gone into drafting bills to facilitate the acquisition of land for ‘development’ and to mitigate the disadvantage and distress of rural people whose land is acquired.56 Confrontation between agriculturalists and developers, with governments taking sides, erupted in West Bengal over the car factory planned by Tata at Singur (and moved to Gujarat in 2008) and at NOIDA (New Okhla Industrial Development Authority) on the eastern borders of New Delhi in the state of Uttar Pradesh in 2011.57 The NOIDA dispute highlighted the difficulties, pressures and temptations. It appeared that the land in question was originally acquired by the state government for ‘industrial purposes’ but later reclassified for residential use and sold at great profit to developers. The original owners received a fraction of what the ‘open market’ now deemed the land to be worth.58 Such collisions were not unique to India, but they were made even more difficult by widespread lack of trust. Harrowing stories of tribal people displaced by the Sardar Sarovar and other dam projects were well known. Promises of ‘rehabilitation and resettlement’ were often scoffed at. Moreover, India’s transition from a system in which well defined ‘markets’ for land were rare to one in which ‘market value’ was made a key feature of mechanisms for 55 56

Namburu, Moguls, pp. 127-8, 133. For example, Panchayats (Extension to the Scheduled Areas) Act (PESA), 1996, Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006 and Land Acquisition, Rehabilitation and Resettlement (LARR) Bill, 2011. Sanjoy Chakravorty, ‘A Lot of Scepticism and Some Hope’, EPW, 8 October 2011, pp. 29-31, for a discussion of the LARR bill. India Today, 11 May 2011, http://indiatoday.intoday.in/story/land-acquisition-stir-rahul-gandhi-meetsfarmers-in-greater-noida/1/137749.html (downloaded 11 April 2012). Frontline, 17 June 2011, pp. 4-11.

protecting land-losers was, most scholars agreed, unprecedented.59 Understanding and influencing such change poses a worthy and urgent challenge to activists, scholars, politicians and policy-makers.

Appendix – The Beginnings of a List of Legislation related to Land Bengal Tenancy Act, 1885 Land Acquisition Act of 1894 U.P. Zamindari Abolition Act of 1952 West Bengal Estate Acquisition Act, 1953 West Bengal Land Reforms Act, 1955 Kerala Agrarian Relations Bill, 1957 U. P. Imposition of Ceiling on Land Holdings Act, 1960 Bihar Land Reforms (Fixation of Ceiling Areas of Acquisition of Surplus Land) Act, 1961 Kerala Land Reforms Act, 1963. Kerala Land Reforms (Amendment) Act, 1969 Gujarat Agriculture Lands Ceiling Act, 1972 Haryana Ceiling on Land Holding Act, 1972 Himachal Pradesh Ceiling of Land Holding Act, 1972 Jammu and Kashmir Agrarian Reforms Act, 1972 Punjab Land Reforms Act, 1972 Rajasthan Imposition of Ceiling on Holding Act, 1973 Forest Conservation Act, 1980 Panchayats (Extension to the Scheduled Areas) Act (PESA), 1996 Scheduled Tribes and Other Traditional Forest Dwellers (Recognition of Forest Rights) Act, 2006 Land Acquisition, Rehabilitation and Resettlement Bill, 2011

.....

Ashwin Mahalingham and Aditi Vyas, ‘Comparative Evaluation of Land Acquisition and Compensation Processes across the World’, EPW, 6 August 2011, pp. 94-102.

ISAS Working Paper No. 150 – 14 June 2012 469A Bukit Timah Road #07-01 Tower Block National University of Singapore Singapore 259770 Tel: 6516 4239 / 6516 6179 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

India’s Electoral Laws, Political Corruption and the Supreme Court Ronojoy Sen1

There are two facts about Indian politics that merit urgent attention. First, the number of Members of Parliament (MPs) in the Lok Sabha or Lower House (which is directly elected by the people in a first-past-the-post system) with criminal records is striking. In the current Lok Sabha – which came into existence in 2009 – the number of MPs with criminal charges against them is 162, which work out to nearly 30 per cent of MPs having either criminal cases registered against them or pending in court. The more crucial figure is that 76 MPs, or 14 per cent of the total number of MPs, were charged with criminal cases that could attract imprisonment of five years or more. In the earlier (2004) Lok Sabha, the picture was not much better. There were 128 MPs with pending criminal cases against them, out of whom 58 had serious criminal cases registered against them.2 This has led to the perception, as the Supreme Court puts it, that the ‘law breakers have become the law makers’. Another significant feature of Indian politics is the number of extremely wealthy – or crorepati (multi-millionaire) to use common parlance – MPs in Parliament. Figures for the current Parliament reveal that as many as 315 of the 543 Lok Sabha MPs have wealth of over Rs 1 crore (roughly US$217,000) or more, which represents a 102 per cent rise from the 2004 Lok Sabha. While wealthy MPs are by themselves not a problem, it reflects the real barriers

Dr Ronojoy Sen is Visiting Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He can be contacted at isasrs@nus.edu.sg. The views expressed in this paper are those of the author and do not necessarily reflect those of ISAS. Analysis of Criminal and Financial Details of MPs of 15th Lok Sabha (2009): A Report by National Election Watch and Association for Democratic Reforms, p. 3.

to running for elections and getting elected. There is evidence to suggest that higher the financial worth of candidates the more their chances of winning. In the 2009 elections, 33 per cent of the candidates who declared assets worth more than Rs 5 crore won as compared to less than 0.5 per cent for candidates with assets less than Rs 10 lakh (US$21,700). Besides, there are many who believe that elected representatives misuse their office to make money. Indeed the average growth of assets of MPs who re-contested elections in 2009 was 289 per cent.3 While this is not in any way clinching evidence of misuse of office it has certainly fed into popular perceptions of corruption among politicians. A prominent political analyst Pratap Bhanu Mehta observes: ‘The corruption, mediocrity, indiscipline, venality and lack of moral imagination of the political class, those essential agents of representation in any democracy, makes them incapable of attending to the well-being of citizens.’4 The criminal records of MPs and their financial worth are easily available in the public domain, thanks to two landmark Supreme Court judgments in 2002 and 2003. In this essay, I examine these two judgments and the reasoning behind the Court’s efforts to impose transparency on the political system. But before doing so, I briefly look at the parts of Representation of the People Act, 1951 – the legislation which governs the conduct of India’s elections – related to electoral corruption and disqualification for corruption. I also look at reports by government-sponsored bodies – what they say about electoral corruption and their recommendations to curb it. These provide not only the context for the court’s views but are also extensively quoted by the Supreme Court judges themselves. In conclusion, I argue that while the courts and commissions have had a positive impact in regulating the political environment in India, it is nowhere enough to stem electoral corruption. The political class and elected representatives have to be a part of the process and only sustained pressure, not just from courts and institutions like the Election Commission (EC), but also from voters can effect real change.

The Representation of the People Act The Representation of the People Act (RPA) is the legislation, originally passed in 1951 but amended on several occasions, which along with Conduct of Election Rules, 1961 govern the organisation of elections in India. It runs into several pages and some 170-odd sections. Section 8, sub-sections 1 and 2, of the Act lists a whole set of offences, ranging from promoting enmity between different groups to committing rape, for which a person if convicted can be disqualified for contesting elections. If the person is sentenced with a fine, he shall be disqualified for six years from the date of conviction. If a person is jailed, he shall be disqualified from the date of conviction and for a further six years after release. Under

3 4

Analysis of Criminal and Financial Details of MPs of 15th Lok Sabha, p. 9. Pratap Bhanu Mehta, The Burden of Democracy (New Delhi: Penguin, 2003), p. 18.

Section 8(3) a person convicted of any offence and sentenced to imprisonment for an offence – other than the ones listed under Sections 8(1) and 8(2) – for more than two years shall be disqualified from the date of conviction and shall continue to be disqualified for a further period of six years after release. However, for sitting Members of Parliament or state legislatures, Section 8(4) states that disqualification under sub-sections 2, 3, and 4 shall not take effect until three months have elapsed from the date of conviction or if within that period, an appeal has been made before a court. Section 8A provides for disqualification on ground of corrupt practices. Section 123 of the RPA lists the various offences that are deemed ‘corrupt practices’ under the Act. The ‘corrupt practices’ under Section 123 of the Act are broadly classified under eight heads, many of which were added as amendments to the original Act. First, bribery which covers inducement offered by a candidate or his agent to a person to either contest or to withdraw from contesting elections. The same applies to a candidate receiving inducements to either contest or withdraw from elections. Inducements to a voter to either vote or to refrain from voting for a candidate also fall under bribery. Second, undue influence or interference with the free exercise of an electoral right of a person by a candidate or his agent. This would include physical threats as well as threats of social ostracism, excommunication or spiritual censure. Third, appeal by a candidate or his agent to any person to vote or to refrain from voting on the grounds of religion, caste, community or language. Appeal to religious symbols as well as national symbols to further the prospects of a candidate or to hurt the chances of a rival are prohibited under this sub-section. This includes attempts to promote enmity between different groups of citizens and the propagation or glorification of the practice of ‘sati’ (selfimmolation by a bride on her husband’s death). Fourth, publication of untrue allegations about a rival candidate, which is likely to affect his electoral prospects. Fifth, restriction on the hiring by a candidate or his agent of any vehicle belonging to an elector. Sixth, spending money in contravention of Section 77 of the RPA which deals with expenses incurred and proper accounting during an election campaign. Seventh, any candidate or his agent taking the help of a government servant to further his electoral prospects. Finally, booth capturing, or taking control by force of a voting centre, by a candidate or his agent. However, despite such an elaborate classification of electoral corruption that could potentially nullify the election of a candidate, electoral malpractice continues to flourish. Many of the provisions are extremely difficult to enforce despite an EC that has been very assertive since the 1990s and wields considerable power. However, the nature of electoral corruption has changed over the years. While electoral fraud such as booth capturing and casting of false votes have been drastically reduced by the electronic voting machines, an alert EC and a strong presence of the media, particularly the numerous television news channels, vote buying and unaccounted campaign expenditure continues unabated. A study by the Centre for Media Studies found that over the last decade, at least one-fifth of India’s

electorate was paid cash for their votes.5 Again private conversations leaked by WikiLeaks have revealed several instances of Indian politicians discussing voter-bribery. Besides, it is commonly accepted that the cap on campaign expenditure was being regularly breached by candidates.6 One of the reasons is that the various forms of electoral corruption are extremely difficult to detect and prove, given the size and scale of Indian elections. A second reason is election-related petitions are filed before the High Courts, which are inundated with pending cases. Though the RPA mandates that petitions be disposed of within a period of six months, in reality they can drag on for years, given the huge backlog of cases in courts. A former Chief Justice of India, K.G. Balakrishnan, recently admitted that there were 3.65 million pending cases in the High Courts and another 24.8 million cases in the lower courts. It’s not surprising that election-related cases often remain unresolved for so long that it becomes time for the next elections and the petitions become meaningless. On campaign expenditure, Section 77(1) of the RPA remains controversial. As it stands now, Section 77(1) states: ‘Every candidate at an election shall, either by himself or by his election agent, keep a separate and correct account of all expenditure in connection with the election incurred or authorised by him or by election agent between the date on which he has been nominated and the date of the declaration of result thereof, both dates inclusive.’ However, in 1974 the Supreme Court in Kanwarlal Gupta v. Amar Nath Chawla7 had occasion to interpret Section 77 by asking whether the cap on campaign expenditure – which currently stands at Rs 40 lakh (US$87,000) for a Lok Sabha constituency and Rs 16 lakh (US$34,700) for an assembly seat – can be evaded by a candidate by accounting for his own money spent but leaving unaccounted money spent by the political party to which he belonged or by his supporters. The Court ruled: ‘A party candidate does not stand apart from his political party and if the political party does not want the candidate to incur the disqualification, it must exercise control over the expenditure which may be incurred by it directly to promote the poll prospects of the candidate.’ The Indian Parliament responded by inserting Explanation 1 to Section 77 (1) which said that notwithstanding any order of the Court ‘any expenditure incurred or authorised in connection with the election of a candidate by a political party or by any other association’ shall not be considered as campaign expenses. This effectively nullified the Court ruling. In subsequent court judgments, the Supreme Court has questioned the efficacy of Section 77(1). In Gadakh Yashwantrao Kanakrao v. Balasaheb Vikhe Patil,8 the Court emphatically said: ‘The existing law does not measure up to the existing realities. The ceiling on expenditure is fixed only in respect of the expenditure incurred or authorised by the candidate himself but the expenditure incurred by the party or anyone else in his election campaign is safely outside the net of legal sanction.’ 5 6 7 8

‘Offer Valid Till Votes Last,’ Tehelka (New Delhi), 2 May, 2009. ‘Cash for votes a way of political life in south India,’ The Hindu (Chennai), 16 March, 2011. (1975) 3 SCC 646. (1994) 1 SCC 682.

Two years later, ruling on public interest litigation, the Supreme Court in a 1996 judgment – Common Cause v. Union of India9 -- revisited the issue of campaign finance. A two-judge bench, headed by Justice Kuldip Singh, said that there was no accountability in general elections and the ‘naked display of black money’ could not be permitted. It ruled that ‘requirement of maintaining audited accounts by the political parties is mandatory and has to be strictly enforced’ under the relevant provisions of the Income Tax Act. Regarding Explanation 1 to Section 77(1), the Court sent mixed signals. It did not declare the clause illegal, but ruled, ‘The expenditure (including that for which the candidate is seeking protection under Explanation 1 to Section 77 of RP Act) in connection with the election of candidate – to the knowledge of the candidate or his election agent shall be presumed to have been authorised by the candidate or his election agent. It shall, however, be open to the candidate to rebut the presumption in accordance with law and to show that part of the expenditure or whole of it was in fact incurred by the political party to which he belongs or any other association or body of persons or by an individual (other than the candidate or his election agent).’ It is in this background that several government-appointed committees have recommended measures in addition to the existing RPA provisions to regulate electoral corruption and to promote transparency. Among these are the Goswami Committee on Electoral Reforms (1990), the Vohra Committee Report (1993) and the Indrajit Gupta Committee on State Funding of Elections (1998). Here we examine two of the more recent reports which have had considerable influence on the Supreme Court’s reasoning: The Law Commission’s report on Reform of Electoral Laws (1999) and the National Commission to Review the Working of the Constitution (2002).

The Law Commission Report The Law Commission has a long history going back to 1834. In independent India, the first Law Commission was set up in 1955 to make recommendations to revise and upgrade India’s laws. Since then it has prepared several reports. The 170th report of the Law Commission dealt specifically with reform of electoral laws.10 The report proposed some significant changes to the RPA. First, the commission recommended that Explanation 1 to Section 77 of the RPA (which has subsequently been amended) be deleted. Second, it recommended insertion of a clause – Section 78A – in the RPA which would make maintenance, audit and publication of accounts mandatory by political parties. Third, it resurrected the idea of state funding for elections, something that had been recommended by the earlier Indrajit Gupta

9 10

(1996) SCALE (3) 258. Available at http://www.lawcommissionofindia.nic.in/lc170.htm.

committee. Though it was in favour of total state funding, it said ‘only partial instead of total state funding is feasible in the prevailing conditions.’ Finally, and most significantly, the commission recommended that a new clause, Section 8B, be introduced in the RPA to mandate that the mere framing of charges in respect to most of the offences mentioned under sub-section 1 of Section 8A, and not conviction as originally stated in the Act, should be enough to disqualify candidates. The disqualification shall be in place for a period of five years or till the acquittal of the accused, whichever occurs earlier. The logic for this radical amendment, which overturns the principle of ‘presumed innocent until proven guilty’, was spelled out by the commission: ‘The reason for this proposal was that most of the offences mentioned in sub-section (1) are either election offences or serious offences affecting the society and that the persons committing these offences are mostly persons having political clout and influence. Very often these elements are supported by unsocial persons or groups of persons, with the result that no independent witness is prepared to come forward to depose against such persons. In such a situation, it is providing (sic) extremely difficult to obtain conviction of these persons. It was suggested in as much charge (sic) were framed by a court on the basis of the material placed before it by the prosecution including the material disclosed by the charge-sheet, providing for disqualification on the ground of framing of the charge-sheet would be neither unjust nor unreasonable.’ The commission also recommended increasing the punishment for several of the offences mentioned in the RPA since they were of a ‘serious nature’. The Law Commission framed its recommendations in the background of the Indian state, as it saw it, going ‘soft’ on lawbreakers. It said there was no respect for the law among common citizens as well as government servants. Further it said that corruption had become endemic. It recommended harsh legal measures to instil respect for the law: ‘Starting with the smallest of the offences like throwing litter in streets, parks and public places and not obeying the traffic rules to major offences like corruption, misappropriation of public funds and dacoity should all merit maximum permissible sentence, as a general rule. It is only by this weapon that that respect for law can be inculcated in the society and the administration. India must get out of the “soft state syndrome”.’

The National Commission to Review the Working of the Constitution The National Commission to Review the Working of the Constitution (NCRWC), headed by a former Chief Justice of India, M.N. Venkatachaliah, was set up in 2000 and it submitted its report in 2002.11 The Commission was expected to recommend changes, if required, to the Indian Constitution to make it more responsive the changing needs of governance and development in modern India. One of the subjects it examined was the electoral process in 11

Available at http://lawmin.nic.in/ncrwc/ncrwcreport.htm.

India. Among other things it identified as problem areas the increasing cost of elections and criminalisation of the electoral process. Regarding criminalisation of politics, the commission quoted the findings of the Vohra Committee which said: ‘The nexus between criminal gangs, police, bureaucracy and politicians has come out clearly in various parts of the country.’ It made three recommendations on tackling this nexus. First, like the Law Commission, it said any person charged with a serious offence would be liable for disqualification. It said any person charged with an offence punishable with imprisonment for a maximum of five years or more should be disqualified from being elected for a period of one year from the date the charges were framed. Unless cleared of the charge within that deadline, he shall continue to be disqualified until the conclusion of the trial. This should apply to elected legislators too. A person convicted of an offence and sentenced to imprisonment for six months or more would remain disqualified until the sentence is served and for a further six years. Second, a person convicted for a ‘heinous’ crime like ‘murder, rape, smuggling, dacoity, etc’ should be permanently barred from contesting elections. Third, the commission recommended the setting up of Special Courts for dealing with criminal cases against politicians. Even potential candidates with criminal charges against them would have recourse to the special courts. These courts, constituted at the level of High Courts, should decide the cases within six months with the right to appeal decisions only before the Supreme Court. Similarly, regarding cases related to corrupt practices under the RPA, the commission recommended changing the procedure for hearing election petitions which are currently handled by the High Courts. It said special election benches should be constituted to dispose of election petitions quickly. Furthermore, it recommended that the President of India should decide the period of disqualification of guilty candidates on the advice of the Election Commission. On the high cost of elections and the lack of transparency, the NCRWC, like the Law Commission earlier, first recommended that Explanation 1 to Section 77 be scrapped. It said: ‘The existing ceiling on election expenses for the various legislative bodies be suitably raised to a reasonable level reflecting the increasing costs. However, this ceiling should be fixed by the Election Commission from time to time and should include all the expenses by the candidate as well as his political party or his friends and his well wishers and any other expenses incurred in any political activity on behalf of the candidate by an individual or a corporate entity. Such a provision should be the part of a legislation regulating political funding in India.’ Second, the commission recommended that every candidate and political party be properly audited and their election expenses be cross-checked against their income tax returns. Finally, it recommended that candidates declare assets and liabilities along with that of ‘close relatives’ and this be made available to the public. Elected legislators should also be required to submit their financial assets and liabilities at the end of every year during their term in office. Both the reports by the Law Commission and the NCRWC had a considerable role to play in shaping the judicial discourse on regulating electoral corruption, which is discussed in the following sections. 7

The 2002 Supreme Court Judgment In Union of India v. Association for Democratic Reforms (2002)12 the Supreme Court had to decide on an appeal by the federal government against a High Court judgment ordering election candidates to furnish details about their financial assets as well as their criminal records, if any. The two questions before the three-judge bench of the Supreme Court, headed by Justice M.B. Shah, were the following: One, whether a citizen had the right to know the criminal record and financial details of an election candidate. Two, whether the EC had the authority to issue directions as ordered by the High Court. On both these questions the Supreme Court answered in the affirmative. Let us first have a look at the arguments put before the court. The petitioner, Association for Democratic Reforms, going on the Vohra Committee and Law Commission reports, argued for barring a candidate from contesting elections if criminal charges had been framed against him. It also argued for the declaration of assets by candidates. On behalf of the government, the Solicitor-General argued that there were enough safeguards in the RPA against criminality and corrupt practices. Another intervener, the Indian National Congress, submitted that the Constituent Assembly, the body that framed the Indian Constitution, had rejected the need for information regarding assets and educational qualification. The EC, which had also filed a counter affidavit in the case, suggested that candidates should give information regarding any criminal convictions and any pending case against them for an offence which is punishable with imprisonment for two years or more. It also suggested that candidates be asked to disclose all their financial assets and liabilities as well as their educational qualifications. On the question of whether the EC was empowered to issue directions regarding elections, the court referred to earlier interpretations of the scope of Article 324 – which deals with the powers vested in the EC -- and said in areas unoccupied by legislation ‘superintendence, direction and control’ as well as ‘conduct of elections’ must be construed in the broadest terms. It ruled that the EC can ‘cope with situation where the field is unoccupied by issuing necessary orders’. The Court referred to an earlier Supreme Court ruling, Mohinder Singh Gill v. The Chief Election Commissioner,13 to buttress its case. There the Court had said: ‘Two limitations at least are laid on its [the Election Commission’s] plenary character in the exercise thereof. Firstly, when Parliament or any State Legislature has made valid law relating to or in connection with elections, the Commission, shall act in conformity with, not in violation of, such provisions but where such law is silent, Article 324 is a reservoir of power to act for the avowed purpose of, not divorced from, pushing forward a free and fair election…’ The power of the EC to frame rules, where necessary legislation is lacking, has been reaffirmed in subsequent Court rulings.

12 13

(2002) 5 SCC 294. (1978) 1 SCC 405.

On the issue of whether voters had the right to know details of the criminal record as well as financial details of candidates, the Court interpreted the right to freedom of speech and expression, well entrenched in the Indian Constitution, to cover the right to get information regarding a candidate who is contesting elections. It based its ruling on two arguments. One was that elected legislators were ‘public functionaries’ and the citizens had the right to ‘know every public act, everything that is done in a public way by the public functionaries’. It cited several earlier rulings, including P.V. Narasimha Rao v. State14 where the Court had said of legislators: ‘It is difficult to conceive of a duty more public than this or of a duty in which the State, the public and the community at large would have greater interest…’ Second, it said ‘public education’ was essential for the decision-making process of a voter. The Court ruled: ‘In our view, this Court would have ample power to direct the [Election] Commission to fill the void, in absence of suitable legislation, covering the field and the voters are required to be well-informed and educated about contesting candidates so that they can elect proper candidate by their own assessment.’ Accordingly, the Court directed the EC to exercise its powers under Article 324 to seek the following information from candidates intending to contest elections to Parliament and the state legislatures as part of the nomination process: whether the candidate had been convicted or acquitted of any criminal offence in the past; whether he had any pending case against his name for an offence punishable by imprisonment of two years or more; declaration of his financial assets as well as those of his spouse and dependents; declaration of financial liabilities; and his educational qualifications.

The 2003 Supreme Court Judgment Subsequent to the 2002 Supreme Court judgment, the Representation of the People (3rd Amendment) Act was notified. Section 33B of the Act provided that candidates furnish information only under the provisions of the Act and its rules. It stated: ‘Notwithstanding anything contained in any judgment, decree or order of any court or any direction, order or any other instruction issued by the Election Commission, no candidate shall be liable to disclose or furnish any such information, in respect of his election, which is not required to be disclosed or furnished under this act or the rules made thereunder.’ Not surprisingly, Section 33B was challenged by several NGOs, including People’s Union for Civil Liberties (PUCL) and Association for Democratic Reforms, on the ground that all the directions of the Court in the 2001 judgment had not been incorporated in the amendment to the RPA. In PUCL v. The Union of India,15 the Court upheld the challenge.

14 15

(1998) 4 SCC 626. (2003) 9 SCC 490.

Right at the outset, the three-judge bench, headed by Justice M.B. Shah, clarified that though parts of its earlier judgment had been implemented in the amended Act, the provisions regarding the candidate’s criminal record, disclosure of assets and liabilities and educational qualifications had not been incorporated. The court referred in some detail to the recommendations of the Law Commission, the National Commission to Review the Working of the Constitution and the Indrajit Gupta Committee which had called for an ‘immediate overhauling of the electoral process whereby elections are freed from evil influence of all vitiating factors, particularly criminalisation of politics’. Drawing on these reports, the Court concluded: ‘It is apparent that for saving the democracy from the evil influence of criminalisation of politics, for saving the election from muscle and money power, for having true democracy and for controlling corruption in politics, the candidate contesting the election should be asked to disclose his antecedents including assets and liabilities. Thereafter, it is for the voters to decide in whose favour he should cast his vote.’ In addition, the Court responded to three points raised by the respondents. One was the contention that Section 33B had complied with some of the directions of the Court, thereby filling the gap in legislation. The Court rejected this by saying it was a well-settled legal position that the legislature did not have the ‘power to review’ court rulings and it could not declare that the court’s decision was not binding. Further, the Court held that Article 19 (1) (a), which provides for freedom of speech and information, encompasses the right of the voter to know the antecedents of the candidate. Fundamental rights under Article 19 (1) (a) can only be abridged under exceptional circumstances which did not apply in this instance. Second, the respondents argued that since there was no specific fundamental right for the voter to know about the antecedents of a candidate, the right was a derivative one, which could be nullified by the legislature. The Court, however, ruled that the fundamental rights had no fixed content and it was up to the Court to give ‘meaning and colour’ to it. Third, it was contended that right to elect or be elected was a statutory right and not a fundamental right, which meant that the voter did not have a fundamental right to know about the antecedents of a candidate. The Court ruled that the ‘right of a voter to know bio-data of a candidate is the foundation of democracy’ and that this right was independent of statutory rights under the election law. It said that any legislation that abridges the fundamental right to freedom of speech and expression would be invalid. Thus the Court declared Section 33B of the amended Act ‘illegal, null and void’ on the following grounds: it is not within the legislature’s rights to declare that the Court’s decision is not binding; the voter has a fundamental right to know the antecedents of a candidate; and a voter’s fundamental right to know the background of a candidate is independent of statutory rights under election law. Subsequently, later that year the EC issued an order making declarations of financial assets, criminal records and educational qualifications by candidates mandatory.

Interestingly there was a separate judgment by Justice P. Venkatramana Reddi since he had ‘a limited area of disagreement on certain aspects, especially pertaining to the extent of disclosures that could be insisted upon by the Court’. Justice Reddi commented on the ‘right to information’ which he said had been spun off from Article 19 (1) (a) of the Indian Constitution. He referred to a 1975 Supreme Court judgment (State of U.P. v. Raj Narain) which he believed was the first to explicitly state the right to information as a fundamental right. There the Court had said: ‘In a Government of responsibility like ours, where all the agents of public must be responsible for their conduct, there can be but few secrets. The people of this country have a right to know every public act, everything that is done in a public way, by their public functionaries.’ According to Justice Reddi, the Court in the Association for Democratic Reforms judgment had brought for the first time the right to information about an election candidate under the ambit of Article 19 (1) (a). This, he said, was ‘qualitatively different from the right to get information about public affairs or the right to receive information through the press and electronic media, though to a certain extent, there may be overlapping’. He felt that the Association for Democratic Reforms case should rightly have been referred to a Constitution Bench since the right to freedom of information about an election candidate was being elevated to a fundamental right. He, however, said that the 2001 judgment was on a firm footing because ‘the availability of proper and relevant information about the candidate fosters and promotes the freedom of speech and expression both from the point of view of imparting and receiving the information’. Justice Reddi also had minor disagreements regarding other aspects of the judgment. He said that though knowledge about the financial position of a candidate was a good thing, it would not enable the public to ascertain whether unaccounted money played a part in the election. He pointed to Explanation 1 to Section 77 (1) of the RPA saying that as long as that clause stood, it wasn’t possible for a voter to verify the source of the candidate’s funds. Finally, Justice Reddi disagreed with the utility of disclosing educational qualifications, which he said was not an essential component of the right to information: ‘To say that well educated persons such as those having graduate and post-graduate qualifications will be able to serve the people better and conduct themselves in a better way, inside and outside the House, is nothing but overlooking the stark realities.’ Justice Reddi’s qualified ‘dissent’ was interesting because it sought to interrogate whether the right to information about election candidates could be classified as a fundamental right. He did not seem to think so but he still agreed with the majority judgment since it aided freedom of speech and expression and promoted the ‘integrity of the electoral process’. Justice Reddi also questioned whether the right to vote was a fundamental right in view of earlier Court rulings which had said that the right to elect was a ‘statutory’ right. He, however, concluded: ‘Freedom of voting as distinct from right to vote is thus a species of freedom of expression and therefore carries with it the auxiliary and complementary rights such as right to secure 11

information about the candidate which are conducive to the freedom.’ It should be noted that the availability of information on candidates, especially their financial records, is in keeping with the practices of other mature democracies. In the United States, for example, after the enactment of the Ethics in Government Act, 1978 all members of the Congress are required to file an annual disclosure of financial information. All members of Congress as well as candidates must file Financial Disclosure Statements summarising financial information concerning themselves, their spouses and dependent children. Among other information, the statements must disclose outside compensation, investments and assets, and business transactions. The disclosures are made available to the public for six years. In the case of unsuccessful candidates, the disclosures are made available for a year.

Conclusion The Supreme Court judgments have injected some transparency into the electoral system. First, voters now know much more about the candidates whom they are expected to vote into office. The affidavits, detailing financial assets and liabilities and criminal records if any, filed by candidates along with their nomination papers are uploaded onto the Election Commission website and can be accessed easily. 16 Though we cannot be sure how many people actually access the EC website, the financial worth of candidates is widely reported in the India media.17 Second, there is evidence to suggest that given a choice, voters tend not to elect candidates with criminal charges against them. In constituencies where there was only one ‘tainted’ candidate with criminal charges, 83 per cent of the constituencies chose ‘clean’ candidates or those without a criminal record. In constituencies where there were two ‘tainted’ candidates, 67 per cent of them chose ‘clean’ candidates, However, the percentage sharply dropped to 35 per cent when there were five or more ‘tainted’ candidates contesting elections from one constituency.18 Following the 1996 Common Cause judgment and the different panel reports there were some significant changes made to electoral law. First, an amendment to the RPA passed in 1996 shortened the election campaign period from 21 to 14 days on the assumption that campaign cost would be reduced. Second, the national parties and the major state parties were allocated free air time on television and radio.19 Finally, Indian Parliament in 2003 enacted the Election and Other Related Laws (Amendment) Act. The ‘Statement of Objects and Reasons’ of the Act said that the government was ‘continuously exploring ways and means of bringing about

16 17

18 19

See http://eci.nic.in/eci_main/CurrentElections/ge2009/Affidavits_fs.htm. See for example ‘Richest Politicians’, India Today (New Delhi), 23 February, 2009 and ‘Way to big money? An LS stint’, The Times of India (New Delhi), 5 May, 2009. Analysis of Criminal and Financial Details of MPs of 15th Lok Sabha, p. 9. E. Sridharan, ‘Parties, the Party System and Collective Action for State Funding of Elections: A Comparative Perspective on Possible Options,’ in Peter Ronald de Souza and E. Sridharan eds. India’s Political Parties (New Delhi: Sage Publications, 2006), pp. 321-322.

reforms in electoral laws with a view to making the electoral process clean, fair and free from corrupt influences’. It further said that the Act took into account the recommendations of many of the government-appointed committees such as the Goswami Committee on Electoral Reforms, the Indrajit Gupta Committee on State Funding of Elections and the Law Commission’s report on Reform of Electoral Laws. First, it introduced substantial changes to election law, particularly with regard to campaign and party finance. It made company and individual contributions to political parties fully tax deductible, putting in place an incentive for open donations. It also made disclosure of donations over Rs 20,000 (US$430) mandatory if the party wished to enjoy exemption from income tax. This, along with the Common Cause judgment, has resulted in most political parties filing annual income tax returns.20 The Act amended Explanation 1 to Section 77 (1) of the RPA by making it mandatory for candidates to declare their campaign expenses as well as the money spent by their party and supporters. However, the loopholes in Section 77 weren’t entirely plugged. The travel expenses of a ‘recognised’ party’s top 40 leaders and a ‘registered’ party’s top 20 leaders would be exempt for the campaign limit. Besides, spending by the candidate or his party on propagating the general message of the party would not be considered as part of a candidate’s spending. Though the Supreme Court judgments have clearly had some impact on cleansing the system, it is not enough. In the two general elections following the Court rulings in 2001 and 2002, the number of MPs with criminal records, as we saw from the figures cited earlier, has gone up rather than down. Regarding the financing of elections, too, there is a consensus that campaign spending beyond the mandated limit as well bribing of voters still continue unabated. India’s Chief Election Commissioner, S.Y. Quraishi, admitted as much in a recent interview when he said: ‘There are two types of money, one is the ostensible expenditure which is accounted for, which we can monitor, but it is the other money which we cannot monitor…through envelopes, in cash.’21 In 2007, the fourth report of the Second Administrative Reforms Commission – chaired by a senior Congress party leader and until recently Federal Law Minister M. Veerappa Moily – which focused on ‘Ethics in Governance’ raised some of these issues. It said despite the measures taken ‘improvements are marginal in the case of important problems of criminalisation, the use of money in elections, subtle forms of inducements and patronage…’22 Though it lauded the improvements brought about by the Election and Other Related Laws (Amendment) Act, the commission said there was a ‘compelling case for state funding of election’. It recommended: ‘A system of partial state funding should be introduced

20 21 22

‘Incumbency good for parties’ bottomlines,’ The Times of India (New Delhi), 10 April, 2009. The Indian Express (New Delhi), 19 April, 2011. Second Administrative Reforms Commission, Fourth Report (New Delhi: Government of India, 2007), p, 11.

in order to reduce the scope of illegitimate and unnecessary funding of expenditure for elections.’ On the question of criminalisation, the commission reiterated the proposals made by the Law Commission and the NCRW. It noted that given the slow justice system in India, disqualification only after conviction was not sufficient. It came to the conclusion that ‘in cases of persons facing grave criminal charges framed by a trial court after a preliminary enquiry disallowing them to represent the people in the legislatures until they are cleared of charges seems to be a fair and prudent course’.23 It however emphasised that candidates facing ‘charges related to political agitations’ should not be disqualified. It also approved of the EC suggestion that only cases filed six months before an election should lead to disqualification as a precaution against motivated charges.24 Thus, the commission recommended: ‘Section 8A of the Representation of the People Act, 1951 needs to be amended to disqualify all persons facing charges related to grave and heinous offences and corruption, with the modification suggested by the Election Commission.’ Finally, the commission said the disposal of election petitions which often remain pending for several years must be expedited. Like the NCRWC, it recommended the setting up of two-member special election tribunals, staffed by a judge of the High Court and a senior civil servant which would ensure that election petitions are disposed of within six months. The recommendations by the commission have, however, not been taken up yet by the Parliament. In conclusion, the interventions by the Supreme Court in the electoral process have had a beneficial impact. However, it raises the issue of the legitimacy of judicial forays – even when they are beneficial – into governance and policy issues at the cost of representative institutions. India has a long history of judicial activism and a leading legal commentator has pointed to the extraordinary role of the Indian Supreme Court in ‘making law’. 25 The activism of the court, as well as other unelected bodies like the EC, also has a strong appeal to the middle classes since it is seen as cutting through the messy democratic process and delivering quick solutions. Scholars Lloyd and Susanne Rudolph have noted: ‘As executives and legislature were perceived as increasingly ineffectual, unstable and corrupt, the Supreme and High Courts, the Presidency, and the Election Commission became the object of a middle class public’s hope and aspirations, only partially fulfilled, that someone would defend a 26

government of laws and enforce probity and procedural regularity.’ But this does not come without its pitfalls. As academic Pratap Bhanu Mehta warned: ‘Representative institutions are, after all, the essence of democracy, and judges do not stand in the same relation to us as 23 24 25

Ibid., p. 14. See http://eci.nic.in/eci_main/PROPOSED_ELECTORAL_REFORMS.pdf Upendra Baxi, Courage, Craft and Contention: The Indian Supreme Court in the Eighties (Bombay: N.M. Tripathi Ltd., 1985), p. 3. Lloyd I. Rudolph and Susanne Hoeber Rudolph, ‘Redoing the constitutional design: from an interventionist to a regulatory state,’ in Atul Kohli ed., The Success of India’s Democracy (Cambridge: Cambridge University Press, 2001), pp. 131-132.

legislators. It may be that we cannot trust representative institutions, but it would be stretching logic to pretend that guardianship which the courts exercise over policy is synonymous with democracy.’27 If India’s elected representatives and Indian Parliament are to regain their moral legitimacy and not cede ground to unelected constitutional bodies, they must seek to initiate electoral reform on their own volition rather than at the prodding of the courts. The reluctance of Parliament to accept the provisions of election candidates declaring assets and criminal records was a good example of the legislature’s stonewalling tactics. Again the insertion of Explanation 1 in Section 77 (1) of the RPA was an obvious ploy to keep election campaign finances opaque. A rethink has become even more imperative in the context of the Anna Hazare-led agitation against corruption and its strong rhetoric against elected representatives. Hazare and his core team have already stated that next on their agenda is electoral reform which they believe will root out ‘corrupt’ candidates. Some of the proposals that they want to take up is the right to cast a negative vote, something that already figures in the EC’s recommendations, and the right to recall elected representatives, which was rejected by the Supreme Court in 2007 on the ground that it is for Parliament to decide on the issue. If India’s elected representatives do not want to see their credibility further eroded, either by the Court or populist agitations, they must debate and act on the merits of the numerous proposals of electoral reform in the public domain. There are instances like the passage of the Election and Other Related Laws (Amendment) Act where Parliament brought about muchneeded reform in the electoral process. There are some signs that this is happening once again. The former Law Minister, Veerappa Moily, had in August 2011 seconded the proposal of the different commission reports mentioned above that candidates with serious charges against their name be barred from contesting elections and placed it before the federal Cabinet.28 Some elected representatives have also begun talking of the loss of moral authority of politicians. But if the political class is to dispel such perceptions it must pro-actively embrace electoral reform instead of being seen as impediments to it.

.....

Pratap Bhanu Mehta, ‘The Rise of Judicial Sovereignty,’ in Sumit Ganguly, Larry Diamond, Marc F. Plattner eds., The State of India’s Democracy (Baltimore: The Johns Hopkins University Press, 2007), p. 117. The Times of India (New Delhi), 4 August, 2011.

ISAS Working Paper No. 151 – 18 June 2012 469A Bukit Timah Road #07-01 Tower Block National University of Singapore Singapore 259770 Tel: 6516 4239 / 6516 6179 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Suicides in India: An Alternative Economic Perspective1 Amitendu Palit & Pratima Singh2

Suicides in India are steadily increasing over the last two decades. This period coincides with the time during which the Indian economy has achieved high growth and integrated globally through fundamental structural changes. This paper examines the pattern of suicides in the country as revealed by the official statistics and finds the relative shares of suicides to have increased in several prosperous states, which are also the more globalised states. It finds suicides in most of these states, which have high urban income inequality, to be largest among self-employed (others). While farmer suicides show a welcome declining trend in recent years, the increasing tendency of self-employed (others) to take their lives in India’s prosperous states is a disturbing trend. The paper argues that lack of adequate livelihood opportunities, low skills, limited access to formal credit and absence of social security support are precipitating suicides in the rapidly enlarging informal sector of a restructuring Indian economy.

The first draft of this paper was presented at the Symposium on ‘India and the Age of Crisis’, University of Western Australia, 2-3 February 2012. The authors are grateful to the participants for their valuable comments. Dr Amitendu Palit (isasap@nus.edu.sg) is Head (Partnerships & Programmes) and Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS) in the National University of Singapore (NUS). Ms Pratima Singh (isasps@nus.edu.sg) is Research Associate at the ISAS, NUS. The views expressed in the paper are those of the authors and do not reflect those of the institute they are affiliated with.

Introduction Indiaâ&#x20AC;&#x2122;s success in establishing itself as one of the fastest growing emerging market economies in the world is usually attributed to the liberal market-friendly outward-oriented policies it has adopted over the last two decades. While these policies have been successful in generating high growth, they have also led to major structural changes in the economy. Some of these changes have been hastened and deepened by the economyâ&#x20AC;&#x2122;s gradual integration with the rest of the world. These far-reaching changes can affect existing social and cultural orders leading to occasionally disturbing outcomes like increasing mental distress and increasing suicides. Suicides, unfortunately, have been a rather neglected aspect of research in Indiaâ&#x20AC;&#x2122;s contemporary political economy. The empirical literature on determinants of suicides in contemporary India is almost non-existent. This is surprising considering that suicides in India exhibit a steady rising trend over the last couple of decades. While considerable attention has focused upon the growing incidence of farmer suicides, there has hardly been any systematic effort to examine suicides across regions and occupations. This paper examines the recent trends of suicides in India and tries to identify the economic contexts of such suicides. By studying suicides across states and occupations, we aim to detect whether suicidal trends can be associated with Indian states with distinct economic contexts which could have been shaped by globalisation and economic policy changes.

Review of Literature The literature on determinants of suicides draws inspiration from both sociological and economic constructs. Eminent sociologist Durkheim (1952) argued that suicides are influenced by changes in social orders and structures produced by major economic processes such as industrialisation, technological modernisation and urbanisation. Economic upheavals reflected in cyclical episodes of contraction and expansion tends to disturb existing social orders. Such disturbances increase the risk of suicides with several individuals experiencing a sudden loss of social status and being unable to accept their inabilities for realising aspirations under the changing circumstances (Durkheim 1952; Chang et al 2009). Suicides manifest through complex combinations of economic, social, cultural and political factors, which influence mental health and well-being. Economic globalisation, which has produced far-reaching changes in national social networks and structures by enhancing cross-border exchange and movement of capital, people, technology and ideas between economies, can generate conditions affecting mental health and precipitating suicides. While these conditions and their impacts would vary across age, occupation, gender and other geographical, 2

demographic and socio-economic characteristics of individuals, the potential of globalisation in influencing suicides cannot be overlooked. Globalisation’s effect on suicides requires to be assessed through specific characteristics of national economies, which are influenced by globalisation, and which, in turn, can influence suicides. Some of the common characteristics in this regard are economic growth, income, unemployment, work force participation rates and socio-economic inequality. There are several other contextual determinants such as disruptions in social relationships, cultural values and identities, which can affect mental health and provoke suicides. The empirical literature on determinants of suicides produces mixed evidence on the causality between the different national economic characteristics and suicide mortality. The majority of empirical studies employ panel regression techniques for identifying determinants of suicides for a cross-section of countries over a period of time. Noh (2008) reports incomes to be positively associated with suicide rates in the OECD economies with rising unemployment triggering more suicides in relatively higher-income economies. The finding corroborates similar results obtained earlier by Andrez (2005) for European economies with per capita GDP and unemployment being positively significant in determining suicide mortalities. Introduction of country-specific linear time trends in the estimation, however, produces different results, particularly with respect to the association between growth and suicides. The beneficial effect of economic growth on suicides is also noted by Neumayer (2003) as well as by Zhang et al (2009) for the Chinese economy. Chang et al (2009) find high suicide mortality in East Asia (Japan, Hong Kong and Korea) in the aftermath of the Asian financial crisis of 1997-98 to be associated with rise in unemployment. Unemployment was also found to be significant – in explaining suicides (particularly for males) – by Milner et al (2011) in their empirical investigation of the effect of globalisation on suicides for a cross-section of thirty-five countries comprising both developed and developing economies from Asia-Pacific, Europe and Latin America. Milner et al (2011) also found countries with a high ‘globalisation index’i experiencing more suicides though the statistical significance of the index in explaining suicides was found to reduce when assessed along with other social and economic variables. Finally, both Andrez (2005) and Neumayer (2004) report statistical insignificance of income inequality (as measured by the Gini index) in influencing suicides. Both media and academic attention on the rising trend of suicides in India has tended to focus specifically on suicides of farmers in different parts of the country. A fairly large body of literature has examined the trend and pattern of farmer suicides on the basis of statistics provided by official agencies such as the National Crime Records Bureau (NCRB) of the Ministry of Home Affairs in India and also on the basis of select field surveys in states showing higher incidences of farmer suicides. Sahay (2010) presents a detailed review of the literature and concludes that neo-liberal policies introduced since the adoption of economic reforms in India since the early 1990s (the same time from when India began adopting an outward-oriented approach towards economic growth leading to gradual integration of the 3

Indian economy with the rest of the world) and a steady withdrawal of the state from agriculture, manifesting in low public expenditures, have accentuated economic vulnerabilities for farmers, particularly on occasions of crop failures. Nagaraj (2008)â&#x20AC;&#x2122;s detailed analysis of the regional trends in farmer suicides on the basis of NCRB statistics identifies a number of contiguous, dry, semi-arid regions within the states of Maharashtra, Karnataka, Andhra Pradesh and Madhya Pradesh, where incidence of farmer suicides during 1997-2006 is particularly high. Nagaraj (2008) emphasises the lack of adequate alternative non-farm livelihood opportunities, particularly during times of agrarian crisis, as a critical factor in enhancing existing vulnerabilities like indebtedness and precipitating suicides. Menon (2006) points to the shift to cash crops from food crops, sharp increase in operational costs of farming and lack of institutional credit support as major factors driving suicides from a select sample of households of suicide victims in Andhra Pradesh. Rising indebtedness and the inability to manage the adverse outcomes of crop failures are key determinants of farmer suicides as highlighted by Mohanty (2005) in his analysis of farmer suicides in Maharashtra. Despite the focus on farmer suicides in India, the absence of attention on the non-farmer suicides in the country, particularly those among the employed and professionals is rather surprising. While agrarian suicides in India are serious concerns, it is equally important to analyse whether generic determinants such as lack of alternative employment opportunities, financial indebtedness, inadequate access to formal credit, which influence farmer suicides, are influencing suicides across other occupations as well, leading to overall rates of higher suicides in the country. Indeed, a comprehensive explanation of the rising trend of suicides in India must cover multiple occupations and examine the impact of a complex group of interconnected factors across Indiaâ&#x20AC;&#x2122;s geographical regions. Such an analysis conducted in the backdrop of a globalising and structurally transforming developing economy like India must also probe if economic prosperity in India has not resulted in commensurate economic security of individuals and households (Palit and Singh, 2011) and whether the dichotomy in this regard would continue to influence suicides in the foreseeable future.

Suicides and Economic Factors Trend Growth in Suicides: All-India The reference period for empirical analysis of suicides in India in this section has been deliberately chosen as 1991-2010. India began adopting markedly outward-oriented policies for taking advantage of opportunities created by economic globalisation from the beginning of the decade of 1990s. The last two decades have also witnessed considerable changes in organisation of production in different sectors as well as changes in nature of economic institutions, which have arisen from the Indian economy embracing a more market-oriented and globalised style of functioning. It is therefore appropriate for this paper to focus on the 4

last couple of decades. The All-India trend of suicides reported in Figures 1 and 2a and 2b are based on statistics provided by the National Crime Records Bureau (NCRB). Figure 1: Year-on-Year (Y-O-Y) Growth (%) in Suicides: All India (1991-2010) 10 8 6 4 2 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-2 -4 Source: Computed from the annual publications on Accidental Deaths and Suicides in India, National Crime Records Bureau.

Figure 1 shows the Y-o-Y growth in suicides in India during the last couple of decades. The first decade i.e. the 1990s shows a highly fluctuating trend in the Y-o-Y growth. However, a firmer positive upward trajectory is clearly seen taking shape during the first decade of the new millennium. Indeed, the difference in trend pattern of growth in suicides between the two decades is easily discernible from Figures 2a & 2b. Figure 2a: Year-on-Year (Y-O-Y) Growth (%) in Suicides: All India (1991-2000) 10 8 6 4 2 0 1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

-2 -4 Source: Computed from the annual publications on Accidental Deaths and Suicides in India, National Crime Records Bureau.

Figure 2b: Year-on-Year (Y-O-Y) Growth (%) in Suicides: All India (2001-2010) 7 6 5 4 3 2 1 0 -1

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: Computed from the annual publications on Accidental Deaths and Suicides in India, National Crime Records Bureau.

Two differences in the decadal patterns of growth rate in suicides are worth noting. First, the growth rate in suicides exhibited greater volatility during the 1990s compared with the last decade. During the 1990s, the Y-O-Y growth ranged from -1.8 per cent to 9.3 per cent underlining annual variation over a band of more than 10 percentage points. The growth rate became negative during three years. In contrast, the fluctuation became less and the range became narrower during the decade of the 2000 when the band cramped from -0.1 to 5.9 per cent showing a dispersion range of around six percentage points. Second, as mentioned earlier, the trend in Y-O-Y growth shows a positive and upward trajectory during the decade of 2000 as compared with the 1990s where the trend is marginally negative, almost tending to be flat (Figures 2a & 2b). Thus while there were more instances of â&#x20AC;&#x2DC;high growthâ&#x20AC;&#x2122; suicide years during the 1990s, growth in suicides in India acquired a more stable trajectory during the last decade. Such stability, however, has been accompanied by a steady upward trend in growth of suicidesii. Suicides and GDP Growth An obvious academic curiosity arising at this juncture is whether Indiaâ&#x20AC;&#x2122;s success in shifting to a fairly stable and sustained high-growth path since the beginning of economic reforms and particularly during the last decade, has any association with the trend pattern of suicides. As mentioned earlier in Section on Review of Literature, the relationship between economic growth and suicides has been a subject of investigation in the empirical literature on determinants of suicide mortality. Do the trend rates of growth in GDP and suicides in India bear any similarities?

Figure 3a: Y-O-Y Growth (%) in GDP and Suicides: All India (1991-2000) 10 8

6 4 2 0 -2

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

-4 Suicides(%)

GDP(%)

Linear (Suicides(%))

Linear (GDP(%))

Source: Computed from the annual publications on Accidental Deaths and Suicides in India, National Crime Records Bureau and the Handbook of Statistics on the Indian Economy, Reserve Bank of India.

Figure 3b: Y-O-Y Growth (%) in GDP and Suicides: All India (2001-2010) 12 10 8

6 4 2 0 -2

2001

2002 Suicides(%)

2003

2004 GDP(%)

2005

2006

2007

Linear (Suicides(%))

2008

2009

2010

Linear (GDP(%))

Source: Computed from the annual publications on Accidental Deaths and Suicides in India, National Crime Records Bureau and the Handbook of Statistics on the Indian Economy, Reserve Bank of India.

Figures 3a & 3b depict two different stylised observations with respect to trend rates of growth in GDP (measured at constant prices) and suicides. Figure 3a, which reflects the trends during 1991-2000, shows two different trajectories of trend growth. The Y-O-Y growth in GDP shows a positive trend and diverges from a negative trend displayed by Y-OY growth in suicides. Clearly, there is no observed structural similarity between the two trends. However, Figure 3b reveals a different pattern. Both GDP and suicide growth reflect positive upward trends with the trend lines having positive coefficients. This indicates that suicides in India have been showing a distinct stable and upward trajectory at a time when GDP growth in India is also showing a similar trajectory. A structural break in the correlation is noticed for the last two years â&#x20AC;&#x201C; 2009 and 2010. Suicide growth continues to show an upward trend despite the lower-than-trend rate of growth in GDP. This could be due to determinants of suicides continuing to remain active exogenously. 7

It would, however, be presumptuous to conclude from the above that suicides in India have a positive association with high GDP growth. The presence of such an association (or the absence of it) requires deeper examination of the trends in suicide particularly at disaggregated state-level. But before embarking on a more detailed analysis, it is insightful to note that India has been experiencing a higher growth rate of suicides at a time when it has achieved considerable economic success in terms of stepping on to a growth trajectory, which is historically higher than what it has achieved in the past. State-wise Disaggregated Profiles Clear impressions on trends and patterns of suicides in India can be obtained only by studying suicides at state-level. Table 1 shows the aggregate suicides in 14 major states of India during the period 1991-2010. Aggregate suicides for these states are also shown for two decomposed periods: 1991-2000 and 2001-2010. The 14 states in Table 1 are those that have at least one per cent share in total suicides (combined suicides of 25 states excluding Chhattisgarh, Jharkhand and Uttaranchal and also the seven union territories)iii. The one per cent criteria results in 11 states being left out of Table: Arunachal Pradesh, Goa, Himachal Pradesh, Jammu & Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Punjab, Sikkim and Tripura. The remaining 14 states in Table 1 – Andhra Pradesh, Assam, Bihar, Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Orissa, Tamil Nadu, Rajasthan, Uttar Pradesh and West Bengal – with at least one per cent or more share in total suicides are the key ‘suicide’ states in the country. They account for 97.6 per cent of total suicides during 1991-2010 and 97.7 per cent and 97.5 per cent of total suicides during 1991-2000 and 20012010 respectively. Table 1: State-wise Suicides during 1991-2010

S No.

1 2 3 4 5 6 7 8 9 10

State

Andhra Pradesh Assam Bihar Gujarat Haryana Karnataka Kerala Madhya Pradesh Maharashtra Orissa

Total (19912010)

Rank

Share (%)

Total (19912000)

Rank

Share (%)

213795 54416 20516 93263 38138 221262 177631

5 12 14 8 13 4 6

148638 264303 76102

7 2 10

10.6 2.7 1.0 4.6 1.9 11.0 8.9

80290 25937 12825 40578 14773 99672 86616

6 12 14 9 13 3 5

7.4 13.1 3.8

77365 115973 32922

7 2 10

Total (20012010)

Rank

Share (%)

8.8 2.8 1.4 4.6 1.6 10.9 9.5

133505 28479 7691 52685 23365 121590 91015

3 12 14 8 13 5 6

12.1 2.6 0.7 4.8 2.1 11.0 8.2

8.5 12.7 3.6

71273 148330 43180

7 1 9

6.6 13.4 3.9

11 12 13 14

Tamil Nadu Rajasthan Uttar Pradesh West Bengal

226077 70802

3 11

11.2 3.5

95154 28944

4 11

10.4 3.2

130923 41858

4 10

11.8 3.8

84493 276431

9 1

4.2 13.7

47078 131893

8 1

5.2 14.5

37415 144538

11 2

3.4 13.1

Source: Computed from the annual publications on Accidental Deaths and Suicides in India, National Crime Records Bureau. Note: Shares reflect the proportion of suicides in each state in aggregate suicides of 25 states. The shares are decadal averages. States that have been excluded from the aggregate computation are Chhattisgarh, Jharkhand and Uttaranchal.

West Bengal recorded the highest number of suicides (276,431; 13.7 per cent) in the country during the last two decades with Maharashtra (264,303; 13.1 per cent) and Tamil Nadu (226,077; 11.2 per cent) at second and third positions respectively. Karnataka and Andhra Pradesh are two other states accounting for more than 10 per cent shares in total suicides and are ranked fourth and fifth. Kerala, Madhya Pradesh, Gujarat, Uttar Pradesh and Orissa are ranked from sixth to tenth respectively. Decadal comparisons reveal West Bengal’s share in total suicides to have reduced from 14.5 per cent during 1991-2000 to 13.1 per cent during 2001-2010. While West Bengal’s share in total suicides has reduced by more than one percentage point between the two decades, those of Andhra Pradesh, Tamil Nadu, Maharashtra, Haryana, Rajasthan, Orissa, Gujarat and Karnataka have increased. For Orissa, Gujarat and Karnataka, the increases have been marginal. The relatively greater increases (more than 0.5 percentage points) are for Andhra, Tamil Nadu and Maharashtra. Andhra’ share in total suicides has increased by 2.3 percentage points between the two decades, while those of Tamil Nadu and Maharashtra have increased by 1.4 and 0.7 percentage points respectively (Table 1). These increases have resulted in changes in relative rankings between states with Andhra rising to third position from sixth earlier and Maharashtra displacing West Bengal as the highest ‘suicide’ state during the period 2001-2010. Tamil Nadu and Haryana’s ranks have remained unchanged between the two decades despite their shares in total suicides increasing. A marginal increase of 0.2 per cent in share has resulted in Gujarat’s rank changing from ninth to eighth; however, a 0.1 per cent increase in share has resulted in Karnataka’s rank dropping from third to fifth. While shares of several states in total suicides have increased over the two decades, there are some states in Table 1 whose shares have declined. These include (other than West Bengal), Assam, Bihar, Kerala, Madhya Pradeshiv and Uttar Pradesh. Uttar Pradesh and Madhya Pradesh show drops of 1.8 and 1.9 percentage points respectively in their shares. For Uttar Pradesh, this has led to a change in relative rankings with the state moving out of the top 10 ‘suicide’ states in the last decade. Madhya Pradesh, however, has retained the same rank (Table 1). Declines in shares of Kerala and Bihar have also been substantive, while that of Assam has been marginal. 9

The decadal trend of suicides reveals an interesting insight. States, whose shares in total suicides have increased during the last decade, include some which are recognised as the better economic performers. Andhra, Tamil Nadu, Maharashtra, Gujarat, Haryana and Karnataka are Indiaâ&#x20AC;&#x2122;s more prosperous states in terms of their per capita incomes being higher than the all-India average (Table 2). As explained later, the gaps between per capita incomes of these states and the national average per capita income have progressively enlarged over time (Figure 4) underpinning the fact that these states are pulling ahead of the rest of the states in the country. Rajasthan and Orissa are the only two states with increasing shares in total suicides whose per capita incomes from the national average are falling behind over time. On the other hand, among states experiencing reductions in shares in total suicides between the two decades, Assam, Bihar, Madhya Pradesh, Uttar Pradesh and West Bengal not only have per capita incomes lower than the national average and are therefore states that are less prosperous or relatively poor, the income gap between these states and the more prosperous ones are becoming larger over time. Kerala, however, is a notable exception to the trend. It is a rare state whose share in suicides has reduced in spite of its per capita income being higher than the national average. Table 2: State-wise Per Capita Incomes (INR) S. No. State 1993-94 1 Andhra Pradesh 7416 2 Assam 5715 3 Bihar 3037 4 Gujarat 9796 5 Haryana 11079 6 Karnataka 7838 7 Kerala 7983 8 Madhya Pradesh 6584 9 Maharashtra 12183 10 Orissa 4896 11 Rajasthan 6182 12 Tamil Nadu 8955 13 Uttar Pradesh 5066 14 West Bengal 6756 15 All India 7690

1999-2000 15427 12282 5786 18864 23229 17502 19461 12384 23011 10567 13619 19432 9749 15888 15881

2009-2010 36345 20279 11799 49030 55214 37609 46511 19736 57458 24098 23653 46692 16411 30065 33731

Source: Central Statistical Organisation; Note: Data earlier than 1993-94 was avoided because of the series being on a different base year. The data reported in the above table is for base year 1993-94.

Figure 4: Deviations of State Per-Capita Incomes from All India Income (INR) 25000 20000 15000 10000 5000 0 -5000 -10000 -15000 1993-94

1999-2000

2009-2010

Source: Computed from per capita incomes at current prices reported by the CSO. Note: Deviations are measured as the difference between per capita income of a particular state and the All India per capita income for the year.

The state-wise pattern of suicides decomposed over the last couple of decades suggests that in a liberalising and globalising Indian economy, suicides are increasing relatively more in states becoming more prosperous and are declining in states becoming relatively poor. States becoming richer and poorer are respectively those whose income deviations from the AllIndia level are increasing on either side. There are some exceptions to these trends though (e.g. Rajasthan, Orissa, Kerala). But on the whole, the observed causality between the richer states (incidentally these are also states that are more globally integrated and benefitting from outward-oriented economic policies) and greater incidence of suicides can hardly be overlooked. The obvious question arising at this juncture is why the economically better-off states are showing relatively higher incidence of suicides. While suicides would be determined by a complex combination of factors, there might be some inherent similarities in economic structures of Indiaâ&#x20AC;&#x2122;s better-off states which can provoke suicides and it is important to identify these triggers. In this respect, it is important to examine the nature of economic inequalities in Indian states and whether any common pattern between these inequalities and suicide mortality can be detected. State-wise Rural and Urban Inequality Indiaâ&#x20AC;&#x2122;s economic growth during the last couple of decades has been characterised by increasing inequality in income and consumption. In this respect, the iniquitous nature of growth is not different from what has been experienced by other major emerging market economies like Argentina, Brazil, China, Indonesia, Russia and South Africa. Inequalities 11

measured by Gini coefficients of household incomes in these economies not only show the level of existing inequalities to be much higher than those in the OECD economies, but also find them increasing over time in several instances (OECD 2011). For India, the Gini coefficient is found to have increased from 0.32 in the early 1990s to 0.38 by the late 2000sv highlighting a fairly sharp increase in income inequality in the post-reform period. These results are corroborated by similar estimates made by other agencies and researchers. The Planning Commission of Indiaâ&#x20AC;&#x2122;s estimates of Gini coefficients of distribution of household consumption for rural and urban areas show these to have increased from 0.28 to 0.30 in rural areas and 0.34 to 0.37 in urban areas during 1993-94 to 2004-05 (Planning Commission 2011). Similar results for the same period are reported by Sarkar and Mehta (2010). In addition to these results reporting inequality at the all-India level, Ahluwalia (2000) reports inter-state inequality to have increased significantly during the period 1980-81 to 1997-98. Accentuation of inequalities has several manifestations. It not only leads to greater inequality among geographical units, but also within these units. For India, the implications point to increasing inter-state, as well as intra-state inequalities. In addition, there are inequalities visible between rural and urban areas and different occupational groups (e.g. agriculturalists, business, self-employed) as well as within these groups. Clearly economic inequalities have different layers some of which could be overlapping. In the context of this paper analysing suicides in Indian states, it is imperative to look closely at the nature of existing inequalities in different states and their potential roles in triggering suicides. Table 3 reports the Gini coefficients for 14 states in the country along with the All-India coefficient. The latest estimates for Gini coefficients are available only till 2004-05. An interesting point to note from Table 3 would be whether most of the states displaying rising suicides rates, which are also the more affluent ones as noted earlier, are also the ones showing higher income inequalities over time. For Andhra, Gujarat, Haryana, Karnataka, Maharashtra and Tamil Nadu, Gini coefficients in urban areas have increased during 1993-94 to 2004-05, while those in rural areas have also increased for most during the same periodvi. For some states such as Andhra and Haryana, the increase in urban Gini coefficient has been particularly sharp (Table 3). Other than Andhra and Maharashtra, urban Gini coefficients of none of these six states are as high as the All-India urban value of 0.37. On the other hand, rural inequalities, as reflected by the rural Gini coefficients, are found higher than the AllIndia level for Haryana, Maharashtra and Tamil Nadu. For these six states, which are also the more economically prosperous states and showing rising incidence of suicides over time, urban inequalities are higher than rural inequalities with the former also rising faster than the latter. Urban inequality has also increased rapidly in Rajasthan and Orissa, the two other states showing increasing trend of suicides. While the rural Gini coefficient has increased sharply in Orissa, it has declined in Rajasthan (Table 3).

Table 3: State-wise Gini Coefficients for Rural and Urban Areas S. No.

State

1993-94 Rural Urban

1 Andhra Pradesh 0.29 0.32 2 Assam 0.18 0.29 3 Bihar 0.22 0.31 4 Gujarat 0.24 0.29 5 Haryana 0.30 0.28 6 Karnataka 0.27 0.32 7 Kerala 0.29 0.34 8 Madhya Pradesh 0.28 0.33 9 Maharashtra 0.30 0.35 10 Orissa 0.24 0.30 11 Rajasthan 0.26 0.29 12 Tamil Nadu 0.31 0.34 13 Uttar Pradesh 0.28 0.32 14 West Bengal 0.25 0.33 15 All India 0.28 0.34 Source: The Planning Commission, Government of India 2011.

1999-00 Rural Urban

2004-05 Rural Urban

0.24 0.20 0.21 0.23 0.24 0.24 0.27 0.24 0.26 0.24 0.21 0.28 0.25 0.22

0.31 0.31 0.32 0.29 0.29 0.32 0.32 0.32 0.35 0.29 0.28 0.38 0.33 0.34

0.29 0.19 0.20 0.27 0.32 0.26 0.34 0.27 0.31 0.28 0.25 0.32 0.29 0.27

0.37 0.32 0.33 0.31 0.36 0.36 0.40 0.39 0.37 0.35 0.37 0.36 0.37 0.38

0.26

0.34

0.30

0.37

The trend of urban inequality rising faster than rural inequality is also visible for the remaining states in Table 3 â&#x20AC;&#x201C; Assam, Bihar, Kerala, Madhya Pradesh, Uttar Pradesh and West Bengal â&#x20AC;&#x201C; which are less prosperous and whose shares in total suicides are decreasing over time. The increase in values of Gini coefficients for urban areas in all these states has been particularly pronounced for Kerala, Madhya Pradesh, Uttar Pradesh and West Bengal. Rural inequality in some of these states has actually declined such as in Bihar and Madhya Pradesh. Given that the Gini coefficients are available only till 2004-05 and the suicide and income trends reported in this paper are till 2009-10, it is difficult to arrive at a composite explanation of the trends seen in state-wise suicides in terms of their respective economic growth, income and inequality over the same period of time. However, there is no denying that rising urban inequality is a feature that is becoming increasingly evident in states that are showing both increasing and decreasing trends in suicides. Indeed, the causality between urban inequality and suicides in India requires deeper examination. More analysis is also required on pattern of growth of income inequality within high-growth states vis-a-vis in low growth ones for obtaining clearer insights on the nexus between economic growth, income inequality and suicides. State-wise Suicides: The Occupational Dimension The categorisation of suicide victims into different occupational categories is being reported in the NCRB statistics from the year 1996. The suicides are distributed into different categories: housewife, service (government), service (private), public sector undertaking (PSU), student, unemployed, self-employed (business), self-employed (professional), self13

employed (farming/agriculture), self-employed (others), retired persons and ‘others’. Our analysis does not include housewives, retired persons and ‘others’ and studies the trends of suicides for the remaining categories. For analytical convenience, the statistical examination groups service (government) and PSU suicide victims in one category. Figure 5 reports the trends in shares of suicides in total suicides for eight occupational categories. Total suicides here represent total suicides in the 14 states of Table 1 for each occupational category. Figure 5: Shares (%) of Different Occupations in Total Suicides 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Govt+PSU

private

students

Unempld

Self-emp(bus)

Self-emp(prof)

Self-emp(fmg)

Self-emp(others)

Source: Computed from the annual publications on Accidental Deaths and Suicides in India, National Crime Records Bureau.

The category of self-employed (others) has the highest share in total suicides followed by self-employment (farming/agriculture), service (private) and unemployed. These four categories had shares of 32.5 per cent, 18.2 per cent, 12 per cent and 10 per cent respectively in total suicides in 2010. The NCRB statistics do not clearly define which specific selfemployment occupations are included in ‘others’. Intuitively, however, since the selfemployed in business, professional and agriculture are categorised separately, the ‘others’ are expected to include those who are not classifiable in any of the three above and would therefore cover a wide spectrum of trades essentially in the informal sector. Indeed, it is interesting to note that share of suicide victims from self-employed (others) has always been higher than the corresponding share of self-employed (farming) in suicides, except for the year 1996. At the same time, it is also important to note that the rising trend in share of farmer suicides has given way to a steadily declining trend from 2004. From a share of 24.6 per cent in total suicides in 2004, the share of farmer suicides in the total has reduced to 18.2 per cent in 2010. On the other hand, the share of self-employed (others) in the total suicides has been steadily increasing throughout the period (except for 2008 and 2009, when in spite of brief reductions it still remained way above other categories). This category now accounts for 32.5 per cent of total suicides compared with 21.6 per cent in 1996. It is important to 14

point out here that by definition the group of self-employment (farming/agriculture) includes only those farmers or cultivators that own land. Many of the agricultural labourers and farmers that do not own land are not included in this category and could well be slotted in the self-employed (others) group. Thus even though the share of self-employed (farming) is falling it is difficult to conclude that farmer suicides are genuinely decreasing. While self-employed (others) and farmers accounted for more than half of the total suicides in the major 14 â&#x20AC;&#x2DC;suicideâ&#x20AC;&#x2122; states in the country in 2010 and are therefore the categories that need to be specially examined, trends in other occupational categories are also important to note. Though private service suicides account for 12 per cent of total suicides and are the third highest category, there have not been significant variations in the share of these suicides with the latter varying between 11.1-13.1 per cent during the reported period. Share of suicides by the unemployed, again, while not showing significant variation over the years, does show a declining trend from the middle of last decade. A similar weak trend, though upward, is noticed for self-employment (business) with the share of this particular category rising to almost 10 per cent of total suicides in 2009, compared with 7.4 per cent in 1996. Both self-employed (professionals) and the combined category of government service and PSUs show declines in their shares in total suicides. Table 4: Average State-wise Shares (%) of Occupations in Total Suicides (1996-2010)

Andhra Pradesh Assam Bihar Gujarat Haryana Karnataka Kerala Madhya Pradesh Maharashtra Orissa Rajasthan Tamil Nadu Uttar Pradesh West Bengal Overall

Govt/ PSU

Private

0.059

0.116

0.066

0.078

0.100

0.067

0.263

0.251

0.078

0.059

0.100

0.087

0.159

0.048

0.115

0.354

0.062

0.085

0.183

0.163

0.058

0.033

0.172

0.244

0.050

0.143

0.089

0.159

0.083

0.109

0.185

0.182

0.109

0.167

0.105

0.198

0.063

0.028

0.151

0.179

0.056

0.127

0.060

0.072

0.073

0.024

0.263

0.324

0.039

0.075

0.046

0.223

0.071

0.029

0.185

0.331

0.067

0.082

0.075

0.072

0.068

0.044

0.337

0.255

0.046

0.141

0.083

0.091

0.044

0.039

0.334

0.222

0.057

0.087

0. 091

0.147

0.090

0.027

0.106

0.393

0.049

0.138

0.075

0.080

0.073

0.025

0.281

0.280

0.071

0.157

0.050

0.212

0.101

0.038

0.118

0.253

0.061

0.110

0.101

0.142

0.069

0.029

0.238

0.250

0.107

0.127

0.118

0.117

0.115

0.039

0.140

0.238

0.063

0.121

0.077

0.125

0.083

0.041

0.222

0.269

Students

Unempld

Selfemp (bus)

Selfemp Selfemp (pro) (fmg)

Selfemp (others)

Source: Computed from the annual publications on Accidental Deaths and Suicides in India, National Crime Records Bureau.

Table 4 shows the state-wise average shares of different occupations in total suicides for the period 1996-2010. It also gives the cumulative or overall averages of the different categories. Self-employment (others) has the highest average share among all categories in Assam, Bihar, Karnataka, Kerala, Orissa, Tamil Nadu, Uttar Pradesh and West Bengal. Andhra, Gujarat, Madhya Pradesh, Maharashtra and Rajasthan show the highest shares for farmer suicides, while Haryana is the only state with highest average suicide share of the unemployed. A category-wise comparison of the state averages with the overall average should provide an idea of the states in which suicides from a particular occupational category are figuring more prominently than they are doing so at an aggregate level. For self-employment (others), the category occupying the largest share in the aggregate suicides, five states â&#x20AC;&#x201C; Assam (35.4 per cent), Karnataka (32.4 per cent), Kerala (33.1 per cent), Orissa (39.3 per cent) and Rajasthan (28 per cent) â&#x20AC;&#x201C; have individual state shares higher than the overall average (26.9 per cent) (Table 4). Thus the suicide mortality of self-employed (others) in these five states are relatively more than the rest in the group of 14. On the other hand, Andhra (26.3 per cent), Karnataka (26.3 per cent), Madhya Pradesh (33.7 per cent), Maharashtra (33.4 per cent), Rajasthan (28.1 per cent) and Uttar Pradesh (23.8 per cent), are the states whose individual shares of farmer suicides are more than the overall state share (22.2 per cent). These are states where suicide mortality of farmers is more than that of the others. It is important, however, to note that a higher average share of the state vis-Ă -vis the overall average for a particular category does not necessarily imply that the highest number of suicides in that state take place in the particular category. An example is Uttar Pradesh where despite a higher than overall average state share in farming suicides, self-employed (others) have a greater share in total suicides of the state. Assam (15.9 per cent), West Bengal (11.5 per cent), Tamil Nadu (10.1 per cent) Andhra (10 per cent) and Orissa (nine per cent) have higher than overall average state shares for suicides in self-employed (business). Kerala (22.3 per cent), Tamil Nadu (21.2 per cent), Haryana (19.8 per cent), Bihar (16.3 per cent), Gujarat (15.9 per cent) and Uttar Pradesh (14.2 per cent) are the higher states for unemployed suicides. Haryana (16.7 per cent), Tamil Nadu (15.7 per cent), Gujarat (14.3 per cent), Rajasthan (13.8 per cent), Karnataka and West Bengal (12.7 per cent each) have similar higher shares for private business. Bihar (18.3 per cent), West Bengal (11.8 per cent), Haryana (10.5 per cent), Uttar Pradesh (10.1 per cent), Assam (10 per cent), Orissa (9.1 per cent) and Maharashtra (8.3 per cent) have higher than overall shares for student suicides.

Summary and Analysis Suicides in India have been increasing during the last two decades. From a rather inconsistent and fluctuating trend pattern during the 1990s, growth in suicides has assumed a stable and positive trajectory since the middle of the last decade. The assumption of the positive trajectory is found to have coincided with a period exhibiting similar positive and stable trend pattern of GDP growth in India. An examination of the patterns of suicides in the 14 significant ‘suicide’ states of the country reveals gradual but distinct changes in shares of states in total suicides between the two decades. Many of the states whose shares in total suicides have increased between the two decades are India’s more prosperous and better-off states – Andhra, Haryana, Gujarat, Karnataka, Maharashtra and Tamil Nadu – with per capita incomes higher than the All-India average and the income differential increasing over time. On the other hand, most states experiencing a decline in suicides – Assam, Bihar, Madhya Pradesh, Uttar Pradesh and West Bengal – are the relatively poorer states with per capita incomes lower than the national average. There are, however, exceptions to both the observed causalities. Rajasthan and Orissa are low-income and relatively poor states showing increasing incidence of suicides. On the other hand, Kerala, a state with relatively higher per capita income, is showing a lower share of suicides between the two decades. Notwithstanding the exceptions, the tendency on part of many of the better-off states to have higher shares of suicide victims is noteworthy. Our examination of income inequality in these states shows urban inequalities to have accentuated over time particularly in Andhra, Haryana and Karnataka. Rural inequalities, in contrast, have increased by a lesser extent in these states. The differing pace of increase in inequality between urban and rural areas, however, is not exclusive to only better-off states showing rising suicide shares. Kerala has experienced sharp increase in urban income inequality as well. Urban inequality has also risen sharply in relatively less prosperous states of Madhya Pradesh, Orissa, Rajasthan, Uttar Pradesh and West Bengal. Suicide shares of some of these states are increasing, while for others it is decreasing. Thus the observed tendency of relative share of suicides increasing in several better-off states and vice-versa cannot be entirely explained by increasing urban inequality, which cuts across states irrespective of income levels. The occupational pattern of suicide victims in the high-‘suicide’ states points to domination by the category of self-employed (others) followed by farmers. In eight of the 14 high ‘suicide’ states, suicides are dominated by self-employed (others). These states are a mix of high-income (Karnataka, Kerala, Tamil Nadu) and low-income (Assam, Bihar, Orissa, Uttar Pradesh, West Bengal) states. They are also mix of states showing high shares (Karnataka, Tamil Nadu and Orissa) and low shares (Assam, Bihar, Kerala, Uttar Pradesh and West Bengal) respectively in total suicides. Thus high suicides by self-employment (others) are clearly not exclusive to high-income, high-‘suicide’ states. Similarly, farmer suicides 17

dominate high-income, rising-‘suicide’ (Andhra, Gujarat, Maharashtra), low-income, rising‘suicide’ (Rajasthan) and low-income, falling-‘suicide’ (Madhya Pradesh) states. It is evident that while some broad conclusions about the trend pattern of suicides in India can be identified in terms of state-level incomes, inequality and occupations of suicide victims, it is difficult to pin these to an exhaustive causality framework that would conclusively explain suicides in India. Our analysis of the trend of suicides in India across the last couple of decades, while revealing some interesting insights, also raises questions, which need to be addressed at the micro-level. Indeed, as the empirical literature on determinants of suicides reveals, most of these determinants are expected to be exerting their influences on suicides at the micro or state-specific levels. A comprehensive explanation of suicides in India across time and states therefore needs to be attempted through more detailed micro-level empirical examinations.

Conclusion The incidence of suicides in India has increased during the last couple of decades, which mark India’s greater integration with the world economy and increasing shift towards production and distribution characterised by lesser presence of the state. However, it would be erroneous to attribute rising suicides directly to globalisation till more convincing empirical evidence is obtained on the causality. There might well be various national, regional and local factors at work, which are affecting mental health and precipitating suicides in the country. Greater integration with the world economy might have only marginal effects, if none at all, on these factors. The fact that suicides are increasing is a disturbing feature and reflects that vulnerabilities in the economy and society are increasing. While the common impression might be that suicide mortality would be higher in Indian states that are economically backward and lacking adequate livelihood opportunities, our analysis reveals that many of the better-off, higherincome states are showing increasing trends of suicide. Suicides in most of these states (as well as in some low-income ones) are being driven by high suicides of self-employed (others), who are expected to be involved largely with the informal sector. India’s high economic growth in recent decades has been accompanied by rising inequality, particularly in urban areas, and extensive informalisation of the economy. Lack of adequate livelihood opportunities, low skills, inadequate access to formal credit and lack of social security support often combine to produce destructive outcomes like suicides. It is important to examine how these factors are instigating suicides in the informal segments of the economy, particularly in the economically better-off states.

Much has been written and spoken on farmer suicides in India. It is encouraging to note that these suicides are showing a declining trend since the middle of last decade. It would be interesting to examine whether this is a result of the increasing spread of the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), which has been assuring employment support in rural areas. Similar state interventions in form of social security support are yet to be implemented in urban areas, which are more iniquitous, and can result in greater and quicker frustrations among residents due to inabilities to meet aspirations and living standards of peers. Future empirical research on India’s suicides and their association with globalisation needs to employ structured estimation frameworks for determining the roles of different economic and social variables in influencing suicides. Such analysis needs to be carried out for individual regions and states for incorporating area-specific demographic, social and cultural features in the estimation framework. Determinants of suicides are not only economic and the empirical estimation framework should be flexible and robust for accommodating these factors. Research on suicides also needs to look more closely at the non-farm occupations, particularly in the informal sector, which, till now, have escaped attention, either due to paucity of data or interest. .....

NOTES i The globalisation index comprises three sub-indices measuring ‘economic globalisation’ in terms of the country’s integration in the world economy, social movement and contact as reflected in the increasing scale of human interaction and information flows and finally social development which includes all processes influenced by globalisation (e.g. computer ownership, telephone coverage etc). See Milner et al (2011) for more details on the methodological construct of the index. ii An alternative empirical approach for identifying the trend pattern in growth rate of suicides is to normalise the growth rate in absolute numbers by deflating them with the corresponding increase in population. This approach has not been employed in this paper. The authors intend to employ the methodology in their future work on the subject. iii Chhattisgarh, Jharkhand and Uttaranchal are three new states that have been carved out of Madhya Pradesh, Bihar and Uttar Pradesh respectively. These have been excluded because they do not figure in the time series of suicides from 1991and can present problems of double-counting in the decadal analysis. The Union Territories have also been left out for avoiding inconsistencies in enumeration. iv The fall in the share of suicides for Madhya Pradesh and Bihar could be attributed to the carving out of the states of Chhattisgarh and Jharkhand. v Argentina, China, Russia and South Africa’s Gini levels are reported to have increased from 0.45 to 0.46, 0.33 to 0.41, 0.40 to 0.42 and 0.67 to 0.70 respectively during the period. Brazil’s and Indonesia’s Gini coefficients have declined from 0.61 to 0.55 and 0.39 to 0.37 respectively. The current Gini coefficients of all these economies are higher than the OECD level of 0.31 (OECD 2011). vi Andhra and Karnataka do not show increase in Gini coefficients for rural areas during the period 1993-94 to 2004-05.

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Palit, A and Singh, P (2011), ‘Suicides in India: The Economics at Work’, ISAS Insight, 131, 25 August 2011; Institute of South Asian Studies (ISAS), National University of Singapore; http://www.isas.nus.edu.sg/Attachments/PublisherAttachment/ISAS_Insights_131_-_Email__Suicides_in_India_07092011105715.pdf (Accessed on 21 January 2011) Planning Commission (2011), Data for Use of Deputy Chairman, Planning Commission, Page 42; Planning Commission, November 1; http://planningcommission.nic.in/data /datatable/0211/Databook_comp.pdf Accessed on 11 January 2011. Sarkar, Sandip & Mehta, Balwant Singh (2010), ‘Income Inequality in India: Pre- and PostReform Periods’, Economic and Political Weekly, XLV (37), 45-55 Sahay, Gaurang N. (2010), ‘Globalisation, Liberalisation and Agrarian Distress: A Study of Suicides among Farmers in India’, Paper presented at VI Global Labour University Conference at Berlin, 14-16 September; http://www.global-labour-university.org/fileadmin /GLU_conference_2010/papers/51._Globalisation__Liberalisation_and_Agrarian_Distress..p df (Accessed on 21 January 2012). Zhang, J, Ma J., Jia C., Sun J., Guo, X, Xu, A and Li, W (2010), ‘Economic growth and suicide rate changes: A case in China from 1982 to 2005’, European Psychiatry 25(2010), 159-163, Elsevier Masson SAS.

ISAS Working Paper No. 152 – 12 July 2012 469A Bukit Timah Road #07-01 Tower Block National University of Singapore Singapore 259770 Tel: 6516 4239 / 6516 6179 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Iran’s diplomacy towards Afghanistan: A stabilising factor ? Didier Chaudet1

Abstract Iran is often seen only as a ‘rogue state’ by the United States (US) and its Western allies. But the idea that one of the oldest civilisations is now ruled by ‘mullahs’ with no rational vision of international affairs is rather simplistic. The fact is that, even if some in the Iranian political elite can be seen as ‘hawks’ or leaders of a nationalist ‘neoconservative’ movement, Tehran is rather pragmatic in international affairs. Of course, the Islamic Republic can be protectively aggressive if it is provoked or feels threatened, but its first goal is to protect itself as a regime and as a nation. The best example of this can be seen when one takes a close look at the Afghanistan-Iran relationship. What can be seen in the recent past as well as in the post-9/11 period is that the Iranian thinking towards its neighbour is dictated by a sense of realism. In that perspective, Iran can be a force for stability in Afghanistan immediately after 2014… if old wounds and Washington’s tensions with Tehran do not come in the way.

Didier Chaudet is a Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He can be contacted at isasdc@nus.edu.sg. The views expressed in this paper are those of the author and do not necessarily reflect those of ISAS.

Introduction Iran has reasonable credentials for being treated as a regional power. It has the necessary demography (population, 77.8 million), a pivotal geographic location (between the West Asia, Central Asia and South Asia), and a strong and ancient identity that makes an impact on Iran’s environment more than likely.2 This can only feed a sense of nationalistic pride in the country. But does pride mean an ‘aggressive’ or ‘destructive’ foreign policy? Its immediate regional environment could entice Iran to be assertive. Its neighbours can mostly be considered weaker at several levels.3 And there is this point of view, especially in the West, that the Iranian regime is always guided by an ideological approach. Such a view, especially by American thinkers and policy-makers, would portray Iran as an ‘aggressive’ West Asian nation. This is what former US Secretary of State Henry Kissinger expressed during a lunch organised by the Financial Times: Iran has to choose ‘whether it is a nation or a cause’.4 But Tehran is not necessarily tempted to act like the purveyor of a ‘cause’ overseas: certainly, not the way Iran was perceived in the West immediately after 1979. Admittedly, internally, the Iranian regime has certain ideological claims, as it defines itself as an ‘Islamic Republic’. And indeed, this regime has had external ambitions. Ayatollah Khomeini’s programme in diplomacy was called Mashru al-Thawra al-Iraniyah, the ‘Project of the Iranian Revolution’. In religious terms, the project was very ambitious: to make of Iran the centre of the Muslim World and to make the leader of the Iranian Revolution ‘Commander of the Faithful’. But, when one does not get impressed by such religious language and focuses on the concrete consequences of the project, it looks like a very realist foreign policy of any ambitious power. The goal of this policy has been, first and foremost, to cultivate groups that would help project Iranian influence wherever it is in Tehran’s interest.5 Besides, after the Iraq-Iran war (1980-1988) and the death of Khomeini, Iran moved towards what has been called the ‘second Republic’. From that time, the Iranians understood their political and military limits, and focused on protecting their interests rationally overseas. Tehran has continued to see Israel and the US as enemies or competitors in the Middle East, but stopped seeing terrorism as an efficient tool in foreign affairs and avoided antagonising its Arab neighbours.6

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Long-term history is part of everyday life for Iranians. In general discussions, references to great Persian/Iranian poets are not as rare as one might think. In some regard, one could argue that the pride of Iranians about their culture, history and their claim for influence in the regional environment is not dissimilar to American exceptionalism. See Michael Axworthy, Iran, Empire of the Mind. A History from Zoroaster to the Present Day, New York: Penguin, 2008, pp. xiii to xv. On this subject, see Roland Dannreuther, ‘Bridging the Gulf? Iran, Central Asia and the Persian Gulf’, The Review of International Affairs, Vol. 2, Number 4, Summer 2003, pp.32-33. Stephen Graubard, ‘Lunch with the FT: Henry Kissinger’, Financial Times, 24 May 2008, http://www.ft.com/intl/cms/s/0/6d4b5fb8-285a-11dd-8f1e-000077b07658.html#axzz1vJc5QutM. Accessed on 15 May 2012. Hala Jaber, Hezbollah. Born with a vengeance, New York: Columbia University Press, 1997, p.109. Robert BAER, Iran : l’Irrésistible Ascension, Paris : JC Lattès, 2008, pp.126-127. (French translation of the book The Devil We Know: Dealing with the New Iran Superpower).

In fact, what has best defined the Iranian foreign policy, at least since the end of the 1980s, is the word maslehat, which in Farsi (Persian) means expediency. Pragmatism makes everything possible in Iranian diplomacy, as long as it is convenient for the regime and suited to the Iranian national interest, from the point of view of prominent specialists of the Islamic Republic.7 And this word is what defines most accurately the Iranian relationship with Afghanistan, as this paper will show. Contrary to what some think, the Iranian regime is not eager to commit collective suicide by pursuing an imprudent foreign policy towards its neighbour. It is highly realistic, and focuses first on the interests of the Iranian nation. Does it mean that Iran could be a force for stability for its neighbour? In order to give a credible answer to such a question, one needs to focus on two aspects: first, on what the Afghan problems prior to 9/11 meant (and often still mean) for Iran, and how the latter reacted when it got a real chance to help fix its ‘failed’ neighbour; second, on Iranian foreign policy towards Afghanistan today, through the knowledge one can have, thanks to open/verified sources (above all), as much as possible.8

What a Chaotic Afghanistan Meant for Iran before the 2001 American Campaign: (1): Drugs and Refugees The best way to understand what instability in Afghanistan means for Iran is to think about the pre-9/11 period, more precisely the 1990s. At that point in time, Afghanistan became more important than it used to be for Iranian diplomacy. It was a consequence of the Iran-Iraq war: the eastern part of Iran developed itself economically and demographically, as it was away from the frontlines. The northeast became strategically important, upgrading at the same time Iran’s interest in post-Soviet Central Asia and Afghanistan.9 But immediately after the Iran-Iraq war, Afghanistan became a source of constant problems for Iran. Its troubled neighbour has begun to be a source of many issues for the Iranians – from social, political and economic points of view from the 1990s. And most of those pre-9/11 problems are pretty much alive, with a sense of urgency that makes Iran a proponent of authentic stability in Afghanistan. First, Afghanistan, immediately after the end of the Cold War (forgotten by the US and the rest of the world), became an important source of drugs. It has had dramatic consequences for Iran to this day. At the end of 2009, around one million Iranians were addicts. And the

Such an approach is true even on difficult subjects like the relationship with Israel. See Mohsen M. Milani, ‘Reflections on Iran’s Policy towards Iraq’ in Amin Tarzi (ed.), The Iranian Puzzle. Understanding Iran in a Global Context, Quantico: Marine Corps University Press, 2009, p.60. Unfortunately, nowadays, scholarship associated with Iranian foreign policy is often based on guesswork and leaked sources that cannot be verified. In this paper priority is given to open sources and sources that can be verified or that have been proven by multiple other sources. Erfan Efegil and Leonard Stone, ‘Iran’s interests in Central Asia: a contemporary assessment’, Central Asian Survey, 2001, Vol.20, n.3, pp.353-354.

Iranian police chief at the time,10 Esmail Ahmadi-Moghaddam, explained during an interview that 130,000 more people were becoming addicts each year.11 Because of this situation, the Islamic Republic of Iran has had to wage a real ‘War on Drugs’. And the said ‘war’ should not be seen as a mere catch-phrase here: more than 3,700 security officers were killed during clashes with smugglers,12 and walls were built at the Afghan-Iranian border as shootouts have been happening regularly in this area. The Iranians have spent at least US$600 million a year to deal with this threat. Ten per cent of its conscripts are mobilised to secure the border with this problematic neighbour.13 Seen from a comfortable distance, the anti-drugs laws and actions of Tehran can look severe (death penalty for trade or possession of more than five kg of opium or 30g of heroin, for example).14 But, with the numbers of addicts being so big, with the social and economic consequences of trafficking being real, and with the source of the problem (Afghanistan) being so close, Tehran’s ‘repressive’ approach is somewhat understandable. However, Tehran can truly deal with this issue only if Afghanistan itself is stabilised by the establishment of a viable state – integrated again with the international community, and being strong enough to fight drug trafficking in collaboration with its neighbours. The situation is already slightly better in the post-Taliban period, of course. Afghanistan is not a totally ‘failed’ or ‘rogue’ state any more, and there has been better cooperation in the fight against trafficking between Iran, Afghanistan and Pakistan. An example of this relative improvement is the cooperation resulting in simultaneous operations in 2009 and 2010. Seventy-four drug dealers and a few tons of hashish, opium and heroin were seized.15 But all this does not change the fact that Iran’s pre-9/11 problem, traceable to drugs from Afghanistan, is still an important concern for Teheran today. As long as the Afghan territory is not truly stabilised under the control of one internationally recognised authority, these antidrug-menace victories will be of little consequence, even in the short term. The Afghan areas that are not under the control of NATO (North Atlantic Treaty Organization) forces produce the bulk of the poppy farm yields. And the Taliban has profited from this situation, to say the least, collecting at least US$125 million a year in opium production in 2009, at a time when

10 11

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Still, with the same responsibilities, as of May 2012. Hashem Kalantari, Fredrik Dahl, ‘Iran has 130,000 more addicts each year: report’, Reuters, 15 November 2009, http://www.reuters.com/article/2009/11/15/us-iran-drugs-idUSTRE5AE0Z020091115, accessed 18 March 2012. This number is from the end of 2009. George Gravilis, ‘Harnessing Iran’s Role in Afghanistan’, Expert Brief – Council on Foreign Relations, 5 July 2009, http://www.cfr.org/iran/harnessing-irans-role-afghanistan/p19562, accessed 29 April 2012. On this subject see Faraz Sanei, ‘Don’t Praise Iran’s War on Drugs’, The Guardian, 5 August 2011, http://www.guardian.co.uk/commentisfree/2011/aug/05/iran-war-on-drugs-international-law, accessed on 2 May 2012. UNODC, ‘Afghanistan, Iran and Pakistan strengthen anti-drug trafficking initiative’, 25 November 2010, http://www.unodc.org/unodc/en/frontpage/2010/November/afghanistan-iran-and-pakistan-strengthen-unodcbrokered-anti-drug-trafficking-initiative.html, accessed on 3 May 2012.

its involvement in the high-end value aspects of the heroin industry was still in its infancy.16 Besides, the foreign forces in Afghanistan have focused mainly on their fight against the Taliban, explaining why drug trafficking flourished again in 2011 despite having suffered from a plant infection in 2010.17 Nowadays, Afghanistan accounts for 85 per cent of the world’s heroin. It provides an income to half a million families. The smugglers and criminals offer an ‘alternative welfare system’ to Afghans who do not have the chance to ask for any support from their state. And yet, the drug menace was not part of the formal agenda of the 20 May 2012 NATO Summit in Chicago.18 Tehran, like other regional victims of Afghan drug trafficking,19 seems to be part of a minority in the international community that understands the need to deal with a problem which looks like a plague from an Iranian perspective. Moreover, Afghanistan has been also a source of refugees, an important problem for Tehran. Along with Pakistan, Iran has been the country having the most to deal with the consequences of the Afghan issue from this point of view. In the two cases, it has been a consequence of the Afghan instability since the 1980s. At this period the Iranians found themselves to deal with around two million refugees.20 In 1991-92 there were nearly three million. But the two countries have had different policies towards the Afghan refugees: Islamabad confined them to refugee camps. It gave the Pakistanis a better political control over those foreigners but made the latter totally dependent on international aid. The refugees in Iran found themselves in a better situation to some extent, especially during the first years of their exile, despite the fact that the Islamic Republic of Iran received little external help.21 The Iranians were focusing on their war against Iraq and were not able to control the Afghan refugees politically. The Iranians limited their attention to organising the Hazara refugees, unifying those Shiites around the group Hizb-I Wahdat.22 But as the Iranian authorities needed more manpower to do this, they let the Afghan refugees work anywhere in Iran. Such a situation turned those refugees into economic competitors in Iran after the end of its war with Iraq. As for the Afghans who settled in Iran or who saw in this country a chance for better life, they

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Joshua Partlow, ‘UN Report Cites Drop in Opium Cultivation in Afghanistan’, Washington Post, 2 September 2009, http://www.washingtonpost.com/wp-dyn/content/article/2009/09/01/AR2009090103223 .html Pamela Constable, ‘As opium prices soar and allies focus on Taliban, Afghan drug war stumbles’, Washington Post, 14 January 2011.,http://www.washingtonpost.com/wpdyn/content/article/2011/ 01/13/AR2011011306738.html, accessed on 3 May 2012. Nigel Inkster, ‘Drugs: A war lost in Afghanistan’, AfPak Channel - Foreign Policy, 29 May 2012, http://afpak.foreignpolicy.com/posts/2012/05/29/drugs_a_war_lost_in_afghanistan. Accessed on 30 May 2012. Like Tajikistan. Number given by Human Rights Watch, Crisis of Impunity. The Role of Pakistan, Russia and Iran in fueling the civil war, July 2001, http://www.hrw.org/reports/2001/07/01/crisis-impunity-role-pakistan-russia-andiran-fueling-civil-war-afghanistan, accessed on 1 May 2012 To understand the difficulty of the task the Iranians had to deal with in the last three decades, one needs to have in mind the fact that Iran has been hosting one of the most important refugee populations in the world. ‘Party of Unity’

did not perceive themselves as refugees and were not necessarily eager to go back to Afghanistan once the Taliban fell.23 Hence, this pre-9/11 problem is still pretty burdensome for Iran. The numbers given by the UN are proof: In 2009, as many as 954,000 Afghans were in the Islamic Republic of Iran legally, about 1.5 million illegally. From the Iranian point of view, it had a social and economic impact that made the presence of those refugees difficult to deal with. Xenophobia has been on the rise against them, an unfortunate but all-too-predictable situation. The term ‘Afghani’ has become pejorative in Iran. And the state had to take into account that section of the Iranian population which was most unhappy with the presence of the Afghans, even though Tehran had first done quite much to help them since the 1980s. For example, in the last few years, the children of recent illegal immigrants have no access to public schools anymore.24 And during the 13th day of the celebration of Nowruz (Persian New Year)25, the city of Isfahan banned the Afghans from entering the city’s park, in order to protect Iranian citizens against ‘insecurities’.26 If Iran has been and continues to be a source of opportunities and education for Afghans, the pressure of migration on the country is also a source of tensions between the two nations. And those tensions have been a social issue difficult for Iran, even if the Afghan refugees have become part of the Iranian society, the most intellectual circles included, and even if numerous Iranians have also been sympathetic to Afghan sufferings.27 Besides, Iranian economy is weak enough as it is, and life is difficult for the average Iranian, making the burden represented by the refugees even more difficult to accept.28 It has been evaluated that an Afghan worker is costing the Iranian government two US dollars a day, regardless of whether the refugee is residing in Iran legally or illegally. And deportations cannot change the situation. In 2009, 937 illegal migrants a day were deported. 23

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It is important to keep in mind that after three decades in Iran, more than half of the Afghan refugees are in fact those born in Iran itself. See Bruce Koepke, ‘The Situation of Afghans in the Islamic Republic of Iran Nine Years After the Overthrow of the Taliban Regime in Afghanistan’, MEI-FRS, February 2011, p.3. Downloaded through http://www.refugeecooperation.org/publications/afghanistan/pdf/03_koepke.pdf. Accessed 5 May 2012. Underground schools have been created to take care of those kids. See Hamid Sadeghi, ‘Photos: Underground School for Afghan Children in Kerman, Iran’, Payvand Iran News, 13 November 2011, http://www.payvand.com/news/11/nov/1129.html. Accessed 6 May 2012. The time usually spent outdoors A decision that was not accepted by all Iranians, some being very critical of this choice to cave in to pressures coming from the xenophobic part of the electorate. See Dan Geist and Ali Chenar, ‘News: Efforts to Shield Essential Imports from Feeble Rial; “I Am Also an Afghan”’, 3 April 2012 http://www.pbs.org/wgbh/pages/frontline/tehranbureau/2012/04/news-efforts-to-shield-essential-importsfrom-enfeebled-rial-i-am-also-an-afghan.html . Accessed 6 May 2012. One only needs to turn to poetry to get proof of such a fact. One of the most well-known poems in modern Persian literature, ‘Bazghast’, ‘The Return’, has been written by an Afghan poet, Kazem Kazemi, talking about the sufferings of Afghan refugees in Iran going back to his country. The verses of this poem are widely known, in Iran as in Afghanistan. See Aria Fani ‘One Tongue, No Tongue: “Return” and ‘Afghan-Iranian Dialogue’, Tehran Bureau, 13 May 2012, http://www.pbs.org/wgbh/pages/frontline/tehranbureau/2012 /05/poetry-one-tongue-no-tongue-return-and-its-story-of-cultural-dialogue.html. Accessed 14 May 2012. See on this subject, for example, Hussain Askari, ‘Ahmedinejad shuns a brighter future’, Asia Times, 16 September 2010, http://www.atimes.com/atimes/Middle_East/LI16Ak02.html. Accessed 11 May 2012.

In 2010, the figure was 785 a day. But each day, nearly as many Afghans have been trying to cross the border illegally in order to work in Iran.29 The economic difficulties in their country, as well as security-related issues, explain their desire to migrate. Such a situation will prevail, unless the potential refugees have actually a chance to have the better life, which they seek, in their own country. And it will be possible, to paraphrase Seyyed Mohammad Reza Sajjadi, the Iranian Permanent Representative at the United Nations Office in Geneva, the potential Afghan refugees will remain in their homes only if there are ‘secure and decent’ conditions in the country.30 Again here, this burden, several decades old, makes of Tehran a political entity that cannot satisfy itself with wishy-washy declarations about Afghan stabilisation. For Iran, the instability of its neighbour has true economic and social consequences that could have a political impact, if a sizable part of the Iranian citizenry is unsatisfied with the way the authorities deal with this issue.

What a Chaotic Afghanistan has Meant for Iran before the 2001 American Campaign: (2) The Taliban or Afghanistan as a ‘Rogue State’ For Iran, Afghanistan has been a source of troubles in terms of security issues since the Taliban came to power. At this period, from an Iranian point of view, the ‘failed’ Afghan state became a ‘rogue’ entity. At least, some leaders of the Taliban, particularly the ones influenced by an anti-Shia sentiment, were planning for a direct conflict with the Iran if their internal enemies could first be dealt with.31 From 1996, the new Afghan ‘Emirate’ made its intentions clear when it gave asylum to the Sunni Baluch and Turkmen activists from Iran, who were in violent opposition to Tehran.32 The Iranian concerns were kindled by such open hostility from the Taliban, so much so that Robert Baer33 reports that Iran was ready to go to war at one time to take control of Western Afghanistan. Tehran’s aim was to prevent Taliban’s control of the Afghan-Iranian border.34 Still, despite their anxieties, the Iranians seem to have thought that a deal could be made with Pakistan in order to stabilise Afghanistan in a way acceptable to all the countries in the region, Iran included, and without 29 30

Bruce Koepke, op.cit, p.5. Press TV, ‘Iran urges global support for return of Afghan refugees’, 5 May 2012, http://www.pr esstv.ir/detail/239667.html, accessed 11 May 2012. The desire to have a hostile, aggressive policy towards Iran, including the use of brute force, was definitely in the mind of the ideological ‘hawks’ around Mullah Omar. See on this subject Steve Coll, Ghost Wars, New York: Penguin, 2004, p.340. John Parker, Persian Dreams. Moscow and Tehran since the Fall of the Shah, Washington D.C.: Potomac Books, 2009, p.178. Robert Baer is a former CIA case officer, specialised in the Middle East, and now an author, writing on US foreign policy, especially in the Muslim world. And on this matter the Islamic Republic of Iran is following a policy that was already active under the Shah: to make sure that Western Afghanistan would never be in the hands of its enemies. See Mir H Sadat, James P. Hugues, ‘US-Iran Engagement Through Afghanistan’, Middle East Policy Council, Spring 2010, Vol. XVII, Number 1, http://www.mepc.org/journal/middle-east-policy-archives/us-iran-engagement-throughafghanistan?print. Accessed 12 May 2012.

unnecessary violence. After the fall of Kabul to the Taliban, it appears that the Iranians tried to negotiate with Islamabad a peace deal that could be in their mutual interests. Iran’s idea was to recognise the Pashtun political predominance in exchange for the safety of Afghan Shiites and recognition of their political stake and influence.35 The reasoning was to recognise that the ones closest to the Pakistanis in Afghanistan won and to obtain in exchange an acknowledgement of Iranian interests in that country. But the proposed deal was off before it could reach the Taliban. Indeed the hostility of the latter towards Iran was confirmed in August 1998, after the conquest of Mazar-e Sharif by the Taliban. Following this victory the Pashtun radicals killed nine Iranian diplomats living in the city. During the same period, they killed thousands of Hazaras.36 It was a clear insult to the Iranian state, as well as a veiled declaration of war on the Muslim sect it was supposed to represent. Those two events made the excuse given by the Taliban (i.e. the killing of the diplomats by ‘renegade forces’ who did not listen to the orders coming from the leadership) sound very unlikely.37 This last provocation brought Iran and Afghanistan very close to war. At that time, Ayatollah Ali Khamenei, the Supreme Leader of Iran, had put the army on alert and pressured Islamabad to stop supporting the Taliban; as for the ‘Emirate’, it threatened to strike at Iranian cities if the Iranian troops would dare to penetrate the Afghan territory.38 It was only the decisive action of Lakhdar Brahimi (the Special Representative of the UN Secretary General) that helped avoid a war that the Afghan ‘hawks’ clearly wanted. After these tensions, the more moderate or pragmatic Taliban wanted to improve the bilateral relationship. The idea found supporters among some foreign militants, like an important leader in the community of the Arab mujahedeen, Abu Walid al Masri. But Al Qaeda blocked their efforts, in spite of the inherent geopolitical rationality. The influence of the terrorist organisation was quite important if al Masri is to be trusted. He indeed said that he was able to convince Mullah Omar to improve relations with its main neighbours, Iran and Pakistan.39 The opposition of course was ideological in nature (the hatred against Shia Islam), but it was also linked to the mainstream

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Asma Shakir Khawaja, ‘Afghanistan: A Factor in Pak-Iran Relations’, Turkish Review of Middle East Studies, 2004 – 15, p.203. Who are Shia Muslims. Even if the pragmatic or more moderate faction inside the Taliban appeared clearly afraid that the situation could evolve into a conventional war, it could not gain the upper hand. It explains why the Afghan Foreign Ministry asked the Pakistanis and the UN ‘to intercede’ with Iran and to send representatives to Mazar-ISharif in order to understand better, by themselves, the cause of what was presented as an incident. See on this subject, for example, Douglas Jehl, ‘Iran Holds Taliban Responsible for nine Diplomats’ Death’, New York Times, 11 September 1998,http://www.nytimes.com/1998/09/11/world/iran-holds-taliban-responsiblefor-9-diplomats-deaths.html?pagewanted=all&src=pm. Accessed 21 May 2012. Another proof that indeed the Taliban were in touch with Sunni extremists inside Iran. CNN World, ‘Taliban threatens Retaliation if Iran Strikes’, 15 September 1998. http://articles.cnn.com/1998-0915/world/9809_15_iran.afghan.tensions.02_1_iran-attacks-iranian-diplomats-akil-ahmed?_s=PM:WORLD. Accessed 20 May 2012. The idea of Pakistan totally controlling, or imposing its views on, the Taliban is indeed a gross misrepresentation of Afghan-Pakistani relations in the 1990s. If Islamabad had some level of influence, it did not mean a lack of freedom for the ‘Afghan Emirate’ at the time. And Afghans and Pakistanis, at this time as also after the fall of the Taliban, could not see eye to eye on important matters like the question of the Durand Line.

Al Qaeda’s own vision of the Iranian neighbour. Al Qaeda opposed any official relations with Tehran, an ‘enemy’ to be opposed all the time. The goal of Osama bin Laden’s organisation was to have its own routes out of Afghanistan, independent of the Iranian authorities’ influence.40 At the end of 1990s, Tehran had more than enough proof that the ‘Afghan Emirate’, whatever the circumstances, would never be a safe neighbour for Iran. Contrary to the issues presented above, on this matter, the Iranians had a chance to have a critical impact before 9/11. And they did so, as a rational actor eager to protect its interest and its security. Such a positive influence was possible because, between the end of 1990s and 2001, the US and Iran were converging politically on their respective analyses of the Afghan situation. At first, American and Iranian diplomats were working together through the sixplus-two talks, the forum dedicated to find a regional solution to the Afghan issue. And in fact, Tehran was much more implacable than Washington in opposing Mullah Omar’s regime. Before 2001, however worrisome the situation in Afghanistan was, the US did not see Afghanistan as a top priority. As for Iran, already by the end of the 1990s, its goal was clearly to make sure that this neighbour would be neither a ‘rogue’ state nor a ‘failed’ entity. Tehran aimed at making sure that the chaos in Afghanistan and its harmful consequences for the region would be eradicated once and for all. Of course, after 1998, the Americans already began to understand the Iranian approach. After all, summer1998 witnessed not just the massacre at Mazar-e Sharif. For the Americans, it was precisely the period when Al Qaeda became a serious issue, after the bombings of the US Embassies in Dar es-Salaam and Nairobi. After having been ambivalent towards the ‘Afghan Emirate’, the Americans began to understand that Afghanistan was becoming a threat for its own interests. After 9/11, the US and Iran grew ‘closer’, reducing the six-plus-two talks to de facto bilateral consultations via what has been called the ‘Geneva Contact Group’. The Iranians were particularly important for the Americans then. And in that sense, they were for a quick victory that could have meant a better future for Afghanistan, especially if the idea of stabilising that country had been the primary goal of the US from the beginning of the ‘War on Terror’. For the US, the Iranians were, at first, the main bridge with the Northern Alliance in Afghanistan. For sure, Teheran was then the only external actor to have had true influence over this anti-Taliban coalition inside Afghanistan. After all, Iran had been the main backer of this anti-Taliban organisation after the events of 1998. Already, during the winter of 1999, Tehran was said to have given millions of US dollars worth of weapons to warlord Ahmad Shah Masud. Iran also helped to keep together a group that was highly divided. The Iranians

Leah Farrall, ‘Interview with a Taliban Insider: Iran’s Game in Afghanistan’, The Atlantic (14 November 2011), http://www.theatlantic.com/international/archive/2011/11/interview-with-a-taliban-insider-irans-gam e-in-afghanistan/248294/?single_page=true. Accessed 8 May 2012.

went beyond the simple forms of support extended to Masud, with whom it had a complex relationship. Iran’s support encompassed all the actors of this coalition. And this support was essential, as at the time divisions ran deep inside the group. The Iranians made sure that the Shiites in the Northern Alliance would always be strong enough to defend their interests.41 Iran also supported the Uzbek groups in the Alliance, at a time where they were divided between Rashid Dostum and Abdullah Malik.42 Indeed, Russia and India were also helping the anti-Taliban coalition, and the Russians seemed to have persuaded the Americans, after 9/11, to ally with Masud to better destroy the Taliban’s regime. But the Iranians were by far the most active43 players and were the ones who were ‘closer’ to the US policy, without any particular ‘secret’ agenda at the time.44 These strong links were essential to persuade the Northern Alliance that the Americans could be trusted allies. After all, Washington had, before 9/11, criticised Tehran for its support of the Northern Alliance. The Iranians were also of great help to the White House, when the Northern Alliance had to be convinced that it should work with those Pashtuns who were equally opposed to the Taliban.45 With such information, it seems clear that, without Iran, the initial US campaign against the Taliban could have run into many more obstacles, and Afghanistan could have been much more destabilised by the post-9/11 foreign intervention from the start. What confirms this line of argument is the fact that, during the American campaign against the Taliban, the Iranians have been very active in helping in the fight against the common enemy. For example they opened the Chah Bahar port to facilitate humanitarian help for the Afghans. They gave critical and very reliable intelligence to the Americans, offered access to Iranian airfields near the Afghan borders, and arrested numerous Taliban and Al Qaeda fighters who were trying to escape through Iran. These actions were proof of an Iranian foreign policy focus on regional stability above anything else, as Tehran did not make this support conditional on America changing its long-term policy towards the Islamic Republic of Iran. In fact the Iranian elites were thinking, at the time, that such a responsible choice would dissipate the American preconceptions about Iran.46 This responsible attitude, focusing on regional stability, explains Iran’s positive policy towards Afghanistan at the very 41

On the weapons given and the work done by the Iranians to make sure the Hizb-i-Wahdat received its ‘fair amount’ of arms, see Human Rights Watch, Afghanistan: Crisis of Impunity. The Role of Pakistan, Russia and Iran in fueling the civil war, July 2001, pp.35 to 39, http://www.hrw.org/reports/2001 /afghan2/Afghan0701.pdf. Accessed 7 May 2012 Ahmed Rashid, ‘Iran in Afghanistan: the Mission to Undermine Pakistan’, CACI Analyst, 29 March 2000, http://www.cacianalyst.org/?q=node/348. Accessed the 9th May 2012. Barbara Slavin, ‘Iran helped overthrow Taliban, candidate says’, USA Today, 9 June 2005, http://www.usatoday.com/news/world/2005-06-09-iran-taliban_x.htm. Accessed 9 May 2012. Something that the Russians seem to have done. See S. Frederick Starr, ‘Russia’s Afghan Gambit’, The Wall Street Journal, 11 December 2001. http://www.cacianalyst.org/Publications/Russia's%20Ominous%20Afgha n%20Gambit.htm. Accessed 10 May 2012. See Kenneth Pollack, The Persian Puzzle. The Conflict Between America and the US, New York: Random House, 2005, pp.345 to 347. See Barbara Slavin, ‘A Broken Engagement’, The National Interest, November-December 2007. http://www.nationalinterest.org/General.aspx?id=92&id2=16016

beginning of the ‘War on Terror’, at least as far as support to Kabul was concerned. In order to achieve some sort of stability in Afghanistan as quickly as possible, the Iranians did not hesitate to put some pressure on the Northern Alliance during the Bonn Conference. They made sure that their Tajik, Uzbek and Hazara allies would accept the leadership of Hamid Karzai, with whom they did not want to share power at first. On this issue again, the US and Iran were having the same vision: a more centralised Afghanistan in order to give the stabilisation of the country a better chance.47 Moreover, during the 2002 Tokyo conference, Iran was one of the most generous developing nations, as it pledged US$560million towards Afghan reconstruction.48 Hence, recent history tells us that chaos in Afghanistan has always meant direct or indirect problems for Tehran. It also shows that the Iranians do act rationally to ensure their neighbour’s stability. Of course, it is possible to imagine that Iran would want to have some influence on a country that has been such a source of problems. But it can hardly be called ‘Iranian imperialism’49, rather a realist measure of self-preservation and preservation of its interests. This explains why Iran appeared to be part of the solution, and not part of the problem, when the Bush administration wanted to get rid of the ‘Afghan Emirate’. At worst, Iran can be described, after the fall of the Taliban, as a realist state, eager to protect its national interest, and its national interest required stability in its neighbourhood.

Iran Today: Good or Bad Neighbour? A General View With such recent history as the background, how can one define the Iranian policy towards Afghanistan after those promising beginnings? As already seen, it is difficult to imagine that Iran would have had the desire to create any problems for its neighbour, once it got rid of the Taliban. Probably more than any other nation, Iran wanted a stabilised neighbour that would be neither ‘rogue’ nor ‘failed’ in scope, i.e. a state that could be a source of opportunities rather than a curse. It explains why (former US President) George W. Bush’s labelling of Iran as part of the ‘Axis of Evil’ (29 January 2002), shocked the Iranians who saw that as an unnecessary humiliation. Especially because of the company they found themselves in. They had no love for (former Iraq President) 47 48

Alizera Nader, Joya Laha, “Iran’s Balancing Act in Afghanistan”, RAND’s Occasional Papers, 2011, p.7. Shahram Akbarzadeh, ‘Where the Islamic Republic of Iran heading’, Australian Journal for International Affairs, Vol.19, Number 1, March 2005, p.34 The idea of the Islamic Republic is nevertheless promoted by some Western scholars and analysts, in particular those who have been close to the former Bush Administration. This is the case of Bernard Lewis, for example. See Gholamani Khoshroo, ‘The Great Threat and Bernard Lewis’ Nightmare’, Iran Review, 7 March 2011, http://www.iranreview.org/content/Documents/The_Great_Threat_and_Bernard_Lewis %E2%80%99_Nightmare.htm , accessed 10 May 2012

Saddam Hussein’s regime, something that is understandable. But they also felt uncomfortable being associated with North Korea. Indeed at that time, Iran was more than slightly uneasy with Pyongyang’s actions. Some in Iran even feared that, in a foreseeable future, hostile Middle Eastern countries could have access to North Korean nuclear weapons that could be used against Tehran.50 So, from an Iranian point of view, Bush’s State of the Union speech, during which this notion of an ‘Axis of Evil’ was introduced, was seen as a break from the very encouraging evolution of the US-Iranian relations between 1998 and 2001. And this break was not inevitable. First it was justified, from an American point of view, by the Karine A scandal: A boat full of weapons was intercepted by Israeli forces, and Jerusalem said the cargo, coming from Iran, was destined for the Palestinian authorities. The only problem with this version was that it did not take into account the whole story that one could know from open sources – a section of the Israeli media, as well as, to some extent, the foreign journalists, who at least took the time to investigate the matter they had to report. Through their analysis, it appears that this shipment of Iranian weapons was not really approved by the Iranian central government; at best it was the work of a group of Pasdaran51 or a rich religious foundation, an institution that could act outside of Tehran’s control. And it seems that the despatch of those weapons by Karine A could have been a lucrative operation, organised by a group of smugglers eager to make money rather than to give any kind of political support.52 Hence, it could have been argued that, even if the incident was worrisome to the West, it should not have been an excuse for a rupture of relations between the US and Iran. After all, from 2003, the Afghan policy of Islamabad had been criticised, in the harshest terms, by Kabul and by Washington. But it did not translate into a breaking off of diplomatic relations or the designation of Pakistan as the principal enemy of the US.53 And such moderation on the part of the US could only be understood in terms of realpolitik, as the help rendered by Islamabad at that time was considered important enough for the Americans to overlook some uncomfortable issues.54 When one has in mind the criticism from the White

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See Mark N. Katz, ‘Iran and America: Is Rapprochement Finally Possible?’, Middle East Policy, Volume 12, Number 4, Winter 2005, p.49 Also known as the Revolutionary Guards, they are the military backbone of the regime, and more and more over time, its real masters. But it would be a mistake to think that all the Pasdaran officials think alike. They are indeed becoming for Iran what the army is for the Pakistani state, but there are also strong divisions inside the corps. The leading Israeli newspaper Haaretz made clear that the idea of Tehran being the mastermind behind the Karine A story sounded rather difficult to believe. Indeed, it is known that the shipment was obtained at night, from another ship near the Kish Island. A real Iranian governmental backing would have meant an easier loading of the cargo, from a port like Bandar Abbas. See Brian Whitaker, ‘The strange affair of Karine A’, The Guardian, 21 January 2002, http://www.guardian.co.uk/world/2002/jan/21/israel1. Accessed 12 May 2012. Despite some pretty harsh comments sometimes. Such a situation seems to be changing. See Shamila N. Chaudhary, ‘The Patience Runs Out’, Foreign Policy, 12 June 2012, http://www.foreignpolicy.com/articles/2012/06/12/the_patience_runs_out. Accessed 12 June 2012.

House against the Pakistanis today, the Karine A scandal looks like an issue that could have been overlooked for the greater good of Afghan stability. The second event that provoked the inclusion of Iran in the ‘Axis of Evil’ was more serious, as it was about the Iranian nuclear ambitions. But again, in a post-9/11 world, even if a regime in Tehran is often criticised in the West, the Iranians have shown that they could be trustworthy allies in the ‘War on Terror’, a struggle that was, after all, against the Sunnisupremacist, anti-Shia organisation called Al Qaeda. In the name of this ‘War on Terror’, Washington associated itself with unsavoury dictators, in the name of realpolitik, and also, at another level, with countries which became nuclear powers despite American disapproval (Pakistan, India)55. If the US had really focused on the limited but obvious need to see this ‘War’ as a fight against Osama bin Laden’s organisation, its Taliban protectors, and more broadly speaking against what gave Al Qaeda a safe haven, i.e. chaos in Afghanistan, then even this revelation about the Palestine-bound consignment of weapons would not have put an end to the convergence of interests between the two states. Unfortunately at that time, Afghanistan was becoming less important, for the Bush administration, than Iraq. Middle Eastern geopolitics was already more important to deal with than the Afghan issue, which seemed to have been dealt with successfully, at least from an American point of view at that time. It was the time when Bush asked Jay Garner, the first proconsul in Baghdad, if he wanted to do Iran after Iraq.56 Did this development mean that Afghanistan became a collateral victim of US opposition to Iran? With the past and the present in mind, it would be a gross misinterpretation to think so. Iran is, in a sense, doomed by geography: To use Afghanistan as a tool to put real pressure on the Americans could easily backfire on Iran. It explains why there was no real discontinuity in the Iranian foreign policy in the period 2001-2002. In December 2002, with this logic in mind, Iranians and Afghans signed a ‘Good Neighbour Declaration’. It appeased the latter as the former made it clear that it was eager to respect Afghan territorial integrity. Between 2001 and 2009, the humanitarian help coming into Afghanistan from Iran was also very important. No less than US $600 million, a generous amount for a country with its own financial difficulties.57 Economically, broadly speaking, Iran is an important factor in Afghan reconstruction. The Iranian government itself is funding useful projects like the building of

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From the beginning of the ‘War on Terror’, it seems that the US made the choice to prioritise their desire to stop Iran on the nuclear issue rather than to see Afghan stability. From the point of view of numerous specialists, to this day, this choice made things more difficult for Afghanistan. See for example Viola Gienger, ‘Afghanistan Needs Leeway on Iran Sanctions, Minister Says’, Business Week, 3 April 2012, http://www.businessweek.com/news/2012-04-03/afghanistan-needs-leeway-on-iran-sanctions-minister-says. Accessed 7 May 2012. Bob Woodward, State of Denial, London: Simon & Schuster, 2006, p.224. Muhammad Tahir, ‘Iranian Involvement in Afghanistan’, Terrorism Monitor – Jamestown Foundation, Vol.5, issue 1, http://www.jamestown.org/programs/gta/single/?tx_ttnews%5Btt_news%5D=1004&tx_ttne ws%5BbackPid%5D=118&no_cache=1. Accessed 15 May 2012.

roads or schools. There are no less than 2,000 Iranian firms in Afghanistan.58 Now, trade between the two countries represents US$1 billion annually. It makes Iran the second-largest trade partner of Kabul after Pakistan59. The Iranians have made investments in Herat, Nimruz, and Farah in particular. So they are indeed investing heavily in Western Afghanistan, where they have strategic interests to do so. Until 2008, no less than US$500 million were invested in this area alone. Tehran helped pave the roads in Herat, give electricity to 350,000 Afghan citizens in this area, as well as build hospitals and schools. Even when the positive impact of Tehran is recognised, such a policy in the Afghan West makes the American analysts talk about ‘imperialism’60. But Iranian influence on Western Afghanistan is not particularly surprising. As argued above, Tehran’s standard policy has been one of preventing enemy control of this part of its neighbour’s territory. And, links between Tehran and this Afghan territory are not only strategically essential for the Iranians, they are also historically understandable. Herat was, after all, an important city under the Safavid dynasty. It was even the centre of Persian power in the beginning of the 15th century. And even as a part of the Afghan territory nowadays, this area could become a strategic buffer zone in case Afghanistan becomes a ‘failed state’ again. Besides, given the stronger links between Central Asian nations and the US, the Pakistani-US relationship based on the ‘War on Terror’ (even if it is quite a shaky one nowadays), an Iraq more or less under US influence after the American invasion, and given the traditional links the Americans enjoy in the Arabic Peninsula, Iran feels surrounded by pro-American or American forces. Hence Iranian desire for influence on Western Afghanistan makes even more sense. Besides the idea of a buffer zone, Iran wants the Afghans to understand that it cannot be bullied without consequences. But such an Iranian position does not necessarily reflect a desire for the destabilisation of Afghanistan based on the Iran-US tensions. The best example is probably the recent scandal related to the burning of copies of Quran by some American soldiers. If American journalists are to be believed, Iranian agents were active ‘just hours’ after the events, in order to stir trouble. They were reported to have been active particularly in Herat. But as explained by the senior allied commander in Afghanistan, General John R. Allen, Iran could do more but it decided not to do so.61 So it is difficult to talk about a sinister imperialist agenda by the Iranians in Afghanistan. And it would also be an exaggeration to see any ideological compulsions behind the Iranian

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Brandon Fite, Varun Vira, Erin Fitzgerald, ‘Competition in Afghanistan, Central Asia, and Pakistan’, CSIS, 13 March 2012, p.6. Viola Gienger, op.cit. See for accurate information but also this accusation of ‘imperialism’, Bill Varner, ‘Iran Pours Cash Into Afghanistan, Seeking Leverage Against US’, Bloomberg, 16 July 2008, http://www.bloomberg.com/ap ps/news?pid=newsarchive&sid=aNaIqaODpvrU. Accessed 15 May 2012. Thom Shanker, Eric Schmitt, Alissa J. Rubin, ‘US Sees Iran in Bids to Stir Unrest in Afghanistan’, New York Times, 4 April 2012, http://www.nytimes.com/2012/04/05/world/asia/irans-efforts-to-stir-afghan-violenceprovoke-concern.html?_r=1. Accessed 24 May 2012.

actions in Afghanistan. The last 30 years have shown that so far, realism prevails in Tehran’s Afghan policy. Maybe, one of the best examples showing that Iran has no ideological agenda but a very pragmatic one is Tehran’s relationship with Shia Muslims inside Afghanistan. Ideology would require of this Islamic Republic of Iran to focus on sectarian allies first and foremost. And of course, as elsewhere in the Muslim world, Tehran supports Shia communities and organisations62. But such support is seen only as a vehicle for influence in foreign countries for a very pragmatic foreign policy standpoint, and it is just one method amongst others. It means that Tehran wants to ensure that Afghan Shiites are well-treated. This community is clearly in a better economic situation, thanks to Iranian financial support. And support for the education of the Shiites in Afghanistan, especially the Hazaras, is designed to make sure that, in one or two generations, the intellectual elites of Afghanistan will come from this community, which will then owe a moral debt towards Tehran63. But what matters more in the short-term for Iran is its influence on Afghanistan as a whole, especially in the western part of the country, in order to protect its territory, rather than for any religious/sectarian concerns. Indeed the Iranians have not been in a bind, when they have had to harness other assets in Afghanistan, even among non-Shia/anti-Shia groups. It explains why for a long period of time the Islamic regime in Tehran had supported Ismail Khan, the warlord of Herat, even if he had an anti-Shia Islam policy, opposing any Shiite to have a significant administrative or political responsibility. He crossed the line when he banned Hizb-I Wahdat, a party representing the Shia Muslims but more importantly a client of the Iranian state. But when Khan lost the Iranian protection, he did not lose power just because he made Tehran angry. Actually the only way the Iranians punished him was by doing nothing for him from 2004. Thereafter he was politically targeted by Kabul and other warlords during the same year, and this explains why he lost power in Herat.64 Iran is indeed a player in the political game in Afghanistan but no more and no less than the US, Pakistan, or any other external actor having a stake in that country. So it means that when necessary Tehran can put pressure on Kabul to protect what is important for the Islamic Republic of Iran. It explains why, for example, the Iranian regime blocked shipments of fuel at the beginning of 2011. It was worried that this fuel was used by American forces. As Iran sees these forces as a source of problems for Afghanistan and the region, it wanted to make clear that the Iranian fuel could not be used by actors other than the Afghans themselves. But here again, the goal was to make Iran’s ‘enemies’ uncomfortable, not to destabilise its neighbour.65 62

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As it is better known in West Asia, with Hezbollah. See for example Augustus Richard Norton, Hezbollah. A Short Story, Princeton University Press, 2007, pp.72 and 110. Mir H Sadat, James P. Hugues, op.cit. On this subject, see Antonio Giustozzi, Empires of Mud, Colombia University Press, 2009, p.264, and Greg Bruno, ‘Iran and the future of Afghanistan’, Expert’s Brief – CFR, 30 March 2009, http://www.cfr.org/iran/iran-future-afghanistan/p13578. Accessed 16 May 2012 The Economist, ‘Edgy Neighbours’, 27 January 2011, http://www.economist.com/node/18014604. Accessed 27 May 2012.

Iran Today and the Taliban: A Prudent and Realistic Neighbour Hence the Iranian approach towards Afghanistan after the fall of the Taliban is neither good nor bad, but rather dominated by a pragmatic approach. The goal of Tehran is to make sure this neighbour does not become a source of security-related issues, even more so after 2014. So it also means being in touch with all the political actors in Afghanistan. It explains Tehran’s relationship with different factions of Taliban after 2001. Of course, such relationship appeared at a significant level only when Iran was labelled a part of the ‘Axis of Evil’. But one should avoid any exaggeration of such links. When one focuses on the post-2002 Iranian policy towards the Afghan rebels, one can see how prudent Iran actually has been. Indeed, in a direct answer to the ‘Axis of Evil’ speech, Iran let veteran Afghan warlord Gulbuddin Hekmatyar go back to Afghanistan (in February 2002). Once back in his homeland, he took an anti-American stance, and has become one of the main forces against the US presence in the country. But in 2002, Afghanistan appeared ‘secured’ by the Americans, and actually it was the time when the idea of a stabilised country did not seem like a far-fetched dream. In such a situation, letting Hekmatyar go -- even encouraging him to take up arms against the US-led coalition -- did not seem like a disproportionate answer to US enmity towards Iran. Besides, at this point of time, Iranian security seemed more important to Tehran than Afghan stability: so letting Hekmatyar go was seen as a reactive move towards American attitude rather than a desire to make Afghanistan fall into chaos again. As far as one can know by following open and verified sources, Tehran did not arm or help Hekmatyar become one of the main neo-Taliban leaders. In fact he was easily able to finance himself independently, reportedly thanks to drug trafficking66. Broadly speaking, it seems that relations were established between the Afghan Taliban and Tehran over the years. Despite the difficult past with the ‘Afghan Emirate’, the Iranians seem to have accepted the idea that the Taliban represents a part of Afghan society and cannot just be pushed aside permanently. Such a pragmatic approach appeared clearly as the official Iranian policy during the first conference on the ‘Islamic Reawakening’, organised by Tehran on 17 September, 2011. It brought 700 participants from 80 countries together to talk about the Arab Spring and its consequences. And the Islamic Republic of Tehran invited two delegations from Afghanistan. One was representing the government of Hamid Karzai, led by Burhanuddin Rabbani, the former Head of the Council in charge of peace talks with the Taliban. The other was led by Nik Muhammad, a Taliban leader very influential in the Quetta Shura, the organisation

See for example Shahin Eghraghi, ‘Hekmatyar: The wild card in Afghanistan’, Asia Times, 7 January 2004,

directly under the control of Mullah Omar.67 Of course such a scenario does not mean that chaos is now the destiny that the Iranians have in mind for Afghanistan. If they wanted such a result, there was no need to make difficult alliances with people who are, at heart, Sunni supremacists. In fact, as Afghan trade is now very dependent on Iran, to close the IranAfghanistan border would be enough to put great pressure on Karzai68. By talking to the neoTaliban, the Iranians are doing no more than what the Americans, the Pakistanis, and even the Russians69 are already doing, in trying to be in touch with all the different Afghan political players. Indeed, for now, the Taliban is a useful enemy, accepted as it poses a challenge to a stronger enemy, i.e. the US. To talk about reconciliation would be to go too far. But clearly, the White House has made a tour de force by creating a situation for those two opposite actors to share the same interests, i.e. opposing any long-term American presence in Afghanistan70. But such situation does not mean supporting terrorism in the region, or wanting to destabilise Afghanistan. Besides, the rise of the Taliban has already created problems for the Islamic Republic of Iran. Indeed the ‘War on Drugs’ seems more and more difficult as the Taliban is becoming more prominent inside the Afghan territory71. A long-term solution will depend on the struggle for influence inside the Taliban movement itself. Mullah Omar was interested in having a better relationship with Iran in the past, and the same could happen in the future. But what about the Haqqani network? This organisation has been supporting foreign jihadists and appears to be much more radical ideologically. What about the TTP (Tehreek-e-Taliban Pakistan), if it stays a force to reckon with? It already allied itself with anti-Shia militants in its war against Islamabad. After all, the Pakistani Taliban has been important as a force for the fight in Afghanistan. The role TTP could play after 2014 would not necessarily be in Iran’s interest. Even if Mullah Omar takes control of the country after 2014, the foreign policy of the new regime will strongly depend on the power of these different players in Kabul. If the more extreme groups are able to take over, Iran will have no choice but to oppose the Taliban again. This could also convert the post-2014 Afghanistan into a ‘failed state’ again, and a renewed source of the same issues (significant number of refugees, drug

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Ernesto Londono, ‘Iran’s hosting of Taliban reflects desire for greater role’, Washington Post, 29 August 2011, http://www.washingtonpost.com/world/asia-pacific/irans-hosting-of-taliban-reflects-desire-for-greaterrole/2011/09/28/gIQAkmwO7K_story.html. Accessed 14 May 2012. Muhammad Tahir, op.cit. Antonio Giustozzi, among others, thinks that indeed the neo-Taliban has established links to the Russians, among others. See F. Bobin, ‘Les nouveaux talibans afghans mènent une vraie guerre de guérilla’ [The Afghan neo-Taliban are waging a true guerilla war], Le Monde, 7 May 2009, http://www.lemonde.fr/asiepacifique/article/2009/05/06/les-nouveaux-talibans-afghans-menent-une-vraie-guerre-deguerilla_1189554_3216.html#ens_id=1147352, accessed 15 May 2009 (cannot be accessed on Le Monde website without subscription any longer). AFP, ‘Taliban dismiss US-Afghan pact, announce “spring offensive”’, Dawn, 2 May 2012, http://dawn.com/2012/05/02/taliban-dismiss-us-afghan-pact-as-illegitimate/. Accessed 21 May 2012. See Martin McCauley, ‘Is Iran Supporting the Taliban?’, Stirring Trouble Internationally, 8 November 2009, http://www.stirringtroubleinternationally.com/2009/11/08/iran-afghanistan/, accessed 10 April 2012.

trafficking, security-related issues). Hence, even if Tehran talks to the Taliban, the latter may still be a long-term headache for Iran rather than a real ally against the West.

Iran Today and the US-Afghan Partnership Agreement: A Fearful Neighbour Broadly speaking, the Islamic regime in Tehran may have to reckon with Afghanistan as a problem for the foreseeable future. Indeed, there is still the risk of bilateral tensions, even without a triumph of the Taliban, especially in case of an attack by Americans or Israelis on Iran. Tehran has made it clear that any country that might serve as a base for such a US or Israeli operation would be targeted by the Pasdaran72. And if military manoeuvres are any indication, it appears that Tehran already sees its border with Afghanistan as a potential source of threats73 for the foreseeable future. The Iranian-Afghan relations will depend, overall, on the American policy towards Kabul after 2014. And the ‘Strategic Partnership Agreement’, signed on 2 May, 2012, is definitely the sign of a situation that cannot be seen favourably by Tehran. Iranian Foreign Minister Ramin Mehmanparast made it clear that that such a bilateral relationship will be a source of instability for Afghanistan, and would put in danger the links with Iran74. Indeed he has some reason to be worried. The ratification by the Afghan Parliament on 26 May 2012 guaranteed an American military presence in Afghanistan after 2014, in particular Special Forces. There is no talk of permanent bases, but the agreement looks like a warning to neighbouring countries. It was expressed very clearly by Shukria Barikzai, the head of the Parliamentarian Defence Committee, when he said that ‘the document will rescue Afghanistan from the yoke of its neighbours’75. Of course, Afghan Foreign Minister Zalmai Rassoul said that Afghanistan ‘will not be used against any country in the region’ after 201476. The answer was particularly targeting the Pakistani fears of drone strikes. But obviously, the fear of Afghanistan becoming a safe haven for enemies planning attacks is also an Iranian concern. And the fact is that the US Ambassador Ryan Crocker quickly contradicted Rassoul, when he said: ‘There is nothing in this agreement that precludes the right of self-defence for either party and if there are attacks from the territory of

Ali Akbar Dareini, ‘Iran vows to retaliate in event of attack’, Military Times, 5 February 2012, http://www.militarytimes.com/news/2012/02/ap-iran-vows-to-retaliate-020512/, accessed on 16 April 2012. Mitra Amiri, ‘Iran holds military exercise near border’, Reuters, 7 January 2012, http://www.reuters.com/article/2012/01/07/us-iran-idUSTRE8041RA20120107, accessed on 30 April 2012. Kevin Govern, ‘What Lies Beyond the US-Afghan Strategic Partnership Arrangement’, JURIST - Forum, 22 May 2012, http://jurist.org/forum/2012/05/kevin-govern-us-afghan-spa.php. Accessed 24 May 2012. RFE/RL, ‘Afghan Parliament Approves US-Afghan Security Pact’, 26 May 2012, http://www.rferl.org/content/afghan-parliament-approves-us-afghan-security-pact/24593669.html. Accessed 28 May 2012. This quote is typical of a situation that portrays Afghanistan as a victim of its neighbours. Its internal problems and contradictions, some of them coming from history, are definitely not taken into account to explain the sad situation of the country. AFP, ‘Drone strikes: No attacks from Kabul after 2014’, The Express Tribune, 7 April 2012, http://tribune.com.pk/story/361026/drone-strikes-no-attacks-from-kabul-after-2014/. Accessed 12 May 2012.

any state aimed at us, we have the inherent right of self-defence and will employ it’. The Ambassador has insisted on this notion of self-defence, hoping that ‘the region takes notice’. Again, it sounds like a veiled threat to Pakistan, but that could also be a message for Iran77. Proof that Pakistan was not the only state targeted in this discourse appeared soon enough after 2 May, 2012. The timing of events in the month of May 2012 is, in fact, very enlightening on the Afghan position towards Iran78. Each of those events looks like an exaggeration of Iranian intent to influence Afghanistan. And it clearly illustrates how the Afghan-Iran relationship could become hostage to American-Iranian tensions. Three days after the signature of the agreement, Abdulvahed Hakimi, Kabul bureau chief for the Iranian Fars news agency79, was arrested, and accused of passing classified documents to Tehran. Of course, as far as one can know, this is just a claim, impossible to verify independently for the time being80. Very quickly after this event, two other persons were arrested, Afghan nationals this time. Radio Free Europe has been able to obtain a video where the two Afghans (who were allegedly trained to organise terrorist actions) confessed. But as explained in the article describing this video, ‘RFE/RL cannot independently verify the claims made in the video or the circumstances under which the video was recorded’81. The Afghans on tape talk about a rather extraordinary story that they were trained to be spies and terrorists working for the Revolutionary Guards, with training in Iran with Lebanese, Iraqis and other Afghans by the Pasdaran. The latter organisation wants to rejuvenate Hekmatyar’s group82. The weapons shown in the video, as well as the claims of the two Afghans “confessing”, as in the video, give the impression that Iran is really active in destabilising Afghanistan through terror. But it does not make sense, if one keeps in mind the long-term foreign policy of Tehran towards Kabul. Accessing only on open sources, and with the timing of this ‘episode’ in mind, the information can at least be seen with some

AFP, ‘US-Afghan pact does not rule out drone strikes’, The Express Tribune, 2 May 2012, http://tribune.com.pk/story/373066/us-afghan-pact-does-not-rule-out-drone-strikes/. Accessed 16 May 2012. See M.K. Bhadrakumar, ‘Iran queries Obama’s pact with Karzai’, Asia Times, 11 May 2012, http://www.atimes.com/atimes/South_Asia/NE11Df01.html. Accessed 28 May 2012. Which has ties with the Iranian government. The Wall Street Journal goes as far as to say that it is affiliated to the Pasdaran or Revolutionary Guards, an affirmation quite difficult to verify independently. See Farnaz Fassihi, ‘Iran Says Amiri Spied on US’, The Wall Street Journal, 21 July 2010, http://online.wsj.com/article/SB10001424052748703954804575381310919702740.html. Accessed 1 May 2012. The fact that journalists, academic researchers, or travelling entrepreneurs, are used for information gathering is not new or surprising. But the accusation made by the Afghans against Hakimi is much more serious. RFE/RL, ‘Video Purportedly Shows Afghans Confessing To Spying For Iran’, 8 May 2012, http://www.rferl.org/content/afghans_arrested_for_spying_for_iran_video/24574547.html. Accessed 23 May 2012. A claim that does not go well with what has been narrated earlier in this paper: Hekmatyar has not been financed by the Iranians to revive his group. In same way the Taliban cannot be seen as a creation of the Pakistanis alone, it is rather simplistic to imagine that Hezb-i-Islami is just a tool of the Iranians.

suspicion. Even more so, when one knows that the sudden discovery of this ‘spy ring’ has not been the only accusation, without strong proof, thrown at Tehran by the Karzai government. Indeed, immediately after this already strong accusation, the Speaker of the Afghan Senate, Fazel Hadi Muslimyar, said that the Iranian Ambassador threatened to expel Afghan refugees if the Parliamentarians would ratify the pact wanted by the Americans. It is worth mentioning that again, in this story, there is a lack of solid proof of an ‘aggressive’ policy that would be reflective of Iranian foreign policy. Often it was said that Abolfazi Zohrehvand, a newlyappointed Iranian Ambassador, tried to influence Afghan legislators. But Zohrehvand is the only one quoted most of the time83. It is interesting to keep in mind that the Iranians are also accused of regularly paying some MPs, at least 4484 of them, if the (unfortunately) anonymous Afghan source of this information is to be trusted.85 Those two pieces of information appear contradictory: Why openly threaten parliamentarians if Tehran can so easily ‘buy’ them? The threat could have been made, of course, by this new Ambassador. If so, it sounds rather peculiar to have the same ambassador denying it86. At best, on this subject, one could see tensions inside the Iranian establishment about how to better react towards the US-Afghan Partnership. But this diplomatic ‘mini-scandal’ could be also a matter of statements by the Ambassador alone, without the consent or previous knowledge of the government in Tehran, or indeed a matter of misunderstanding or an exaggerated interpretation from the Afghan side. Whatever the truth is, what is clear is that the Afghan government lost no time to answer forcefully, and, from an Iranian point of view, aggressively, to criticism of the pact. Indeed, the Karzai government sent National Security Adviser Rangin Dadfar Spanta from Herat to talk about this issue. And what he said could only feed the fears of the Islamic Republic of Iran, if the pact becomes a reality after 2014. To send such an official was very significant, as he negotiated the pact with Washington. And in Herat, he told The Asia Times: “Iranian officials told Afghan senators not to approve the pact or else Afghanistan will face problems. We replied that it is for this very reason that we signed the agreement...what I see in Iran is nationalism and radicalism, which tries to influence the region from a religious point of view. [Iran's] politics have never been recognised globally...Afghans should guarantee their children's future with peace and think only about their national interest”. Kabul could not be clearer: The government in power now

84 85

See for example Ben Farmer, ‘Iran threatens to expel Afghan refugees if Kabul ratifies US strategic partnership’, The Telegraph, 10 May 2012, http://www.telegraph.co.uk/news/worldnews/asia/afghanist an/9256602/Iran-threatens-to-expel-Afghan-refugees-if-Kabul-ratifies-US-strategic-partnership.html. Accessed 22 May 2012. Or Nathan Hodge and Habib Khan Totakhil, ‘Iran Seeks to Scuttle US Pact With Kabul’, Wall Street Journal, 8 May 2012, http://online.wsj.com/article/SB10001424052702303630404577 391913416976058.html?mod=googlenews_wsj. Accessed the 22 May 2012. There are 249 members of the Afghan Parliament. Amie Ferris-Rotman, ‘Iran’s “Great Game” in Afghanistan’, Reuters, 24 May 2012, http://www.reuter s.com/article/2012/05/24/afghanistan-iran-media-idUSL4E8GL3KU20120524. Accessed 27 May 2012. FarsNews, ‘Envoy Cautions against Media Campaign to Undermine Tehran-Kabul Ties’, 9 May 2012, http://english.farsnews.com/newstext.php?nn=9102111339. Accessed 17 May 2012

claims to have a vision of Iranian foreign policy that is extremely similar to the Americans87. Such a situation was confirmed when the NDS (National Directorate Security88), claimed that the Iranians had some Machiavellian plan to use soft power to influence Afghans through the media. On this issue, there is some compatibility with the general attitude of Tehran: To promote pro-Iranian and anti-American ideas is, of course, in the interest of the Islamic Republic of Iran. For Daud Moradian, from the American University in Kabul, the Iranians would be spending US$100 million a year on projects related to soft power projection. They do not only influence the media, they also build religious schools, support the development of civil societies, etc89. The weakness of the argument here is that these projects are not necessarily bad. They are in fact helping to stabilise Afghanistan. Quite a few Western NGOs or states have had the same policy of helping the civil society as also the media, and of using soft power to have some sort of influence in Afghanistan. To see it as ‘imperialism’ when it is an Iranian policy would imply that every action by Tehran is harmful. It would mean falling into the trap of seeing the Iranians as a non-rational regime of ‘mullahs’, something that is far away from the truth, as seen above.

Conclusion It is possible to say that, generally speaking, Iran has been a decent neighbour for Kabul, as much as such a thing is possible in an international arena still dominated by a realist vision. Of course, all choices were made in Tehran in order to protect its national interest. The memories and the contemporary reality of a chaotic Afghanistan cannot be forgotten by the Islamic Republic of Iran. The idea that Iran could wish to totally destabilise this already troubled neighbour, in order to oppose the US, does not make much sense. Indeed, for the Iranians, Kabul is not a secondary issue. Of course, if the Iranians are not prone to putting Afghanistan back in its previous chaotic state, they will also not put Afghan stability above the protection of Iran itself. Tehran, for now and because of its national interest, is rather a force of stability insofar as Afghanistan is concerned. But this could change, if the regime in Tehran feels that it is in danger because of external forces, or if it is attacked militarily by the US or Israel in the foreseeable future over the issue of Iran’s nuclear programme. When thinking about the Iranian ‘issue’, the Americans and their allies have had the tendency to be obsessed with one subject (the concern about Iran becoming a nuclear-armed state) and with one geographical area (Iran as part of West Asia and hence as a rival for Saudi Arabia and Israel, two important allies of the US). Of course, Western concerns are understandable. And the international community has, in common, the desire to avoid, as much as possible, seeing more Middle East countries armed to the teeth with nuclear weapons or any other kind

87 88 89

M.K. Bhadrakumar, ‘Iran queries Obama’s pact with Karzai’. Afghan internal secret services Amie Ferris-Rotman, op.cit.

of WMDs (Weapons of Mass Destruction). Regardless, because of its unique geographical location, Iran is a force to be reckoned with in Central/South Asian affairs. Afghan stability, and, more broadly Central/South Asian stability, is in the interest of Americans and Europeans. But it is even more so for Pakistan and India. Ironically, these two countries found themselves on the same side on the issue because of a geographic quirk. It means that if Europeans and Americans can have the luxury to be amateurish enough not to think about the regional consequences of a crisis with Iran, Pakistanis and Indians need to raise this issue forcefully at the international stage90. Indeed, a wounded Iran and a destabilised Afghanistan will have a very concrete, immediate, and long-lasting impact on their security. For New Delhi, as for Islamabad, the risk is too great to be discounted in their regional and in international diplomacy.

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They would find natural allies in the Central Asian states, which fear, for good reasons, the possibilities in Afghanistan after 2014. Diplomatic consultation between the South Asians and post-Soviet states will give India and Pakistan a better chance to be heard, at least by the Europeans. Indeed, there is a strong European interest in Central Asia, inspired in particular by German foreign policy. If Afghanistan is a distant issue for some European elites, it is not the case in respect of oil and gas that could flow from this â&#x20AC;&#x2DC;New Silk Roadâ&#x20AC;&#x2122;.

ISAS Working Paper No. 153 â&#x20AC;&#x201C; 14 August 2012 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

China-South Asia Strategic Engagements - 1 China's Strategic-Security Interests in South Asia1 Ma Jiali2 South Asia is attracting more and more concerns in the international political arena, and it is China's close neighbour in the southwest. International political observers generally agree that South Asia is not only the subcontinent closely adjacent to China but also the wrestling field full of geopolitical competitions, while it is also more of a breeding ground for terrorism in recent years. It goes without saying that China has huge strategic interests and security concerns in this region indeed. Therefore, China needs an approach to properly handle the relationship between it and South Asian countries (as a whole) in order to ensure its own strategic and security interests. The first gist of this approach is to handle relations with contiguous countries, maintain peace and tranquillity along the borders, and strive to resolve the outstanding border dispute as soon as possible. Border issues are directly related to a country's territory and sovereignty and to the core interests of a country or at least very important interests. In today's world, people's nationalist sentiments in all countries have generally increased, while the border and territorial issues are often directly linked to national security and easily lead to sensitive national sentiment and political issues. Based on this understanding, the Chinese government is bound to take a prudent policy on the border issues. Among the 8 countries of the South Asian Association for Regional 1

The paper by Dr Ma Jiali is the first in a series of five Working Papers on Chinaâ&#x20AC;&#x2122;s security relations with some South Asian countries. These papers are being published by the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. Dr Ma Jiali is Deputy Director of China Reform Forum, Beijing, The views expressed in this paper are those of the author and do not necessarily reflect those of ISAS.

Cooperation (SAARC), the ones directly bordering with China are India, Pakistan, Nepal, Bhutan, and Afghanistan. As for China, the remaining three countries, namely Bangladesh, Sri Lanka and the Maldives are more geographically apart, with no territorial disputes. Among the border disputes, the most controversial one is between China and India. Due to the British colonial policy of aggression, Sino-Indian boundary has never been officially delineated, but the Chinese believed that there was a "traditional customary line," while India insisted on an "actual control line" which was essentially the same as "McMahon Line". In 1962, a brief war occurred between China and India in their border region. In the current situation, the Indian side controls most of controversial areas in the eastern border, and the disputed area China controls in the western border is Aksai Chin, while the two sides have disputes in the middle of the border region, which is approximately 2000 square km. Since 1980s, China and India have had eight rounds of official talks on border disputes. Entering the new century, the â&#x20AC;&#x153;special representatives on border issuesâ&#x20AC;? of the two sides have carried out 14 rounds of negotiations (as at the beginning of 2012). Now, the basic idea of the Chinese side on border issues was to further explore a framework for solving the border issues and to search for a fair and reasonable solution acceptable to both sides, based "on the political guiding principles on solving border issues" reached in 2005. And before the final settlement, it would strive to ensure peace and tranquillity along the Line of Actual Control. On the border disputes between China and Bhutan, China's basic position is also one of reaching a fair and reasonable settlement through the principle of mutual understanding and mutual accommodation. The second gist of this approach is to properly handle the relationship with the major powers in South Asia, to try to exclude or weaken the intervention efforts of the extra-territorial powers, to promote regional cooperation and benign interaction, and to promote the South Asian Association for Regional Cooperation to play a substantive role. The main focus of China's diplomacy in South Asia is to handle its relationship with India and Pakistan, and of course, it also strives to handle the relationship with other countries, including Bangladesh, Nepal, Sri Lanka, Maldives and Afghanistan. Although China has not established diplomatic relations with Bhutan, it is still trying to explore and develop the relationship with Bhutan. India is China's neighbour, which is also a populous and rapidly emerging country with a major role in the multilateral arena. The several features it has are entirely consistent with the four pillars of China's foreign policy, that is, China's diplomacy attaches special emphasis on strengthening cooperation with neighbouring countries, big powers, developing countries and key players on the multilateral stage. In diplomatic practice, China attaches great importance to cooperation with India, and is working through necessary means to further improve and develop relations with India. Pakistan is also an important country in the region, and to continue developing comprehensive cooperative relations with Pakistan -- to properly handle new 2

problems the bilateral relations are facing under the new situation and to carry forward this traditional friendly relations -- is the current problem that needs addressing. In addition, China has had a positive attitude towards the South Asian Association for Regional Cooperation, and has hoped that all South Asian countries would gradually change the face of poverty and backwardness of the region and promote regional security, stability and development through collective efforts. China is willing to make whatever contribution to promoting China-SAARC cooperation in various aspects. China has become the observer of the South Asian Association for Regional Cooperation. The third gist of this approach is to deal with challenges of separatism and terrorism firmly, strengthen cooperation and coordination with relevant countries, and make efforts to eliminate the soil terrorism was born from, so as to ensure security and stability in the northwest and southwest region of China. As we all know, the Tibetan separatist forces with the Dalai Lama as their representative has long been engaged in movements against the [Chinese] central government, in India and Nepal. India has taken measures of double-dealing on the Tibet issue. On one hand, it claims that Tibet is part of China and forbids Tibetans in exile from using the Indian territory to carry out antiChina political activities, but on the other hand, it allows and secretly supports separatist activities of the government in exile based in Dharamsala. On 14 March 2008, violent terrorist incidents occurred in Tibet which attracted wide public concerns. According to Chinaâ&#x20AC;&#x2122;s official materials, criminals suspected of violence and terrorist activities were from a clear background of the Tibetan separatist forces outside. India has long been a base camp for Tibetans in exile, secretly harbouring and supporting the activities of the Tibetan government in exile. Indian leaders and senior officials, regardless of China's frequent representations, repeatedly met the Dalai Lama, and cheered up for the exiled Tibetansâ&#x20AC;&#x2122; separatist activities. In 1980s-1990s, with the Sino-Indian relations thawing and heating, India adjusted its policies that were pursued in the 1960-1980s years to some extent, and began to limit the activities of Tibetans in exile through certain restrictions, which eased China's strategic concerns towards Tibet. But in recent years, India's policy appeared to reflect a reversal, and India has begun to explicitly seek the Dalai clique as a major tool for strategic interests, trying to get final benefits for themselves in the Sino-Indian border dispute. For example, the Dalai Lama, in connivance of India, went to the disputed area of Tawang for preaching sermons, and said the disputed areas belonged to India. This has caused serious concern to China. In addition, there is evidence that the "East Turkistan independence" and extremist religious forces that have emerged in Xinjiang in recent years have repeatedly received training in Pakistan and Afghanistan. The "7 â&#x20AC;˘ 5 incident" that occurred in Urumqi of Xinjiang in 2009 3

posed a very serious problem to the security and stability of northwest China. In the violent terrorist incidents that occurred in Hotan and Kashgar in July 2011, taking part have been staff trained in Pakistan. China has made representations with the relevant authorities in Pakistan and hoped that through joint efforts, the two sides could crack down on terrorist criminals and make a thorough investigation of Pakistan's terrorist training camps in tribal areas so as to prevent Islamic terrorists from leaving Pakistan and undermining the stability of Xinjiang in China.

China's Perception of Regional Security in South Asia Seen from the viewpoint of security, China and India have disputes on larger territories, and there are bad feelings towards each other on the Tibet issue, and because war occurred once between China and India in the border region, the two sides have not really solved the problem of strategic mutual trust. Although the two governments have released joint statements or declarations, security doubts still exist deep down both sides, or you may say some security concerns exist at least. The relationship between China and Pakistan is built on the basis of common interests. Frankly speaking, this relationship has had some implications against India during the Cold War. This kind of implication can be seen from China’s attitude towards India-Pakistan wars in 1965 and 1971, when China took measures of a strategic containment against India. But since the mid1990s, the relationship has undergone a certain kind of essential transformation. Especially with the continuous improvement of Sino-Indian relations, a credibly new triangle has been formed, even though it is still influenced by the old model. That is, although no significant changes have occurred in the relations between China and Pakistan, China and India have transferred from former opponents to "semi-opponents", namely “partners with profound contradictions”. ChinaIndia relations and China-Pakistan relations are becoming more and more parallel in China’s diplomacy, while the relevance of the two relationships is greatly diminished. China’s position during the period of India-Pakistan Kargil conflict and later should be seen as a watershed shift in China’s policy in South Asia. China sincerely hopes that India and Pakistan are able to properly solve the existing problems between them in a peaceful way, to avoid the deterioration of security situation in South Asia, especially the turbulence of India-Pakistan relations. On the eve of the conflict in Kargil, Pakistan Chairman of the Joint Chiefs of Staff Gen. Pervez Musharraf visited China, when Fu Quanyou, member of China’s Central Military Commission and Chief of General Staff, met him and reiterated the significance of Sino-Pakistani military cooperation, and expressed the hope that Pakistan and India would achieve a peaceful settlement of disputes through patient and serious dialogues. Premier Li Peng also said to Aziz, the former Pakistan Foreign Minister who 4

visited China later that Pakistan and India should exercise restraint and use peaceful means to resolve their disputes, to avoid further deterioration of the situation. (International edition of "People's Daily", 12 June 1999) Nawaz Sharif, who was Prime Minister of Pakistan, then paid a visit to China at the end of June that year, trying to persuade China to accept the position of Pakistan and hoped that China would support Pakistan's determination and its final plan to resolve the Kashmir issue with India. Chinese leaders Jiang Zemin, Li Peng and Zhu Rongji met with Sharif respectively, and made it clear that Pakistan and India should resolve the Kashmir dispute through consultation, and the tensions in Kashmir were fundamentally incompatible with the interests of the people of the region, and both of them should endeavour to promote regional peace and prosperity. India also learned China's position from its own channels. India's influential strategist Raja Mohan once pointed out in "The Hindu" (The Hindu, 14 June 1999) that China was committed to the normalisation of relations between India and Pakistan. Subsequently, China invited Indian Foreign Minister Jaswant Singh to visit Beijing, sending signals to the relevant parties that China would adjust its existing policies in South Asia, as Alcatel Eqia, one scholar of Nehru University in India, stated in his article of "Sino-Indian Relations Review" that, "China shows fair neutrality in Kargil conflict " ("Peacock and Dragon: China-India Relations in the 21st century", edited by K Bajpai and A Mattoo, New Delhi, 2000, p. 168-198). After the terrorist attacks in Mumbai of India in 2008, India-Pakistan relations fell into sudden tensions, and the fourth India-Pakistan war may break out at any moment. In the case of high tension, China paid great attention to the rapidly deteriorating security situation in the region, and sent a special envoy to mediate between India and Pakistan for the first time. China carried out urgent consultations with other related countries, taking a lot of positive diplomatic actions. Using a stereotyped Chinese saying, the policy China adopted is called "promoting peace and facilitating talks". Regardless of the effectiveness of this policy, China's basic attitude is like that, even if Pakistan criticises this policy and India does not fully accept that. Since it is in line with China's overall diplomatic strategy and China's strategic interests in South Asia, so as time goes on, China would continue to stick to this policy.

Changes in Chinaâ&#x20AC;&#x2122;s Policy towards South Asia In the new historical period, China's overall security concept has undergone significant changes. Known as the so-called "new security concept", Chinaâ&#x20AC;&#x2122;s current idea of its foreign policy is to follow the spirit of mutual trust, mutual benefit, and equality, and pursue perimeter security and regional security through mutually beneficial cooperation. This has completely exceeded the traditional concept of security, that is, the scope of unilateral security, emphasising mutually

beneficial cooperation for common security. (On 31 July 2002, the Chinese delegation formally proposed that, when attending the meeting of ASEAN foreign ministers). Needless to say, in the past few decades, China did give a lot of economic and military aid to Pakistan. During the Cold War, the Sino-Indian relations were in a tense state. Coupled with the indifference in Sino-Soviet relations, the strategic relationship between China and Pakistan included meanings against India. China hoped to provide necessary help to Pakistan and other South Asian countries, which harboured serious resentment towards India, to reduce the security pressure along the Sino-Indian border. It should be said that China took that security policy under certain historical conditions of that time, and it had to do this to deal with the special security relationship between India and the Soviet Union. If you carefully study the actual situation of history and international politics at that time, you can undoubtedly understand the essence of the relationship between China and the major South Asian countries. It should be said that, entering the new century, China has adopted more stringent restrictions in this respect, providing Pakistan with some defensive weapons, and its motivation is to enable Pakistan in the military balance compared to India. China believes that the military imbalance between Pakistan and India is not conducive to maintaining strategic stability in South Asia and to their development. Moreover, due to the continuous breeding of domestic terrorism in Pakistan, Pakistan's own confusion will bring extremely serious consequences and even disastrous effects to the India-Pakistan relations. Of course, India is dissatisfied with that, thinking that China continues to use Pakistan as the "black hand" and "balancer" against India. According to some Indian strategistsâ&#x20AC;&#x2122; points of view, they still believe that China is always supporting Pakistan against India and has a bias towards Pakistan on terrorism. At present, China is helping Pakistan, which is in an extremely difficult situation, as much as it could out of a profound consideration. Pakistan did make big contributions, and also paid a heavy price in the international fight against terrorism. It is currently subject to serious security challenges, and is increasingly becoming the target of terrorist attacks. In addition, because of the unstable domestic situation, coupled with floods and other natural disasters, its economic development is also getting worse, facing serious difficulties. This kind of difficulty for the less developed country is really unbearable. If Pakistan cannot get rid of the current difficulties with the support of the international community and if it falls into a "failed state", it would undoubtedly bring to South Asia and its neighbouring countries some extremely dangerous security problems. After the Cold War, with the steady improvement of Sino-Indian relations, especially during the decade after Rajiv Gandhi visited China, the Sino-Indian relations have witnessed remarkable progress. Especially as China continued to promote reforms, China's diplomacy has become 6

more mature, and China’s leaders have dealt with India more actively. In 1993, the Chinese government invited India’s Prime Minister Narasimha Rao to visit China, and the two sides signed “the Agreement on Maintaining Peace and Tranquillity long the Line of Actual Control on Sino-Indian Border”, which is effectively improving the atmosphere of bilateral relations. During November-December of 1996, Chinese President Jiang Zemin was invited to visit India, when the two sides signed “the Agreement on Confidence-Building Measures in the Military Field along the Line of Actual Control on Sino-Indian Border” ,which is lifting the bilateral relations to a new level. Entering the new century, China and India have reached a clear understanding on the concept of security, reaffirming that they will not hold out threats to each other and will, instead, adopt a variety of ways to take "confidence-building measures" (CBMs). During May-June of 2000, India’s President Narayanan visited China, when the two sides reiterated that they would not pose threats to each other. In 2001, China’s Premier Zhu Rongji visited to India, giving a strong impetus to the development of bilateral economic and trade relations, which further laid a solid material foundation to improve their political and security relations. In 2003, India’s Prime Minister Vajpayee visited China, when the two leaders signed “Sino-Indian Relations’ Principles and Comprehensive Cooperation Declaration”. In April of 2005, China’s Premier Wen Jiabao visited India, and the two sides decided to establish “the Strategic Partnership for Peace and Prosperity”, signing “the political guiding principles about solving the border issue” and other important documents. In 2006, when China’s President Hu Jintao visited India, the two countries proposed the "ten strategies" for developing and enriching the China-India strategic partnership, including enhancing defence cooperation. In January of 2008, India’s Prime Minister Manmohan Singh visited China, and the document of “A Shared Vision for the 21st Century" was issued jointly with China. This has important international significance. Subsequently, too, Prime Minister Singh and Premier Wen Jiabao visited each other. The two countries’ leaders also met on many international occasions, creating the closest record of high-level contacts in the history of contemporary international relations. In fact, after the post-Cold War, the military-security relationship between China and India has undergone unimaginable changes. Since the two governments signed “the Agreement on Confidence-Building Measures in the Military Field along the Line of Actual Control on SinoIndian Border” in 1996, frontier guards of the two countries have implemented a series of confidence-building measures. Entering the new century, the defence ministers of the two countries have conducted a number of visits, while military exchanges at other levels have also been carried out. For example, when SARS was raging in 2003, Indian Defence Minister George Fernandes visited China, and because of China's work, he changed his attitude by 180 degrees; in the same year, China's Deputy Chief Staff and two other military delegations visited India and in November, the navies of China and India launched joint maritime search and rescue exercises in China’s East Sea; in 2004, Defence Minister Cao Gangchuan paid a return visit to India, Indian Army Chief visited China, the Military Academy delegation and the National Defence 7

University delegation visited India and the border guards of the two countries also conducted joint mountaineering exercises; in May of 2005, China’s Central Military Commission member, Chief of Staff Liang Guanglie visited India, meeting the leaders of India’s army, and the two countries held joint naval exercises in the Indian Ocean in December; in May of 2006, Indian Defence Minister Mukherjee visited China, paying a visit to China’s Aerospace Command and Control Centre, and after talks with Cao Gangchuan, they signed “the Memorandum of Understanding on Enhancing Exchanges and Cooperation in the Field of Defence”, proposing some plans to standardise and enlarge cooperation in military training, military exercises and personnel exchanges. In 2007, their armies made a joint anti-terror drill in Yunnan; then the two countries conducted joint anti-terrorism training in India. Early in November of 2008, Wu Shengli, CMC member, Navy Commander, visited India, and in December, Deputy Chief Ma Xiaotian visited India and held second defence-security consultation with India. In 2011, after executing scheduled tasks, China’s convoy to Somalia also visited India. Thanks to the role of political leaders of both countries, though Sino-Indian military contacts encountered some shortterm setbacks, the military-security relations of the two countries started to recover. I think that we must value the positive changes of China's policies towards India, and not be rigidly focussed on some problems in history. Only when you see and acknowledge these changes can you properly deal with the changes in the new situation by using a rational attitude and by truly grasping the new opportunities of historical development to achieve ultimate "winwin" or "win-win-win" objectives. Otherwise, if we are blindly entangled in history and cannot handle the relationship in tune with the times and if we continue to treat and handle the situation by using the traditional mindset, it will not be conducive to the improvement of mutual relations and it will harm our own interests, resulting in a "zero-sum game" situation. At present, some new and major changes are appearing in the security situation of South Asia, while the concepts of "quasi-alliance" and "soft containment" are rising. The countries directly related to the South Asian security framework should know that they must establish the concept of mutual and common security, promote "confidence-building measures" and strengthen mutual trust and cooperation, so that they can contribute to the region’s peace and security, and fundamentally ensure their own security.

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ISAS Working Paper No. 154 – 21 August 2012 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Which Way is Pakistan Heading?-1 1 The Sick Man of South Asia Shahid Javed Burki2 ‘The past is not dead. In fact it is not even past’: William Faulkner Abstract Which way is Pakistan headed? The question is important not only for the citizens of Pakistan but also for the country’s immediate neighbours. It is important also for the entire world. A recent book authored by David E. Sanger, who covers the United States’ global strategic interests for The New York Times, has some interesting observations about how the administration headed by President Barack Obama viewed Pakistan as the relations between the two began to sour3. He wrote that by the end of 2011, the American President had come to the conclusion that Pakistan was the world’s most dangerous place. Not only was there a great deal of internal turmoil in the country, Pakistan also had the world’s fourth or fifth largest nuclear arsenal. If Pakistan collapsed and if internal divisions within the country’s army split it apart, the security of nuclear weapons could not be ensured. It would be catastrophic if these weapons of mass 1

This paper by Mr Shahid Javed Burki is the first in a series of three Working Papers by him on the situation in Pakistan as of mid-August 2012. Mr Shahid Javed Burki is Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He can be contacted at sjburki@yahoo.com. The views expressed in this paper are those of the author and do not necessarily reflect those of ISAS. During a professional career spanning over half a century, Mr Burki has held a number of senior positions in Pakistan and at the World Bank. He was the Director of China Operations at the World Bank from 1987 to 1994 and the Vice President of Latin America and the Caribbean Region at the World Bank from 1994 to 1999. On leave of absence from the Bank he was Pakistan’s Finance Minister, 1996-97. David E. Sanger, Confront and Conceal: Obama’s Secret Wars and Surprising Use of American Power, New York, Crown, 2012.

destruction fell into the wrong hands. Pakistan’s security was, therefore, of interest and concern for the entire international community. The country remained unsettled after the long rule by the military and the beginning of a new political order. There were significant changes made in the Constitution that led to the grant of greater autonomy to the provinces. There was also repeal of Basic Law that had given the president powers to dismiss the prime minister and dissolve the national and provincial assemblies. In spite of this change, President Asif Ali Zardari remained in effect the main executive authority. The economy continued to perform poorly with the 2007-12 downturn being the longest-stretching recession in the country’s history. Pakistan remained dependent on external capital flows to maintain even the low level of investment in the economy. But these flows became less certain as relations with the United States deteriorated in 2010-11. And the rise of Islamic extremism remained unabated. This paper, presented in three parts, examines how the various systems – economic, political and social – developed over time in Pakistan and how they were being shaped as 2012 draws to a close, and attempts to answer the question: Which way Pakistan appears to be headed at this time? The first part sets the stage for the analysis that follows and also analyses the development of the political order after the military left the scene in March 2008.

Introduction: Taking Stock of the Situation As Pakistan’s current democratically elected government entered the fifth year in office and as it began to prepare itself and the country for the next general election, a good place to start would be to look at the situation that prevailed in 2012, the final year of the term of the coalition led by the Pakistan People’s Party (PPP). These were troubled times in Pakistan. The, PPP, that leads the coalition government in Islamabad had an on-going confrontation with the judiciary. In June 2012, the Supreme Court removed Prime Minister Yusuf Raza Gilani from his position, convicting him for committing contempt of court. His offence: the refusal to write a letter, as demanded by the court, to the Swiss authorities to reopen a case against President Zardari on a charge that he and Benazir Bhutto, his late wife, had received a large kickback to grant a lucrative deal to a couple of Swiss firms. The case was dropped in 2008 at the request of the Pakistani government headed by Zardari and the Swiss authorities released US$ 60 million worth of frozen assets. After declaring the National Reconciliation Ordinance, the NRO, passed by the Musharraf government unconstitutional, under which the government withdrew the Swiss case, the Supreme Court worked hard to get the Swiss government to walk back these steps. But the court’s crusade against alleged corruption in high places did not stop with the president. It also began investigating allegations against the two sons of Gilani, the former prime minister. Having forced him out of office, it and the lower courts turned their attention towards the two PPP 2

leaders who were lined up by the president to succeed Gilani. The narcotics court issued an arrest warrant for Makhdoom Shahabuddin, the first nominee of President Zardari to succeed Gilani. Raja Pervez Ashraf, who finally won the National Assembly’s approval to become the country’s 19th prime minister, was also under investigation by the courts on charges of corruption4. The Supreme Court put him on notice that the need to write a letter to the Swiss authorities applied to him as well. These rapid developments within a few days in June and July 2012 suggested extreme political instability. While there was considerable political turmoil, the economy slipped badly, accelerating the downward trend it had followed for nearly 50 years. With the government’s attention diverted in other directions, it did not spend much time and effort on economic issues. Thus neglected, the economy continued to deteriorate. Some of the problems the economy faced will have long-term consequences. They were also hurting the citizenry. One example would serve to illustrate the short-term and long-term impacts of some of the economic difficulties the policymakers had to deal with. The serious shortages of electricity and natural gas were not only causing enormous discomfort to the people, they also changed the structure of the economy. A significant amount of defensive investment was made by enterprises and entrepreneurs to protect themselves against shortages and by the households who had the means to install generators to supplement the supply received from the utilities. The resort to secondary sources of power was an example of the reaction to the constrained and erratic supply of electricity. Installation of power generators by enterprises and households brought inefficiency to the economy. They also caused serious environmental problems. Gas shortages turned poor households towards the use of wooden stoves. This further depleted the already stressed forest cover in the country. The country had uneasy relations with most of the world. The United States, a long-time benefactor, began to look at the country with both suspicion and puzzlement: Suspicion that the military, while promising to move against the Islamic extremists that were attacking the United States’ forces in Afghanistan from the sanctuaries they had found in Pakistan, seemed, in fact, to provide them support; puzzlement that the authorities continued to be soft on extremism and were thus hurting the country’s long-term prospects. At the beginning of the Obama administration, Washington promised a steady engagement with Islamabad. This was to overcome the Pakistani complaint that America had been a fair-weather friend, getting close only when it served Washington’s strategic interests5. The Kerry-Lugar-Berman (K-L-B) bill, named after its three sponsors in the United States Congress, was signed into law by the president in

There were different counts of the number of people who served as prime minister since Pakistan gained independence. Two persons – Benazir Bhutto and Mian Nawaz Sharif – served twice while another six worked as ‘care-taker’ prime ministers satisfying a provision in the constitution that general elections should be held under the ‘care’ of a non-partisan head of government. For a competent analysis of Pakistan’s relations with the United States, see Dennis Kux, The United States and Pakistan, 1947-2000, Disenchanted Allies, Baltimore, Md.: The Johns Hopkins Press, 2001.

October 20096. It committed US$ 7.5 billion of economic assistance to Pakistan, US$ 1.5 billion a year for five years starting in 2009-10. There was a strong indication that the flow of aid would continue even after the five-year span of the K-L-B bill. However, very little of this amount was actually disbursed7. In 2012, unhappy with Islamabad’s reluctance to provide America as much help as the latter believed it needed to successfully pull out of Afghanistan, flows of all assistance, economic as well as military, were placed in jeopardy. Following a series of incidents involving US personnel, Pakistan blocked the passage of trucks and containers that used its road network to supply the US and NATO troops operating in land-locked Afghanistan. The embargo lasted from November 2011 to July 2012. While the matter was resolved by an agreement reached on 3 July 2012 when Secretary of State Hillary Clinton issued a statement saying her government was sorry for the deaths of two dozen Pakistani soldiers in an incident involving the United States, there was no assurance that the relationship would be fully repaired 8. The Americans also promised the immediate release of US$ 1.2 billion blocked funds to Pakistan. If that happened, as discussed in greater detail in a later section, it would save the country from entering another period of great financial stress but the impact will not be all positive. The one country with which Pakistan improved its relations was India. This was one silver lining in an otherwise dark and darkening cloud. President Zardari took a personal interest in moving forward the stalled dialogue between the two countries concerning the normalisation of relations. He agreed with India’s Prime Minister Manmohan Singh that a practical approach would be to concentrate on normalising trade and economic relations rather than to keep the focus of discussions on such highly contentious issues as the dispute over the control of the state of Jammu and Kashmir9. It was expected by many analysts that the restoration of normal or nearnormal economic ties would not only significantly add to Pakistan’s GDP growth – perhaps as much as 2.4 per cent a year10 – but would also bring about a positive change in the structure of that country’s economy. The rise of Islamic extremism was another troubling development. There was no consensus among the groups that had influence on the making of public policy as to the proper way of 6

The bill’s official title was ‘The Enhanced Partnership with Pakistan Act’ which was ‘to promote an enhanced strategic partnership with Pakistan and its people’. For a critique of the American aid programme in Pakistan, see a study by the Woodrow Wilson Institute of International Scholars, Aiding without Abetting: Making Civilian Assistance Work for Both Sides, Washington DC, July 2012. For a detailed analysis of the way the agreement was reached and the 3 July statement was issued, see Eric Schmitt, ‘Clinton’s “sorry” to Pakistan ends barrier to NATO’, The New York Times, 4 July, 2012, pp. A1 and A10. In a conversation with the author in November 2008, a few months after being sworn in as Pakistan’s President, Zardari said that having good relations with India was one of his top priorities. ‘But it will take me time. You will notice the change when I settle down in this office’, he said. By settling down he meant that he could overcome the military’s opposition to improving relations with India without a settlement of the Kashmir dispute. One such estimate was made by the author in a book published in 2011. See Shahid Javed Burki, South Asia in the New World Order: The Role of Regional Cooperation, Routledge, 2011.

handling the increasing influence of conservative Islam that was not normally practiced in Pakistan and other parts of South Asia11. It was the increasing influence of Saudi Arabia that had taken Pakistan in that direction. The extremist activities cost the economy dearly. The dissidents carried out attacks on both soft and hard targets. They launched numerous suicide operations in the country’s large urban areas, killing hundreds of people. They also succeeded on occasions to penetrate the defences of the military establishment and did material harm as well as considerable damage to morale in the armed forces. The list of problems did not stop there. What was clear was that the country was passing through the most difficult period in its history, a perfect storm. Pakistan was never free of crises. At earlier times crises arrived one by one and in most cases they were dealt with successfully by those who were in power when they occurred. This time around, however, a number of them came together; their bunching created a situation that the political system did not seem wellequipped to handle. The country’s ability to navigate through these troubled waters will define its future. Table 1: Comparative Real GDP Growth Rates (%)

India Bangladesh Sri Lanka Pakistan

2009

2010

2011

2012

2013 (P)

6.6 5.9 3.5 1.7

10.6 6.4 8.0 3.8

7.2 6.1 8.2 2.4

6.9 5.9 7.5 3.4

7.3 6.4 7.0 3.5

Source: World Economic Outlook, IMF, April 2012, P: Projected

Since this work is mostly about economics, what is also clear is that that all these crises were hurting the economy. Pakistan had become the sick man of South Asia. If the 2008-12 trend continued, Pakistan, after having being overtaken by Bangladesh whose GDP growth rate in 2011-12 was twice as high may well become the poorest country in the sub-continent. (See Table 1.) The democratic government’s response to the weakening economy was uncertain: it appeared that Islamabad was not fully aware of the extent of the economic problems it faced and its longterm consequences. One example of it was the budget presented on 30 May 2012 covering the 2012-13 financial year. It did not address the issue of the loss in growth momentum. Nor did it promise the long over-due structural reforms needed to restore health to the economy. In the absence of serious structural reforms, the faltering economy was not likely to regain balance12. What was also serious was the low level of confidence on the part of the citizenry about their 11

For a discussion of the Muslim mindset in South Asia, see Riaz Hassan, Inside Muslim Minds. 2008. Melbourne University Press. See Shahid Javed Burki, ‘Pakistan’s 2012-13 Budget: A Political rather than an economic document’, ISAS Brief No. 244, 12 June, 2012, Institute of South Asian Studies, National University of Singapore, for an analysis of the budget.

economic future. According to a survey carried out by the Washington-based Pew Research Center in March-April 2012, ‘89 per cent (of the people surveyed) describe the national economic situation as bad; 85 per cent held that opinion in 2011. And overwhelming majorities rate unemployment, crime, terrorism, and corruption as very big problems’13. Pakistan could do better. It was not much different in terms of its endowments from the countries a Goldman Sachs study in 2001 identified as the BRICs. These were Brazil, Russia, India and China, hence the acronym, the BRICs14. The acronym caught on and the BRIC nations began to hold their own annual summits, the first of which was held in Yekaterinburg, Russia in 2009 under the chairmanship of Dmitry Medvedev, then the country’s President. At one of these meetings and at the urging of China, the decision was taken to have the BRICs become the BRICS, by incorporating South Africa. Including South Africa gave the group a better regional balance with all the continents in the developing world represented. As of 2012, the BRICS represented almost three billion people, with a combined nominal GDP of US$ 3.7 trillion and an estimated US$ 4 trillion in combined foreign reserves. Slowly the BRICS nations were attempting to carve out a distinct economic space for themselves. They began, for instance, examining the possibility of a BRICS Development Bank with its capital subscribed by the members of the group, using their large accumulated reserves. What distinguished BRICS from the rest of the developing world was their size (population and GDP), their dominance in the region to which they belonged, their recent rates of economic growth, and their economic potential. Pakistan met three of these four criteria. It had a large population, approaching 200 million, less than that of China, India and Brazil, but more than that of Russia and South Africa. It was located in the region that had a high growth potential. Several countries in its neighbourhood had vast energy resources. Some, such as Afghanistan, had large mineral deposits that probably extend into the Pakistani province of Baluchistan and to the northeastern parts of the tribal belt. Mineral seams don’t stop at country’s borders; geology follows its own patterns. Pakistan could also become the centre of cross-country commerce between India, China, the Middle East and Afghanistan and the Central Asian states. Its rich human resources could provide what the demographers call the ‘window of opportunity’ that will remain open for a period much longer than that for the five BRICS. Its large diaspora located in several parts of the world and estimated at four to five per cent of the total population was the source of significant amounts of capital flows coming into the country. This diaspora of some six million to eight million people had a combined annual income of possibly between US$ 125 billion and US$ 150 billion, about three-fourths of the country’s national product, and savings of some US$ 30-40 billion a year. A part of these savings was sent home as remittances. Remittances, if the flows 13

Pew Research Center, Global Attitudes Project, Pakistani Public Opinion Ever More Critical of U.S., Washington DC, June 27, 2012, p 4. Jim O’Neill, ‘The World Needs Better Economic Brics’, Goldman Sachs, 2001.

continued at the level reached in 2012, and even if they didn’t increase at the impressive rates registered in 2011-12, will delay the day of reckoning when Pakistan will need extraordinary amount of external capital to stay current with its foreign obligations. The diaspora was also the untapped source of other kinds of help. They could provide valuable managerial, financial and other skills for modernising the economy. The country had a rich agricultural sector supported by one of the world’s largest irrigation systems developed initially by the British Indian administration during the colonial period but expanded later by Pakistan. But this resource also needed minding. Lack of public sector funding for maintenance had led to the serious deterioration of this rich asset. Diaspora, for instance, could not solve all the problems Pakistan faced on the external side. Other sources of finance had dried up largely because of the way Islamabad handled its relations with the West. As a result Pakistan no longer had the ability to pay for its large trade deficits and service its considerable debt to many foreign creditors without depleting its foreign reserves. These were some of the endowments that could be counted upon to produce a better economic future. Compared to the BRICS, the only area where Pakistan had performed poorly was in terms of the rate of economic growth since 2007. This was not always the case. In fact the country had experienced a number of growth spurts over the last half century. In the 1960s, the 1980s, and the early 2000s, the rate of GDP growth reached between six to seven per cent a year for extended periods of time. This meant respectable increases in per capita incomes. One consequence of these growth spurts was that the country by 2012 had a sizeable middle class that numbered between 40 and 50 million people15. This was large enough to give the economy a sustained push towards higher rates of growth and economic modernisation. Jim O’Neill, the author of the original BRICs idea, expanded his analysis by adding what he called the ‘new eleven’ to the original notion of the BRICs. Pakistan was included in this group of countries but identified as an economy that needed better management in order to realise its large potential16. Why has the country done poorly compared to its potential? Finding an answer to this question will be the main focus of this work. In the author’s earlier writings, the importance of the link between political and economic development was emphasised to explain Pakistan’s roller-coaster economic performance17. Had the country known greater political stability, it would have had a more consistent record of economic performance. The constant back-and-forth between military and civilian rules affected economic development. There was a similar yo-yo approach towards defining the economic role of the state. The government sometimes took almost total control of the economy. At other times it was shoved towards the margin with private enterprise left more 15

16 17

Some economists put the number at an even higher level. This was the contention of Mohsin Khan in a panel discussion organised by the World Bank on Pakistan’s future. His estimate was 70 million. The discussion is referred to in a later section of the paper. Jim O’Neill, The Growth Map: Economic Opportunity in the BRICs and Beyond, New York, Portfolio, 2011. Shahid Javed Burki, Changing Perception, Altered Reality: Pakistan’s Economy Under Musharraf, 1999-2006, Karachi: Oxford University Press, 2007.

or less to its own devices. All this produced uncertainty about the country’s economic future. Economies seldom do well in an environment marked by uncertainty. The policymakers had to create greater stability without which its economy will continue to stumble and remain under stress. But poorly performing economy will produce political and social instability that would pose an existential threat to the country. A failing Pakistan would most likely also convulse the rest of the world. While the focus of this work is on economics, it takes the view that the economic circumstances of a country – the problem it faces, its future prospects, and the public policy choices leadership groups were likely to make – cannot be understood without developing a good understanding of the structure of the society and the operating political system. Accordingly, the section that follows this introduction provides a quick – albeit not a complete – overview of the move towards the creation of a new political order after the military pulled out of politics in 2008. The third section deals with the performance of the economy from the beginning of 2008 to the summer of 2012. This, as already indicated, was a period of extreme economic turbulence that pushed the economy towards the brink of an abyss. The fourth section examines the politics of foreign capital flows, an important matter for Pakistan given its continuous and growing dependence on external finance for managing even a low level of domestic investment. The fifth section discusses what are described as the positives in the Pakistani situation: the factors that could be incorporated in a growth strategy, if one were to be formulated. The occasion for that may arrive if a new set of leaders were to emerge after the elections scheduled to be held either in the fall and winter of 2012 or in the spring of 2013. The paper’s final section,the sixth, concludes the discussion by suggesting where the country may be headed if a correction is not made in the direction in which it was going in the summer of 2012 and where it might go if the right sets of public policy choices were to be made.

The Move towards a New Political Order, 2008-12 Pakistan’s move towards a democratic political order happened quickly, the result of a number of missteps by General Pervez Musharraf in 2007. These began with the attempted firing of Chief Justice Iftikhar Mohammad Chaudhry from the Supreme Court; the resort to ‘emergency rule’ in November to deal with the citizens’ movement launched to protest the chief justice’s removal; and the failure to provide adequate protection to Benazir Bhutto, the chairperson of the PPP, who was assassinated in Rawalpindi on 27 December. Musharraf may have wanted to postpone the elections that had been scheduled for December by longer than a couple of months in order to bring the rapidly deteriorating situation under control. However, by the time Benazir Bhutto lost her life, too much power had slipped out of his hands for him to remain an effective ruler. The military was now under the command of General Ashfaq Pervez Kayani, who had succeeded

Musharraf in November. It had begun to distance itself from the President who had become increasingly unpopular. The parties that had relentlessly opposed rule by the military decisively won the election held in February 2008. The elections were free and fair; according to Fakhruddin G. Ebrahim, who was sworn in Chief Election Commissioner on 23 July 2012, only the third time there was no overt or covert interference by those in power. The two other occasions fair elections were held were in 1970 and 198818. Together the PPP and the Pakistan Muslim League (Nawaz) received more than one-half of the total votes cast, winning 168 of the 270 seats contested (See Table 2). The Pakistan Muslim League (Quaid) that had supported the rule by the military received 23 per cent of the total vote and won 42 seats. In spite of this upset, the armed forces did not immediately pull back to the barracks. The provincial election results showed that, of the three parties – the PPP, the PML (N), the PML (Q) – that won the most seats, that only one of them, the PPP, had a truly national presence. It had a significant representation in all the provinces, the most in Sindh where it captured not only the largest number of seats but also obtained a majority. Both the PML (N) and PML (Q) were essentially Punjabi parties while the MQM, the fourth largest contingent in the National Assemly, was significant only in Karachi (See Table 2). General Musharraf tried every trick he had learnt at playing politics to stay in power. He was eventually persuaded to leave the presidency in part because the new military commander made it clear that he did not have his support. It didn’t help Musharraf that General Kayani was chosen by him as his successor. This was a lesson that was visited over and over again in Pakistani politics: picking your own man to head the armed forces was no guarantee that you could retain his loyalty and thus secure your job. Table 2: National Assembly Results, 2008

Pakistan People's Party PML (N) PML (Q) MQM ANP JUI (F) PML(F) 18

Votes(million) 10.61 6.78 7.99 2.51 0.7 0.77

Reserved for Seats women 97 23 71 17 42 10 19 5 10 3 6 1 4 1

% 31 20 23 7.4 2 2.2

Iftikhar A. Khan, ‘Only fair polls secure future: CEC’, Dawn, 24 July, 2012, p. 1.

Reserved for Minorities 4 3 2 1 0 0 0

Total 124 91 54 25 13 7 5

National People’s Party PPP(Sherpao) BNP(Awami) Independents Total

0.14

34.67

1 1 1 18 100 270 0.4

0 0 0 60

0 0 0 10

1 1 1 18 340

It took some clever manoeuvring by Zardari, assassinated Benazir Bhutto’s widower, to get the presidency for himself. He first cultivated Nawaz Sharif, the head of the rival PML (N), to work with him to oust Musharraf. Sharif was even more opposed to the general-president, having been removed by him from office almost a decade earlier. He was passionate about sending Musharraf into political wilderness, threatening to try him for violating the Constitution in October 1999 when he assumed power from an elected government. Nawaz joined the ‘grand coalition’ organised by Zardari when Gilani, the latter’s choice for premiership, was sworn in as Prime Minister. The PML (N) was given several important portfolios including that of finance. But the marriage did not last for very long. In May 2008, a couple of months after joining the coalition, the PML (N) quit, leaving the PPP fully in charge. By that time the PPP co-chairman had received the indication that the military would not support Musharraf’s continuation in office. Musharraf, threatened with impeachment, resigned in late August and went to London on virtual exile. That is where he remained during the first term of the PPP-led coalition. He was succeeded by Zardari a month later when he was elected President.

There was an expectation that the democratically elected government will uphold the rule of law. That was the spirit behind the Charter of Democracy signed on 14 May 2006 in London by the leaders of the two main political parties. A lot of work went into the drafting of the charter. The two leaders were helped by constitutional experts from the two parties. The preamble set out the problem the parties saw with the political situation in Pakistan in 2006, more than six years after the military regime under General Musharraf had intervened in politics. The general’s halfhearted attempts to give a democratic flavour to his regime and to his style of governance was not acceptable to Benazir Bhutto and Nawaz Sharif. ‘We the elected leaders of Pakistan have deliberated on the political crisis in our beloved homeland, the threats to its survival, the erosion of the federation’s unity, the military’s subordination of all state institutions, the marginalisation of civil society, the mockery of the Constitution and representative institutions, growing poverty, unemployment and inequality, brutalisation of society, breakdown of rule of law, and the unprecedented hardships facing our people under a military dictatorship, which has pushed our beloved country to the brink of disaster,’ the two leaders wrote in the charter’s preamble 19. The charter’s 36 proposals were presented under four headings – constitutional amendments, code of conduct, free and fair elections, and military relations. Under these categories, the main 19

For the full text of the charter, see State of Pakistan: The blog for democracy, ‘Charter of Democracy: Full text’ 21 February 2010, accessed on 8 July 2012.

approach was to establish or develop the several institutions essential for the working of democracy that would be free of political interference. Implicit in the suggestions made was the acknowledgement that when the two leaders held the reins of power, they too had not resisted the temptation to interfere with the working of the judiciary, the Election Commission, and the accountability apparatus. They promised better political behaviour in the future. They pledged to create the mechanisms that would ensure that the people responsible for these institutions would not be beholden to the interests of any particular political party. In the case of constitutionality, the charter made two critically important commitments. One, that the prime minister, accountable to the elected parliament, will be the country’s chief executive. Two, the provinces would be allowed much greater authority to manage their affairs than had been possible under the original constitution. The main recommendation was to remove the ‘concurrent list’ from the constitution that allowed both the federal and provincial governments the responsibility to manage the listed subjects. In practice, however, the role of the provincial governments, pertaining to the subjects included in the concurrent list, was marginalised. The charter had a number of provisions to ensure that the military would stop interfering with the development of a democratic political order. The various security agencies were to be put under the charge of the ministries of defence and cabinet. The special agency responsible for managing and developing the nuclear arsenal would perform its functions directly under the prime minister. The defence budget ‘shall be placed before the parliament for debate and approval’ and ‘all superior postings…shall be made after the approval of the government through respective ministries’. The growing economic power of the military was of special concern to the two leaders. ‘Military land allotment and jurisdictions will come under the purview of Defence Ministry. A commission will be set up to review, scrutinise, and examine the legitimacy of such land allotment rules, regulations, and policies, and along with all cases of state land allotment including those of military, urban and agricultural land allotments since 12 October 1999, to hold those accountable who have indulged in malpractices, profiteering, and favouritism.’ The reference to the October date was to the day General Musharraf removed Sharif from the office of Prime Minister. Once the PPP was in power under Zardari, it became clear that some of the main commitments in the charter will not become part of public policy. In some cases the military was not prepared to surrender its control over its institutions. This was certainly the case for its intelligence agencies. The attempt to place the Inter-Services Intelligence (ISI) under the Interior Ministry was given up at the military’s insistence that no change should be made and the agency should continue to remain under the control of the army. The government also did not interfere with the appointments of senior officers to various positions in the military. In the judgment delivered in the “Air Marshal Asghar Khan case” in which the former air force commander had accused the ISI of helping an Islamic coalition to win the 1990 election, the Supreme Court ordered that the 11

domestic wing of the intelligence agency should be closed. But some of the promises made in the charter were carried out. It was the Supreme Court that stepped in July 2012 to attempt to bring the ISI under control. The commitment to grant greater autonomy to the provinces was fulfilled by the passage of the 18th Amendment to the Constitution, a subject discussed in greater length in a later section. However, in two areas, Zardari dug in his heels – assurance of judicial autonomy and the transfer of executive authority to the prime minister from the president. He failed in the first but succeeded in the second. Behind Zardari’s reluctance to bring the judges back to the courts was his fear that an independent-minded Chief Justice of the Supreme Court who had managed to defy the military president would be hard to deal with. That turned out to be right reading, but he had incorrectly gauged the power of the street. Chief Justice Chaudhry’s position that the judicial system should be fully autonomous was the reason he had defied General Musharraf and refused to leave his office when the general pressured him to do so. That confrontation in March 2007 made him a hero of the legal community and the civil society. The street began to get restive again when Zardari, as the successor to Musharraf, did not change the executive’s stance towards the judiciary. He was reluctant to bring back Chaudhry to the court. By then Nawaz Sharif had concluded that Zardari needed to be openly pressured to fulfil the promises his late wife had made in the charter of democracy. He decided to join the legal community and announced that he would lead the ‘long march’ organised by the lawyers. When the march was on its way to Islamabad from Lahore, General Kayani forced the government’s hand and in a midnight announcement made on 16 March 2009, Gilani said that the dismissed judges had been reappointed by him to their old positions. The prime minister issued an executive order to that effect which brought back the dozens of judges who were removed from their positions in the various provincial high courts. Back on the bench, the revived judiciary did what it was expected to do – it acted independently. One of its judgments was to politically convulse the country. It held unconstitutional the National Reconciliation Ordinance, NRO, promulgated by Musharraf in late 2007 as a move to usher in a new political order by cooperating with Benazir Bhutto. The NRO withdrew hundreds of corruption cases against the former prime minister, her husband and dozens of their political and senior officials from the bureaucracy. The Supreme Court’s decision implied the revival of these cases including the one pending in a Swiss court which implicated Benazir Bhutto and Zardari, her husband, in a kickback case. It was alleged that the couple had received tens of millions of dollars in return for the grant of a large contract to a firm from Switzerland. The court told the government to write to the Swiss authorities to restore the case. The government headed by Prime Minister Gilani refused to comply, maintaining that, as President, the Constitution gave Zardari immunity from prosecution. This led to the launch of contempt proceedings by the Supreme Court against the prime minister.

On 26 April 2012, the court convicted the prime minister of having committed contempt but Gilani again defied the court by not resigning his office, which was expected as the most likely outcome of their order. The court acted again on June 19 and ordered the prime minister’s removal, issuing a ‘short order’ that instructed the Chief Election Commissioner to unseat the prime minister from the National Assembly and also instructed the president to convene the assembly to elect his successor. This time Zardari chose to comply but in a manner that further exacerbated the tension between the judiciary and the executive. The nomination by Zardari of Raja Pervez Ashraf as the PPP’s candidate for the prime minister’s position on 21 June did nothing to improve the president’s tarnished image or to begin the process of bringing the country out of the deep political and economic crises it faced. Ashraf went on to receive 211 votes in the National Assembly, a comfortable position in the Lower House of the national legislature. It was clear that neither President Zardari nor the PPP, the political party he led, had any interest in improving the quality of governance that had so negatively affected the country’s economic performance. The opposition was generally appalled by the president’s move. According to an assessment by the Financial Times, ‘the former Utilities Minister whose tenure was tainted by scandal (was now part of a move) that observers said would do little to arrest the mounting political crisis in the South Asian country. Raja Ashraf stepped down last year as Water and Power Minister amid allegations of corruption and failure to end the country’s chronic electricity shortages’.20 The press had begun calling the new prime minister ‘Raja rental’. The reference was to the rental power scam investigated first by the Asian Development Bank and subsequently by the Supreme Court in which large kickbacks were allegedly received by several policymakers, including Ashraf for hiring power units, mostly ships with electricity generation plants mounted on their decks. These ships were anchored outside Karachi. The units performed poorly. The newspaper Dawn summed up well in an editorial the reaction to the Ashraf appointment. ‘…the nomination of Raja Ashraf was a snub to millions of citizens who are suffering long hours of load shedding in the Pakistani summer. In the face of electricity cuts, the former Water and Power Minister was an insensitive choice – and an unwise one, in an election year – sending a signal that the PPP is unconcerned about one of the nation’s most painful problems. Political considerations were obviously at stake…’21 Ashraf’s elevation was received with surprise by the opposition that seemed to be gaining ground as Pakistan moved towards another general election. ‘The candidature of Ashraf for PM shows the utter contempt Zardari has for the people of Pakistan’, tweeted Imran Khan, the chairman of a rising political party, the Pakistan Tehrik-e-Insaf22. The opposition was inclined to show its displeasure with the president’s move by contemplating to resign en masse from the National Assembly. ‘This is a shameless move by President Zardari who is behind this nomination. A tainted politician has been picked to become the new prime minister,’ said Ahsan Iqbal, a senior 20 21 22

Rahul Jacob and Farhan Bokhari, ‘Ex-minister elected Pakistani PM’, Financial Times, 24 June, 2012, p.4. Dawn, Editorial, ‘PM election’, 24 June, 2102, p.7. Quoted in Jon Boone, ‘Pakistan’s new prime minister is Raja Pervaiz Ashraf’ The Guardian, 22 June, 2012.

opposition leader of the opposition PML (N). ‘It will be an insult for us to coexist in parliament with such a prime minister’23. However, the threat to quit the assemblies was not carried out. The opposition feared that such a move would only have strengthened the hands of the president and the PPP. By staying on in the assembly, the opposition was able to get such a highly respected individual as Ebrahim appointed to the important position of Chief Election Commissioner. The Zardari government changed its legal strategy as the Supreme Court continued to press the prime minister to have the Swiss authorities reopen the case against the president. On 17 July, the National Assembly and the Senate passed the Contempt of Court Bill which exempted the ‘holders of public office’ from the purview of contempt and in ‘exercise of powers and performance of (their) functions’ and allowed the suspension of a sentence ‘during the pendency of an appeal’. The bill’s passage and approval by the president was immediately challenged as being unconstitutional while several lawyers’ associations began to protest against it. The Supreme Court, rushing into the case, began its hearing on 23 July by a five-member bench. The drama continued. On 26 July, Attorney General Irfan Qadir, the government’s chief law officer, told the court ‘your order is not implementable’ because the president enjoyed immunity under the Constitution. The conflict between the executive and the judiciary was the subject of intense debate in the country with newspaper columns discussing both the positive and negative aspects of the situation. What was described by many analysts in Pakistan as judicial activism reflected in fact the concerns of the narrow elite about the loss of its power that will be the consequence of the series of actions taken by the judiciary. According to Moeen Cheema, a lecturer in law at the Australian National University, ‘far from being the product of personal likes or dislikes, or merely the hangover of the recent “Lawyers’ Movement” for the restoration of the Chief Justice, the Supreme Court’s jurisprudence reflects deeper ideological commitment in light of which the court sees government corruption, absence of legal accountability, and excessive amount of undue influence exercised by the elected government over state apparata – bureaucracy, police and regulatory agencies – as the most serious malaise in Pakistan’ 24. But the court’s unhappiness at the government’s refusal to reopen the Swiss case against Zardari was not the only contentious issue between the judiciary and the executive. The Lahore High Court asked Zardari to relinquish his post as the co-Chairman of the PPP or give up the presidency. The constitution did not allow the president to remain committed to a political party once elected to that office. ‘No matter what he decides, Ashraf, the country’s 25th prime minister, could become a causality of the process,’ wrote Jahanzeb Alam for the Newsweek. ‘And the government may soon be looking for prime minister number 26’25. 23 24 25

Ibid. Moeen Cheema, ‘Pakistan: Contempt of Court or democracy?’ Aljazeera, 20 July, 2012. Jahanzeb Alam, ‘Raja Pervaiz Ashraf: A newly elected loyalist faces widespread scorn’, Newsweek, 18 July, 2012, p. 8.

The summer of 2012 was particularly severe. In Islamabad, for instance, temperature hovered for days just below 50 degree centigrade. The power shortage, with load shedding in many cities for more than half a day, exacerbated the situation and the PPP government became the focus of anger. A Pew Research Center survey carried out in March-April 2012 and cited earlier found that only 15 per cent of Pakistanis held a positive view of Zardari, while 39 per cent still viewed General Musharraf favourably. The Pew survey also found that people continued to express overwhelming support for the military as an institution with 77 per cent calling it a good influence. Kayani was viewed favourably by slightly more than half of those surveyed26. Commenting on the Pew report, Richard Leiby of The Washington Post wrote ‘nobody knows how long the country can continue its slow stumble towards actual democracy: Pakistan, battling an Islamic insurgency, now faces a constitutional crisis during an economic meltdown coupled with devolving political order, as power-outage protests turn into deadly riots’27. Even with this long list of negative developments could it be assumed that this time around Pakistan could be headed towards a functioning democratic order? The answer to this question is a qualified ‘yes’. On the positive side were a number of moves made by various powerful players in the political system that led to a consensus that no matter how defective was the present system, democracy was the only way to govern a society as fractious as Pakistan. The military seemed inclined to stay in the barracks and if need be to operate from behind the scenes. While the generals were not convinced that the civilian politicians could be fully trusted to protect the country’s strategic interests, they were not likely to overtly influence the making of public policy. Pakistan was also learning to live with coalition politics which required accommodation within a democratic framework of diverse political interests. The rise of regional parties complicated the making of economic policies especially when regional interests could not be reconciled with national priorities. One example of this was the position taken by Mutahida Qaumi Mahaz, the MQM, with reference to the design of fiscal policy. The party’s base was confined to urban Sindh, in particular to the city of Karachi. There it represented the middle class. This class was reluctant to see its tax burden increase while the landed community was mostly spared. In 1973 when Zulfikar Ali Bhutto was engaged in the drafting of the constitution, he won the support of the powerful landed interests by excluding agricultural incomes from the tax base. This provision had serious economic consequences. For most of the time, value added in agriculture increased impressively but this growth could not be captured in tax revenues. The attempt by the IMF to increase the tax-to-GDP ratio as a part of the programme it negotiated with Islamabad in 2008 did not succeed. The Fund’s proposal to levy a tax on consumption was resisted by MQM. Its opposition resulted in the collapse of the IMF programme. 26

Pew Research Center: Pew Global Attitudes Project, 74 per cent call America an enemy: Public opinion ever more critical of U.S., Washington DC, 27 June, 2012. , Richard Leiby, ‘Pakistan Stumbles’, The Washington Post, 11 July, 2012, p. A9.

There were other tensions between the federal government and the provinces. Although relations between the PPP-dominated government in Islamabad and the Punjab administration controlled by the PML (N) were strained most of the time, the level of tension was less than was the case during the time when Benazir Bhutto was the prime minister. The other significant – perhaps also positive – development was the rise of a relatively new political party under the leadership of a person who had enormous amount of credibility among the people, particularly in the urban areas. Imran Khan, once a cricket hero, had endeared himself to large segments of the urban population by doing some extraordinary philanthropic work. The Shaukat Khanum Memorial Cancer Hospital and Research Center built in memory of his mother who was felled by the disease at a young age was the only medical institution of its kind in the country. The establishment of the hospital was not the only example of some of Khan’s philanthropic activities28. In Mianwali, his father’s hometown, he established a modern university in association with a British institution. According to the Pew survey already cited, Khan was by far the most popular political figure in the country with an approval rating of 70 per cent. Khan’s political party, the Pakistan Tehrik-e-Insaf, the PTI, gained in popularity in part because of the erosion of people’s confidence in the two established parties – the PPP and the PML (N) – that had dominated the political landscape for decades. The PTI held well-attended political rallies in Lahore in October 2011 and in Karachi on 25 December. It also attracted a number of established leaders which would help it to win seats in the next general election29. Those who joined the party included Shah Mahmood Qureshi who had served as the Foreign Minister in the PPP-led government for three years, from 2008 to 2011. While the growing popularity of this political party will crowd the field, it will make politics more competitive. It may also result in the replacement of dynastic politics (discussed later) that was the basis of governance in the two main-stream parties, the PPP and the PML (N), with greater intra-party competition. One of the problems with the evolving political order in the country was the organisational weakness of the political parties. Real democracy will only arrive when the political parties that are supposed to reflect public opinion, begin to choose their own leaders democratically. That was not likely to happen any time soon in Pakistan – nor for that matter in India. The difference between India and Pakistan was that in the former, only one of the two major parties was following the dynastic approach to leadership selection. In Pakistan, both the PPP and the PML (N) expected that leadership will pass from one generation to the other. If the interview given by Bakhtawar and Aseefa Bhutto-Zardari, President Zardari’s two daughters, to Cathy Scott-Clark, a British journalist, was any indication, the Bhutto family continued to believe that that it was legitimate for the third generation in the family to prepare itself for taking over the command of the PPP. The party founded in 1967 by Zulfikar Ali Bhutto had kept the leadership within the 28 29

For the story of his life, see Imran Khan, Pakistan: A Personal History, London, Bantam Press, 2011. Shahid Javed Burki, ‘Imran Khan’s Political Rise’, ISAS Insights, No. 149, Institute of South Asian Studies, National University of Singapore, 27 December 2011.

family. The previous two transfers of leadership occurred following the premature demise of the leader, a Bhutto. Zulfikar Ali Bhutto was ordered to be executed by General Zia ul Haq after he received the sentence of death from the Lahore High Court for his alleged involvement in the murder of a political opponent. While in prison he told his wife and daughter to take over the party’s leadership if he were to be executed. Accordingly, Nusrat Bhutto, the wife, and Benazir Bhutto, the daughter, became the party’s co-chairpersons in 1979 after the founder’s death. Benazir Bhutto was assassinated in Rawalpindi on 27 December, 2007 and Zardari produced a hand-written will to show that the PPP chairmanship was willed to him by his wife. At the time it was widely reported that he was so desperate to seize power that he had faked his wife’s will but Aseefa says it was the opposite. ‘He wanted to get us away from politics until we were married with children. He himself had no intention,’ wrote Scott-Clark, but then duty beckoned30. Dynastic politics went beyond the Bhutto family. PML (N), the other mainstream national party was dominated by the Sharif family. While Nawaz Sharif – the ‘N’ in the party’s name meant Nawaz – was the main policy-maker and decision-maker in the party, his younger brother, Shahbaz Sharif, was the party’s leader in Punjab and also the Chief Minister of Punjab, the country’s largest province. Among the members of the younger generation, Maryam Nawaz Sharif was being groomed to hold an important position, in particular in the party’s women wing. She had gained enough prominence for Newsweek to do a profile on her 31. On 19 July, 2012 Abdul Qadir Gilani, the son of former Prime Minister Gilani won a by election from the seat in Multan vacated by his father on the order of the Supreme Court. However, the son won by a narrow margin of 4,096 votes in the election that attracted more than 150,000 voters. ‘According to observers, the thin margin of the Gilani junior’s victory showed that the voters were disgruntled with the ruling party’32. According to Zahid Hussain, a journalist and a respected analyst of Pakistani politics, ‘the Gilanis are one of the 102 families holding more than 50 per cent of seats in the federal and provincial legislatures…Indeed most of Pakistan’s political dynasties are rural-based with feudal origins but over the years families from urban, religious and military backgrounds have also emerged on the scene’. Hussain used the example of the Sharif families rise to underscore this point: ‘…despite coming from a completely different social origin and background, the Sharifs have also fallen into line, sharing a similar feudal, tribal, patrimonial, and personality based style of politics’33. Although in the five-year period between 2007 and 2012, a number of disturbances rippled through Pakistan’s political waters, jostling many boats including those of the various leadership groups, the country managed to advance towards the establishment of a durable political order. The military withdrew to the barracks convinced that another intervention in political affairs will not sit well with the civil society. The civil society, inspired in part by the ‘Arab Spring’, began 30 31 32 33

Cathy Scott-Clark, ‘Dear mother, Benazir Bhutto’, The Week, 15 July, 2012, pp. 18-23. Sherbano Taseer, ‘The rebirth of Maryam Nawaz Sharif’, Newsweek, 30 March and 6 April, 2012, p. 12. Shakeel Ahmad, ‘Qadir Gilani scrapes through in neck “n” neck race’, Dawn, 20 July, 2012, p.1. Zahid Hussain, ‘Dynastic Politics’, Dawn, 24 July, 2012, p. 7.

to function as a real constraint on the politically powerful groups, sending out a clear message that they will have to operate within the boundaries prescribed by the society. But the space available within these boundaries was still large enough for poor governance on the part of the holders of public office. The newly empowered judiciary began to flex its muscles to narrow the space within the boundaries so that those who wielded political authority did not step outside it. The Supreme Court began to underscore that the Constitution was the countryâ&#x20AC;&#x2122;s basic law which could not be violated even by the peoplesâ&#x20AC;&#x2122; assemblies in spite of their broad law-making authority. The emergence of regional political parties as powerful forces within the evolving political order also acted as another constraint on the mainstream parties. The regional parties were also helped by the passage of the 18th Amendment to the Constitution that gave the provinces much greater authority to control their affairs. There was, therefore, enough progress made in this period to suggest that Pakistan was finally climbing out of the political rollercoaster it had ridden for more than 60 years, from 1947, the year of independence, to 2008, when power was finally transferred from the military to the elected representatives of the people. (To be continued)

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ISAS Working Paper No. 155 – 21 August 2012 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Which Way is Pakistan Heading? - 2 1 Politics of an Economy on the Brink Shahid Javed Burki2 ‘The past is not dead. In fact it is not even past’: William Faulkner

Abstract This Working Paper, the second of a three-part series, examines the performance of Pakistan's economy since 2008. In February of that year, elections were held that brought to power in Islamabad a political party -- the Pakistan People’s Party (PPP) -- which was resolutely opposed to the rule by the military. Its main preoccupation in the first few months of its rule, therefore, was to force General Pervez Musharraf to give up the presidency. This goal was achieved in August when the president resigned. A month later Asif Ali Zardari, the PPP’s co-chairman, was elected to the office vacated by Musharraf. Once in full political power, the party governed poorly. It allowed the country’s economy to slip into a recession that has lasted for five years, the longest in history. The paper suggests that, while some external factors and natural disasters damaged the economy, bad management was the main reason for the economic downturn. Poor 1

This paper by Mr Shahid Javed Burki is the second in a series of three Working Papers by him on the situation in Pakistan as of mid-August 2012. 2 Mr Shahid Javed Burki is Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He can be contacted at sjburki@yahoo.com. The views expressed in this paper are those of the author and do not necessarily reflect those of ISAS. During a professional career spanning over half a century, Mr Burki has held a number of senior positions in Pakistan and at the World Bank. He was the Director of China Operations at the World Bank from 1987 to 1994 and the Vice President of Latin America and the Caribbean Region at the World Bank from 1994 to 1999. On leave of absence from the Bank he was Pakistan’s Finance Minister, 1996-97.

governance not only resulted in increased corruption but also in allowing serious electricity and natural gas shortages to take a heavy economic toll. With corruption increasing the cost of doing business and with severe shortages of some vital inputs, there was a significant decline in investment by the private sector. At the same time the country’s relations with the United States deteriorated to the extent that there were calls in America for suspending all aid to Pakistan. The result was a sharp decline in the badly-needed external capital. The country failed to make the adjustments needed in its fiscal policy to compensate for the decline in external flows by increasing domestic resource mobilisation. This meant that public sector investment also declined. The two combined – declines in private and public investments – means that slowdown in the rate of economic growth is likely to persist for some time. In sum, the paper suggests that the economy has been driven to the edge of an abyss from which it needs to be pulled back. That will require concerted action on a number of fronts. Economic Performance, 2008-12 From 2002 and until February 2008 when General Pervez Musharraf allowed people of Pakistan to vote for a new parliament, the Pakistani economy performed well. Table 1: Economic Performance 2001-2012

200001 200102 200203 200304 200405 200506 200607

Extent of balanced growth

Gross Domestic Capital formation (% GDP)

GDP growth %

Incremental capitaloutput ratio

Volatility of Growth %

9.05

-2.2

7.18

17.2

95.8

9.3

3.1

5.59

-0.2

4.79

16.8

110.7

72.7

4.5

4.7

3.72

1.4

4.04

16.9

123.1

73.8

6.9

7.5

2.1

3.9

13.27

16.6

108

72.4

1.86

4.8

9.09

19.1

91.5

74.3

15.5

5.8

3.15

0.5

11.83

22.1

82.3

75.6

8.7

6.8

2.88

0.8

4.85

22.5

77.7

8.3

National Savings as % of Investment

Private Investment as % of Total Fixed Investment

Manufacturing growth rate

200708 200809 200910 201011 201112

3.7

5.18

-3.1

4.07

22.1

61.5

73.2

4.8

1.7

9.42

-4.9

4.6

18.2

68.7

-3.6

3.8

3.98

-1.6

4.93

15.4

85.1

73.9

5.5

2.4

6.9

-2

5.08

13.4

103

72.3

Source: The Institute of Public Policy, The State of the Economy, 2012: The Punjab Story, Lahore, 2012, Table A1, p. 146.

Growth in this five-year period averaged 6.8 per cent a year. In 2004-05, the economy grew by the highest rate ever in its history, nine per cent. As shown in Table 3, the rate of growth fell precipitously after the military handed over full power to a coalition government in Islamabad led by the Pakistan People’s Party. The average rate of growth in 2007-12 was only three per cent a year, 76 per cent less than the average for the previous five years. As the data of Table 3 shows there were a number of changes in the way the economy performed under the new government, not just in the decline in the rate of growth. The economy became considerably more volatile with the volatility index turning negative in all the years of the democratic regime. Incremental capital output ratio also jumped, reaching a historical high of 9.42 in 2008-09, indicating that much more investment was needed to produce growth. The economy, in other words had become very inefficient. A number of factors contributed to increasing inefficiency. These included severe electricity and natural gas shortages as well as growing incidences of corruption. The latter increased the transaction costs for the investors. Gross domestic capital formation also fell to one of the lowest in history – to only 13.4 per cent in 2010-11. This was an indication of loss of confidence on the part of the investment community, both domestic and foreign, in the country’s economic future. There was also decline in the proportion of investment financed out of national savings which meant that the dependence on foreign flows increased. However, largely as a result of the tension between Pakistan and the United States in 2011, external capital flows also began to decline. This trend was reversed following the 3 July 2012 statement by the US Secretary of State, saying ‘sorry’ for the earlier, 26 November ‘friendly fire’, attack that killed two Pakistani soldiers. Pakistan’s relations with the United States and how they affected the availability of external finance are discussed in greater detail in a later section. There were several reasons for the economic decline over which the government presided over by President Zardari had little or no control. In 2008-09, the world experienced the worst economic downturn since the Great Depression of the 1930s. While the emerging markets that had closer links with those of the developed world were more affected, Pakistan also suffered. 3

The demand for many of its products declined, hurting export earnings. This period also saw a large increase in the price of oil, an important import commodity for Pakistan. This increased the country’s import bill putting further pressure on the external account. The country also had to deal with two natural disasters – floods in 2010 and 2011. The 2010 flood had few precedents in history and did enormous damage to the economy. ‘Pakistan experienced extraordinary rainfall in mid-July 2010, which continued until September 2010. The result was unprecedented floods affecting the entire length of the country. The floods have been the worst since 1929,’ wrote the World Bank and the Asian Development Bank, in a joint assessment of the damage caused. This was carried out at the request of the government. The loss to the economy was estimated at close to US$ 10 billion or 5.8 per cent of the GDP while 20 million people were affected directly or indirectly and 1.6 million houses were damaged or totally destroyed 3. This disaster was followed by another flood that, while not as damaging as the one in the previous year, still took a heavy economic toll, particularly in the province of Sindh. The way the United States fought the war in Afghanistan also had negative consequences for Pakistan. Washington’s extensive use of unmanned aircraft – the ‘drones’ to attack the groups that had carved out havens in Pakistan’s tribal areas while targeting the American forces operating in Afghanistan – created enormous resentment in the country. Some of the militants who were attacked by the United States held the government in Pakistan responsible for the American activity in the tribal belt. They used suicide bombers to attack Pakistan’s military installations and large urban centres. There were negative economic consequences of the rise of domestic terrorism. The government estimated the economic loss at US$ 60 billion since it assumed power. The Lahore-based Institute of public Policy estimated that terrorism had reduced the rate of growth in GDP by one percentage point a year4. Even when factoring in these negative developments, a significant part of the poor performance of the economy was the result of poor governance by the civilian government that took office in March 2008. This manifested itself in many ways, two of which were critical for the performance of the economy – increase in corruption and the failure to remedy a number of emerging supply side problems, in particular in the sector of energy. Like most societies, Pakistan was never free from corruption, in particular by those who held high office. And, like most states, the state in Pakistan made many attempts to establish institutions that would address the problem to the satisfaction of the citizenry. There were many attempts made over the past 60 years to hold accountable those who were believed to have made personal gains using the power vested in them by the offices they occupied. Soon after Pakistan 3

Asian Development Bank and the World Bank, Pakistan Floods 2010: Preliminary damage and the needs of assessment, Islamabad, Pakistan, November 2010. Institute of Public Policy, State of the Economy, Pulling Back from the Abyss, 2010.

gained independence, public resentment of corruption among those occupying the seats in the national and provincial assemblies led to the promulgation of the Public and Representative Office Disqualification Act (PRODA) in 1949. The PRODA, however, was used mostly for political purposes, to silence the vocal opposition to the administration headed by Liaquat Ali Khan, the first Prime Minister, as he wrestled to provide the new country a constitutional order. This was followed by Elected Bodies Disqualification Order, EBDO, in August 1959 by the martial law government of Ayub Khan. The order led to the removal from the political landscape a number of active politicians who, in the jargon of the day, were ‘ebdoed’. Historians have seen the EBDO as an effort by the military government to disable a number of senior politicians who could have offered some challenge to military rule. According to one count, 78 politicians were barred from holding public office, a large number from East Pakistan (today’s Bangladesh)5. One of the more serious attempts at creating a system of accountability was made by Prime Minister Nawaz Sharif during his first term in office (1990-93). He had the National Assembly adopt the Ehetesab Ordinance, using an Arabic word, meaning accountability. Saif ur Rahman, a trusted associate of the prime minister, was appointed to manage the investigative side of the effort6. However, with intense rivalry between Sharif and Benazir Bhutto, the accountability administration spent a significant part of its time and the resources placed at its disposal to harass political opponents. In other words, most of the efforts were either politicised or were themselves corrupted. The most elaborate attempt in this direction was made by the administration of General Pervez Musharraf, when in 2000 the National Accountability Bureau (NAB) was established. A general in whom Musharraf had a great deal of trust was put in charge. The NAB was given investigative authority and had its own system of courts. However, in keeping with tradition, this establishment too was politicised. In 2007, Musharraf promulgated the National Reconciliation Ordinance, the NRO, withdrawing hundreds of cases involving senior political figures and members of the various administrative services. As discussed earlier, the NRO was to become the source of friction between the government headed by President Zardari and the Supreme Court. As shown by the comparative data on governance performance (See Table 2), Pakistan scored poorly in South Asia, with the average only a little better than that of Afghanistan. Its average on a scale of -2.5 (the worst) to 2.5 (the best) was -1.3 with India scoring at -0.31. Its worst score was for political stability (-2.5) and the best for regulatory quality (-0.6). 5

Hasan Zaheer, The Rise and Realisation of Bengali Muslim Nationalism, Karachi, Oxford University Press, 1997. On 18 July, 2012 Rehman Malik, Senior Advisor to the Interior Ministry, told the press that his government had requested the extradition of Saif ur Rahman from Qatar to face many charges that had been filed against him in various courts in the country. Malik was earlier the Minister of Interior but lost his job after the decision of the courts that people with dual nationalities could not be elected members of the national and provincial assembly. Malik had British citizenship along with that of Pakistan. He was one of the closest associates of President Zardari.

Table 2: Governance Performance – A Regional Perspective Governance scores (-2.5 to +2.5)

Country

South Asia Afghanistan Bangladesh Bhutan India Nepal Pakistan Sri Lanka

Rule of Law 0.65

Control of Corruption

Political Stability

Voice and Accountability

Government Effectiveness

Regulatory Quality

Average

-0.65

-1.41

-0.52

-0.49

-0.78

-0.75

-1.9 0.77

-1.62

-2.6

-1.45

-1.47

-1.56

-1.77

-0.99

-1.42

-0.28

-0.84

-0.86

0.11 0.06 1.02 0.79 0.09

0.83

0.68

-0.46

0.57

-1.13

0.1

-0.52

-1.31

0.42

-0.01

-0.39

-0.31

-0.69

-1.68

-0.53

-0.77

-0.74

-0.91

-1.1

-2.5

-0.82

-0.77

-0.6

-1.13

-0.43

-0.83

-0.51

-0.17

-0.21

-0.37

Source: World Bank Governance Database Note: Governance performance: -2.5 (weak) and 2.5 (strong).

There is considerable amount of empirical evidence to suggest that rampant corruption weighs heavily on economic development. Much of this work was done at the World Bank. Corruption, in particular at the policymaking levels, increases transaction costs and lowers the return on capital. This was one reason why the incremental capital output ratio – a measure of economic efficiently – climbed so high in Pakistan’s case. Over the 2010-2012 period, there were reports of alleged acts of corruption committed by individuals occupying very high offices, or by members of their families. One of the sons of the former Prime Minister Yusuf Raza Gilani was accused of being involved in a scheme that led to serious overcharging of Haj pilgrims. Another son was alleged to have participated in the illegal import of amphetamine, a highly regulated substance that can be used for making ecstasy pills that have a high street price. As already noted, Raja Pervez Ashraf, Gilani’s successor as Prime Minister, was alleged to have received kickbacks for renting ship-based power plants. There were reports that Riaz Malik, a well-known and well-connected real estate developer, had paid for expensive overseas trips by the son of Chief Justice Iftikhar Mohammad Chaudhry. This, Malik claimed in a discussion with the press, was done by him in the hope of getting judicial favours. He was fighting dozens of cases on various charges involving land acquisition. Most of these cases, including the one involving the Chief Justice’s son, were under investigation by the Supreme Court at the time of writing 6

(August 2012). It took action on the basis of the ‘suo moto’ powers granted to it by the constitution. There was some hope in the country that there may be some improvement in the situation as the judiciary got more involved in holding high officials responsible. Corruption was not the only by-product of poor governance during the democratic era. It showed up in other ways. Two of these were the immense and economically damaging shortages of electricity and gas. That these shortages reached critical points in 2011-12 was the direct consequence of poor governance that dated back to the time of Musharraf. In 2005, the World Bank made a ‘power-point’ presentation to Musharraf indicating that unless the government improved the management of the electricity sector, rationalised power tariffs, increased public sector investment, and allowed greater participation of private enterprise, the country could face a serious electricity crisis7. None of these suggestions were taken seriously. The government’s complacency was the result of its miscalculation of the elasticity of energy demand, both for electricity and natural gas. The result was what the World Bank had predicted. Half a dozen years later, the country faced shortages that led to brownouts that lasted in some cases for 12 to 14 hours a day. There were similar reductions in the supply of gas. This had predictable impact on the performance of the economy. It also made the people extraordinarily unhappy with the government. The electricity situation will be discussed first followed by an analysis of the gas supply crisis. Of the many problems the economy faced as the Zardari-led PPP government entered the fifth year in office, none was more serious than the severe shortage of energy. It hurt the economy, reducing the GDP rate of growth by two to three percentage points a year. It also caused enormous discomfort to the population especially to those who could not afford to install generators of their own to compensate for the brownouts. In order to assess the gravity of the situation in Pakistan, the World Bank compared it with a group of what it called reference countries – Bangladesh, Brazil, Egypt, India, Indonesia, Malaysia, Turkey and Sri Lanka. It found that only India, at a demand-supply gap of 28 per cent, had a situation worse than that of Pakistan. For Pakistan the gap was estimated at 22 per cent8. In Pakistan’s case, the gap developed over a period of half a dozen years, starting about 2005. There were crises in earlier periods but these were handled expeditiously, although not with reference to a long-term energy strategy. In the mid-1990s, for instance, the governments headed 7

The author, along with Moeen Qureshi, a former Senior Vice President at the World Bank and Caretaker Prime Minister in 1993, reviewed the World Bank’s presentation. By coincidence, the author met with President Musharraf right after the Bank team made its presentation. He suggested that the president take the Bank’s presentation seriously and act upon its conclusions. Background papers prepared by the World Bank staff in preparation for the Country Economic Memorandum exercise. These papers were discussed in a conference call on 19 July, 2012 involving participants from Islamabad, Singapore and Washington. The author participated from Singapore.

respectively by Benazir Bhutto (1988-90) and Mian Nawaz Sharif (1990-93) allowed the entry of private entrepreneurs into the power sector. Called the independent power producers or IPPs, these investors were provided with a number of state guarantees. There was an enthusiastic response by the private sector that exceeded the government’s expectations. By that time a caretaker government took office which having concluded that Pakistan had more generation capacity than required, cancelled the applications that had not resulted in any investments being made. This action was taken by the author, who was in charge of finance, planning and development in the caretaker set up. In fact, during his second term in office (1997-99), Sharif contemplated the sale of power to India as a part of his policy to develop better economic relations with the neighbouring country. Table 3: Existing Installed Generation Capacity Availability (MW) Installed Type of Capacity Generation (MW) WAPDA Hydro 6516 GENCOS 4764 IPPs 9085 Rental 393

Dependable Capacity Summer (MW)

Winter

6516 3589 8295 393

2300 3222 6900 83

6516 2200 7000 200

Source: Table above, p. 69

After 2005, the power crisis became almost unmanageable. It was the consequence of a number of policy mistakes made in the past. If the supply side of the energy equation was to be determined by the availability of domestic resources for generation, Pakistan should not have been that short of meeting the growing demand. It had abundant resources. The most important of these was water, a great deal of which cascaded down the main rivers of the Indus system. There was also water flowing down dozens of smaller streams as well as in the large canals that made up the world’s largest irrigation system. Hundreds of generators could have been placed to tap the streams and canals where small ‘heads’ – waterfalls that would run turbines – could be created. This was done successfully in Nepal with the help of the World Bank. An estimated 2,200 microhydro plants, generating 18,000 kilowatts have been built in Nepal since the 1970s, according to Nepal Micro Hydropower Development Association 9. Various studies carried out over the years estimated the electricity generation potential of flowing water at tens of thousands 9

Amy Yee, ‘Microhydro Projects are driving changes in rural Nepal’, Today (Singapore), 21 July, 2012, p. 11.

of megawatts. According to a report issued in November 2011 by the Water and Power Development Authority (WAPDA), ‘the hydro power potential in Pakistan is over 100,000 MW with identified sites of 59,000 MW’10. Only a fraction of this was exploited. For a time natural gas was abundantly available, but as discussed below, this resource was over-exploited and reached the point of near-exhaustion in 2010-11. The country had the world’s fourth largest reservoir of coal but in 2011 obtained only 0.16 per cent of the total supply from this particular source. There were corridors of wind that could be tapped, given Pakistan’s location. There was plenty of sunlight available round the year for generating solar energy. And yet a significant amount of electricity – 19 per cent of the total –continued to be produced using imported fuel oil. There were two main reasons for this failure to exploit domestic resources for generating electricity. With the possible exception of the period of Ayub Khan, when serious attention was paid to planning the use of public funds for the purpose of economic development, no administration that followed put much emphasis on formulating a viable long-term energy policy. During Khan’s presidency, enormous amounts of resources were committed to developing hydro-power. It was then that the giant hydro- power stations were built at Mangla (1,000 MW) on the Jhelum River and Tarbela (3,478 MW) on the Indus. Since then the governments went from one short-term shortage-solving problem to another, relying on whatever fuel was available at that time11. This approach created enormous inefficiencies in the energy system. The other reason for the electricity crisis was the lack of public sector development funds. Pakistan’s failure to increase the rate of domestic savings and to improve the tax-to-GDP ratio meant a steady decline in the proportion of national product spent on development. In 2011-12 financial year, it declined to two per cent of GDP, the lowest proportion in decades. This was the main reason why in the 1990s, the government turned to the IPPs for increasing power generation but that produced a problem of its own which exacerbated the energy crisis. According to Mohsin Syed, an electrical engineer turned businessman, 3,000 to 3,500 MW of power is wasted in production, transmission, and production of this order could be added to the national grid in 12 months by improving governance and engineering practices12.

10 11

Pakistan Water and Power Development Authority, Hydro Potential in Pakistan, Lahore, November 2011. For a discussion of the impact of this approach on the energy situation see Shahid Javed Burki, ‘Making energy policies in periods of crisis’ in Robert Heathway and Michael Kugelman (Editors), Fueling the Future: Meeting Pakistan’s Energy Needs in the 21st Century, Woodrow Wilson Center for International Scholars, Washington DC, 2010. Nasir Jamal, ‘Electricity is about right decisions’, Dawn, 22 July, 2012, p.2.

Table 4: WAPDA’s Demand and Supply Forecast, 2009-2030

Net Dependable Capacity

MW Growth per year

Peak Demand

MW Growth per year

Surplus/Deficit

2009 17008

2010 19477

Fiscal Years 2015 33028

15%

10%

20594

24474

36217

54359

80566

113695

-3586

-2876

324

4066

4031

5087

2020 52909

2025 76200

2030 106565

Source: Water and Power Development Authority, Lahore, 2011, p 70

The private power generation policy adopted by a succession of administrations followed a ‘buy or pay’ approach advocated at that time by the World Bank’s International Finance Corporation that works with private entrepreneurs. According to this policy, the government invited bids from the private sector, settling for those who offered to supply a certain amount of power to WAPDA at the lowest per unit price. In some cases the government also signed agreements with the IPPs to have the state sector agencies supply the fuel they needed. If WAPDA failed to procure the agreed amount of electricity, it still had to pay the IPPs. WAPDA incorporated the IPP generated power in its transmission which was supplied to the various distribution companies at the price determined by the power regulatory agency. The distribution companies then provided electricity to their customers at the price laid down by the regulator. There were several points at which this chain stretching from the point of generation to that of final consumption could break down. Some parts of the chain at times did not have the funds to pay what it owed to another part. This led to the buildup of unsettled payments within the system which came to be called the ‘problem of circular debt’. More often than not, it was some large customer who failed to clear bills with the distribution company, which in turn could not pay WAPDA, which held up payments to the IPPs, which reduced the amount of power they generated. Those who failed to settle their bills included large government departments such as the army or the governments in such sensitive areas as Azad Kashmir and the Federally Administered Tribal Areas (FATA) where many influential individuals, some with large landholdings, used electric wells for irrigation. According to some analysts, it was the circular debt that was the cause of the energy crisis; the system had enough generation capability to meet the demand but was not able to function at full capacity because of the problem of debt. 10

This governance system was adopted at the recommendation of the World Bank which at that time was heavily involved in assisting Pakistan with the development of the energy sector. The reason for breaking up the integrated generation, transmission, and distribution system WAPDA managed was the World Bank’s belief that there would be large efficiency and social gains by the privatisation of some parts of the system. By creating a number of distribution companies, the idea was to prepare them for sale to the private sector. The break-up was carried out but privatisation was stalled. Electricity supply situation began to get serious in 2009 and, as had happened before, the government holding the reins of power – this time the PPP-led coalition – adopted some emergency measures to deal with the deepening crisis. As discussed earlier, the governments in the 1990s had turned to independent power producers to increase generation capacity. This time the solution was to buy electricity through recourse to rental power plants, the RPPs. As a report in India Today puts it, ‘RPPs, typically installed within four to six months, are ideal for meeting short-term needs’. The responsibility for the RPPs was given to the Ministry of Power which was then headed by Raja Pervez Ashraf from March 2008, when the PPP administration took office, to February 2011 when Ashraf was dropped from the cabinet because of the public anger at the way he and his ministry had handled the worsening situation. The ministry had approved the installation of 19 plants, with a combined capacity to produce 2,734 MW. ‘The government taking bank loans, had paid Pakistan Rs. 21.8 billion (US$ 24 million) to RPP companies but none of these plants functioned to its full capacity’. Allegations of corruption were made against Ashraf by the members of the coalition. ‘The Supreme Court took suo moto notice of the allegations. It cancelled the deal in March 2011 and initiated an inquiry against the minister. The contracts of RPPs were ordered to be rescinded forthwith and all persons responsible for the same are liable to be dealt with for civil and criminal action in accordance with law, wrote a two-member bench comprising Chief Justice Chaudhry and Justice Khilji Arif Hussain in their judgment13. Pakistan’s power crisis, therefore, represented all that was wrong with the country’s governance: Absence of long-term strategic planning, adopting solutions at the moment of the crisis that did not always work for the long-run, undertaking deep institutional restructuring at the suggestions of aid-giving agencies, and corruption by the people in policymaking positions. Turning now to natural gas. The shortage of this particular source of energy coincided with those of the electricity sector, further hurting the government’s standing with the people. Natural gas 13

Qaswar Abbas, ‘In court’s cross-hairs: Pakistan’s new prime minister is already hobbled by charges of corruption’, India Today, 16 July, 2012, p. 48.

was a relatively new fuel for the Pakistani economy. Found at Sui in Baluchistan in 1952 with its commercial use starting in 1955, its use was developed rapidly. More discoveries followed in Sindh province. During the period of Ayub Khan, an extensive network of pipelines was laid across the country to carry natural gas first to Karachi, the country’s industrial hub, and later to Lahore and other areas in the north. Over time natural gas became a vital energy source for Pakistan. In 2009-10, the country consumed about 1.5 trillion cubic feet (tcf) of the fuel. All of this was produced from domestic fields. On the basis of the production forecasts made in 2011, the country was at or near its peak production. Proven remaining gas reserves in 2010 were estimated at 27.5 tcf which meant that at the rate of consumption in 2011, these will be exhausted in about 18 years. But shortages began to occur in 2011. The sector was facing a supply gap, of 0.5 tcf in 2015 which was set to increase to 2.0 tcf by 2025. However, additional supplies could be generated by tapping what the industry called ‘tight reservoirs’. These were more costly to bring to production but if they were exploited, domestic reserves could almost double. But largely because of the rapid technological development in the United States, it had become economically feasible to exploit such rock formations as shale14. The pattern of gas consumption that emerged over the years was largely the consequence of government’s priorities and policies. By 2010, the electricity sector with 29 per cent of the share in consumption, was the largest consumer followed by general industry at 25 per cent, preferred industries (fertiliser, cement and steel) at 18 per cent, households at 17 per cent and transport at eight per cent. But this pattern began to change as a result of the policies adopted by the democratic government. Not unexpectedly, it used extensions in the reach of the gas distribution system as a way to win political favours. Over the six-year period to 2010, although gas consumption increased at the rate of two per cent a year, about half the rate of increase in the gross domestic product, there were significant differences among different users. Consumption by industry increased by nine per cent a year. It grew by five per cent annually for domestic users, and at more than 30 per cent for the transport sector. The last increase was the result of the government’s policy to switch automobiles from the use of diesel and gasoline to compressed natural gas, or CNG. Increasing access to gas for both business and household consumption was a political priority, particularly on the part of provincial administrations. This expansion also made commercial sense for the two gas supply companies, the Sui Southern Gas Limited that served Karachi, Sindh and Baluchistan and Sui Northern Gas Pipelines Limited that served Punjab and Khyber14

The magazine, The Economist, published a 14-page report on how technologies were moving the United States towards energy self-sufficiency., See ‘Natural Gas: An unconventional bonanza’, 14 July, 2012.

Pakhtunkhwa provinces. The companies were comfortable with expansion since it increased the returns on their large fixed assets. Since both companies are listed on the stock markets, it was important for them to show a healthy bottom line. In 2005, the government headed by Musharraf adopted the ‘Natural Gas Allocation and Management Policy’ which identified the priority users during periods of critical shortages. Domestic and commercial sectors were placed at the top followed by the fertiliser industry. The third priority was assigned to the independent power producers, or IPPs, which had firm gas purchase agreements. The policy did not save the country from developing severe and highly disruptive shortages. The winter of 2011-12 witnessed severe gas load-shedding, which led to the closure of several industries and CNG stations. There was also very low pressure for the household sector. As a consequence, rioting by a highly agitated citizenry broke out in several cities. Corruption within the system as well as several built-in inefficiencies contributed to the problem of gas shortage. One measure of this is what is termed ‘Unaccounted-for Gas’ (UFG) which is defined as the difference between the total volume of the metered gas received by a gas utility during a period of time and the volume of gas metered as having been delivered to the entity’s consumers. UFG is usually one to two per cent in well managed systems. In Pakistan it was recorded at 10.6 per cent. This was equivalent to a loss of US$ 323 million in 2011. There were a number of factors that contributed to high UFGs. These included dilapidated pipelines; meter-tampering resulting in gas theft; leakages because of the system operating at higher than required pressure; and poor quality of meters. According to a study by the World Bank carried out in preparation of a natural gas project, UFG in Pakistan remained unchanged for decades but there was an upswing by about one percentage point a year in 2010 and 2011. Taking note of this change, the Oil and Gas Regulatory Agency (OGRA) announced a regulatory regime that allowed it to impose large fines on the gas utilities for excessive UFG. OGRA planned to move back to the original trajectory and was prepared to allow about 4.5 per cent of UFG in 2012. However, the senior officials of the regulatory agency allegedly found an opportunity in this tightened regime for rent creation. This was one other indication of how corruption seeped into so many different sectors of the economy. Severe shortages of natural gas caused almost as much damage to the Pakistani economy and as much discomfort to the citizenry as the shortage of electricity. In both cases it was the failure of public policy that caused these shortages to occur. The state failed after the assumption of power by a democratically elected government. Poor policies were in place for decades, even when the economy was relatively better managed. The governments – those in the past as well as the one

that took office in 2008 – should have adopted appropriate policies in the area of energy to ensure uninterrupted supply as well as the efficient use of available resources. In 2012, the World Bank was invited by the government to get engaged with the Sui Southern Gas Limited to reduce the UFG. The Bank agreed to provide a loan of US$ 100 million for this purpose. According to the Bank’s loan document ‘the reduction in the UFG would mean that more gas is potentially available for power generation fuel and could displace expensive petroleum products being used for the same purpose’15. But it will take more than one World Bank project to do away with the increasing natural gas shortages. Large investments were needed and the system of management, particularly at the regulatory level needed to be reformed. As with so many other things, the overall situation depended on the improvement in the quality of governance. The Planning Commission prepared an ‘Integrated Energy Plan 2009-22’ to address the issue of energy shortage. It estimated that the reliance on imported oil for meeting energy requirements would increase the import bill ‘from US$ 12 billion in 2007-08 to US$ 41 billion in 2022 based on crude price of US$ 70 per barrel. It is, therefore, important that the energy mix be changed to provide a more affordable and sustainable model for the country which maximises the use of indigenous resources. The plan estimated that country’s generation capacity will need to increase to 50,000 MW by 2022 based on annual economic growth rate of five per cent. At least 40 per cent of this generation could be achieved by using the country’s large coal reserves. Hydel capacity could be raised to 18,000 MW’16. Poor governance has long-term consequences. These came to be measured by economists using a different way of assessing economic performance. For the last 70 years, economists used gross domestic product (GDP) as the measure of performance. But GDP values goods and services produced by an economy, not its wealth. It was a flow concept rather than a concept of stock. However, it was the stock that produced income and it could be depleted especially during periods of high growth. This happens when a country uses its mineral or forest wealth to produce income without replenishing the stock by developing some other component. Human resource is one component of the wealth that could be improved and thus increased in value to compensate the inevitable decline in non-renewable wealth. The United Nations’ International Human Dimensions Programme on Global Environmental Change (IHDP) began work on developing a measure of wealth which it believed will produce a better indication of what was really happening to an economy and what were the future prospects. Its findings were presented at Rio+20 Conference held in Brazil in the summer of 2012 which took stock of the global environmental situation since the first meeting was held 20 15 16

The World Bank, Natural Gas Efficiency Project, Report No. 59980-PK, 2 April, 2012, p. 8. The Planning Commission, Integrated Energy Plan 2009-22, Islamabad, 2011, pp. 23-25.

years earlier, in 1982. It was at that meeting that the international community adopted the ‘Kyoto Protocol’ for controlling climate change. ‘The report’, in the words of its authors, ‘presents a framework that offers a long-term perspective on human well being and sustainability, based on a comprehensive analysis of nations’ productive base and their link to economic development’. The report suggested some measures of what it called ‘inclusive wealth’. The measure included three kinds of assets: ‘manufactured’, or physical, capital, (machinery, buildings and infrastructure); human capital (the population’s education and skills); and natural capital (including land, forests, fossil fuels and minerals). For instance, using this measure, America’s wealth amounted to US$ 118 trillion in 2008, over 10 times its GDP that year. Its wealth per person, however, was lower than that of Japan which had the highest amount for the 20 countries included in the first round of studies carried out by the UN17. The initial group of the countries selected represented 72 per cent of the world GDP and 56 per cent of the global production. While Pakistan was not included in the case studies conducted by the United Nations, it would appear that in its case there may have been an actual decline in the amount of inclusive wealth. If that had happened, the country would face a declining growth trend. Forests were one example of depleting wealth. Decline in the forest cover happened largely because of poor governance. There were reports of ‘timber mafias’ denuding forests in the country’s northern areas, an activity they were allowed to carry on in spite of the laws that prohibited tree-felling in some of the more sensitive areas. The mafias were alleged to pay large bribes to the regulators. Not making appropriate investments at appropriate times also reduced ‘inclusive wealth’. In the case of Pakistan this happened in two areas: Neglect of the irrigation infrastructure and not keeping up with natural gas reserve development as exploitation of known reserves for consumption lowered the amount of recoverable reserves. But non-renewable assets get depleted with use which is why they were called non-renewable. However, there were examples of countries making investments in other assets that could – and did – compensate for the decline in inclusive wealth by using the renewable resources. The most interesting example of this was Japan, which was one reason why the country came out on top of the UN study list. Most of the findings in the first report had great relevance for Pakistan. The report found that high population growth caused 25 per cent of the countries assessed to have unsustainable inclusive wealth unless there was a massive amount of investment in improving the quality of the human resource. While 19 of the 20 countries studied for the report experienced a decline in natural capital, half a dozen compensated it by increasing human capital. Applying this finding to Pakistan suggested that one way of increasing inclusive wealth in the country was to invest 17

United Nations, Inclusive Wealth Report 2012, New York, 2012.

heavily in the development of the large human resource. Here the private sector, given the space within which it can operate, could do a good job. This brings the discussion to the point where some thought about the future needs to be offered. The Pakistani economy was in a state of great flux. But so is the theory of economic growth whose diligent pursuit would have helped to bring stability to a country buffeted from many sides. There is a consensus among those who watch the Pakistani economy that, were the present rate of economic growth of three to 3.5 per cent to persist into the future, it would mean a great deal of political and social trouble. This, not only Pakistan, but also the rest of the world, cannot afford. For some years now Pakistan has been the epicentre of international terrorism perpetrated mostly by those who were marginalised by poor economic performance. The International Monetary Fund in its ‘Title IV consultations’ carried out in early 2012 suggested that the economy must grow at about seven per cent a year to absorb two million workers who enter the labour force every year. Past large increases in population meant that this level of increase in the workforce will continue for several years. A seven per cent yearly expansion in the economy, therefore, will need to be sustained for many years into the future. Not only that, economic expansion must occur in a way that ensured that its rewards become available to all segments of the population and all parts of the country. Modern economists call this approach ‘inclusive development’. How could this doubling in the rate of growth and its equitable distribution be achieved in a country like Pakistan? To achieve these two goals, do those put in charge of planning for development need a new theory of growth? This was not the first time that these questions were asked – and answered – by the planners in Pakistan. Some decades ago, the task of economic planners was a relatively simple one. As Mahbub ul Haq, the author of Pakistan’s only successful five-year development plan explained in his book, The Strategy of Economic Planning, he and his colleagues at the Planning Commission were confronted with a choice18. As they drafted the Second Five Year Plan (196065) they had to choose between growth and distribution. They chose the former, leaving the second to what came to be called the ‘trickle-down effect’. There was a belief that once growth came, its benefit would trickle down to those who were less advantaged than the owners of capital. That rewards of growth would first go to those who owned capital proved to be the correct prediction. The owners of labour – then thought to be the only other factor of production – would be rewarded later when wages increased in the modern sectors of the economy. It didn’t work out that way as Haq himself admitted three years after the completion of the Second Five Year Plan period. In his famous 22-family speech, he was 18

Mahbub ul Haq, The Strategy of Economic Planning: The Case Study of Pakistan. Karachi: Oxford University Press, 1963.

unhappy that a significant proportion of the increase in incomes as a result of the Second Five Year Plan was captured by just 22 industrial, commercial and financial houses. That conclusion was based on a narrow sample of the entities engaged in the country’s modern economy. It was wrongly extrapolated to cover the entire economic system. But the speech convulsed Pakistan’s political and economic systems. It contributed to the rise of the Pakistan People’s Party (PPP) and to the phenomenon of Bhuttoism – an expansionary state that was to be put to use to benefit the common citizen. Once in power, Prime Minister Bhutto increased the presence of the state in the economy. This was done by putting government bureaucracy in charge of the dozens of large industrial, commercial and financial enterprises that were expropriated from the private sector. In what it calls the ‘Framework for Economic Growth’, FEG, the Planning Commission came up with what amounts to a new theory of development for Pakistan. The Commission’s work on growth started with a criticism of the approaches adopted in the past. ‘An unintended consequence of our policies has been the stifling of internal markets, cities and communities which play a critical in fostering productivity, innovation and entrepreneurship and ultimately promote growth, and prosperity and development’, wrote the authors of the report. ‘The Planning Commission has been involved in the formulation of Perspective, Medium and Annual Development Plans based on a savings-driven approach when growth rates are arbitrarily set and incremental capital (investment) to output ratios are used to generate investment requirements in key sectors of the economy. Public investment across sectors is allocated according to the planners’ priorities. It is assumed that public sector development programmes will crowd out private investment.’ After offering this criticism of the past, the Planning Commission promised a strategy that would factor in Pakistan’s situation in 2010-11 and also the development in economic thought. ‘Never has there been a more pressing need in Pakistan’s history to search for a new model.’ It suggests that the country needs to move from ‘hard’ to ‘soft’ growth19. By ‘hard’ growth, it meant large public sector investments in brick and mortar development – building roads, bridges and dams and buildings. What was needed were a combination of efforts that would improve the quality of governance, less interference by the government in the working of the private sector, encouraging greater innovation within the economy, and greater focus on the activities that would produce higher rates of growth with low rates of development. Implicit in this strategy was the recognition that it will take a long time to increase the rate of investment, in particular by the public sector. To have that happen will require some fundamental changes in the tax system, something for which there was no or little political appetite. Nonetheless, the economy could be made to perform better by improving its efficiency. In the jargon of economics, the policymakers should work to lower the incremental capital output ratio.

Government of Pakistan, Towards a New Growth Strategy, Islamabad, The Planning Commission, January 2011.

Such an approach would also add to the country’s ‘inclusive wealth’ as defined by the United Nations. The FEG, of course, was anchored in capitalism, a view of the economic world that came to be increasingly questioned by both academics and policy analysts. It had its heyday in the 1990s when the Washington Consensus was adopted by development and financial institutions such as the World Bank and the International Monetary Fund (IMF) as their preferred philosophy. These two institutions then had enormous influence over the developing world. With the withdrawal of private finance from some of the more developed countries in Asia and Latin America, the World Bank and IMF were the only sources of capital available to a number of countries in extreme financial stress. The policies that were forced upon these countries pushed back the state from the economy, leaving the vacated space to private enterprise. The result was economic recovery that came with increased inequality. Can Pakistan afford an FEG type of approach to address the slowdown in growth while ensuring that if the economy does pick up, its distributive impact will be positive? The answer is no, since the current political order is skewed in favour of the well-to-do and if a strategy that was so focused on giving even more space to private initiative was imposed on it, the result would be very destabilising.

Politics of Foreign Capital Flows A country that faces a precarious economic situation, as is the case with Pakistan in 2012, has only a limited room for manoeuvre in international affairs. This was particularly the case when it was so dependent on the flows of external funds for financing needed investment. At the rate of investment in 2010-12 and with a high capital output ratio suggesting considerable economic inefficiency, Pakistan could sustain a rate of growth of only three to 3.5 per cent a year. This was about one-half of the rate at which the country needed to grow to provide employment to the two million people it was adding every year to the workforce. Remittances that were coming at record levels – they amounted to about 7.5 per cent of the GDP in 2011-12 – added another 1.5 percentage points to the growth of the national product. To reach the desired rate of growth of seven to eight per cent of GDP, Pakistan needed an additional US$ 6 billion to US$ 8 billion a year in foreign flows. The most important likely sources for this were the United States and the multilateral finance and development institutions. Even though institutions such as the IMF and the World Bank professed to work in an apolitical world, where political pressures were resisted, this was only true up to a point. Pakistan, as discussed below, was treated softly in 2008 when it went to the IMF for assistance, in part because of the American push.

This was the reason why the politics of aid should have received due recognition by the policymakers in Islamabad. It is in this context that we should view the mending of broken relations with the United States following the issue of a statement by Secretary of State Hillary Clinton on 3 July 2012. It would be useful to recall briefly the history of Pakistan’s relations with the outside world – in particular with the US – in its continuing attempts to augment its own meagre resources by obtaining foreign capital for economic development. There were three growth spurts under the military’s rule. One of the more important reasons for the economy’s better performance was undoubtedly the large flows of external capital into the country during these periods. With very low domestic savings rate, Pakistan was stuck in a low growth trap unless it could access foreign capital which filled the investment-savings gap. Large amounts of foreign assistance became possible as the military rulers, unconcerned about public opinion, were able to quickly align the country with the western powers, in particular the United States. This happened during the first military presidency (1958-68) when Ayub Khan brought Pakistan into a number of defence pacts with the US20. It happened again under General Ziaul Haq (1977-88) when he agreed to assist Washington in the latter’s effort to expel the Soviet Union from Afghanistan21. And it happened, for the third time, under Musharraf when, practically overnight, Pakistan did a 180 degree turnabout and gave up its support for the Taliban regime in Afghanistan and became America’s partner in throwing the Islamic regime out of Kabul22. In each case the country was rewarded handsomely by Washington which provided copious amounts of economic and military assistance. The availability of this resource created what in finance was called the ‘moral hazard problem’. This resulted whenever entities – countries and firms – and individuals came to the conclusion that they were too big to fail. Help, they believed, will arrive during periods of extreme stress. In Pakistan’s case this happened with the United States, China, the UAE, and IMF coming to the country’s rescue at different times in its troubled economic history. Compared to the regimes led by the military, those in which the civilians were in charge had a difficult time securing bilateral aid. This was mostly because the civilian politicians had to be more responsive to public opinion in the conduct of foreign policy. This was the case even when the road to the West, in particular to the US, was laid down by Liaquat Ali Khan, Pakistan’s first Prime Minister. He had to deal with Jawaharlal Nehru’s openly expressed disdain for Pakistan 20

The reason why Ayub Khan chose to align the country closely with the United States is spelled out in detail in his autobiography, Friends Not Masters: A Political Autobiography, London: Oxford University Press, 1967. See George Crile, Charlie Wilson’s War: The extraordinary story of how the wildest man in Congress and a rogue CIA agent changed the history of our times, New York, Grove Press, 2007, for an account of how President Zia ul Haq was able to secure large amounts of American economic and military assistance from President Ronald Reagan for helping Washington drive out the Soviet Union from Afghanistan. He had turned down as ‘peanuts’ an earlier offer made by President Jimmy Carter, Reagan’s predecessor. For a detailed account of the reason for the dramatic shift in Pakistan’s position see Pervez Musharraf, In the Line of Fire, New York, Simon & Schuster, 2006.

and unhappiness with British India’s partition into two independent states. Under Nehru, New Delhi had been a difficult partner. It had started off by blocking the release of the ‘sterling balances’ left by the departing British. Pakistan had a share in this largesse which it needed badly. There were other actions taken by India which the government in Pakistan interpreted as being hostile. Delhi cut off the supply of electricity to Lahore from a power station now located in the Indian state of Punjab. It began to tamper with the flow of water into the canals in Pakistan that drew their supplies from the head works that, as a result of the way the line of partition was drawn, were under the control of India. Finally, in 1949, India imposed a trade embargo on Pakistan. The embargo was India’s expression of unhappiness with Pakistan that it had not followed the other countries of the British Commonwealth in devaluing its currency with respect to the American dollar. The Pakistani decision did away with the parity in the rate of exchange between its currency and that of India. The Pakistani rupee was now 44 per cent more expensive than that of India. Declaring that ‘India will not pay 144 of her rupees for 100 rupees from Pakistan’, Sardar Vallabhai Patel, India’s powerful Home Minister, ordered a trade embargo; and all trade exchanges, commercial and financial transactions between the two countries ceased. This one decision by India was to have enormous economic consequences for Pakistan. It totally transformed the structure of the Pakistani economy. It was this development in India-Pakistan relations that persuaded Liaquat Ali Khan to make the trip to Washington in May 1950. A few months earlier, the prime minister had been invited by Joseph Stalin, the Soviet Union leader, to visit Moscow. An invitation to Washington from President Truman soon followed and Khan accepted the latter, preferring an association with the capitalist Washington than the Communist Moscow. As a result of this visit, Pakistan began to identify itself with the West explicitly rejecting the Non-Aligned Movement that was launched by Jawaharlal Nehru of India, Kwame Nkrumah of Ghana and Soekarno of Indonesia. But the path the first prime minister laid was taken more frequently by the military leaders. Khan’s civilian successors had to tread with caution which troubled Washington. The civilian leadership, drawing its power from the citizenry, was more circumspect about dealing with America. When Zulfikar Ali Bhutto served as Ayub Khan’s Foreign Minister, he was not pleased with the president’s readiness to acquiesce to Washington’s demands. Upon leaving the cabinet, he began to openly criticise the foreign policy stance of the military leader. He countered Khan’s claim in his autobiography, Friends not Masters, that Pakistan and America were friends and Washington was not Islamabad’s master by writing a book of his own and titled it, The Myth of Independence23. Once he had come to power, he swung his country away from Washington and took it towards Beijing which then was looking for ways to break out of the isolation to which it had been subjected by Washington’s ‘China containment policy’24. 23 24

Zulfikar Ali Bhutto, The Myth of Independence, Karachi: Oxford University Press, 1969. America’s policy towards China which changed dramatically from containment to engagement is very well covered by Henry Kissinger in On China, New York, Penguin Books, 2012.

Overtime, China was to become, in the words of the leaders of both countries, Pakistan’s ‘allweather friend’. While China provided significant amounts of project assistance, it was seldom that Beijing gave non-project assistance, not even to Pakistan. In the winter of 1996-97, China provided Pakistan with US$ 500 million of support at a time the country was close to bankruptcy. The entire amount was disbursed within a couple of days following the visit by the author, who was then Finance Minister in the caretaker administration, appointed by President Farooq Leghari after his dismissal of Prime Minister Benazir Bhutto. The best illustration of how democracy served as a constraint on the formulation of foreign policy was provided by the deterioration of Islamabad’s relations with Washington in the sevenmonth period between the end of November 2011 and the beginning of July of the following year. Given the record of the military which governed Pakistan for a total of 33 years, it was not likely that the series of events that occurred in 2011 would have resulted in the near-collapse of relations with the US, had it stayed in politics. The civilian leaders had fewer degrees of freedom. After an attack by American fighter planes on a Pakistani position near the border with Afghanistan on 26 November that killed 24 Pakistani soldiers, Islamabad ordered the closure of its territory that was used for supplies to the American and NATO troops operating across the border. Pakistan regarded the raid to be the last straw on their already overloaded backs. Early in the year, a CIA operative had killed two young men by shooting them in broad daylight on a busy Lahore street. On 2 May, a detachment of US Navy SEALs flew by helicopter deep into the Pakistani territory and killed Osama bin Laden. And turning the unmanned aircraft – the drones – into its preferred weapon, the Obama administration intensified its campaign against the militants who had created sanctuaries in Pakistan’s tribal belt. It was claimed by Pakistan that these attacks had done great collateral damage, including deaths of hundreds of civilians. In spite of the billions of dollars worth of aid provided by Washington to Islamabad, America, according to several surveys, was the most disliked country in Pakistan. According to a poll conducted by the Washington-based Pew Research Center in March-April 2012, only 26 per cent of the people surveyed had a favourable view of the Americans. While the public opinion was not in favour of accommodating the US, Pakistan’s worsening economic situation persuaded Islamabad to reach an agreement. After a flurry of diplomatic activity that involved visits to Islamabad by a number of senior American officials, Hillary Clinton issued a statement on 3 July that The Washington Post said was ‘artfully worded’. It was carefully worked over by the two sides. The Americans agreed to use the dreaded word ‘sorry’. It was dreaded since President Obama had been accused by his Republican opponents for not minding the American interests in dealing with the world. ‘We are sorry for the losses suffered by the Pakistani military’, said Secretary Hillary Clinton in her statement. ‘We are committed to working closely with Pakistan and Afghanistan to prevent this from ever happening again’. 21

Pakistan gave up its demand that the Americans should pay US$ 5,000 for every container and truck that used its territory to supply the troops in Afghanistan. The country was receiving US$ 250 before the embargo was imposed. Given the amount of traffic that would be involved in the forthcoming pullout by the Americans in 2012-14, Pakistan could have earned as much as US$ 600 million from the demanded tariff. Washington, on its part, agreed to notify Congress to release US$ 1.1 billion in withheld funds for Pakistani counterterrorism operations. Pakistan believed it was owed three times as much, as part of the existing agreement to reimburse it for its expenses. On 24 July, three weeks after the ‘we are sorry’ statement by Secretary Clinton, Wajid Rana, Pakistan’s Finance Secretary, informed the Economic Coordination Committee of the cabinet that US$ 1.1 billion would be paid within a matter days by the United States into the account of the State Bank of Pakistan. This would bring great relief to the country in managing its external accounts. Foreign exchange reserves would increase from US$ 14.77 billion to US$ 15.89 billion. Another US$ 85 million was expected to be disbursed from the Kerry-LugarBerman aid programme. ‘Until May 2011, the Pakistani defence authorities had billed about US$ 12 billion to the US under the Coalition Support Fund. Most of the bills were disbursed except US$ 3.5 billion that were still outstanding’25. There were considerable benefits for America as well in this agreement. The United States, according to the estimate of its Defence Secretary, Leon Panetta, was paying an extra US$ 100 million a month for using the northern route through Russia and the Central Asian Republics to supply its troops in Afghanistan. Economics and politics will determine whether America and Pakistan can return to a degree of normalcy in their relations after the agreement on the transit rights. For Islamabad, it will be mostly economics; for Washington mostly politics. There was suspicion and unhappiness on both sides. A day before the Clinton statement, The New York Times wrote an editorial that seemed to reflect how Pakistan was viewed by influential opinion-making quarters in America. The editorial was titled ‘Crippled, Chaotic Pakistan’. Its analysis was based on what it saw to be the consequences of inaction by the country’s leadership on an important front for the Americans: protecting their flanks while they pulled their troops from Afghanistan. ‘After 2011, Pakistan had a chance to develop into a more stable country. It had strong leverage with the United States which needed help to defeat Al Qaeda and the Taliban in Afghanistan. Pakistan received billions of dollars in aid and the promise of billions more, which Washington has begun to suspend or cancel. But the army continues its double game – accepting money from the Americans while enabling the Afghan Taliban – and the politicians remain paralysed, too. Soon,

Wajid Rana quoted in Khaleeq Kiani, ‘US$ 1.2 billion payment expected from US this week’, Dawn, 25 July, 2012, p. 1.

most Americans will be gone from Afghanistan. And Pakistan will find it harder to fend off its enemies, real and perceived’26. Table 5: Number of Casualties

Year

2004 2005 2006 2007 2008 2009 2010 2011 2012 Total

Number of attacks

1 2 2 4 33 53 118 70 26 309

Number killed Minimum 4 6 23 56 274 369 607 378 144 1861

Maximum 5 7 23 77 314 725 993 536 176 2856

Source: New American Foundation

Political groups on the right of the Pakistani political spectrum were equally unhappy with the 3 July agreement. They threatened to block the US equipment as it began to journey to Afghanistan. On 10 July, a group formed by a number of right-wing leaders that included Hafiz Mohammad Saeed, the leader of the banned Lashkar-e-Taiba concluded their ‘long march’ from Lahore to Islamabad. The group, the Defence of Pakistan Council, included Lt. General (retired) Hamid Gul, who had once served as the head of the Inter-Services Intelligence (ISI) and Sheikh Rashid Ahmed, a former minister under Musharraf who, according to one report in the American press, ‘issued a rabble rousing speech that supported the idea of overthrowing the elected government’. Saeed, although carrying a US$ 10 million American bounty on his head, did not curtail his public appearances and was a prominent presence at the Islamabad rally. Although the long march was peaceful, there was an incident on the way when some soldiers were fired upon which suggested that extremist groups may have penetrated the Defence Council. These groups had targeted the military on several occasions. But the American media reporting on the reaction of the extremist elements was not impressed by the support they had managed to mobilise. The 26

The New York Times, editorial, ‘Crippled, Chaotic Pakistan’, 1 July, 2012, p. 21.

Islamabad rally, according to Delcan Walsh of The New York Times, ‘highlighted the limits of extremist influence. The crowd was small by the standards of political rallies; the organisers were forced to hold the rally close to midnight, which excluded them from prime time television coverage. The rally broke up peacefully after the speeches ended; organisers said they would resume protesting later this month, close to the border’27. The Clinton ‘sorry’ statement patched over some of the differences between Islamabad and Washington but a number of others remained unsettled. Perhaps the most important of these was the use of drones – a weapon the American military called the ‘unmanned aerial vehicles’ – which had decimated the al-Qaeda in Islamabad but had contributed to the growing antiAmerican sentiment in the country. According to one count, between 1,861 and 2,856 were killed in 309 drone attacks in the eight-year period between 2004 and 2012 (See table above). Islamabad wanted a role in determining the legitimacy of the targets attacked. The Americans, suspicious about the real motives of the ISI, was not willing to share a great deal of information. The White House had made it known, through leaks, that the targeted people were selected through a careful vetting process, which involved President Obama. But questions remained not only in Pakistan but also in the US. As The Economist wrote in an article published after the intensification of the drone attacks on targets in Pakistan, ‘America has a potent new weapon. Now it needs to adapt it to its principles’28. There was also debate in the United States about the use of drones as anti-terrorism weapons. This centred on both moral and strategic grounds. A feature article in Esquire by Tom Junod censured the ‘lethal Presidency of Barack Obama’ for his administration’s policy of targeted killings of suspected militants. Another by Scott Shane took the opposite view and argued for ‘the moral case for drones’. A third by John Kaag and Sarah Kreps looked at the use of the weapon from the perspective of moral hazard. ‘This issue has all the hallmarks of what economists and philosophers call a “moral hazard” – a situation in which greater risks are taken by individuals who are able to avoid shouldering the cost associated with these risks’29. The drone issue was taken up by Lt. Gen. Zahir ul Islam, the new head of ISI, during his first visit to Washington in the first week of August 2012, when he met with General David Petraeus, the Director General of CIA. According to a New York Times report that profiled General Islam, “he will press the CIA to stop its drone campaign in the tribal belt. Instead he will press the United States to upgrade Pakistan’s F-16 warplanes so that it can do the job – a proposal one Washington official called a non-starter. (He) will also request American help in halting cross border incursions by the Pakistani Taliban from their bases in Afghanistan – a growing Pakistani 27

28 29

Delcan Walsh, ‘Pakistani militant leads rally against supply route reopening’, The New York Times, 11 July, 2012, pp. A1 and A6. The Economist, ‘America’s drone campaign: Drones and the law’, 8 October, 2011, p. 42. John Kaag and Sarah Kreps, ‘The moral hazard of drones’, The New York Times, 23 July, 2012, p. A23. The Kagg-Kreps article refers to those by Junod and Shane.

concern that last week caused testy exchanges between Pakistan’s Ambassador in Washington, Sherry Rehman, and a senior Obama administration official in a conference in Colorado’. In the profile, the newspaper also wrote about ‘General Islam’s strong military pedigree and many analysts see him as a favourite to succeed the army chief, General Ashfaq Parvez Kayani, when he steps down in late 2013’30. Pakistan’s evolving relations with India also began to reflect on how it was viewed in Washington. While the Kashmir issue was pushed to the back-burner and was no longer a part of the active discourse between India and Pakistan in 2012, another area of contention surfaced between the two states: Afghanistan. This issue was likely to impact Pakistan’s relations with the United States. India and Pakistan were pursuing different objectives in that long-troubled country. This was done reflecting their view of the role Kabul could play in their long-enduring rivalry. This was one area where Islamabad and New Delhi found it difficult to unload the burden of history. India had always cultivated close relations with Afghanistan in order to squeeze Pakistan. Pakistan, on the other hand, saw Afghanistan providing it with strategic depth in case of another military conflict with India. Into this difficult triangular relationship jumped in Washington in pursuit of its own strategic interests. The Obama administration was anxious that its withdrawal from Afghanistan should not destabilise the country in a way it could, once again, become a haven for terrorists bent upon harming America. In that context, India offered an opportunity that seemed attractive to Washington. ‘India will be critical for Afghanistan’s future’, President Obama told an Indian journalist in an interview. India, he said, had made generous contributions to Afghanistan’s progress, helping to train Afghan police, promoting development and improving the lives of ordinary Afghans. India was the first nation to forge a Strategic Partnership Agreement with Afghanistan, he noted, adding that India’s civil service could be a model as Afghans strengthened their own governance and institutions. India hosted an international conference on Afghanistan in June 2012, and Obama said that by doing so ‘New Delhi had shown its readiness to champion Kabul’s economic development’31. America’s slow pullout from Afghanistan, which began in 2011 and set to be completed by 2014, created new problems for Pakistan. As the American presence in some parts of Afghanistan that bordered Pakistan became light, the militants fighting the Pakistani state moved over to the Afghan side and continued their operations from the sanctuaries they developed in hard-to-reach areas. This was the reverse of what had gone on for years when the Afghans, hostile to Kabul, conducted operations from Pakistan’s tribal agencies, in particular North 30

Declan Walsh and Mark Mazzetti, ‘Pakistan’s new spy chief visits Washington at a time of frayed relations’, The New York Times, 1 August, 2012, p. A1. Anwar Iqbal, ‘Obama welcomes Pak-India efforts to lessen tension’, Dawn, 16 July, pp. 1 and 3.

Waziristan. According to a New York Times report, ‘the militants now use north-eastern Afghanistan as a springboard for cross border attacks; there have been 15 in the past year resulting in more than 100 deaths…the latest came this past week (late July 2012) when militants attacked a Pakistan village militia that is fighting the Taliban, according to Pakistani officials’ 32. The Clinton statement nor the signing of the memorandum of understanding by the two sides – the MOU was signed in Rawalpindi by Lt. Gen. (retired) Asif Yasin Malik, the newly appointed Secretary of Defence and Richard Hoagland, the Deputy US Ambassador – was the end of the story about Pakistan’s relations with the United States. It was awkward for the relationship that the series of events that led to its weakening occurred when both sides were exceptionally sensitive to their public opinion. In Pakistan, the Americans were viewed as enemies rather than as friends. In the United States, if there was any common ground between President Obama and Mitt Romney, his Republican challenger for the presidency, it was about ‘American exceptionalism’. According to one American political analyst, ‘this year, listening to the candidates and their surrogates, it often seems as if the debate is about who can offer the most vigorous affirmation of American greatness. To the extent it gets any deeper, the debate centres on who has more credibility wielding American power’33. In such a situation, it was hard for Pakistan to expect much softening of the American position on a number of issues that were of great concern to it. Equally it was difficult for the Americans to get flexibility from Islamabad that was always there during military rule. Nonetheless, the settling of at least one dispute – the one over apology for the November 2011 attack – brought some relief to the financially hardpressed country. The resumption of assistance by the United States, although scaled down, helped to postpone the day of reckoning. A price was paid for the suspension for several months after Islamabad closed the supply route to Afghanistan. For instance, the ambitious development programme the Water and Power Authority had formulated relied heavily on funding from the United States. Washington’s assistance was needed for carrying out preliminary work on the dozens of small and big hydro-power projects the agency was working on34. These were delayed. The IMF was Pakistan’s other benefactor during many difficult times. The last time the country turned to it was in the first year of democratic rule. In November 2008, Islamabad approached the IMF for help to stop the rapid run down of foreign reserves that had gone on for several months. The 2008 programme was generous in several ways: It was large, with soft conditions, and disbursements from it were front loaded while the promised actions by the government were put on hold, to be taken after most of the money had been provided. The result was what should 32

Matthew Rosenberg and Habib Zehri, ‘Rockets fired from Pakistan pound Afghan villages’, The New York Times, 23 July, 2012, p. A7. Peter Baker, ‘Romney and Obama strain to show gap on foreign policy’, The New York Times, 29 July, 2012. Baker filed this report after listening to the debate held at the Brookings Institution in late July on foreign policy between the surrogates of the two candidates. For a list of the projects and the extent of the US involvement, see Pakistan Water and Power Development Authority, Hydro Potential in Pakistan, Lahore, November 2011

have been expected. Pakistan received the funds but made few policy moves. In 2011, Islamabad withdrew from the programme, continuing the long history of its failure with respect to the Fund’s programmes. As Sakib Sherani, once an adviser to the Ministry of Finance, recalled in a newspaper article: ‘Pakistan has had almost continuous programme-lending engagement with the Fund since the early 1970s, with a brief interregnum in the 1980s. Since 1988, Pakistan has had 11 programmes with the IMF, spending the 14 years out of the last 20 in the Fund’s intensive care unit. “Successful” programme completion has amounted to 36 per cent (a straight ‘F’) with only four programmes qualifying to be dubbed as “successful” (and that too purely in terms of money drawn and not on the basis of what really matters – outcomes)…In the end, even a fairly soft programme failed – leaving Pakistan straddled with a huge repayment obligation’35. Most analysts of the Pakistani economy had concluded that the country will be back in the Fund’s care after the elections of 2013 and the coming to power of a new administration in Islamabad. However, this will happen in a difficult political environment. The West, including the United States, will not be prepared to push for a soft programme as they did in 2008. Consequently, the IMF will require much prior action which may not be politically easy. Difficult times, therefore, lie ahead for Pakistan. This quick overview of the politics of capital flows suggests that the country in 2011-12 ventured into unchartered territory. It could no longer count on American military aid, military and civilian. With a democratic order in place, it was not likely that Washington would be able to pursue its agenda without being challenged as it had done when the military was in power in Islamabad. Civilian policymakers had to take cognisance of public opinion that had soured to such an extent that it would be hard to change. The IMF would also be aware of the United States’ doubts and suspicions about Pakistan. Washington had a strong presence in the Fund’s board which could not be discounted even if other members of the institution were willing to adopt a softer approach. The Chinese were not likely to provide budgetary support for Islamabad. They were likely to continue their preference for project assistance. Pakistan, in other words, had two options. It could raise its own resources for meeting its needs. It had failed to do so in the past and would find it even more difficult to do so in a democratic order, in which a number of strong vested interests had managed to contain their tax burden. They had been able to thwart a number of attempts – albeit half-hearted – to expand the tax base. It would need the exercise of considerable political will to get these interests to forego their short-term economic objectives in return for possible long-term gains. Even those who opposed tax reform would benefit from higher rates of growth which would be its result. But it needed a strong leadership that had the people’s respect to get that message across.

Sakib Sherani, ‘Pakistan & the Fund’, Dawn, 29 June, 2012, p. 7.

The other option was to settle for low rates of economic growth for years to come. This would be even more problematic than the attempt to mobilise the citizenry to make current sacrifices in return for a better future. A low rate of economic growth would have severe political and social consequences which the weak Pakistan state will find hard to manage. (To be continued)

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ISAS Working Paper No. 156 – 21 August 2012 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Which Way is Pakistan Heading? - 3 1 Scanning the Horizon for Signs of Hope Shahid Javed Burki2 ‘The past is not dead. In fact it is not even past’: William Faulkner

Abstract In this concluding part of the three Working Papers on the grim Pakistani situation as of midAugust 2012, “the positives” on the economic front are examined. These include the decision to decentralise a significant part of economic decision-making from the centre to the provinces. This was done by amending the Constitution. The recent thaw in the economic relationship with India is also viewed as a highly positive development. If this results in a relatively free flow of trade between the two countries, that alone could add as much as 2.4 percentage points to the rate of growth in Pakistan’s GDP. The large Pakistani diaspora in three continents and the remittances they send back to the homeland is another positive. In 2011-12 the capital flow from this particular source was equivalent to seven per cent of the national income. The fourth positive 1

This paper by Mr Shahid Javed Burki is the last in a series of three Working Papers by him on the situation in Pakistan as of mid-August 2012. Mr Shahid Javed Burki is Visiting Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He can be contacted at sjburki@yahoo.com. The views expressed in this paper are those of the author and do not necessarily reflect those of ISAS. During a professional career spanning over half a century, Mr Burki has held a number of senior positions in Pakistan and at the World Bank. He was the Director of China Operations at the World Bank from 1987 to 1994 and the Vice President of Latin America and the Caribbean Region at the World Bank from 1994 to 1999. On leave of absence from the Bank he was Pakistan’s Finance Minister, 1996-97.

discussed in the paper is the extent to which women are acquiring education and skills. This has enabled many of them to play important roles in some of the modern sectors of the economy. Women have also begun to perform important entrepreneurial roles, particularly in the sectors of education, communication, and microfinance. The paper also discusses some of the strategies the country could adopt to put an end to the uncertainties that affect the performance of the economy.

The Negatives and the Positives While the overall tone of this paper is sombre, it should not convey the impression that Pakistan, standing at the edge of an abyss as the democratically elected government approaches the end of its term, faces an inevitable economic collapse. The question was whether the country could be pulled back from the abyss. A panel discussion organised by the World Bank in April 2012 to coincide with the institution’s spring meetings challenged the participants to focus on what they would regard as the positives. Isabel Gurrero, the World Bank’s Vice President in charge of South Asia, posed two questions to the panellists: ‘What inspires you about Pakistan and what is the one shift you bellive is needed to change the country for the better?’ The first response came from Abdul Hafeez Shiekh, the country’s Finance Minister. ‘The grace of the people of Pakistan amidst adversity inspires me’, he said and went on to suggest that the remarkable resilience of the people in the face of multiple crises is something that could be built upon. Robin Raphel, senior advisor for Pakistan at the United States (US) State Department, cited the people’s response to a number of natural disasters such as the earthquake of 2005 and the floods of 2010 as signs of remarkable resilience. This theme was picked up by other participants. Nancy Birdsall, the President of the Center of Global Development, was impressed by the way the people of Pakistani orgin living in the United States had reacted to the crises in their homeland3. She said ‘a culture of philanthropy has helped Pakistanis embrace displaced people and respond to these challenges’. Pakistan is resilient economically as well, said Mohsin Khan who, before retiring from the International Monetary Fund (IMF) as Director of the Middle East, the department that included Pakistan, was a Senior Fellow at the Petersen Institute. He cited the growth in middle class – now, according to him, some 70-million strong – could help to modernise the country’s political system as well as its economy4.

This is the subject of a well-researched book by Adil Najam who, in 2011, returned to Pakistan to become the Vice Chancellor of the Lahore University of Management Sciences. See Adil Najam, Portrait of a Giving Community: Philanthropy by the Pakistani-American Diaspora, Harvard University, Global Equity Initiative, 2007. The World Bank, “Pakistan: The Untold Story”, worldbank.org/WBSITE/EXTERNAL/5106~piPK:28651 28~theSitePK:2234547,00.html

Resilience, however, is an abstract notion, not easily translated into the making of public policy. Some impression can be gained by studying how the incorporation of a few ‘positives’ can help the country to regain some of the lost economic growth momentum. In this context, a brief description and analysis of four developments would be useful: The adoption of the 18th Amendment to the Constitution that allowed much greater autonomy to the provinces; easing of the tensions between India and Pakistan and the promise of facilitating trade between the two countries; letting the private sector participate actively in developing higher education that created a large and increasing pool of well-educated and trained women; and large and increasing flow of remittances from the workers living in a number of countries in Europe, the Middle East and North America. The discussion of the positives should perhaps begin with that of the negatives since the latter will have to be dealt with before the full potential of the former is realised. For the negatives, a good place to start would be the work done by the Growth Commission of the World Bank. Set up in 2008, the Commisson published its report in 2010 and reached the important conclusion that some of the World Bank’s earlier work on growth misidentified the factors that contributed to it5. For instance, its work on the economies of East Asia that registered unprecedented rates of economic expansion before they ran into the ‘Asian financial crisis of 1996-97 popularised the term “miracles”, meaning these were unique episodes unlikely to be repeated’6. In the Commission’s view, it was not a miracle that transformed so many East Asian economies. These changes coud have happened in other parts of the world, had the state taken the right decisions. The Commission identified five ingredients of growth that could be made to work almost anywhere. The first of these was the full exploitation of the opportunities available in the world economy. None of the 13 countries studed by the Commission followed inward-looking growth; all benefitted from what the gobal economy had to offer. Two of these were particularly important. Growth in knowledge and information. This usually came in the form of foreign direct investment or through exchanges among educational and research institutions. The second was the immense restructuring of the industrial production system that relied on the supply chains leading from various points of production of parts and components to the points of final assembly. Pakistan had missed out on both and needed to catch up in order to climb on to a higher and sustainable growth trajectory. The second ingredient of growth was the large role played by markets to allocate resources, with the state only prodding, guiding and encouraging but not getting directly involved in making or 5

The Growth Commission, The Growth Report: Strategies for Sustained Growth and Inclusive Development, The World Bank, Washington DC, 2008. The World Bank, The East Asian Miracle: Economic Growth and Public Policy, New York, Oxford University Press, 1993.

forcing investment decisions. It was in the period of Zulfikar Ali Bhutto at the helm (1971-77) and the first part of General Zia’s rule when Ghulam Ishaq Khan, with strong and distinctive tendencies was in charge, that the Pakistani state became intrusive in several different ways. And when the state pulled back and remained in the background, it fashioned a structure of governance essentially through a pervasive regulatory regime. This had, wittingly or unwittingly, created enormous rent-seeking opportunities for people in senior positions. This increased corruption and hence the transaction costs for private entrepreneurs and, consequently, discouraged private sector investment. The third ingredient necessary for growth was an environment of macroeconomic stability. As discussed by Stanley Fischer in a 1993 paper, persistent inflation worked as a deterrent of growth. In many cases, including the case of Pakistan, persistent inflation that had been around for more than a decade was the outcome of the monetising of fiscal deficits7. The only way out of this conundrum was to increase domestic resource moblisation and with it the tax-to-GDP ratio. Pakistan had done poorly in both respects for political reasons as well as the ‘bail-out’ possibilties during periods of extreme financial stress. The many changes in the political order – Pakistan’s roller-coaster political history – meant that those in the policy-making positions did not settle down long enough to create for themselves the political constituency that would have encouraged the state to claim a larger share of national income for the purpose of economic growth. And the willingness of external players to provide help to the country when the times became really difficult created a ‘moral hazard’ thinking on the part of the policy-makers in Islamabad. There was comfort in the belief that there will always be someone around – a country or a multilateral institution – to provide the finance necessary when the moment arrived. For the countries that succeeded, domestic savings rates were on average 25 per cent of GDP or higher. In Pakistan’s case the savings rate was well below that level – below 18 per cent since the 1980s and decreasing – and tax-to-GDP ratio at between nine and 10 per cent was among the lowest in the world. A low tax-to-GDP ratio meant that the state was not able to invest in the sectors and in the projects that needed its attention. There was a long list of these: Physical infrastructure, development of hydro-power, human resource development and maintenance of the railways and irrigation systems. The final ingredient in the growth strategy was a committed, credible and capable government. This, as shown by the work of Daron Acemoglu and James Robinson in Why Nations Fail, happened more readily when the political culture was supportive. They underscored the strong links between the culture of politics and the quality of governance. In extractive systems – their term – the political culture was focused on taking away the few social and economic assets from 7

Stanley Fischer, ‘The role of macroeconomic factors in growth’, The Journal of Monetary Economics, 32, 485512, 1993, pp, 485-512.

those that didn’t have much of either in the first place. According to their thinking, extractive political systems produced similar structures in the economic sphere8. There was a powerful feedback from the economic to the political sphere and that was Pakistan’s story for many decades. These negatives posed an enormous challenge for the country. To address them will need strong, selfless, and dedicated leadership that may emerge but was not populating the political landscape as the country began to get ready for another general election. Turning now to some of the positives. The legacy of the Asif Ali Zardari regime, even if it were not able to realise another lease of political life, will not be all negatives as suggested by the enormous unfavourable rating he had received in the spring of 2012 when the Pew Research Center conducted its already-cited survey of public opinion. The government took two brave decisions – brave since they went against the interests of some of the powerful groups in the political and economic systems. They were the decisions to grant greater provincial autonomy and the move towards normalising economic relations with India. Both will have enormously beneficial consequences for the country’s economy; over time in the case of the former and almost immediately in the case of the latter. The discussion of the postitives in Pakistan’s otherwise precarious situation should, therefore, begin with a development that will fundamentally change the structure of the government in the country. This will happen as a consequence of the 18th Amendment signed into law by President Zardari in 2010. This change in the Constitution will, once it becomes fully operational, transform the structure of government. The Amendment transferred from the federal government to the provinces a number of economic powers that were promised to them when the 1973 Constitution was written. That did not happen mostly for political reasons. Even Zulfikar Ali Bhutto, the author of the Constitution, was not willing to let go of the power that had been accumulated at the centre by his military predecessors who governed for a total of 13 years – nearly 11 in the case of General Ayub Khan and almost three years in the case of General Yahya Khan. The general-presidents brought into governance the military preference for centralised command and control. This further weakened the provinces and strengthened the federal government. This trend continued under Generals Zia ul Haq and Pervez Musharraf. It went to the credit of President Zardari to have his party men write the 18th Amendement which radically changed the way the governments will function at the federal and provincial levels. Since the Amendment’s passage was preceded by the announcement of the seventh award of the National Finance Commission which gave the provinces a larger share in the ‘divisible pool’ – the resources collected by the federal tax administration with the purpose of transferring an agreed

Daron Acemoglu and James Robinson in Why Nations Fail: The Origins of Power, Prosperity and Poverty, New York: Crown Business, 2012.

proportion to the provinces – the provinces had, as a consequence, additional responsibility with added resources9. There was some hope that the reshaping of the structure of government following the passage of the 18th Amendment will improve the quality of governance by bringing the state closer to the people. But there was also anxiety that the devolution of so much authority to the provinces could cause disruption in a number of areas. There was a particular concern that unless the process of devolution was managed carefully it could result in the deterioration of public services to the poorer segments of the population10. The second positive development during Zardari’s rule, as of now, was the decision to place on the back-burner a number of disputes that had kept India and Pakistan apart ever since the two countries gained independence. His government chose to focus instead on improving economic relations between Pakistan and India. After a series of meetings involving senior political leaders and bureaucrats from both sides in 2010-12, there was, in the words of Salman Bashir, the new Pakistan High Commissioner in India, a ‘sea change’ in the way the two sides looked at one another. Bashir told an Indian TV anchor that it was ‘Prime Minister Manmohan Singh who said that we should invest in building trust by having frequent visits and exchanges at various levels’11. A formal invitation was sent in late July by President Zardari to Prime Minister Singh to visit Pakistan and participate in the observance of Baba Guru Nanak Sahib’s birth anniversary. There was an indication that such a visit might take place around 28 November, the birthday of the founder of Sikh religion. ‘Such a visit would reinforce our mutual desire to promote interfaith and inter-religious harmony’, wrote President Zardari in his invitation letter. ‘It is important to sustain this process and make it more productive and result-oriented. The intensity and the range of these engagements will help promote our ties in the right direction and will also help reshape our shared dream of a peaceful and prosperous South Asia’12. This was not the first time Singh was invited to visit Pakistan, the country of his birth. In fact, President Musharraf asked the author to raise the issue of the Indian Prime Minister’s visit to Pakistan when he met him in New Delhi in December 2005. The Indian leader’s response was interesting. ‘It is easy for President Musharraf to visit us in India”, he said. ‘He doesn’t need to bring on board a large of people that the head of the government in a democracy such as India must do’. There were many people with great political influence who felt that the moment was right for such a visit, he explained. 9

10 11 12

For a detailed discussion of the likely impact of the 18 th amendment on the structure of the government and on the country’s economy see, Shahid Javed Burki, ‘The 18th Amendment: Pakistan’s Constitution Redesigned’, Institute of South Asian Studies, National University of Singapore, Working Paper No. 112, 3 September 2010. Institute of Public Policy, State of the Economy: Devolution in Pakistan, April 2011. Dawn, ‘Sea change in atmosphere with India: Pak envoy’, 16 July, 2012, p. 3. Quoted in Baqir Sajjad Syed, ‘Indian PM invited on Guru Nanak’s anniversary’, Dawn, 28 July, 2012, p. 1.

These moves by India and Pakistan were also seen favourably by President Barack Obama and should help Islamabad improve its damaged relations with Washington. In an interview with Lalit K. Jha, a Washington-based Indian journalist, President Obama, while emphasising that ‘it was not the place of any nation, including the United States, to try to impose relations from the outside, nations must meet their responsibilities and all of us have a profound interest in a Pakistan that is stable, prosperous and democratic’. He said that lessening of tensions between India and Pakistan would not only be good for South Asia but also for the rest of world. ‘Mr Zardari’s visit to India was encouraging. Increased trade and people-to-people contacts between Indians and Pakistanis can lead to greater prosperity and understanding on both sides’, Obama told the Indian journalist13. Various analysts working in the area of India-Pakistan trade had shown that enormous benefits will flow to Pakistan as a result of the free flow of goods and commodities as envisioned by the South Asia Free Trade Agreement. In an earlier work, the author estimated that Pakistan could add a 2.4 per cent increase in its GDP as a result of this development14. The future, although likely to be less rocky than the past, will not be totally free of tensions. Even if trade between the two countries increased significantly and there was greater economic cooperation, there were several issues on which Islamabad and New Delhi will have conflicting interests. One of them was Afghanistan. It was not certain if either capital would have much influence over the direction in which that country was likely to go. As the Americans quickened the pace of their withdrawal, the situation in Kabul would become more precarious. An interesting perspective on what the American involvement in Afghanistan and other parts of the Muslim world had accomplished was offered in a newspaper interview by the departing Ambassador Ryan C. Crocker. A fluent Arabic speaker, Crocker had served the United States in a number of Muslim countries, including Pakistan. He said that American policy-makers needed to learn the lessons of the recent past. They must ‘remember the law of unintended consequences, recognise the limits of the United States’ actual capabilities, and understand that getting out of a conflict once you are in can often be dangerous and destructive for the country as the original effort’15. America, in other words, was pulling out not having won but having been chastened by its experience. It was also leaving Pakistan with a difficult problem to deal with. The third positive did not normally figure in the discussions or analyses about Pakistan’s economic future. This was the role women could play in the country’s economic development. There was a widespread belief that women in Pakistan were doing poorly in receiving education. That impression to some extent was correct. The overall rate of literacy for women was low; 13 14

Quoted in Anwar Iqbal, ‘Obama welcomes Pak-India efforts to lessen tension’, Dawn, 16 July, pp. 1 and 3. Shahid Javed Burki, South Asia in the New World Order: The Role of Regional Cooperation, London, Routledge, 2011, pp. 177-182. Alissa J. Rubin, ‘Retiring envoy to Afghanistan exhorts U.S. to heed the past’, The New York Times, 29 July, 2012, p, A23.

much less than that for men which was also not very high. That said, over the 17-year period from 1993 to 2010, the number of girls enrolled in primary education increased from 3.7 million to 8.3 million. This implied a rate of growth of 6.7 per cent a year, about two and half times the rate of increase in the number of girls entering the primary school-going age cohort. However, even with this impressive rate of increase, girls still accounted for less than one half of the total number of enrolled students. The proportion was 44.3 per cent in 2010. It was in higher education that girls had made the most spectacular advance. The number of girls attending what are described as ‘professional colleges’ increased in the same 17-year period at a rate of eight per cent a year. In 1993, there were only 100,400 girls attending these institutions. Their number grew to more than 261,000 in 2010. By 2010, there were more girls in these institutions than boys. Their proportion in total attendance of these colleges increased from 36 per cent to 57 per cent in this period. It was the attendance in the universities where the real revolution had occurred. There were less than 15,000 girls in 1993; their number increased to 436,000 in 2010. The proportion of girls in these institutions was approaching the 50 per cent mark with the rate of growth in their numbers an impressive 28 per cent a year. While a very large number of girls dropped out between the primary stage and the stage of professional and university education, the numbers completing higher education was large. Three quarters of a million girls were leaving the institutions of higher learning every year. In education it was the numbers that make a revolution. Given the rate of increase in the number of girls attending these institutions by 2015, a million girls will be ready every year by that time to enter the modern sectors of the economy. That had begun to happen but the statistics on participation in the workforce didn’t tell the complete story. There were a number of sectors in the modern parts of the economy where women made up a significant part of the workforce. These included the traditional areas where educated women had been active for decades. These included teaching and medicine. However, as the number of women with high levels of skills increased, they became players in sectors such as banking, communications, law and politics. They made up a significant proportion of the workforce in the companies doing IT work. Some IT experts estimated that there were tens of thousands women engaged in doing work in what they called ‘cottage businesses’ in their sector. These women with good computer skills were working from their homes undertaking small contractual work for the members of their families or their friends who were living and working abroad. Some estimates suggested that more than a billion dollars worth of work was being done in these informal establishments. These were by and large one-person shops that receive payments through informal transactions. Women were increasingly entering the entrepreneurial field, an area that benefitted from the enormous increase in the number of well-educated women that are entering the workforce. Private sector education was one area where educated women as entrepreneurs had the most important impact on modernising some aspects of the Pakistani economy. 8

One example of this was the remarkable performance of the Beaconhouse School System launched on a modest scale in the early 1970s by Mona Kasuri, its founder. As happened so often in the case of family-owned businesses, while one generation may have set the ball rolling, the generations that followed make the ball go faster. While Mona Kasuri was the driving spirit behind the Beaconhouse venture, Pakistan’s largest privately owned and managed educational system, it was developed further and moved along by her sons and daughters-in-law. One daughter-in-law, Sophia Kasuri, added childcare to the system. She started with an institution called The Early Years to take care of her own children, repeating her mother-in-law’s story. ‘The Early Years philosophy – which was based on learning through play and teaching life skills – was based entirely on Sophia’s observations of her children and their needs and desires. While it started off small with just a few friends’ kids, within a month, Early Years had surpassed its initial targets. Today it is a staple for many working parents in Lahore, hitting a largely ignored and potentially very lucrative niche market. Sophia is now looking to introduce Gymboree, the world leader in early childhood development, to Pakistani parents’16. But women’s entry into the workforce will not go unchallenged, particularly in the country’s more conservative areas such as the tribal belt on the border with Afghanistan. A grim reminder of this came in the case of women activists such as Farida Afridi, who with her sister co-founded an NGO to work for improving women’s situation in the socially backward areas. Women working at SAWERA (the acronym means the Urdu word ‘morning’), or Society for Appraisal and Women Empowerment in the Rural Areas, were “accused of not observing cultural norms – not wearing veils, encouraging other women to work outside the home and working alongside male colleagues”17. Farida Afridi, 25, was killed in July 2012 as she was walking from her parents’ home to her office. Another positive for Pakistan was its diaspora. These large communities of people of Pakistani origin were formed over several decades in many parts of the world. By 2012, they had six to eight million people, perhaps earning as much as US$ 200 billion a year, an amount equal to Pakistan’s gross domestic product. They probably saved a quarter of their annual income or US$ 50 billion a year. This was much higher than Pakistan’s domestic savings rate. Some of these savings found their way back to Pakistan in the form of charitable-giving but also investment in various economic activities. A significant amount of investment by the diaspora went into real estate during the time of President Musharraf when there was political and economic stability. Not unlike other diaspora, the Pakistanis living abroad were interested in maintaining ties with the homeland. The more affluent among them bought second homes in the country. Some large investments were made in banking and industry. Bestway, a Pakistani business group in the 16 17

Onar Jamil, ‘I kid you not’, The Express Tribune, 12 September, 2010. Michelle Langevine Leiby, ‘Activist’s killing reverberates in Pakistan’, The Washington Post, 18 July, 2012, p. 11A.

United Kingdom headed by Sir Anwar Pervez, bought a large stake in the United Bank and also established a cement plant in north Punjab. The Ghauri brothers, who were dispersed in three different continents, reassembled in Pakistan to establish Netsol, Pakistan’s largest IT firm and the only one listed on Nasdaq in the United States. Several doctors practising in Britain and the United States set up clinics and hospitals in the country. One example of this investment was the Doctors’ Hospital in Lahore, one of the finest in the city. Another was the pharmaceutical firm Getz which from a small start was turned into an international firm by a group that came back to Pakistan, having worked abroad in this particular industry. However, the investments originating with the diaspora declined as the country became politically and economically less stable. Notwithstanding that, the amount remitted by overseas Pakistanis continued to increase at double-digit rates. Remittances in 2012 touched US$ 12 billion and were expected to increase to more than US$ 13 billion in 2013. This amounted to seven per cent of the gross domestic product and significant proportion of the balance of payments deficit. In other words, remittances made it possible for Pakistan to pay for vital imports even when its exports did not earn the needed amounts. Also overseas Pakistanis, in particular those resident in the United States and Britain, were an important source of access to new technologies and management practices. As already indicated, they played important roles in modernising the sectors of health and IT.

Conclusion Pakistan’s future has never seemed more uncertain than it appeared in 2012. The country faced difficulties on many fronts. The economy was weakening; it appeared highly unlikely that the governing coalition in Islamabad would be able to take the steps to bring growth back to the level needed to absorb two million additional workers that join the workforce every year. The IMF, in its Article IV consultations with Islamabad, estimated that the economy needed to expand by seven per cent a year to keep unemployment from increasing. It expected a rate of growth at 3.4 per cent in 2012-1318. The country’s external situation was weakening as it prepared to service the large amount of accumulated debt, in particular the amount owed to the IMF. The 3 July 2012 statement by US Secretary of State Hillary Clinton saying that her government was sorry for the unintended attack by the American forces on a Pakistani post near the Afghan border on 26 November that killed 24 Pakistan soldiers cleared the air a bit, but only a bit. It was 18

International Monetary Fund, ‘IMF Executive Board Concludes 2011 Article IV Consultation and Proposal for Post-Program Monitoring with Pakistan’, Public Information Notice No. 12/10, 6 February, 2012, Washington DC.

followed by the signing of a Memorandum of Understanding in Rawalpindi by the two governments three weeks later. The MOU, which included an agreement with the United States for reopening the supply route to Afghanistan, was expected to bring some financial rewards. The Obama administration indicated that it would send Congress a request to appropriate US$ 1.1 billion for Pakistan. This money was owed to Islamabad for the services that had already been provided. Pakistan, however, estimated the amount at more the US$ 3 billion. There was, however, no mention of the flow of funds from the Kerry-Lugar-Bermen bill which was supposed to put Pakistan-American relations on a firmer ground. Even if the US Congress acted with dispatch – not certain that it would, given Pakistan’s very low reputation in that body – it might ease the financial situation for a while only. This happened in the week of 20 July, when the United States deposited US$ 1.1 billion with the State Bank of Pakistan, the country’s central bank. But the basic arithmetic will not change. Pakistan spent much more than it collected in taxes; its imports cost more than it was able to earn from exports. The State Bank of Pakistan had begun to lose reserves and the rupee, the domestic currency, came under pressure. The Pakistani rupee’s value declined by more than five per cent in the first half of 2012. In fact, exports were doing poorly and the trade deficit widened. While Raja Pervez Ashraf, the Prime Minister elected in June 2012, cited solving the deepening energy crisis as his first priority, prospects didn’t look promising. Electricity shortage had resulted in ‘load-shedding’ of more than half of the day in many areas, in particular in the Punjab. There were also shortages of natural gas. The people were becoming restive and many took to demonstrating in the streets. Some Pakistan-watchers suggested ‘that the power crisis is more of a threat to Pakistan’s stability than terrorism – more proof that after years of mismanagement and neglect, the national energy sector is in extremis’19. There were no signs of any easing of the tension between the government led by President Zardari and the senior members of the judiciary. The Supreme Court was relentless in pursuing cases of alleged corruption by the senior members of the administration including the president. It forced Gilani out of premiership and began to move against his successor. Other courts also jumped into the fray. The Lahore High Court told President Zardari that he had to choose between the two jobs he concurrently held: the presidency and the co-chairmanship of the Pakistan People’s Party. The courts also continued to pursue several cases of alleged corruption against senior office-holders and their families. There were many difficulties on the external side. The United States’ decision to pull out of Afghanistan and complete the process by the end of 2014 left Pakistan guessing about its consequences. ‘Washington seems to be settling for a degree of managed instability in 19

Richard Leiby, ‘Pakistan’s power crisis may eclipse terrorist threat’, The Washington Post, 27 May, 2012, p. A9.

Afghanistan dealt with by the Afghan National Army and American social forces’, wrote Tanvir Ahmad Khan, who was once the top diplomat in Pakistan and knowledgeable about the Afghan situation. ‘Such a scenario will hurt the interests of most regional powers. For Pakistan, it will be a nightmare. The situation in Afghanistan is, to say the least, dynamic and may gravitate towards greater crisis, including civil war or many mini-civil wars...Washington is redefining its objectives in Afghanistan within the larger context of the strategic reconfiguration of Asia that it seeks. Much also would depend on the modalities of disbursing the assistance of US$ 16 billion pledged at the Tokyo conference held in July’20. In these difficult circumstances, the question most often asked by those who watched the country from within as well as outside was: Where was Pakistan headed and could it avoid failure? ‘The point is that the prospect of disaster, no matter how obvious, is no guarantee that nations will do what it takes to avoid that disaster’, wrote Paul Krugman, the Nobel Laureate, in a column published in July 2012 in The New York Times21. His reference was not to Pakistan but to Europe, where a dithering leadership was letting the continent slip towards an economic abyss. But the possibility of disasters on several fronts did not seem to focus the minds of the policymakers in Pakistan either. Nation-failure – the opposite of nation-building – became a popular topic in policy and academic discourse in 2012 as a number of countries in the Muslim world were convulsed by social upheaval. While the Arab Spring was watched, studied and analysed with great interest, there were even greater concerns about the nearly-dysfunctional states of Afghanistan and Pakistan. Their future was also of equal interest for the security establishments in the West, in particular in the United States. Engineers have known for as long as they have been engineering that it was the fear of failure that drove the field forward. Could the same be said about nation-building, a field that has had practitioners as well as students but in which there were more failures than successes? Engineers always hoped that their designs will succeed but as Henry Petroski, an engineer who taught engineering failure at Duke University, wrote in his new book, ‘no matter what the technology is, our best estimates of its success tend to be overly optimistic’ 22. Statesmen who have delved into nation-building – their own or that of other countries whose development they could and would like to influence –also knew failure. President Barack Obama’s experience with nation-building in the Muslim world provided a good example of failures, perceived or otherwise, leading to policy adjustments. According to David Sanger, who wrote a book on the American President’s on-the-job education in the area of nation-building, described how an almost total about-turn 20 21 22

Tanvir Ahmad Khan, ‘Our Afghan policy’, Dawn, 17 July, 2012, p. 7. Paul Krugman, ‘Europe’s great illusion’, The New York Times, 1 July, 2012, p. 21. Henry Petroski, an engineer who now teaches engineering failure at Duke University, writes in his new book 22, To Forgive Design: Understanding Failure, Cambridge, Mass.: The Belknap Press of Harvard University.

occurred in his thinking. In October 2009, a few months after assuming the presidency, Obama announced a plan for Afghanistan that would not only advance American security but also provide ‘opportunity and justice –and not just in Kabul, but from the bottom up in the provinces’. He thought in terms of a ‘civilian surge’ made up of agricultural specialists and educators, engineers and lawyers to fashion a new Afghan economy – in fact a new Afghan society. As Robert W. Merry, a historian who has studied America’s Presidents 23 wrote in his reaction to the Sanger account, Obama’s ‘goal was level of societal coherence, and governmental functionality never before seen in that mountain redoubt of a country’24. That goal, of course was not reached and within two years, Obama had reversed his course. At the end of 2011, the president convened a committee and put it in charge of narrowing his Afghan mission to its bare essence. Its task was to find a quick way to reach the exit. But reaching the exit without incurring too heavy a cost meant working with Pakistan and re-establishing a relationship that was not rocked by suspicions and ill-feelings on both sides. That was not on the cards. Academics have also begun to devote time to studying nation-building failures. This was the subject of the often-cited book in this work by Acemoglu and Robinson that appeared in 2012 with the telling title of Why Nations Fail25. According to them, nations fail when their institutional structures were designed to give the elite the capacity to extract resources from those who did not have access to political power. Extractive political institutions led to the creation of similar institutions on the economic side, with each reinforcing the other. The situation in Pakistan was precarious. There was a consensus both inside and outside Pakistan that most systems in the country were now dysfunctional. The most worrying development of recent years was the emergence of extremism, a movement joined in by those who were working towards a radical change in the system of governance. For them, liberal democracy, which the rest of the world had decided was the best way to govern, was an anathema. These groups and people had to be reintegrated into the society. By their anti-state activities, they had cost the economy dearly and ruined the country’s reputation in the international community. It would take a multi-pronged approach to bring Pakistan out of the deep crisis it faced as the democratic government entered the fifth year in office. In the area of economics, public policy will have to address the issue of poor governance. It will need to deal with the failure of the state to raise sufficient resources for delivering public goods to an increasingly frustrated and 23

24 25

Robert W. Merry, Where They Stand: The American Presidents in the Eyes of the Voters and Historians, New York, Simon& Schuster, 2012. Robert W. Merry, ‘The Obama Doctrine’, The New York Times Book Reviews, 15 July, 2012, p. 19. Daron Acemoglu, and James A. Robinson. Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York. Crown Business, 2012.

disgruntled citizenry. There was the need to overcome serious shortages of goods and services critical for industrial output as well as household consumption. There was work to be done to reduce inter-personal and inter-regional income inequalities. Physical infrastructure needed to be improved and what had already been built needed to be maintained. It had not fully dawned on the policy-makers that global warming was likely to prove disastrous for Pakistan, making the already stressed water situation even more problematic. The list of ‘dos’ was a long one. Pakistan had dealt with many crises in past. What was different this time around was that a number of problems surfaced at the same time. Their coming together produced a perfect storm which required a great deal of thinking on economic policies that would be appropriate for Pakistan at this time. There were, however, many things wrong with official thinking about the state of the Pakistani economy. Much of this was being done at the Planning Commission, some at the Ministry of Finance, some more in the Ministry of Commerce and some was also coming out of the provincial capitals. There were some useful materials produced particularly at the Planning Commission. What the Planning Commission called the Framework for Economic Growth paper, or FEG, had some innovative material. It was right to focus on what it labelled as the ‘soft side’ of the development equation. The Commission claimed that for Pakistan to increase the rate of economic growth, it needed to invest in the softer aspects of development and not continue to commit large sums of money on brick and mortar development schemes that have dominated the Public Sector Development Plan. The ‘soft side’ advocated by the Planning Commission included institution-building, human resource development, increasing the capacity of the private sector to innovate, reducing the regulatory burden carried by private enterprise, and changing and modernising urban regulation so that cities became the most dynamic part of the economy. What really irked the Planning Commission were the zoning regulations in many cities that prevent vertical development. This inhibited the economic role of the city centre. The Commission was also concerned about the declining efficiency and effectiveness of the various civil services. It called for a fundamental restructuring and reform of the civil administration. All these were worthwhile goals and they needed to be included in an approach aimed at the long-term. However, they didn’t constitute a strategy that could pull Pakistan out of the deep economic hole it had by then dug for itself. The FEG was an approach that will deliver rewards over the long-term. It will do very little to solve Pakistan’s current economic problems. There were several of these but unfortunately not many among them found their way into official thinking. Following are some of the many problems crying out for policy-making attention.

I list them in no particular order: Pakistan’s longest lasting recession with no end in sight; continuing violence, some of it directed at the state; increasing isolation from the world; continued dependence on external capital flows for financing the currently low levels of public sector investments; the loss of confidence on the part of the investment community, both inside and outside the country, in Pakistan’s economic future; low rates of domestic savings and low tax-to-GDP ratio; very little public sector investment in improving the quality of the large human resource; declining share in international trade; poor relations between the federal government and provincial administrations; and increasing incidence of public sector corruption. The list is even longer than this but there is no systematic official response to most of these problems. A soft-power-focused strategy of growth would work well in realising the economy’s large but neglected potential. However, the impact of this focus will be felt after a long time. Pakistan is now regarded as a fragile state by development institutions such as the World Bank. In one of its recent World Development Reports, the World Bank also picked up some of the soft factors in the growth function26. These, it suggested, are essential ingredients of long-term sustainable development. But it emphasised – correctly I believe – that it will take a generation or two before fragile economies such as Pakistan can begin to use these factors effectively in the development equation. In the meantime, they need to pull their economies out of the low growth traps into which they have fallen. To get to the long-term they need to focus on the short-term. What should be the development agenda for the policy-makers at this delicate moment in the country’s economic history? There were at least five areas that needed the policy-makers’ urgent attention: Revival of growth; increasing domestic resource mobilisation; reconnecting the country with the world; reducing income disparities; and investing in the development of the large human resource. Each of these areas required a series of government actions. There were no indications that any of these are planned. What needs to be done in one area will impact on the remaining four. In other words, a comprehensive approach that dealt with the short-term is the need of this precarious hour. Long-term thinking could wait while the short-term was being fixed. As already indicated, the IMF in its ‘Article Four’ consultations with Islamabad had correctly underscored the need for the revival of growth. It believed that a rate of growth of seven per cent a year was needed in order to accommodate two million new entrants in the workforce. If these people could not be given reasonably productive jobs in the economy, many of them will opt out and start looking for other ways of meeting their needs. When the state is weak there is great temptation to work outside its space. This was a well-known reaction by the deprived, much analysed by social scientists. There was no doubt that many recruits to the organisation that 26

The World Bank, World Development Report, 2011: Conflict, Security, and Development, New York, Oxford University Press, 2011.

pursue extremism as a way of achieving their objectives were attracted to them for economic reasons. Extremism in the country was not increasing only for ideological reasons; it became a good business for those who organise it and those that become its foot soldiers27. The Benazir Income Support Fund was one way of dealing with this situation and what was known about it seemed to suggest that it was working reasonably well. On top of this, the government – in particular the provincial administrations – should give serious thought to the launching of public works programmes in both rural and urban areas. There was a great deal that could be done by such programmes to improve the quality of life for those who were seeing its deterioration with every passing day. But the real economic issue at this moment was the revival of confidence in the economy. For that to happen, the quality of governance needed to improve. This was where the policy-makers needed to focus. Experiences from other parts of the world show that appropriate sets of economic policies and good quality leadership can quickly turn the situation around. This happened in Latin America in the decade of the 1990s28. It was happening now in some parts of the African continent. But these changes always occurred when those who led were committed to improving general welfare and not their own economic situation and that of their families and close associates. And it required political will to take difficult decisions especially when they were not favoured by some powerful segments of the society. Most of these conditions did not exist in Pakistan as the country moved towards another election. But they may appear as a consequence of the cleaning of the political house that may result from the next poll. One can only hope that the wait will not be a long one. Anatole Lieven, the author of an acclaimed book on Pakistan, observed, there are plenty of signs that the country is a troubled rather than a failed state29. (Concluded)

.....

For what motivated people – in particular the young people – to sacrifice their lives in pursuit of various causes is examined in Riaz Hasan, Life as a Weapon: The global rise of suicide bombings, London, Routledge, 2011. The book has a chapter – Chapter Five, pp. 101-21 – that examines the situation in Pakistan. The author, as Vice President of Latin America and the Caribbean at the World Bank, had personal experience of the fast and positive response of a number of countries in the region that changed both the leaders as well as public sector policies in order to handle difficult situations. Under his direction, the World Bank was deeply engaged in helping the countries in the region out of the deep economic and social crises they faced in the second half of the 1990s. Quoted in Rahul Jacob, ‘Zardari court battles masks Pakistan gains’, Financial Times, 28 July, 2012, p. 13.

ISAS Working Paper No. 157 â&#x20AC;&#x201C; 23 August 2012 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

China-South Asia Strategic Engagements - 2 Bhutan-China Relations1 Mathew Joseph C.2

Geographic location plays an important role in determining the foreign policy choices of countries. This is invariably true despite the size and resources available to countries. Countries which are fortunate to have access to seas are distinct in many ways from the landlocked states in this regard. If the state is landlocked, small in size and not so rich in terms of resources, the fate of such a state would be all the more precarious. Bhutan belongs to the afore-mentioned category of small landlocked states. The Himalayan country of Bhutan (Druk-yul)i is located between China and India - two emerging world powers. This unique location of Bhutan between not-so-friendly China and India places her in a complex situation. It would be a Herculean task for Bhutan to maintain relations in a manner satisfactory to both China and India. There is every chance that one of these big neighbours tends to suspect Bhutan of closeness to the other. Hence conducting foreign policy would be a tight rope walk for Bhutan in the context of her peculiar geographic and strategic location. The other small landlocked state in the Himalayas, Nepal, is also having the same kind of predicament.

The paper by Dr Mathew Joseph C. is the second in a series of five Working Papers on Chinaâ&#x20AC;&#x2122;s security relations with some South Asian countries. These papers are being published by the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. Dr Mathew Joseph C. is Reader, Academy of International Studies, Jamia Millia Islamia, New Delhi. The views expressed in this paper are those of the author and do not necessarily reflect those of ISAS.

Being small landlocked states sandwiched between big continent-size countries, the primary concern of both Bhutan and Nepal is the maintenance and protection of their territorial integrity and national sovereignty. Issues like economic development come only after that. This is a dilemma that most of the small states face with regard to their existence and foreign policy management. The landlocked status of both Bhutan and Nepal makes their condition much worse than that of small states like Sri Lanka or Bangladesh. Though the predicament of both these countries is almost the same in the geographic and strategic context of the Himalayas, both Bhutan and Nepal behaved distinctly different in conducting their relations with China and India. While Nepal tried to play China against India and vice-versa, Bhutan remained steadfastly with India. Nepal followed this adventurist strategy in her foreign relations hoping that it would ensure her national sovereignty and territorial integrity. It turned out to be a not so beneficial policy as far as her national interest and goals are concerned. On the domestic front it led to periods of political instability and turmoil. On the contrary, Bhutan followed a policy of more or less siding with India and keeping a safe distance from China both politically and otherwise. This policy helped Bhutan to consolidate itself and tide over some of the severe domestic political crises and embark on a path of economic development and a sort of â&#x20AC;&#x2DC;controlled democratic experimentâ&#x20AC;&#x2122; in the political system. A comparison between Bhutan and Nepal in this regard is not the aim here. This paper is an attempt to understand and explain the relations between Bhutan and China in the context of solid bilateral relations between Bhutan and India and the emerging politico-security discourse within Bhutan with regard to its strategic yet precarious location between China and India and various foreign policy options available. I As mentioned earlier, located between the Tibet Autonomous Region (TAR) of China and India, Bhutan has a land area of 38,394 sq kmii and a population of around 700,000.iii Bhutan shares 470 km of border with China and 605 km of border with India.iv Like other South Asian states Bhutan is a multi-ethnic and multi-religious state. There are mainly four ethnic groups in Bhutan: Ngalongs, Sharchops, Khengs and Lhotshampas (the people of Nepali origin). Of which the Ngalongs who are of Tibetan descent, inhabit western Bhutan and form the ruling elite and speak Dzongkha â&#x20AC;&#x201C; the national language of Bhutan.v The Sharchops and the Khengs inhabit the eastern and central parts of Bhutan respectively. The Lhotshampas form a majority in southern Bhutan. Among the above-mentioned ethnic groups, the Ngalongs and the Khengs subscribe to the Drukpa Kagyuppa sect of Mahayana Buddhism. The Sharchops follow the Nyingma sect of Buddhism and speak a Tibeto-Burmese language called Tsangla. The Lhotshampas are mainly Hindus and speak Nepali language.vi 2

The unification of Bhutan took place in the 17th century. Shabdrung Ngawang Namgyal, a politico-religious refugee from Tibet, was instrumental in this. He came to Bhutan in 1616 as a result of the sectarian strife between the Gelugpa (yellow hat) and Kagyuppa (red hat) sects of Mahayana Buddhism in Tibet. The ascendance of Gelugpa sect in Tibet resulted in the expulsion of the followers of Kagyuppa sect from there. Before his death in 1652, Shabdrung Ngawang Namgyal could unify various principalities under one state.vii Till the death of Shabdrung Ngawang Namgyal, political and religious authority remained with him. After his death spiritual and temporal powers were divided and vested in two authorities called the Je Khempo (spiritual head) and the Druk Desi (temporal head). The theocratic administrative system instituted by Shabdrung Ngawang Namgyal was called the Choesid system and it remained in place till its replacement by hereditary monarchy in 1907.viii The political history of Bhutan under the Choesid administrative system (late 17th century to early 20th century) was a period of instability and chaos. During this period Bhutan had to fight with Tibet and British India several times. According to sources, nine times Bhutan was attacked by the Tibetans and Mongolsix though Bhutan managed to defeat them. On the contrary, in her conflicts with British India Bhutan got defeated and lost the territories of Bengal and Assam Duars.x Since the institution of Druk Desi lost its prominence over a period of time, the Penlops (Governors) of Paro in western Bhutan and Tongsa in eastern Bhutan became the centres of political power in Bhutan. Towards the end of the 19th century the Penlops of Tongsa developed cordial relations with the British. The last quarter of the 19th century was significant in terms of the emergence of the geo-political competition among the British, Russians and the Chinese which is called the ‘Great Game’. The vast Tibetan expanse and the Himalayas became the theatre of this ‘Great Game’. The British feared that the Chinese and Russians were having designs over their Indian Empire. And thereafter the aim of the British was to evolve strategies to prevent this eventuality. Hence Tibet occupied an important position in their Himalayan policy. In this regard, to ward off threats from both China and Russia, the British designed a “double rampart” strategy. According to it, the Tibetan plateau would form the outer rampart and the Himalayan states of Nepal, Sikkim and Bhutan would form the inner rampart. Foreign influence would be tolerated in the outer rampart and it would not be allowed in the inner rampart. Due to this policy, though the British were not very comfortable with the Russian and Chinese influence in Tibet, they had to tolerate it. However, any attempt on the part of the Chinese to have some influence in the inner rampart was resisted.xi The above-mentioned “double rampart” policy allowed internal autonomy within the buffer states of inner rampart but their external relations were controlled by the British. The capacity of 3

the British to influence the developments in Tibet was severely limited, and due to that they had to allow the involvement of the Chinese and the Russians in Tibetan affairs. The British were always very cautious when they were dealing with Tibet due to the religious-cultural influence of Tibet in the Greater Himalayan region. After all, the entire inner rampart which consisted Nepal, Sikkim and Bhutan are part of the Tibetan religious-cultural universe. The treaties signed between the British and the buffer states of the inner rampart were clear examples of the British paranoia towards the imagined influence of the Chinese and the Russians in Tibet.xii A careful examination of the provisions of these treaties will give a sense of the British fear of the Chinese and the Russians. The efforts of the British to develop direct relations with the Dalai Lama and his court at Lhasa succeeded only in the beginning of the twentieth century. This was partly because of the Tibetan fear of the Chinese reaction to such a development and partly due to the policy of isolationism followed by the Tibetan ruling elite. The policy followed by the ruling elite of Tibet was also a complex one. The Lhasa Convention signed between the British and the Tibetan authorities in 1904 was an important development as far as the relations between the British and Tibet were concerned. The ninth provision/clause of the Convention stipulated that the foreign relations of Tibet must be with the consent of the British. Knowing their limitations in respect of China, the Tibetans vacillated between extreme positions. Accordingly the British had to accept Tibetâ&#x20AC;&#x2122;s special relationship with China in 1906, Tibetâ&#x20AC;&#x2122;s autonomy in 1921 and Chinese suzerainty over Tibet later.xiii The establishment of hereditary monarchy in Bhutan in 1907 and the signing of the Punakha Treaty in 1910 between the British and Bhutan had to be understood in the context of the relations between Tibet and the emerging geo-political and strategic developments in the Greater Himalayas. The British played a major role in the establishment of hereditary monarchy in Bhutan due to two reasons: the theocratic Choesid system was inefficient and provided ample scope for intrigue since there were two centres of power within it and the British wanted to make the Penlop of Tongsa Ugyen Wangchuck, their staunchest ally in Bhutan, the sole authority in Bhutan, due to the not so friendly behaviour of the Penlop of Paro. Through the establishment of the hereditary monarchy of Wangchucks in Bhutan, in one go the British achieved an important strategic goal as far as the eastern Himalayas are concerned. They could resolve the political instability that plagued Bhutan for quite a long time and ensure the support of a dependable ally in the monarchy of Bhutan. The Treaty of Punakha which was signed in 1910 became a testimony to that. The immediate context of the signing of the Treaty of Punakha was the Chinese invasion of Tibet during 1910-1912.xiv

The Treaty of Punakha was an improved version of the Sinchula Treaty of 1865. The Article VIII of the Treaty clearly states that “[T]he British Government undertakes to exercise no interference in the internal administration of Bhutan. On its part the Bhutanese Government agrees to be guided by the advice of the British Government in regard to its external relations.”xv The striking similarity between the Article VIII of the Treaty of Punakha and the ninth provision/clause of the Lhasa Convention of 1904 suggest that the aim of the British during this period was the prevention of Chinese and Russian influence in Tibet and the Himalayan states. By the time of decolonisation of the Indian subcontinent, the Himalayan states faced the problem of their future relations with independent India. In the case of Bhutan this was resolved by the conclusion of the Treaty of Perpetual Peace and Friendship between the Government of India and the Government of Bhutan (India–Bhutan Treaty of 1949) on 8 August 1949 at Darjeeling. xvi The timing of the signing of this Treaty was very significant. By the summer of 1949 the Communists had established their domination in China and the Himalayan states were having apprehensions about their security in the context of the Communist takeover of China. The IndoBhutan Treaty of 1949 retained the main features of the Treaty of Punakha. As a gesture of friendship India returned the territory of Dewangiri having an area of 32 square miles to Bhutan and later it was renamed as Deothang by the Bhutanese. In this Treaty, by Article 2, both countries agreed that “[T]he Government of India undertakes to exercise no interference in the internal administration of Bhutan. On its part the Government of Bhutan agrees to be guided by the advice of the Government of India in regard to its external relations.”xvii Similarly Article 6 of the Treaty stipulated that the import of arms and ammunitions by Bhutan has to be with the approval of the Government of India. xviii These Articles of the Treaty clearly show the Indian sensitivity in the emerging geo-political context of the Himalayas. The Indian fears became true when the Peoples Liberation Army (PLA) of China overran Tibet in 1950. In this context Jawaharlal Nehru, the Prime Minister of India, declared in the Indian Parliament “that India would not allow the Himalayan barrier to be penetrated and that the defence of Bhutan, Nepal and Sikkim was India’s responsibility.”xix The mid-1950s witnessed a deterioration of the relations between India and China. As the relations deteriorated China started making claims on Indian as well as Bhutanese territories. This started as cartographic aggression in the first place.xx It was reported that in 1950 itself China “described Bhutan as one of the five fingers of its Tibetan palm.”xxi Considering the gravity of the situation, India’s Prime Minister Jawaharlal Nehru made an official visit to Bhutan in 1958, which was the first of its kind, and exhorted the Bhutanese to

shed off the policy of isolationism and embark upon a path of modernisation. In the address he delivered at Paro he said the following: Some may think that since India is a great and powerful country and Bhutan is a small one, the former might wish to exercise pressure on Bhutan. It is, therefore, essential that I make it clear to you that our wish is that you should remain an independent country and taking the path of progress according to your will. At the same time, we two should live with mutual goodwill. We are members of the same Himalayan Family and should live as friendly neighbours, helping each other. The freedom of both Bhutan and India should be safeguarded, so that no one from outside can do any harm to them.xxii By these words Prime Minister Nehru was giving a clear message to the international community regarding the nature of India-Bhutan relations and India’s security concerns in the Himalayan region in general and Bhutan in particular. As a consequence of Prime Minister Nehru’s visit to Bhutan, the Government of Bhutan accelerated the pace of the process of modernisation which started in the early 1950s. II The Chinese aggression on Tibet in 1959 and the consequent flight of Dalai Lama and his followers from Tibet to India opened a new chapter in the security situation in the Himalayan region. A section of Tibetan refugees also reached Bhutan. The Chinese occupied the eight Bhutanese enclaves in western Tibet as part of their military campaign.xxiii The conquest of Tibet by China brought both India and China as close neighbours in the geographical sense. The colonial security doctrine based on the principle of “double ramparts” became redundant after the invasion of Tibet by China. Suddenly the Himalayan states of Nepal, Sikkim and Bhutan (inner rampart) had to face a resurgent China on their undefined borders. For Bhutan, the Chinese invasion of Tibet was more than the conquest of a neighbouring country by another. Though in terms of the minute details of faith there were differences between Bhutan and Tibet, in the broader sense both belonged to the Mahayana School of Buddhist culture. xxiv Moreover, most of the Bhutanese political elite had social relations with the people of Tibet. Apart from that, Bhutan’s trade, commerce, cultural and religious linkages were with Tibet. In this context, the disappearance of Tibet from the world map created a sort of existential crisis for Bhutan. This was complicated by the stories of Chinese atrocities towards the Tibetan people and religious institutions as narrated by the Tibetan refugees who crossed over to Bhutan.xxv

Bhutan overcame this situation by snapping all ties with Tibet and thereby China and closing the border towards the north. “The turmoil following the integration of Tibet into the PRC and the Sino-Indian border war in 1962 forced Bhutan to interrupt its ancient relationship with its northern neighbour for security reasons and to reorient its trade route toward India.”xxvi It was not an easy decision for Bhutan. According Bhuchung K. Tsering, Bhutan in her quest to differentiate herself from Tibet even adapted the Tibetan script which was used for centuries and started calling it Dzongkha.xxvii These reactions were the reflection of being left alone as the last post of Mahayana Buddhism in the Himalayas. In the wake of the Chinese invasion of Tibet, the political elite of Bhutan realised that the traditional policy of isolationism would not help the country in protecting its internal autonomy and independent status. In 1961, King Jigme Dorji Wangchuck and Lonchen (Prime Minister) Jigmie Palden Dorji of the Dorji family, which is considered to be the most important political family after the royal family, visited India in the context of the Chinese invasion of Tibet. In the course of the negotiations, both the countries “probably reached unpublished agreements on India’s defence responsibilities and military training missions in Bhutan, as well as economic aid and Bhutan’s future memberships of international organisations….”xxviii In accordance, India agreed to establish the Indian Military Training Team (IMTRAT) in Bhutan.xxix And “[I]n 1961, the training of the Bhutan Army was formally entrusted to the Indian Army”. xxx It was also felt that there is a need to open up the country both politically and economically. The implementation of the Five Year Plans from 1961 was a consequence of that. The Sino-Indian War in 1962 and its consequences were an eye opener to both India and Bhutan. India realised that in a competitive strategic environment, to counter China and secure the borders would be difficult without proper state-of-the-art defence preparedness. Also India realised that the security of Nepal, Sikkim and Bhutan – buffer states between India and China -was as important as increasing the Indian military preparedness. Though in the 1962 War China did not use Bhutanese territory, Bhutan realised that it might not be the case in later conflicts between China and India. A section in the Bhutanese elite started suspecting India’s capability to protect the political autonomy of Bhutan in the eventuality of a Chinese advance.xxxi The political elite in Bhutan understood that the age-old policy of isolationism would not be helpful in any manner in securing Bhutan’s territorial integrity and political autonomy. India also understood this and encouraged Bhutan to join various international organisations. The joining of Bhutan in the Colombo Plan in 1962, the Universal Postal Union (UPU) in 1969, the United Nations Organization (UN) in 1971 and the Non-Aligned Movement (NAM) in 1973 was aimed at getting more visibility in front of the international community. xxxii When the South Asian Association for Regional Cooperation (SAARC) was formed in 1985, Bhutan became one of the founding members of the organisation.xxxiii Due to this increased visibility of Bhutan in the 7

international sphere both India and Bhutan hoped that the latter will be able to avoid the fate of Tibet. However, China did not stop making territorial claims over Bhutan. The Chinese claim over Bhutanese territory has a long history. “In February 1910, the Manchu government of China laid claim to Bhutan along with Nepal and Sikkim.”xxxiv Similarly in 1954, A Brief History of China, a Chinese official publication, included a considerable portion of Bhutan as a pre-historical realm of China.xxxv In 1958 it was reemphasised by publishing a map in which Bhutanese territory was shown as Chinese territory and in 1960 it was “openly declared that Bhutanese, Sikkimese and Ladakhis form a united family in Tibet, that they have always been subject to Tibet and to the great motherland of China….”xxxvi As per the 1949 India-Bhutan Treaty, the foreign relations of Bhutan had to be conducted with the guidance of India. When India tried to discuss the problems with regard to Bhutan-China border as part of the India-China border negotiations, China rejected it on the pretext that China would prefer direct talks with Bhutan.xxxvii In fact, in 1959, the Chinese Prime Minister Zhou Enlai sent a letter to Jawaharlal Nehru, then Prime Minister of India, stating Chinese intention to have direct bilateral discussions with Bhutan.xxxviii The Chinese overtures towards Bhutan and the end result of the Sino-Indian War in 1962 created a pro-Chinese lobby within the Bhutanese ruling elite.xxxix This section pointed out that in the aftermath of the Sino-Indian War, India would not be able to give assurance of Bhutan’s security and it would be better for the country to follow the policy of “equal friendship” with India and China. For this section, the foreign policy of Nepal under King Mahendra anchored around the afore-mentioned principle was something worth emulating. After a lot of thought this line of thinking was rejected by the Government of Bhutan.xl The political turmoil in Bhutan during the mid-1960s developed in the context of the debate between the pro-China lobby within the ruling elite and its opponents within it. The intra-elite conflict in Bhutan resulted in the assassination of Prime Minister Jigmie Palden Dorji on 5 April 1964 and it was followed by a coup attempt against King Jigme Dorji Wangchuck in December 1964. The political instability created by these developments compelled the King to go slow on the modernisation drive and compromise with the traditional elements within the ruling elite.xli The entry of Bhutan into the UN in 1971 with the support of India was a major development in terms of Bhutan’s national personality. China also supported Bhutan’s joining the UN due to its long-term implication that it is an assertion of Bhutan’s independence from India. xlii The UN membership provided Bhutan a platform to voice her concerns regarding her own specific issues and developments in international politics. Bhutan seized this opportunity and used it judiciously 8

to project her political independence in the international arena. xliii In the platform of the UN and that of the nonaligned movement, Bhutan differed with India more than once. These differences despite the Article 2 of the India-Bhutan Treaty of 1949 helped a lot in underlining the independent status of Bhutan as a modern nation-state. The attempts by China to open direct contact with Bhutan since the late 1950s were unsuccessful. The main reason behind this was China’s policy towards Tibet – the spiritual fatherland of Bhutan. The antagonistic relations between India and China also played a role in the distance between Bhutan and China. The improvement in the Sino-Indian relations in the late 1970s, under the government in New Delhi led by Janata Party, paved the way for a positive shift in the relations between Bhutan and China. The near-normalisation of Sino-Indian relations created the condition for direct engagement between Bhutan and China. For China, development of relations with Bhutan is not an end in itself. “China is considering its relation with Bhutan as part of its ‘Western development strategy’, that could allow Tibet to regain a central position in the Himalayan region.”xliv As an incident, paradoxically, the border incursion by China into Bhutanese territory in 1979 led to the events which culminated in the direct contact between the two countries.xlv When Bhutan raised the issue through India in accordance with the India-Bhutan Treaty of 1949, China offered to resolve the problem bilaterally. The preliminary discussions between Bhutan and China regarding the modalities of direct engagement began in 1981 and the formal direct negations on resolving the boundary dispute started in 1984.xlvi The border between Bhutan and Tibet was not demarcated properly. This 470 km un-demarcated border became a contentious issue after the Chinese conquest of Tibet. The un-demarcated nature of the border led to incursions by China many a time. Severe Chinese incursions of Bhutanese territory happened in 1967, 1979, 1983.xlvii It is important to note that China resorted to encroachment of Bhutanese territory even after the stage was set for direct engagement between both the countries. These border incursions by China were intended to put pressure on Bhutan and to prove the point that India would not be of any help in her border dispute with China. As mentioned earlier, bilateral negotiations between Bhutan and China to resolve the border dispute officially began in 1984. So far [as at the time this paper was written], 19 rounds of discussions have happened and the last one was held at Thimphu during 11-13 January 2010.xlviii At the beginning of the border talks itself, the disputed areas were identified as north-western section (Doklam, Sichulung, Dramana and Shakhatoe in Samste, Haa and Paro districts) and central section (Pasamlung and Jakarlung valley in Wagduerphodrang district).xlix In the total of 764 sq km of disputed territory, the north-western and central sections cover 269 sq km and 495 sq km respectively.l 9

From the very beginning, it was clear that the Chinese aim was not resolving the border dispute but to establish diplomatic relations with Bhutan, the only neighbour of China with which there is no diplomatic relations. In the second round of talks held in 1985 China â&#x20AC;&#x153;talked of expanding contact, saying that it has diplomatic relations with all SAARC states, but not with Bhutan.â&#x20AC;? li However, Bhutan did not give any positive signal towards this Chinese move. The bilateral discussions between China and Bhutan continued without much headway till 1996. In the 10th round of the border talks held in 1996, China put forth a proposal involving the exchange of disputed areas between both the countries. According to this proposal, China offered the central section to Bhutan and in return wanted the north-western section.lii No conclusive decision was taken on this proposal. In the meantime, Bhutanese authorities noticed activities of logging and road construction by China in the disputed territory.liii These activities were happening despite the goodwill created by the bilateral engagement between the countries. When this issue was raised by Bhutan, China proposed an interim agreement to maintain peace and tranquillity along the contentious borders.liv Bhutan accepted this and both the countries signed the Bhutan-China Agreement on Maintenance of Peace and Tranquillity along the Sino-Bhutanese Border Areas, 1998, on 8 December 1998 in the 12th round of border talks held at Beijing.lv The signing of the Bhutan-China Agreement on Maintenance of Peace and Tranquillity along the Sino-Bhutanese Border Areas, 1998, was significant in more than one way. This became the first bilateral agreement, and for that matter first legal document, signed between Bhutan and China. China, for the first time, through the signing of this Agreement accepted the sovereignty and independent status of Bhutan. The Article 1 of the Agreement clearly states that as following: Both sides hold the view that all countries big or small, strong or weak are equal and should respect one another. The Chinese side reaffirmed that it completely respects the independence, sovereignty and territorial integrity of Bhutan. Both sides stand ready to develop their good-neighbourly and friendly cooperative relations on the basis of the Five Principles of Peaceful Co-Existence.lvi The Article 3 of the Agreement resolves to maintain the status-quo of the Bhutan-China boundary as existed prior to March 1959. The Article reads as follows: Both sides agreed that prior to the ultimate solution of the boundary issues, peace and tranquillity along the border should be maintained and the status quo of the boundary prior to March 1959 should be upheld, and not to resort to unilateral action to alter the status quo of the border.lvii

As far as Bhutan is concerned, this Agreement has a special significance. With this, the claim of China over Bhutan ceased to exist. The acceptance of Bhutan as a sovereign independent state by China underlined a clear shift in Chinese policy towards Bhutan in particular and Himalayas in general. China wanted to project herself as a benign power towards the small states in South Asia. This Agreement with Bhutan was intended to advance this point and wean away Bhutan from Indian influence. However, despite the signing of the Agreement on Maintenance of Peace and Tranquillity, China continued her intimidation of Bhutan by repeatedly carrying out incursions into Bhutanese territory. China indulged in road constructions in the disputed territory in 2004 and 2009 and many a time intruded into the Royal Bhutan Army (RBA) posts on the Bhutan-China border.lviii This bullying tactic of China is to push for the package deal/swap deal which China offered to Bhutan in the 10th round of talks held in 1996. According to this proposed deal, China will relinquish her claim over the 495 sq km disputed territory in the central section provided Bhutan is ready to hand over the 269 sq km disputed territory in the north-western section. The strategic advantage China derives out of this deal is the main driving factor for China to push this deal through. An informed opinion regarding the strategic benefit China will get from this deal is as follows: The [north] western sector near the tri-junction of India-Bhutan-China border is not far from India’s ‘chicken’s neck’, a 24-km wide corridor (also known as the Siliguri Corridor) which connects mainland India to its north-eastern states. The reasons for the Chinese claim (in [north] western sector) seem not to be on the basis of traditional usage or history but owing to the strategic nature of the western border.lix Considering the adverse effect this deal would create for India vis-à-vis China in strategic and security terms, Bhutan is not in a position to take a positive decision in this regard. China also understands that Bhutan cannot accept this ‘package deal’. The two-dimension strategy of armed incursions and pressure over the ‘package deal’, which China follows with regard to Bhutan, is intended to create a wedge within the Bhutanese elite to create a pro-China section. So far, efforts in this direction have not been fruitful. Also, China believes that Bhutan will be compelled to enter into diplomatic relations with China under the above mentioned two-dimension strategy. For China, establishing diplomatic relations with Bhutan is much more important than resolving the border dispute. China knows that the resolution of the border dispute with Bhutan will happen only in the context of the resolution of the border dispute with India though they assert the other way around.

The 18th round of border talks between Bhutan and China was held at Beijing in 2006.lx After that there was a lull in the process of border talks, probably due to the political transformation of Bhutan from an absolute monarchy to a constitutional one.lxi As mentioned earlier, the 19th round of border talks took place at Thimphu in January 2010. In the 14th round of talks in December 2000, Bhutan extended its border line from the mutually-agreed demarcation and suggested that, apart from direct talks at the political level, “technical discussions between experts from both sides be held using maps.”lxii Since then, discussions among technical experts from both countries also take place. The 1990s witnessed a new development in the intellectual domain of Bhutan. A group of informed Bhutanese intellectuals started articulating a distinct Bhutanese voice especially in the context of the external relations of Bhutan and her strategic environment. Articulation of a ‘Bhutanese view point’ had already begun in the context of the ethnic conflict in which the Government of Bhutan and the people of Nepali origin who lived in the southern districts of Bhutan were parties.lxiii Till then, Bhutan was one country and state on which non-Bhutanese ‘scholars’ and ‘experts’ used to write. Even today majority of the literature available on Bhutan is produced by the outside scholars and experts. This has undergone a major change after the establishment of the Centre for Bhutan Studies in Thimphu and the publication of the journal titled Journal of Bhutan Studies.lxiv Through this journal and other publications, a distinct Bhutanese voice is articulated on very many issues. Among other issues a new crop of authors have come onto the open domain and put forth their concerns and opinions about Bhutan’s external relations and strategic environment. Some of these writers are as follows: Karma Ura, Tashi Choden, Karma Galay and Dorji Penjore.lxv These authors write on themes like security, external relations of Bhutan and international politics of Bhutan. Through these writings, the above-mentioned authors are trying to place Bhutan in the wider canvas of world politics as well as in the regional context. They rightly identify that most of the problems Bhutan is facing are, despite their uniqueness, similar to the problems of other small states in the world. In the wake of the political transition in Bhutan, the India-Bhutan Treaty of 1949 was revised and updated. The updated India-Bhutan Friendship Treaty was signed on 8 February 2007 between Pranab Mukherjee, then India’s Minister of External Affairs, and Jigme Khesar Namgyal Wangchuck, the then Crown Prince and now King of Bhutan.lxvi Article 2 of the IndiaBhutan Treaty of 1949 is reformulated in the updated treaty to the satisfaction of Bhutan. Article 2 of the India-Bhutan Friendship Treaty 2007 reads as follows: 12

In keeping with the abiding ties of close friendship and cooperation between Bhutan and India, the Government of the Kingdom of Bhutan and the Government of the Republic of India shall cooperate closely with each other on issues relating to their national interests. Neither Government shall allow the use of its territory for activities harmful to the national security and interest of the other.lxvii

The revised or updated Article 2 of the India-Bhutan Friendship Treaty 2007 gives enough space for Bhutan to conduct her foreign relations independent of Indiaâ&#x20AC;&#x2122;s advice. Now, technically, Bhutan does not need to seek the permission of India to establish direct diplomatic relations with China. In the new political context, how the Chinese overtures towards Bhutan in all respects will be received is an important question. Under absolute monarchy, Bhutan steadfastly remained with India on almost all international and regional developments. The monarchy always resisted the tempting offers made by China since late 1950s which even included the offer of financial assistance.lxviii The inherent problems of the political transformation of Bhutan from an absolute monarchy into a constitutional monarchylxix might lead to factional fights within the political elite of Bhutan and that would give China a chance to intrude in Bhutanese politics in the near future. This anticipated scenario will result in more instability in the Himalayan politics.

.....

End Notes i

Bhutan is described as Druk-yul (land of the thunder dragon) in Dzongkha, the national language of Bhutan.

This figure is based on the information provided by the Royal Government of Bhutan (RGOB) in its official Website, see URL: http://www.bhutan.gov.bt/government/aboutbhutan.php (accessed on 21 September 2011).

iii

According to the RGOB sources the population of Bhutan in 2008-2009 is 683,407, see URL: http://www.bhutan.gov.bt/government/aboutbhutan.php (accessed on 21 September 2011). The CIA World Fact Book gives a figure of 708,427 as the estimated population of Bhutan in July 2011, see URL: https://www.cia.gov/library/publications/the-world-factbook/geos/bt.html (accessed on 21 September 2011).

See CIA World Fact Book, URL: https://www.cia.gov/library/publications/the-world-factbook/geos/bt.html (accessed on 21 September 2011).

Michael Aris, Bhutan: The Early History of a Himalayan Kingdom (New Delhi: Vikas, 1980), pp.58-59.

Mathew Joseph C., Ethnic Conflict in Bhutan (New Delhi: Nirala Publications, 1999), p.23.

vii

Leo E. Rose, The Politics of Bhutan (Ithaca: Cornell University Press, 1977), p.25.

viii

Bikrama Jit Hasrat, History of Bhutan: Land of the Peaceful Dragon (Thimphu: Education Department, Royal Government of Bhutan, 1980), p.156.

Karma Ura, “Perceptions of Security”, Journal of Bhutan Studies (Thimphu), vol.5, winter 2001, p.119, URL: http://www.bhutanstudies.org.bt/pubFiles/v5-9.pdf (accessed on 12 September 2011). According Ura, Bhutan was attacked by Tibetans and Mongols in the following years: 1618, 1634, 1639, 164446, 1649, 1656-57, 1675-79, 1730 and 1732.

Bhutan lost Assam Duars to the British in 1841. As a result of the Anglo-Bhutan war in 1864-65 Bhutan lost Bengal Duars too. The Sinchula Treaty of 1865, signed between the British and the Bhutanese almost fixed the boundaries of Bhutan as it is existing today.

Dawa Norbu, “The Europeanization of Sino-Tibetan Relations, 1775-1907: The Genesis of Chinese ‘Suzerainty’ and Tibetan ‘Autonomy’”, The Tibet Journal (Dharamsala), vol.15, no.4, Winter 1990, p.62.

xii

The Treaty of Sugauli (1816) signed between Nepal and the British, the Treaty of Titalia (1817) signed between Sikkim and the British and the three treaties signed between Bhutan and the British (Treaty of 1774, the Sinchula Treaty in 1865 and the Treaty of Punakha in 1910) bear testimony to this.

xiii

Ura, “Perceptions of Security”, p.124. Also see Amar Kaur Jasbir Singh, Himalayan Triangle: A Historical Survey of British India’s Relations with Tibet, Sikkim and Bhutan 1765-1950 (London: The British Library, 1988).

xiv

Tashi Choden, “Indo-Bhutan Relations: Recent Trends”, Journal of Bhutan Studies (Thimphu), vol.11, Winter 2004, p.114, URL: http://www.bhutanstudies.org.bt/pubFiles/v11-6.pdf (accessed on 12 September 2011).

For the text of the Treaty of Punakha, 1910 see Parmanand, The Politics of Bhutan: Retrospect and Prospect (Delhi: Pragati Publications, 1992), pp.218-219.

xvi

Rajesh S. Kharat, Foreign Policy of Bhutan (New Delhi: Manak Publications Pvt. Ltd, 2005), p.57.

xvii

For the text of the Treaty of Perpetual Peace and Friendship between the Government of India and the Government of Bhutan 1949, Ministry of External Affairs (MEA), Government of India, URL: http://www.mea.gov.in/mystart.php?id=53051776 (accessed on 29 September 2011). Also see Parmanand, The Politics of Bhutan: Retrospect and Prospect, pp.222-224.

xviii

Ibid.

xix

Surjit Mansingh, “China-Bhutan Relations”, China Report (New Delhi), vol.30, no.2, 1994, p.177.

The magazine China Pictorial published a controversial map in 1958 that showed territories of both India and Bhutan as being within Tibet. See Parmanand, The Politics of Bhutan: Retrospect and Prospect, p.165. Also see Thierry Mathou, “Bhutan-China Relations: Towards a New Step in Himalayan Politics”, Karma Ura and Sonam Kinga (eds.), The Spider and the Piglet (Proceedings of the First International Seminar on Bhutan Studies) (Thimphu: The Centre for Bhutan Studies, 2004), p.394, URL: http://www.bhutanstudies.org.bt/pubFiles/19Spdr&Pglt.pdf (accessed on 29 September 2011).

xxi

S. D. Muni, “Bhutan Steps Out”, The World Today (London), vol.40, no.12, December 1984, p.516.

xxii

Cited in A. Appadurai and M.S. Rajan, India’s Foreign Policy and Relations (New Delhi: South Asian Publishers, 1988), p.173.

xxiii

Muni, “Bhutan Steps Out”, p.515.

xxiv

Karma Galay, “International Politics of Bhutan”, Journal of Bhutan Studies (Thimphu), vol.10, Summer 2004, p.98, URL: http://www.bhutanstudies.org.bt/pubFiles/v10-8.pdf (accessed on 12 September 2011).

xxv

Leo E. Rose, “Bhutan’s External Relations”, Pacific Affairs (Vancouver), vol.47, no.2, Summer 1974, p.195.

xxvi

Thierry Mathou, “Tibet and its Neighbors: Moving toward a New Chinese Strategy in the Himalayan Region”, Asian Survey (Berkeley), vol.45, no.4, July-August 2005, p.515.

xxvii

Bhuchung K. Tsering, “Nationalities Problem in Bhutan”, The Tibet Journal (Dharamsala), vol.15, no.3, Autumn 1990, p.76.

xxviii

Mansingh, “China-Bhutan Relations”, p.178.

xxix

Kharat, Foreign Policy of Bhutan, p.65.

xxx

Rose, “Bhutan’s External Relations”, p.196.

xxxi

Pranav Kumar, “Sino-Bhutanese Relations: Under the Shadow of India-Bhutan Relations”, China Report (New Delhi), vol.46, no.3, 2010, p.246.

xxxii

Mathew Joseph C., “India-Bhutan Relations: An Overview”, Indian Foreign Affairs Journal (New Delhi), vol.2, no.1, January-March 2007, p.94.

xxxiii

Ibid.

xxxiv

Mathou, “Bhutan-China Relations: Towards a New Step in Himalayan Politics”, p.392.

xxxv

Dorji Penjore, “Security of Bhutan: Walking between the Giants”, Journal of Bhutan Studies (Thimphu), vol.10, Summer 2004, pp.114-115, URL: http://www.bhutanstudies.org.bt/pubFiles/v10-9.pdf (accessed on 12 September 2011).

xxxvi

Ibid, p.115.

xxxvii

Muni, “Bhutan Steps Out”, p.515.

xxxviii

Kuei-hsiang Hsu, “A Preliminary Study of the Triangualr Relationship between Bhutan, China, and India”, p.4, URL: http://www.mtac.gov.tw/mtacbooke/upload/09403/0102/21.pdf (accessed on 29 September 2011).

xxxix

Muni, “Bhutan Steps Out”, p.517.

Rose, “Bhutan’s External Relations”, p.198.

xli

Mathew Joseph C., “Political Transition in Bhutan”, Economic and Political Weekly (Mumbai), vol.41, no.14, 814 April 2006, p.1312.

xlii

Mansingh, “China-Bhutan Relations”, p.176.

xliii

Choden, “Indo-Bhutan Relations: Recent Trends”, p.115.

xliv

Mathou, “Bhutan-China Relations: Towards a New Step in Himalayan Politics”, p.388.

xlv

Penjore, “Security of Bhutan: Walking between the Giants”, pp.116-117.

xlvi

Ibid, p.117.

xlvii

Muni, “Bhutan Steps Out”, p.515.

xlviii

See “China, Bhutan hold 19th border talks”, People’s Daily Online, 13 January 2010, URL: http://english.peopledaily.com.cn/90001/90776/90883/6866946.html (accessed on 9 October 2011).

xlix

Medha Bisht, “Sino- Bhutan Boundary Negotiations: Complexities of the ‘Package Deal’”, IDSA Comment, 19 January 2010, URL: http://www.idsa.in/idsacomments/Sino-BhutanBoundaryNegotiations_mbisht_190110 (accessed on 9 October 2011).

Ibid.

Penjore, “Security of Bhutan: Walking between the Giants”, p.117.

lii

Hsu, “A Preliminary Study of the Triangualr Relationship between Bhutan, China, and India”, p.5.

liii

Penjore, “Security of Bhutan: Walking between the Giants”, p.117.

liv

Ibid.

Mathou, “Bhutan-China Relations: Towards a New Step in Himalayan Politics”, p.400.

lvi

For the full text of the Agreement see Ibid, pp.410-411.

lvii

Ibid.

lviii

For details see S. Chandrashekharan, “Bhutan’s Northern Border: China’s Bullying and Teasing Tactics”, Update No.82, Note no.564, 14 January 2010, South Asia Analysis Group, URL: http://www.southasiaanalysis.org/%5Cnotes6%5Cnote564.html (accessed on 2 September 2011). Also see Kumar, “Sino-Bhutanese Relations: Under the Shadow of India-Bhutan Relations”, p.247.

lix

Kumar, “Sino-Bhutanese Relations: Under the Shadow of India-Bhutan Relations”, p.248.

Chandrashekharan, “Bhutan’s Northern Border: China’s Bullying and Teasing Tactics”.

lxi

For details of this process see Mathew Joseph C., “Bhutan: The Making of a Constitutional Monarchy”, Indian Journal of Politics and International Relations (Kottayam), vol.1, no.1, January-June 2008.

lxii

Hsu, “A Preliminary Study of the Triangualr Relationship between Bhutan, China, and India”, p.7.

lxiii

See the writings of people like the present Prime Minister of Bhutan Jigmi Y. Thinley in the context of the ethnic conflict in Bhutan in this regard. For example Jigmi Y. Thinley, “Bhutan: A Kingdom Besieged” in Ministry of Foreign Affairs, Government of Bhutan, Bhutan: A Traditional Order and Forces of Change, Three Views from Bhutan (Thimphu: Ministry of Foreign Affairs, 1993), pp.1-36.

lxiv

This journal and other publications of the Centre for Bhutan Studies are available at URL: http://www.bhutanstudies.org.bt/.

lxv

Writings of these authors are already mentioned in notes, see note nos. 9, 14, 24 and 35.

lxvi

Amit Baruah, “India, Bhutan update Friendship Treaty”, The Hindu (Internet Edition), 9 February 2007, URL: http://www.hindu.com/2007/02/09/stories/2007020920581400.htm (accessed on 3 October 2011).

lxvii

For the text of the updated India-Bhutan Friendship Treaty see URL: http://www.satp.org/satporgtp/countries/india/document/papers/indiabhutan.htm (accessed on 3 October 2011).

lxviii

Cited in Hsu, “A Preliminary Study of the Triangualr Relationship between Bhutan, China, and India”, p.7.

lxix

Mathew Joseph C., “Bhutan: ‘Democracy’ from Above”, Economic and Political Weekly (Mumbai), vol.43, no.19, 10-16 May 2008, pp.29-31.

References Appadorai A. and M. S. Rajan. 1988. India’s Foreign Policy and Relations (New Delhi: South Asian Publishers, 1988). Aris, Michael, Bhutan: The Early History of a Himalayan Kingdom (New Delhi: Vikas, 1980). Bisht, Medha, “Sino- Bhutan Boundary Negotiations: Complexities of the ‘Package Deal’”, IDSA Comment, 19 January 2010, URL: http://www.idsa.in/idsacomments/Sino-BhutanBoundaryNegotiations_mbisht_190110 (accessed on 9 October 2011). Chandrashekharan, S., “Bhutan’s Northern Border: China’s Bullying and Teasing Tactics”, Update No.82, Note no.564, 14 January 2010, South Asia Analysis Group, URL: http://www.southasiaanalysis.org/%5Cnotes6%5Cnote564.html (accessed on 2 September 2011). Choden, Tashi, “Indo-Bhutan Relations: Recent Trends”, Journal of Bhutan Studies (Thimphu), vol.11, Winter 2004, pp.112-128, URL: http://www.bhutanstudies.org.bt/pubFiles/v11-6.pdf (accessed on 12 September 2011). Galay, Karma, “International Politics of Bhutan”, Journal of Bhutan Studies (Thimphu), vol.10, Summer 2004, pp.90-107, URL: http://www.bhutanstudies.org.bt/pubFiles/v10-8.pdf (accessed on 12 September 2011). Hutt, Michael, Unbecoming Citizens: Culture, Nationhood, and the Flight of Refugees from Bhutan (New Delhi: Oxford University Press, 2003). Hasrat, Bikrama Jit, History of Bhutan: Land of the Peaceful Dragon (Thimphu: Education Department, Royal Government of Bhutan, 1980). Hsu, Kuei-hsiang, “A Preliminary Study of the Triangualr Relationship between Bhutan, China, and India”, pp.1-22, URL: http://www.mtac.gov.tw/mtacbooke/upload/09403/0102/21.pdf (accessed on 29 September 2011). Joseph C., Mathew, Ethnic Conflict in Bhutan (New Delhi: Nirala Publications, 1999). Joseph C., Mathew, “Political Transition in Bhutan”, Economic and Political Weekly (Mumbai), vol.41, no.14, 8-14 April 2006, pp.1311-1313. Joseph C., Mathew, “India-Bhutan Relations: An Overview”, Indian Foreign Affairs Journal (New Delhi), vol.2, no.1, January-March 2007, pp.88-101.

Joseph C., Mathew, “Bhutan: ‘Democracy’ from Above”, Economic and Political Weekly (Mumbai), vol.43, no.19, 10-16 May 2008, pp.29-31. Joseph C., Mathew, “Bhutan: The Making of a Constitutional Monarchy”, Indian Journal of Politics and International Relations (Kottayam), vol.1, no.1, January-June 2008, pp.119-128. Kumar, Pranav, “Sino-Bhutanese Relations: Under the Shadow of India-Bhutan Relations”, China Report (New Delhi), vol.46, no.3, 2010, pp.243-252. Mansingh, Surjit, “China-Bhutan Relations”, China Report (New Delhi), vol.30, no.2, 1994, pp.175-186. Mathou, Thierry, “Bhutan-China Relations: Towards a New Step in Himalayan Politics”, Ura, Karma and Sonam Kinga (eds.), The Spider and the Piglet (Proceedings of the First International Seminar on Bhutan Studies) (Thimphu: The Centre for Bhutan Studies, 2004), p.388-411, URL: http://www.bhutanstudies.org.bt/pubFiles/19Spdr&Pglt.pdf (accessed on 29 September 2011). Mathou, Thierry, “Tibet and its Neighbors: Moving toward a New Chinese Strategy in the Himalayan Region”, Asian Survey (Berkely), vol.45, no.4, July-August 2005, pp.503-521. Muni, S. D., “Bhutan Steps Out”, The World Today (London), vol.40, no.12, December 1984, pp.514-520. Norbu, Dawa, “The Europeanization of Sino-Tibetan Relations, 1775-1907: The Genesis of Chinese ‘Suzerainty’ and Tibetan ‘Autonomy’”, The Tibet Journal (Dharamsala), vol.15, no.4, Winter 1990, pp. 28-74. Parmanand, The Politics of Bhutan: Retrospect and Prospect (Delhi: Pragati Publications, 1992). Penjore, Dorji, “Security of Bhutan: Walking between the Giants”, Journal of Bhutan Studies (Thimphu), vol.10, Summer 2004, pp.108-131, URL: http://www.bhutanstudies.org.bt/pubFiles/v10-9.pdf (accessed on 12 September 2011). Rose, Leo E., “Bhutan’s External Relations”, Pacific Affairs (Vancouver), vol.47, no.2, Summer 1974, pp.192-208. Rose, Leo E., The Politics of Bhutan (Ithaca: Cornell University Press, 1977). Thinley, Jigmi Y., “Bhutan: A Kingdom Besieged” in Ministry of Foreign Affairs, Government of Bhutan, Bhutan: A Traditional Order and Forces of Change, Three Views from Bhutan (Thimphu: Ministry of Foreign Affairs, 1993), pp.1-36. Tsering, Bhuchung K.,“Nationalities Problem in Bhutan”, The Tibet Journal (Dharamsala), vol.15, no.3, Autumn 1990, pp.70-78. Ura, Karma, “Perceptions of Security”, Journal of Bhutan Studies (Thimphu), vol.5, Winter 2001, p.113-139, URL: http://www.bhutanstudies.org.bt/pubFiles/v5-9.pdf (accessed on 12 September 2011).

ISAS Working Paper No. 158 – 23 August 2012 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

China-South Asia Strategic Engagements - 3 Sino-Myanmar Relationship: Past Imperfect, Future Tense1 Sudha Ramachandran2 In May 2011, Myanmar’s3 new President, U Thein Sein visited China, making it the destination of his first state visit since assuming the presidency in March. In doing so, he signalled that Myanmar’s new, quasi-civilian government, like the military junta before it, would continue to give priority to China in the hierarchy of its foreign relations. Reiterating what several of his predecessors have said since 1988, Thein Sein declared during the visit that Myanmar’s relationship with China is the ‘closest and most important diplomatic relationship’ for Myanmar (Bhatia 2011).

This paper by Dr Sudha Ramachandran is the third in a series of five Working Papers on China’s security relations with some South Asian countries. These papers are being published by the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. Myanmar, a member of the Association of Southeast Asian Nations (ASEAN), shares land border with South Asia and is also an Observer of the South Asian Association for Regional Cooperation (SAARC). Myanmar has, therefore, been included in this series on China-South Asia Strategic Engagements. Dr Sudha Ramachandran is a freelance journalist and writer. The views expressed in this paper are those of the author and do not necessarily reflect those of ISAS. In 1989, the military government changed the name of the state from Burma to Myanmar. Other names were changed too; e.g. Rangoon to Yangon, Irrawaddy to Ayeyarwady, Akyab to Sittwe and so on. While the United Nations and Asian countries have accepted the new names, pro-democracy groups in Myanmar and many western countries use the old names. This paper uses the official name, Myanmar. Quotations and references have been cited as originally published.

Official rhetoric aside, Myanmar’s relations with China have grown significantly since 1988, when it abandoned its roughly four decades of strict adherence to a non-aligned foreign policy to become a close ally of China. In the years since, China has emerged as the biggest investor in Myanmar and its third-largest trade partner and also as the chief supplier of arms to Myanmar. Myanmar’s significant dependence on China has prompted analysts to describe the relationship as one between a powerful patron and a client. The robust Sino-Myanmar defence and security partnership, especially in the context of China’s reported ambitions in the Indian Ocean, has sent out ripples of anxiety in Myanmar’s neighbourhood and beyond. The strong co-operation between the two countries masks underlying tensions and resentment in Myanmar. Myanmar has had a history of suspicion of China. This paper will argue that longstanding suspicion of Chinese intentions will act as a brake on the Sino-Myanmar co-operation. The paper begins with an overview of Sino-Myanmar relations over the past 60 years. It examines the anxieties that Myanmar’s economic and military co-operation has generated among the neighbours. It will argue that while co-operation is expanding, cracks are appearing in the relationship. Contrary to the perception of Myanmar as a helpless Chinese pawn, this study will point out that it has used its partnership with China to enhance its options and manoeuvrability. It has used the ‘China card’ to increase its relevance in regional politics.

Myanmar and the World Myanmar’s geostrategic location and its historical experiences have moulded its view of the world. Located at the tri-junction of South Asia, Southeast Asia and East Asia, Myanmar has served for centuries as a corridor through which trade flourished during peacetime and armies marched in times of war. Providing easy overland access from South Asia to China’s Southwest, it was often ‘a cockpit of international rivalry,’ the site of many great power battles over the centuries. During the Second World War, for instance, some of the fiercest encounters between Britain and Japan occurred in Myanmar. It was through Myanmar too that the Americans sent in supplies to the Chinese fighting Japanese occupation (Garver 2001: 243-51). The great power battles on Myanmar soil were bloody and cost the country and its people dearly. Not surprisingly, these have left a mark on Myanmar’s perception of foreign powers. It contributed to a determination to stay away from great power conflicts, whether those between the superpowers, the United States (US) and the Soviet Union or the Asian giants, India and China that are its neighbours. It resulted in Myanmar following a strict policy of non-alignment between 1949 and 1988.

Understanding the psyche of Myanmar’s generals is crucial to understanding the country’s foreign relations as they have ruled Myanmar directly or indirectly for most years since independence. Intensely nationalist, the generals are determined to protect not just Myanmar’s territorial integrity and independence but also its economy, culture and way of life from outside pressures and influences. They are deeply suspicious of foreigners. They believe that Myanmar should be self-reliant. This thinking manifested itself in the junta’s adoption of an isolationist policy in the 1962-1988 period (International Crisis Group [ICG] 2001: 4-8). The military’s suspicion of foreigners is not restricted to western powers but extends to Asia as well, especially its neighbours. Several of its ethnic minorities – besides the Burman majority, it has 135 ethnic groups that are officially recognised – straddle these borders and some of them have waged powerful insurgencies, which were fuelled by the neighbours. This has contributed to the military’s perception of the neighbours as being the root cause of Myanmar’s woes. In the first four decades post-independence, ethnic insurgencies were perceived by civilian and military regimes alike as the main threat to Myanmar’s national unity and territorial integrity. China was perceived as a threat to the survival of the Myanmar state as it supported the powerful insurgency waged by the Burmese Communist Party (BCP). Since 1988, external threat perceptions have changed. While China has been viewed as an ally, the West is perceived as a major threat to Myanmar’s sovereignty as well as military regime survival. The threat of a possible US-led invasion to oust the generals and restore democratic rule looms large in the perception of the military (Selth 2008). In fact, as the threat from the West has grown, Myanmar has moved closer to China, although suspicion of the latter’s intentions has rarely dimmed. Myanmar’s perception of China has thus changed over the decades and bilateral relations have undergone several intriguing twists and turns. The following section will trace some of the highlights of this complex relationship.

Myanmar’s Relations with China: An Overview China is Myanmar’s largest and most powerful neighbour. The two countries share a 2,185-kmlong porous border. The governments of the two countries often describe their relationship as one between phaukphaw (kinsmen). Indeed, since 1988 a strong bond is evident. But interaction since formal diplomatic relations were established in 1950, while cordial on the surface, has not been free of tension. In fact, there were periods when relations were clearly hostile, even manifesting in violence. Broadly, the relationship over the past 60 years has gone through four phases.

1949-62: Cautious Cordiality Cautious over not being drawn into too close an embrace with either India or China or antagonising either of them, Myanmar cultivated a cordial relationship with both. With China, it avoided confrontation. It was among the first non-communist countries to extend recognition to the People’s Republic of China in December 1949. Formal relations were established soon after and the two counties signed their first trade agreement in 1954. However, there were issues that strained the relationship. In the early 1950s, Kuomintang forces, who had retreated after their defeat in the Chinese civil war to remote mountain tracts in Myanmar, began launching guerrilla attacks with CIA help in China’s Yunnan province. This could have turned explosive had Myanmar not acted quickly. Prime Minister U Nu raised the issue of Kuomintang presence on Myanmar’s soil with the United Nations (UN) in 1953 and secured their eviction more or less. There was the issue of the unsettled Sino-Myanmar border as well, which triggered bloody clashes between their troops in November 1955 and April 1956. Negotiations culminated in the two countries signing a Treaty of Friendship and Mutual Nonaggression in January 1960 and a Boundary Treaty in October that year, thus removing an important cause of friction between them (Lintner 1998). China’s support to the BCP was a matter of concern to Myanmar. However, the government avoided confronting China over its breach of the Five Principles of Peaceful Coexistence that the countries had signed on to in 1954 (Tin Maung Maung Than 2003: 192). It was only in the late 1960s, when this support turned overt that Myanmar reacted sharply.

1962-78: Rupture in Relations Cordial relations of the previous decade began unravelling as the Chinese Communist Party (CCP) expanded support to the BCP significantly in the 1960s, especially with the Chinese Cultural Revolution gathering momentum. The CCP supplied Myanmar’s communists with arms and training, embedded People’s Liberation Army (PLA) advisors in BCP units and recruited thousands of Chinese Red Guards to fight alongside BCP cadres inside Myanmar (Garver 2001: 254-55). Matters between Myanmar and China came to a head in mid-1967 when the Chinese embassy in Yangon began encouraging ethnic Chinese students in the capital to form groups on the lines of the Chinese Red Guards and participate in Cultural Revolution-style activities. Clashes between locals and ethnic Chinese students broke out. These soon escalated into attacks against ethnic Chinese people in Myanmar, their shops and homes. Even the Chinese embassy in Yangon was not spared. Relations between the two countries ruptured and a war of words broke out between 4

the two governments. An editorial in the Chinese government mouthpiece, People's Daily, branded Ne Win as a ‘traitorous, dictatorial warlord’ and his government as ‘reactionary, fascist and counterrevolutionary.’ With the Chinese government openly endorsing the BCP’s armed campaign to overthrow the Myanmar government, the latter responded swiftly and sternly. It accused China of ‘lies, distortions and hysterical outpourings’ and turned down its requests to evacuate injured Chinese by plane. It deported Chinese correspondents based in Myanmar, withdrew its ambassador in China and rejected Chinese economic assistance (Holmes 1972). Through these actions Myanmar signalled it would not be cowed down by Chinese bullying. However, it refrained from provoking China too much by remaining neutral in its foreign policy and not allowing its territory to be used for activity that China would construe as threatening to its interests. For instance, it refused to join 12 other countries in an Asian highway project to link Europe with Singapore by road, which China had denounced as an imperialist plan to encircle it (Holmes 1972: 691).

1979-1988: Rapprochement Although Myanmar and China began taking steps in 1970 to mend their ruptured relations, it was not until Deng Xiaoping consolidated his position in China in the late 1970s that Sino-Myanmar relations began to improve substantially. Ne Win saw opportunity for reconciliation in the internal changes in China and hosted Deng twice in Rangoon in 1979. China resumed a US$ 63 million aid programme to Myanmar. More importantly, it began winding down its support to the BCP. It shut down the BCP’s radio broadcasts from Chinese soil and encouraged BCP leaders to move away from armed struggle and ‘retire’ in China. It recalled Chinese ‘volunteers’ in the BCP and in 1985 stopped financial and other support to the BCP. With China ending its support to the BCP, a major issue of discord between the two countries was removed, paving the way for better relations (Garver 2001: 256, 261-62). It is evident from the above overview of Myanmar’s interaction with China during the first four decades post-independence that while relations were by and large cordial, Myanmar was not at ease with China. China gave Myanmar reason to be suspicious of its intentions. Myanmar’s nonalignment was visible throughout the period. Although it turned inwards from 1962, it engaged countries from the western and communist blocs as well as the non-aligned world. It did not side with any country but chose to respond to events individually based on its interests and the issues involved. Its decades-old policy of non-alignment came to an end in 1989 when it entered into a strategic partnership with China.

1988-Present: Close Co-operation International isolation drew Myanmar and China to each other. Myanmar was convulsed in unrest in 1987-88 in the wake of a mounting economic crisis. Thousands of students, monks and others poured into the streets demanding political and economic reform. The junta responded by unleashing extreme violence, resulting in the death of thousands of people. A few months later, mass protests erupted in China and as in Myanmar here too the government resorted to brutal repression to break the demonstrations. The crushing of peaceful, pro-democracy movements in Myanmar and China evoked sharp condemnation worldwide and economic sanctions were imposed on both countries. Ostracised by the international community, the two neighbours turned to each other for support. Western sanctions and suspension of aid dealt Myanmar’s weak economy a severe blow. It was pushed to the brink of insolvency. Western arms supply too was halted. Myanmar’s military rulers urgently needed aid to tide over the economic crisis. They feared a US-led military intervention and needed arms to repel it as well as to tackle domestic unrest and insurgencies. The junta turned to China for help and Beijing threw the generals a lifeline by expanding official cross-border trade, providing easy loans and technical assistance, and supplying weaponry on easy terms. As international censure and calls for stern action against Myanmar’s rulers grew in multilateral forums like the UN, Beijing came to their rescue. With China willing to bail them out of crisis situations, Myanmar moved away from the neutrality of the previous 40 years to enter into an explicitly close partnership with China. The Sino-Myanmar partnership since 1988 has resulted in close economic and military cooperation. Two-way trade jumped from US$ 9.51 million in 1988 to US$ 76 million the following year (Shee 2002: 43). According to Chinese official figures, trade grew to US$ 4.44 billion in 2010, a 53.2 per cent increase over the previous year (Xinhua 2010). However, this trade is heavily in China’s favour and the deficit has grown from US$ 6 million in 1988 to US$ 1.6 billion in 2008 (Malik and Kalita 2010). Chinese investment in Myanmar has grown rapidly over the past 20 years to make it the largest investor in the country today. Its cumulative investment in Myanmar since 1988 reached US$ 9.6 billion in January 2011 (Ko Pauk 2011). Much of this investment has gone into sectors that directly benefit Chinese trade, mining and energy interests. China has invested heavily in the construction of a 2,380-km oil pipeline running from Sittwe in Myanmar to Kunming, capital of its Yunnan province. Chinese corporations are building around 63 hydro-power projects in Myanmar, including the 7,100 megawatt (MW) Tasang Dam on the Salween River. They are investing heavily in the mining sector too. Among the largest mining projects is the US$ 800 million Tagaung Taung nickel project (ICG 2009: 17). Beijing has assiduously pursued 6

construction and renovation of roads, rails and bridges linking Myanmar with China. A major project that China is engaged in is the multi-modal Irrawaddy transport corridor project, which involves a combination of road, river and rail transport linking Yunnan with the Bay of Bengal (Garver 2006: 11-14). Sino-Myanmar military co-operation has been robust over the past two decades. Under a deal signed in October 1989, Myanmar bought weaponry worth US$ 1 billion from China, the largest arms purchase agreement in Myanmar’s history, which included jet fighters, patrol boats, armoured personnel carriers, tanks, anti-aircraft guns, trucks as well as small arms. Another deal worth US$ 400 million followed in 1994 under which Myanmar received helicopters, patrol boats and missiles. Supply of military equipment has been accompanied by provision of technical training in China and Myanmar. Beijing has also helped Myanmar build its own defence industries by setting up small arms factories and naval ship building facilities (Garver 2001: 265; Selth 2001: 17-18). China has played a major role in modernisation of several of Myanmar’s commercial harbours and naval facilities. It has upgraded wharf and cargo handling facilities at Sittwe, Kyaukphyu, Pathein, Myeiki and Yangon. More controversial is China’s building of radar, refit and refuel facilities at Myanmar’s naval bases at Hainggyi, Munaung, Sittwe, Zadetkyi Kyun and Myeik (Garver 2001: 293). The extensive Sino-Myanmar co-operation has set alarm bells ringing in Myanmar’s neighbourhood and beyond. Its implications for regional security will be examined in the following section.

Implications of Sino-Myanmar Co-operation for South and Southeast Asia Prior to 1989, Myanmar’s soldiers were battle-hardened having fought insurgencies for several decades. However, they were poorly equipped. Soldiers fought with outdated weaponry and lacked communication equipment. The Air Force had a small fleet of obsolete aircraft and these were mainly used in support of army operations. It did not have a credible air defence capability. The navy too was ill-equipped and therefore confined itself to patrolling Myanmar’s inland waterways and coastal waters (Selth 2001: 16). Sino-Myanmar military co-operation has transformed the Myanmar military. Myanmar’s armed forces are the largest in Southeast Asia and among the best equipped today. Besides, for the first time in Myanmar’s history, the armed forces are capable of launching conventional warfare in defence of the country (Selth 2001: 1920).

Neighbours like Bangladesh, which have unresolved issues with Myanmar, are intimidated by its military capability and the strengthening of infrastructure near the Bangladesh border, especially since their armed forces have clashed occasionally (Azad and Hussain 2009; Islam 2009).4 Thailand too has expressed concern over Myanmar’s large standing army and its huge budgetary allocations. It has warned that these could fuel a regional arms race (Roughneen 2009). However, several Southeast Asian countries exaggerate the threat posed by Myanmar’s military to justify their own arms spending. Analysts have pointed out that it is domestic issues – such as the need to keep militaries happy – rather than external threats that drive military purchases in most Southeast Asian countries (Roughneen 2011). Thus by and large, Myanmar’s growing military capabilities do not pose a real threat to the region, 5 although reports of its interest in acquiring nuclear weapons technology from North Korea, if true, are reason for concern as this would alter drastically equations in the neighbourhood and shatter security architectures regionally and globally (Chongkittavorn 2010).6 More than the Myanmar military’s growing capability it is its close relationship with China that worries countries, especially those that are China-wary, like India. Having to contend with a Chinese threat along its northern frontier and a China-backed Pakistan threat from the west, India fears that the growing Chinese presence in Myanmar makes its eastern flank vulnerable too. It is concerned over possible access that Chinese naval vessels could secure to Myanmar’s bases, which would mean Chinese naval presence near the Straits of Malacca and in the Indian Ocean. This is a scenario that worries not just littorals like India, Thailand, Singapore, Malaysia and Indonesia but also distant countries like Japan and the US, whose oil imports from West Asia pass through these waters. Concern over Chinese naval presence in Myanmar surfaced early in the Sino-Myanmar strategic co-operation. As early as 1992, media reports drew attention to China’s use of Myanmar’s territory for surveillance and basing operations. These reports claimed that China had set up specialised electronic surveillance equipment along Myanmar’s coastline and on some of its offshore islands such as Great Coco, Yangbye, Hainggyi, Zadetkyi Kyun, etc (Selth: 2007). Indian analysts warned that China was using the signals intelligence facilities it had set up in Coco Islands to monitor Indian naval operations at the Andaman and Nicobar Islands as well as

Two contentious issues that merit attention are the large number of Rohingya refugees from Myanmar in Bangladesh, who the Myanmar government refuses to take back, and the un-demarcated maritime border between the two countries. The un-demarcated areas include waters that have oil and gas reserves. It is the military’s handling of domestic problems like the ethnic conflicts, for instance, which triggers population flows across borders eroding regional stability that worries Southeast Asia more. China’s ‘curious silence’ on the question of Myanmar’s possible nuclear weapons co-operation with North Korea has triggered debate over whether China is aware and involved in its quest for nuclear weapons capability or alarmed by the development (Yhome 2011).

its missile and satellite launching facilities along the Indian east coast.7 This prompted India to rethink its Myanmar strategy. It began courting the generals (Ramachandran 2006).8 Although India subsequently revised its position on the presence of Chinese bases in Myanmar, 9 the perception of the Sino-Myanmar bond as a threat to Indian security interests has not diminished as the possibility of China securing use of Myanmar’s bases in future cannot be ruled out. It has impelled India to focus on building its naval strength, especially that of its eastern command (Bedi 2004; Ramachandran 2011b). To prevent Myanmar from falling further into the Chinese orbit, China-wary countries in South and Southeast Asia have stepped up bilateral engagement with Myanmar. Thailand, Singapore and Malaysia are among several countries that are investing in and trading vigorously with Myanmar. While there are strong economic motivations behind their interaction, strategic concerns too loom large in their calculations. These countries have argued against isolating Myanmar, as this pushes it further into a Chinese embrace. Southeast Asia has therefore followed a policy of constructive engagement vis-à-vis Myanmar. Myanmar’s inclusion in the Association of Southeast Asian Nations (ASEAN) and the Bangladesh–India–Myanmar–Sri Lanka–Thailand Economic Cooperation (BIMSTEC), as well as the observer status it has been accorded in the South Asian Association for Regional Co-operation (SAARC) are in part aimed at preventing it from falling further into the Chinese sphere of influence (Maung Aung Myoe 2006). Myanmar plays an important role in China realising its economic and strategic ambitions. Its quest for new partners has not gone down too well in Beijing.

In fact in 1998, the Indian government, which was till that time perhaps quietly raising the issue of Chinese naval presence in Myanmar, went public when its then Defence Minister George Fernandes accused China, which he described as ‘India’s potential threat no.1,’ of setting up a ‘massive electronic surveillance establishment’ at Coco Islands to monitor India. ‘There are moves to convert that into a major naval base which would be a direct threat to us,’ he said, adding that ‘a lot of naval activity including construction of harbours where Chinese ships could be towed in’ was in progress along Myanmar’s west coast. Indian Express 4 May 1998 http://www.expressindia.com/news/fe/daily/19980504/12455554.html Following the junta’s suppression of the 1988 protests and its refusal to heed the mandate of the 1990 general election, India strongly condemned the generals and provided open support to the pro-democracy movement. It switched to a policy of engaging the generals in 1993. There were several motivations behind the rethink, the most important being China’s growing presence in Myanmar. Besides, India’s ‘Look East’ policy required Delhi to build ties with Myanmar, its ‘landridge to Southeast Asia. India was also interested in Myanmar’s oil and gas as well as the market it offered to goods from India’s northeast. Besides, Delhi recognised that the success of its counter-insurgency operations hinged on support from the generals. Allegations of Chinese presence whether in Coco Islands, Hainggyi Island or elsewhere in Myanmar have never been backed by hard evidence. In 2005 India came around to publicly admitting that it ‘believes’ Myanmar’s claim that there is no Chinese involvement in Coco Islands. http://www.indoburmanews.net/archives-1/2004news-archives/no_China_defence/

Myanmar’s Role in China’s Ambitions The benefits of a partnership with Myanmar for Beijing went beyond the immediate crisis of breaking the international isolation that it confronted in the wake of the Tiananmen protests. China was driven too by medium and long-term economic interests and strategic ambitions. Improving ties with Myanmar was in line with China’s policy of ensuring stability in its neighbourhood so that it can pursue its domestic economic modernisation and development plans. It provided China with access to Myanmar’s vast resources, especially its oil and gas, gems and timber. Close economic co-operation with Myanmar also had the potential of addressing the yawning economic disparity between China’s vibrant coastal provinces and its backward and landlocked south-western provinces of Yunnan and Guizhou. In the two decades of enhanced economic co-operation, Myanmar has emerged a market for commodities manufactured in these provinces. It has also provided them an outlet to the sea and thus access to emerging markets in South and Southeast Asia (Shee 2002: 35; Geng 2007: 2-5). Myanmar plays a role too in China’s India strategy. Beijing’s cultivation of strong defence ties with Myanmar is aimed at containing India by keeping Delhi preoccupied with the rising military capability of its neighbours rather than asserting its influence beyond South Asia. Mohan Malik, an Indian analyst of Sino-Indian relations, has pointed out that Myanmar occupies ‘the same place in China’s calculus of deterrence vis-à-vis India in South-Southeast Asia that Pakistan does in South-Southwest Asia’ (Malik 2001). More importantly, Myanmar is China’s most convenient ‘landridge’ to the Indian Ocean. The Indian Ocean plays an important role in China’s economy and its strategic ambitions. Its economic growth depends significantly on foreign trade and a substantial part of this trade, especially oil, transits the Indian Ocean (Garver 2001: 276). Should the Indian Ocean sea lanes of communication (SLOC) or its choke points like the Straits of Malacca be threatened by or come under the control of hostile states or non-state actors, China would face an acute energy crisis and its economic growth would be severely impeded. After all, 80 per cent of China’s oil imports from the Middle East pass through the Malacca Straits. Its ‘Malaccan dilemma’ 10 has forced it to look for other options, including construction of pipelines that bypass the Malacca Straits and building credible naval forces capable of securing China’s SLOCs quickly (Storey 2006).

President Hu Jintao drew attention to the Malaccan dilemma in November 2003 when he declared that ‘certain major powers [read the United States] have all along encroached on and tried to control the navigation through the [Malacca] Strait.’ China’s perceived vulnerability in this context has come to be described as China’s ‘Malaccan dilemma.’

It is in this context that China’s massive investment in roads, rails and waterways in Myanmar as well as the upgradation of its naval facilities should be seen. The gas pipeline from Sittwe to Kunming would enable Chinese tankers carrying oil from West Asia and Africa to bypass the Malacca Strait by sailing directly to Sittwe. Similarly, the Irrawaddy corridor project would allow goods to pass through Myanmar instead of the Malacca Straits, cutting travel time and providing China a safer transit option. Chinese foreign policy thinkers have sought to convince the world of China’s ‘peaceful rise’. They deny it has expansionist intentions and claim it will be a different kind of great power (Mohan 2004). China has stressed that its growing presence in the Indian Ocean is for peaceful purposes. It has adopted ‘soft power diplomacy’ to build an image of its benign intent and presence by strengthening relations with Indian Ocean littorals through large loans on easy repayment conditions for building naval infrastructure, goodwill visits and naval exercises (Holmes 2008). Naval strategists argue that Chinese naval presence in the Indian Ocean, nascent at present, is bound to grow as the Peoples Liberation Army Navy (PLAN) begins to project power far from its shores. It will seek to eventually establish a permanent and effective military presence in the Indian Ocean as without this, it cannot effectively secure China’s sea lanes in the Indian Ocean. For PLAN warships to remain deployed in the Indian Ocean or sustain even a moderately intense level of operations there, they would need friendly Indian Ocean ports nearby to replenish supplies, to make repairs and so on, points out John Garver, an American expert on Sino-Indian relations (Garver 2001: 287). Myanmar has several ports, renovated or built by China, which could provide this support. Garver describes the key role Myanmar would play in such replenishment of Chinese naval vessels in the event of a Sino-Indian war. Should India suffer reverses in a land war with China, it would be tempted to widen the conflict to a maritime front, ‘where it enjoys substantial advantages, and employ those advantages to restrict China’s vital Indian Ocean trade,’ he says.11 China would turn for logistical and other support from the Indian Ocean littorals such as Pakistan, Myanmar and Bangladesh with whom it is building close economic and defence relationships. In such a situation, Pakistan can be expected to offer China its ports as access points to the Indian Ocean. The extensive road-rail network linking China’s Xinjiang province to Pakistan’s ports would come in handy to ferry replenishments for its naval operations in the Arabian Sea. However, the terrain through which the Sino-Pakistani friendship highway traverses is treacherous and ‘extremely vulnerable’ to Indian aerial bombing, Garver points out. In comparison, China’s access through Myanmar to the Indian Ocean is not only shorter but the 11

This scenario would apply too if the US, for instance, in the event of a confrontation with China over Taiwan seeks to blockade Chinese ships carrying oil from West Asia

geographic terrain through which trucks, trains or ferries will carry Chinese supplies is less dangerous. The Burma Road is ‘far less susceptible to air interdiction than is the Sino-Pakistani friendship highway,’ Garver observes. Besides, industrial production in Yunnan is double that in Xinjiang, which means that much of the material support China would need for its warships would be more easily procured in Yunnan. ‘If the PLAN acquired access to forward logistical bases along Burma’s coast, Chinese warships would sustain a far more intense and effective pace of operations in the Indian Ocean,’ he concludes (Garver 2001: 289-92). It is not just in the event of war that the presence of the Chinese navy in the Indian Ocean worries India. It is of concern during peace time too. Given their overlapping spheres of influence and increasing assertiveness, the two navies are edging ever closer to a skirmish on the high seas. Such spats have happened already in the Indian Ocean and the South China Sea. A more sustained or permanent Chinese presence in the Indian Ocean would make such encounters more frequent and intense. These scenarios have India’s defence planners worried. And this is why Myanmar’s close ties with China triggers alarm in Delhi. At a minimum, China’s involvement in Myanmar’s port and naval bases will allow the PLAN to familiarise itself with conditions in the Indian Ocean. More seriously, Myanmar could in future allow these facilities to be used by China for refuelling its naval vessels, or maybe even as full-fledged forward bases. Whether it will do so depends on how vulnerable Myanmar is to conceding Chinese demands.

Cracks in the Relationship Naval strategists have pointed out that while China is interested in a permanent presence in the Indian Ocean, it will be many decades before it will have the capability to support such a presence. It is only after it has secured the East, Yellow and South China Seas to its satisfaction, that it will be able to vector its energies into the Indian Ocean (Holmes 2008). Meanwhile, countries like Myanmar can expect to face increasing Chinese demands for access to its ports and naval bases in the coming years. The question is whether it will be able to resist these demands. Malik has drawn attention to the asymmetric nature of the Sino-Myanmar relationship and Myanmar’s extreme dependence on China for weaponry, spare parts, military training, economic investment and industrial equipment. Describing Myanmar as a ‘puppet’, even a ‘pawn’ in China’s strategic ambitions, he argues that Myanmar’s rulers, whether military or civilian, are not in a position to resist Chinese pressure (Malik 1997).

Indeed, the Myanmar government has felt obliged in the past to award lucrative business contracts to the Chinese. In 2007, for instance, Myanmar awarded the Chinese energy giant, PetroChina, the rights to pipe natural gas from A1 and A3 blocks in the Shwe gas fields in the Bay of Bengal although it was India’s Gas Authority of India Ltd (GAIL) that had the status of ‘preferential buyer’. Although India had reportedly offered US$ 20 million in ‘soft credit’ and also proposed construction of a power plant in Myanmar, Beijing’s veto of a UN Security Council (UNSC) resolution criticising Myanmar in January 2007 is said to have tilted the deal in its favour. Myanmar’s dependence on China for political cover in the UNSC forced it to decide in Beijing’s favour when it came to selling its gas (Lundholm 2007). Such instances, notwithstanding, Myanmar is far from being a satellite state of China. Beijing’s influence over the generals seems exaggerated. It has not been as successful in getting its way with Myanmar as is widely reported in the media. The Brussels-based International Crisis Group observed that China’s influence in getting the generals to introduce reforms was ‘overstated’. Beijing was unable to get the generals to respond more favourably to UN special envoy Ibrahim Gambari’s good offices mission in Myanmar, a process it supported. At best, it was able to facilitate Gambari’s visits by ensuring he got a visa. Even this influence waned after October 2007, when China in the wake of the monks protest irked Myanmar by supporting a UNSC statement that ‘strongly deplored’ the junta’s ‘use of violence against peaceful demonstrations’ (ICG 2001: 6-7). Deep distrust of Beijing’s intentions has defined the Myanmar military’s perception of China for decades. Many senior generals and leaders, including former junta supremo, Senior-General Than Shwe and his deputy, Maung Aye, fought the CPB insurgency for many years. They have not forgotten China’s role in fuelling that insurgency. It was out of sheer necessity after its isolation by the West that the military felt compelled to enter into a marriage of convenience with China in 1989. China’s reported close ties with various ethnic militias in Myanmar, especially the United Wa State Army (UWSA), has raised the hackles of the military in recent years. Over two decades of close co-operation has not swept away Myanmar’s doubts of its partner. It is not just the military that is suspicious of China. China’s massive presence in the country evokes deep resentment among the people of Myanmar, who feel that Mandalay has become ‘an undeclared colony of Yunnan.’ The massive influx of Chinese nationals into Myanmar has changed the demographic composition, culture, architecture, etc. of trade hubs like Mandalay and Muse. People feel that while Chinese trade and investment in Myanmar has benefited China, Chinese corporations and Chinese businessmen, it has brought them little prosperity (Yeni 2011). Interestingly, anti-Chinese sentiment unites Myanmar’s military with pro-democracy activists,

although for different reasons. The latter blame China for enabling the military’s consolidation of power in Myanmar. Thus, there is anti-Chinese sentiment across the board in Myanmar today. On several occasions in recent years, the Myanmar government has asserted itself vis-à-vis China. In 2009, the junta carried out a military offensive near the Chinese border against the Kokang, an ethnic group that is of Chinese origin. Chinese authorities have close relations with the Kokang militia. They were reportedly furious with Myanmar for not only keeping them in the dark over the impending offensive, which resulted in the flight of over 35,000 Kokang from Myanmar into China, but also pressing on with the operations despite its objections (Storey 2009). And in September 2011, the Myanmar government announced the suspension of the US$ 3.6 billion Myitsone power project. This is the first time that Myanmar has revisited a decision on a major project with China.12 To add insult to injury, the Chinese were not informed or consulted on the decision (Ba Kaung 2011). The suspension of the Myitsone project has been widely interpreted as part of the series of recent steps taken by the government towards political reform (McDonald 2011). However, the underlying reasons are more complex. According to Aung Lynn Htut, a former counterintelligence officer and deputy chief of Myanmar’s mission to the US, who sought political asylum in Washington, DC, in 2005, ‘many top generals’ were unhappy with the Myitsone dam construction (Aung Lynn Htut 2011). ‘Dissatisfaction within the armed forces over China’s growing influence in the country was the real reason for suspending the dam project,’ Bertil Linter, a journalist familiar with Myanmar’s inner workings, writes. By suspending an unpopular dam project, Thein Sein took the sting out of a ‘serious conflict inside the military’ (Lintner 2011). Thus, regime survival compelled Myanmar to take on its powerful neighbour. Dependent it might be on its giant neighbour but that has not made Myanmar a helpless puppet in China’s hands. When national unity, territorial integrity and regime survival have come under threat, the generals, whether as part of a military government or one that is nominally so, have acted decisively. This is amply borne out by events over the past several decades. To recap, in the late 1960s when Chinese support for the communist insurgency and anti-regime activities in Rangoon escalated, Ne Win’s government responded sharply, even suspending diplomatic relations with Beijing. Then in the late 1980s-early 1990s, when the threat of US-backed regime change loomed, it acted again: this time to enter into an alliance with China. Now with China’s 12

The Myitsone dam project, which is located on the River Irrawaddy in Myanmar’s Kachin state has been under construction since 2009. Local Kachins have opposed it because of its ecological and environmental impact as well as its location on the Sagaing fault line. Besides, it will displace thousands of Kachins, even as the project’s benefits would be reaped by China – 90% of the power generated was to go to China – not them. There has been strong opposition to the project too from Aung San Suu Kyi and the pro-democracy movement. Public outrage against the project snowballed in recent months even as violence by Kachin armed groups was threatening to spiral.

role in Myanmar triggering tensions within the military, the government has acted again to suspend the Myitsone project. Analysts often focus on how much China has gained from the Sino-Myanmar co-operation. What has gone by largely unnoticed is the adroit manner in which Myanmar has used this co-operation. Its skilful deployment of the ‘China card’ prompted India and the ASEAN countries to modify their negative policies towards Myanmar within a few years of the start of the Sino-Myanmar strategic relationship. Myanmar has leveraged the Sino-Indian rivalry to its own benefit, wringing maximum concessions out of both countries. India, for instance, has stepped up investment in infrastructure in Myanmar and is supporting it with capacity building (Ramachandran 2011a). Its trade with Myanmar, though miniscule compared to Sino-Myanmar trade, favours Myanmar as does that of Thailand, Myanmar’s largest market for exports (Malik and Kalita 2010). On the defence front, China remains the main arms supplier of arms to Myanmar, but Myanmar has diversified its sources and is making major purchases from Russia, Ukraine, Israel, India, Pakistan, Japan, North Korea, South Korea, Italy, Poland, Bulgaria, Serbia, Singapore and Slovakia. This together with its own growing indigenous defence industry - it manufactures a wide range of arms, ammunition and military equipment – is reducing the dependence on China. Myanmar’s assiduous courtship of Russia in recent years could prove a game changer. Like China, Russia is a permanent member of the UNSC and has used its veto against resolutions targeting Myanmar. Growing defence ties with Russia, including civilian nuclear energy cooperation, will make Myanmar less beholden to the Chinese veto. Myanmar’s dependence on China can be expected to reduce further if the West lifts sanctions. There are signs of a rapprochement between the West and Myanmar. By expanding the pool of partners with which it can engage or turn to for help in times of trouble, Myanmar has ensured that should its marriage of convenience with China run into serious trouble, it is not without options. Clearly, Myanmar is not quite the helpless Chinese puppet that some describe it to be.

Future Tense The Sino-Myanmar partnership has evoked deep concern among China-wary countries as Myanmar could facilitate China’s permanent presence in the Indian Ocean. While there is a possibility of Myanmar conceding a Chinese demand for bases, such a scenario is not inevitable despite Myanmar’s dependence on China. Its close ties with China are no guarantee that it will align with China in a confrontation with other regional powers. 15

For one, Myanmar’s suspicions of Chinese intentions persist. Almost a quarter century of close bilateral co-operation and intense engagement between the two militaries has not dissolved Myanmar’s distrust of China. In fact, the co-operation since 1988 has deepened distrust of China. In the circumstances, Myanmar giving in to Chinese demands that would involve compromising Myanmar’s sovereignty seems unlikely. Some have argued that should regime survival be at stake or territorial sovereignty in jeopardy as in the event of a US-led invasion, Myanmar could find itself moving closer to China. Indeed, in the face of a western invasion, its generals might be willing to concede any Chinese demand, including bases, seeing Beijing’s presence on its soil as a lesser evil. However, the chances of such a scenario unfolding will reduce as Myanmar’s ties with other countries grow. China will have to alter the nature of its co-operation with Myanmar in a way that it brings real benefits to the people of Myanmar too and substantially dispel the doubts of the military especially with regard to the backing it is providing to the ethnic militias. If not Sino-Myanmar co-operation could be headed for some turbulent weather. Anti-China anger is simmering in Myanmar and is in danger of exploding in the near future. Since this sentiment unites Myanmar, the possibility of present and future governments – military, civilian or nominally civilian – taking steps that show them standing up to China cannot be ruled out. This could see the government suspending more projects, cracking down on illegal Chinese businesses or even instigating mass violence against ethnic Chinese, as it is believed to have in 1967-1968. Myanmar opted for an alliance with China in 1988 with great reluctance. Exceptional circumstances forced it to put its suspicions aside to enter into a partnership with China. As these circumstances ease, it can be expected to put some distance between itself and Beijing. It has begun taking the steps to ensure that this process will not be too difficult by building relations with an array of countries. Given the enormous capital and energy that China has invested in Myanmar to build that relationship, it is not going to be a passive observer should Myanmar pursue more robust partnerships with other countries at Beijing’s cost. There are ways that China can hurt Myanmar. Most of these, however, will end up hurting Chinese interests too. For instance, China could ramp up pressure on the government by stepping up its support to the ethnic militias. However, the ensuing unrest and instability near its borders will not leave it un-scalded. Beijing is likely to find itself having to accommodate Myanmar’s multiple partners. Predictions of Myanmar caving in to Chinese pressure because of its dependence on the latter are based on a perception of the country as it existed in 1988, an isolated and desperate country that was compelled by circumstances into a marriage of convenience with China. Myanmar today is neither friendless nor short of suitors. 16

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ISAS Working Paper No. 159 – 29 August 2012 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Obama Administration’s Pivot to Asia-Pacific and India’s Role1 S D Muni2

Abstract US strategy to extricate itself from unwinnable conflicts in Iraq and Afghanistan and ‘rebalance’ its position in the Asia-Pacific region was announced by President Obama in November 2011. Under this strategy the significance of the Asia-pacific region, particularly China, as a fast growing and speedily rising region, is emphasised to underline US re-engagement with the region. India, because of its impressive economic growth and strategic position in the Indian Ocean and the Malacca Strait areas, is seen as a key partner in this strategy. India looks favourably towards this strategy owing to its own concerns about an assertive and militarily powerful China. The extent and pace of India’s participation in the US strategy would, however, be defined by the considerations of India’s own strategic autonomy in the region and China’s behaviour towards its border dispute and India’s strategic priorities in the immediate neighbourhood.

This paper by Professor S D Muni is based on his comments during the first session of panel discussion at the Singapore Symposium, organised by the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore, and Aspen Institute India in New Delhi on 12 July 2012. The session was chaired by Professor Tan Tai Yong, Director of ISAS. Professor Sukh Deo Muni is Visiting Research Professor at ISAS. He can be contacted at sdmuni@gmail.com. The views expressed in this paper are those of the author and do not necessarily reflect those of ISAS.

The US President Barack Obama, in an address to the Australian parliament on 17 November 2011, announced a new strategic approach to make Asia-Pacific region as the new ‘pivot’ of the US global engagement. The core of this announcement was, as he said: “as President, I have therefore made a deliberate and strategic decision – as a Pacific nation, the United States will play a larger and long-term role in shaping this region and its future, by upholding core principles and in close partnership with allies and friends”.3 Explaining the new strategic approach, Obama emphasised “security, which is the foundation of peace and prosperity” and added, “as we end today’s wars, I have directed my national security team to make our presence and mission in the Asia-Pacific a top priority. As a result, reduction in US defence spending will not – I repeat, will not come at the expense of the Asia-Pacific”. This announcement was given a defence doctrinarian orientation by President Obama a couple of months later when in January 2012 he unveiled new US strategic plan. Reiterating the thrust of the ‘pivot’, he said “We will of necessity rebalance towards the Asia-Pacific region”.4 The Obama doctrine, if it can be so called, was further elaborated, explained, even redefined and projected by Hillary Clinton, US Secretary of State, Leon Panetta, US Secretary of Defence, and their junior colleagues in their subsequent visits to Asia and interactions with the Asian leaders and policy-makers.

New Elements Since the end of the Second World War, the US has maintained a dominant strategic presence in the Asia-Pacific region. Through this presence it has built and nursed military alliances, ensured free flow of trade, promoted its investments and markets, and defended democracy and human rights. What is therefore new in President Obama’s doctrine? To begin with, the newness of the doctrine lies in the overall strategic context and the timing of the announcement of policy shift. During the late forties and the early fifties, the US entered and expanded its presence in the AsiaPacific, as elsewhere in the world, to establish itself as the predominant global power, and institutionalise the outcome of the Second World War. The present policy looks like an attempt to preserve and reinforce that predominance which seems to be sliding down in the face of China’s rise, difficulties in the US economy both at home and abroad, and the unwinnable involvement in the war against “global terror” in Afghanistan. It looks like an attempt to extricate the US from the vicious conflicts in Afghanistan and the Middle East without giving an impression that the US can no longer afford such involvements. Obama’s National Security Advisor Tom Donilon said: “by elevating this dynamic region to one of our top strategic priorities, Obama is showing his determination not to let our ship of state be pushed off course 3

The text of the speech is available at http://www.smh.com.au/national/text-of-obamas-speech-to-parliament2011... (accessed on July 06, 2012). The document is named as “Sustaining U.S. Global Leadership: Priorities For 21 st Century Defense”, Department of Defense, United States of America, January 2012. P.2.

by prevailing crises”.5 China’s faster military modernisation in the fields of anti-access and sea denial capabilities as well as in the space and cyber domains have repeatedly been underlined as matters of concern by the US Defence Department.6 The pressure of declining domestic economy was unmistakable when Obama said in his Australian address: The World’s fastest growing region – home to more than half the global economy – the Asia-Pacific is critical to achieving my highest priority and that is creating jobs and opportunities for the American people. With most of the world’s nuclear powers and some half of humanity, Asia will largely define whether the century ahead will be marked by conflict or cooperation, needless suffering or human progress. Besides the context and the timing, the new policy is broad based in its reach and comprehensive in its approach. In its reach, the region Asia-Pacific is being viewed as stretched from South Asia to the Pacific and senior US policy-makers like Hillary Clinton and Panetta have been referring to this region as “Indo-Pacific”. If one recalls the 1971 war in the Indian sub-continent, it was the US Pacific Fleet that sailed towards India to deter it from liberating Bangladesh. To that extent, India could be seen as falling within the US Pacific perspective. But that was not really the case. Asia-Pacific, that included East and Southeast Asian segments, were not integrated into the US strategy for South Asia and the eastern stretch of the Indian Ocean as is reflected in the “pivot” doctrine.7 It is also more comprehensive since the approach has three clearly defined dimensions, namely, of (i) reinforcing traditional alliances, (ii) building new partnerships and capabilities and (iii) shaping a new regional strategic architecture. On reinforcing traditional alliances, Obama named Japan, Australia and South Korea in his speech and also mentioned Philippines and Thailand.8 On building new partnerships and capabilities, Obama said:

As quoted in Joseph S. Nye, “Obama’s Pacific Pivot”, December 06, 2011, http://www.projectsyndicate.org/print/obama-s-pacific-pivot (Accessed on July 5, 2012). Nye also referred to China’s rise and assertion as being one of the considerations behind the shift in strategy. Donilon had mentioned Iran, Afghanistan, terrorism, non-proliferation, North Korea and the Arab Spring as the issues that have “buffeted” the US foreign policy in recent years. See the Defense Department’s Annual Report to the US Congress submitted in May 2012 http://www.defense.gov/pubs/pdfs/2012_MPR_Final.pdf . (Accessed on August 27, 2012). Also see, Ronald O Rourke, China Naval Modernisation: Implications for US Navy Capabilities- Background and Issues for Congress, Congressional Research Service Report No. 7-5700 www.crs.gov RL33153, August 10, 2012. The Congressional research service report Pivot to the Pacific? The Obama Administration’s “Rebalancing” Towards Asia (7-5700 www.crs.gov R42448). The Report in its summary says that “underlying the “pivot” is a broader geographic vision of the Asia-Pacific region that includes the India Ocean and many of its coastal states”. Text of the address in Australian Parliament, op.cit.

We see America’s enhanced presence across Southeast Asia. In our partnership with Indonesia against piracy and violent extremism and in our work with Malaysia to prevent proliferation. In the ships we will deploy to Singapore, and in our closer cooperation with Vietnam and Cambodia. And in our welcome of India as it “looks east” and plays a larger role as an Asian power.9 Towards shaping the new regional architecture, Obama highlighted his three meetings with the ASEAN leaders in quick succession and took pride in the fact that he was the first “American president to attend the East Asia Summit”. “Proliferation and maritime security, including cooperation in the South China Sea” were identified as the main challenges that the US proposed to address together with the countries of the region and through the regional strategic architecture.10 Other senior associates of the President in the Obama administration have elaborated on all these issues. President Obama was careful in not ignoring China, primarily to camouflage the hard fact that the ‘pivot’ strategy had been driven by China’s rise and assertiveness in the region as being one of the most critical factors. His take on China was that: the United States will continue our efforts to build a cooperative relationship with China. All our nations – Australia, the United States, all of our nations – have a profound interest in the rise of a peaceful and prosperous China…We have seen that China can be a partner, from reducing tensions on the Korean Peninsula to preventing proliferation. And we will seek more opportunities for cooperation with Beijing, including greater communication between our militaries to promote understanding and avoid miscalculation. We will do this, even as we continue to speak candidly to Beijing about the importance of upholding international norms and respecting the universal human rights of the Chinese people.11 This clearly brings out the dilemma that the US faces in dealing with China in the Asia-Pacific region and also in its ‘pivot’ strategy. There is an identifiable thrust in the new US strategy with regard to security of the region. Redeployment of the US forces in the region therefore constitutes a critical dimension of this strategy and the new US military presence will have a greater thrust on navy. The reinforcing of the Australian military facility at Darwin by placing “2500 US Marine Corps personnel, or a full 9 10

Ibid. Khanh Vu Duc, “A New Security Order in the Pacific”, in Asia Sentinel , 01 June 2012. http://www.asiasentinel.com/index.php?option=com_content &task=view&id=455&Itemid=213 (Accessed on June 6, 2012). Text of the Address in Australian Parliament. Op.cit.

Marine Air Ground Task Force” and also the planned “greater access by U.S. military aircraft to the Royal Australian Air Force facilities” are the initial features of the US re-deployment. Military cooperation with Singapore and Philippines will also be stepped up.12 The US Defense Department has explained broad contours of the redeployment which is expected to be completed by 2020, when 60 per cent of the US naval strength will be stationed in the AsiaPacific region. Robert Scher, Deputy Assistant Secretary of Defense for Plans, and David F. Helvey, Acting Deputy Assistant Defense Secretary for East Asia, disclosed in Washington on 1 August 2012 that: The realignment plan sustains a US Marine force presence in the Asia-Pacific region, establishes multiple, fully capable Marine air-ground task forces and importantly increases our ability over time to train and exercise with allies and partners throughout the region…This approach maintains our forward capabilities, reduces our footprint in Okinawa, and in combination with other measures, should reduce the political pressures associated with our presence there, all while sustaining robust government-of-Japan financial support for the Marine Corps move to Guam.13 US is now planning to raise missile defence shield in Asia in view of the reported Chinese development of a new generation of missiles that can carry 10 nuclear warheads.14

India is responsive to the ‘Pivot’ India is seen as an important part of the ‘pivot’ strategy. Nudging of India towards a greater Asia-Pacific role had started even before the ‘pivot’ strategy was defined and articulated. President Obama’s statement to the Indian parliamentarians during his first state visit in 2010 may be recalled here when he asked India not only to “look east” but ‘engage east”. The Indo-US strategic partnership was also then projected as the “defining partnership of the 21st century”.15 Secretary of State Hillary Clinton reiterated the same theme when she said in Chennai, India in July 2011 that “India’s leadership will help to shape positively the future of the Asia-Pacific. That’s why the United States supports India’s Look East policy, and we encourage India not just

12 13

14 15

“Pivot to the Pacific”, Congressional Research Service, op.cit, p.4-5. Defence.professionals, August 6, 2012. http://www.defpro.com/news/details/38212/print/?SID=4a892 fbf8d9cea4786877b6ebb... (Accessed on August 7, 2012). A Press Trust of India story quoting the Global Times, as reported in Times of India, August 25, 2012. S.D. Muni, “President Obama’s India Visit: Substance in Symbolism”, ISAS Brief No. 176 – 16 November 2010. Also see the text of President Obama’s address to the Indian parliament, Times of India, November 8, 2010.

to look east but to engage East and act East as well”.16 She again underlined the importance of India’s role in the Asia-Pacific during her visit to India in May 2012.17 One of the most powerful statements in this respect from the US side has come from Defense Secretary Leon Panetta during his visit to India in June 2012. After discussing a wide range of issues related to the US “rebalancing strategy” towards the Asia-Pacific region ranging from Afghan security, freedom of navigation in the South China Sea, proliferation in the Korean Peninsula and regional stability in East Asia with the Indian leaders, he declared in a public address at the Institute for Defence Studies and Analyses, New Delhi: After a decade of war, we are developing a new defense strategy – a central feature of which is a “rebalancing” towards the Asia-Pacific region. In particular, we will expand our military partnership and our presence in the arc extending from the Western Pacific and East Asia into the Indian Ocean region and South Asia. Defense cooperation with India is a linchpin in this strategy (emphasis added). India is one of the largest and most dynamic countries in the region and the world, with one of the most capable militaries. India also shares with the United States a strong commitment to a set of principles that help maintain international security and prosperity. 18 To get India into joining hands with the U.S. in the ‘pivot’ strategy, Panetta promised to upgrade the defence trade relations between the two countries from a buyer-seller level to that of joint research, development and production in the defence field. He also assured India that the US was committed to “providing best defence technology possible to India”. There was also a clear encouragement to India to play a larger role in Afghanistan and help its security forces, and also to raise its voice in the “Southeast Asian multilateral forums”. 19 India seems quite responsive to the US ‘pivot’ strategy which converges with its “Look East” policy. It was long before the US ‘pivot’ strategy’s announcement that India initiated and vigorously pursued its “Look East” policy. This policy has a centuries old cultural and historical heritage.20 India has also been having active cooperative relations with the countries of South China Sea like Vietnam, Cambodia and Laos since the early 1950s, when the US was pitted against these countries. Therefore, many Indian policy-makers and strategic analysts fail to appreciate the repeated US assertion that India should not only ‘look’ towards East but also 16

17 18 19 20

Text of Mrs. Clinton’s address at the Anna Centenary Library on July 20, 2011. http://www.state. gov/secretary/rm/2011/07/168840.htm . S.D. Muni, “Hillary Clinton Visits India: Understanding the Unstated”, ISAS Insights No. 164, May 15, 2012. Text of secretary Panetta’s speech at the IDSA on IDSA website, June 6, 2012. Ibid. S.D. Muni, “India’s ‘Look East’ Policy: The Strategic Dimension”, ISAS Working Paper No. 121, 1, February 2011. Also his “Look East Policy: Beyond Myths” in Amar Nath Ram (Edited), Two Decades of India’s Look East Policy: Partnership for Peace, Progress and Prosperity, ICWA and Manohar , New Delhi 2012, pp.205-220.

‘engage’ with it and ‘act’ East. Not only in relation to East Asia and the Asia-Pacific region, but at a much wider level, India is also keen to strengthen its strategic partnership with the US. Defence cooperation between India and the US has been put on firmer footing since the conclusion of “Framework Agreement” on the subject between the two countries in 2005. Since then, India’s military exercises have also acquired greater strategic substance. 21 India’s positive response to the US ‘pivot’ strategy will surely help India bargain better with the US on a number of issues such as: military, civilian and nuclear technology transfers, securing a deserving place in global decision-making including in the United Nation Security Council and high tables of nuclear decision-making, strengthening its trade and investment flows and for support on regional security issues related to Pakistan and Afghanistan. There is considerable synergy between India’s approach and that of the US ‘pivot’ on preserving and reinforcing global norms such as freedom of navigation, democracy and human rights in the Asia-Pacific region. The US ‘pivot’ is driven by the concern arising out of China’s rise in the Asia-Pacific region, though this aspect is being carefully underplayed in the official projections of the new strategy. India’s is equally concerned in this respect and welcomes the ‘pivot’ strategy because the enhanced and active presence of the US in the region will go a long way in keeping a stable regional balance and in deterring China’s inclination to assert and dominate the Asia-Pacific strategic affairs. Even before the enunciation of the ‘pivot’ strategy, Indian policy-makers have been emphasising the value of a stable regional balance in East Asia. Speaking at the Fifth Shangri-La Dialogue in Singapore in June 2006, India’s then Defence Minister Pranab Mukherjee had said: India is one of the important legs of the Asian juggernaut along with China, Japan and Indonesia. In the Asia-Pacific region, India’s growing ties with the United States and other countries in North and South America brings with it a commensurate role in the region…India’s role is crucial for ensuring and maintaining long-term peace, stable balance of power, economic growth and security in Asia…It straddles the land and maritime space between east and west, and provides potential energy and trade corridors to Central Asia and Indian Ocean region. Responding to the challenges of globalisation is one of the key issues faced by all nations today. As a pluralistic, democratic and Englishspeaking society, India is well placed to respond.22

U.S. Department of Defense, “Report to Congress on U.S.-India Security Cooperation”, November 2011. Robert S Metzger, “US-India Defence Cooperation towards an Enduring Relationship”, Indian Defence Review, Vol. 27, No.2, April-Jun 2012. <http//www.indiandefencereview.com/print/?print_post_id=5063> (Accessed on August 28, 2012). Text of the speech (3 June 2006), www.iiss.org/conferences/the-shangri-la-dialogue/shangri-la-dialoguearchive/shangri-la-dialogue-2006/2006-plenary-session-speeches/second-plenary-session--pranab-mukherjee (Accessed on 25 January 2011).

India is also of the view, on the lines of the US, that regional strategic architecture in the AsiaPacific region be strengthened and streamlined. Outlining India’s preferences in this regard, National Security Adviser Shivshankar Menon addressing the Southeast Asian strategic community said: We need to build structures that are inclusive and flexible enough to avoid the inadequacies of international organisations. Logically speaking, they would need to counter the nature of threats we face… (and added referring to security in the region) The security situation in the Strait of Malacca offers a striking example of the success that results from like-minded countries working together, and most important, we need to build the habits and experience of cooperation that will enable us to deal with the unpredictable challenges that will certainly confront us. Our navies have made a beginning, showing us the way. We in Asia today are learning as we go. India is ready to participate actively and constructively in the process.23 It may be relevant to keep in mind here that Indian navy had escorted US ships in the Malacca Strait in 2002. India also decided in 2001 to establish a ‘tri-service command’ structure in the Andaman & Nicobar Islands as they strategically overlook the Malacca Strait. This command is expected to become a “major amphibious warfare hub” by 2020. India in the recent years has also moved to strengthen its strategic relations with the US allies in the region like Japan, Korea and Australia and is working to evolve triangular strategic equations with each one of them, with the United States. This will considerably facilitate India’s positive response to the US ‘pivot’ strategy as it evolves in the coming years. Constraints of space and time do not permit us to undertake a detailed discussion of these newly emerging strategic triangles of India in the region. India has also positively responded to the idea of US-India-China trilateral consultations in the interest of stability and peace in the Asia-Pacific region.24

India’s Reservations India’s positive response to the US ‘pivot’, however, has not been made public and formal except in the official bilateral discussions between the two countries. There has been no statement either explicitly endorsing or welcoming the US strategic shift or disapproving it otherwise. There is an intense debate within India’s policy portals and its strategic community on the ‘pivot’ strategy as, besides its positive aspects, there are reservations on a number of counts 23

The text of the speech, delivered on June 5, 2010, was provided by the organisers, the International Institute for Strategic Studies, London. http://www.iiss.org/conferences/the-shangri-la-dialogue/shangri-la-dialogue2010/plenary-session-speeches/second-plenary-session/shivshankar-menon/. (Accessed on August 25, 2012). S.D. Muni, “Trilateral Consultations: US for ‘Constructive Ties with India and China”, The Tribune (Chandigarh) May 19, 2012.

as well. There are questions of form and extent to which India should be seen to be going along with the US ‘pivot’. Most of these questions arise out of uncertainties hovering around the ‘pivot’ strategy which will take nearly a decade to unfold fully. One area of uncertainty is about the US-China strategic equation. The prospects in this equation range from a US-China ‘G.2’, where the two powers may mark out their specific areas of influence in the Asia-Pacific region compelling other countries in the region to join with either side and adjust with the reality, to an intensified new cold war, leading even to a conflict which might also force other countries to take side in the conflict or and/or suffer its consequences.25 India abhors the idea of a US-China ‘G.2’ and it is not prepared also to cope with an intensification of the US-China tensions and a new cold war in the region that may degenerate into a full-fledged conflict. The economic interdependence between the US and China is formidable and has no prospects to be undone in the foreseeable future, but at the same time China is fast trying to develop military capabilities that may deter and weaken the US dominance in the region and the latter’s adversarial moves against China on behalf of its numerous allies in Asia. Strategic analysts even in some of the key US allied countries in the region like Japan and South Korea are careful in pointing towards the gap between the actual US moves and rhetoric vis-a-vis China, particularly in the military field. While strong language is being used in mutual accusations, US and China are also actively pursuing mutual confidence-building through closer military to military exchanges.26 The other area of uncertainty in India about the evolving ‘pivot’ strategy is the prospect of enhanced US presence in the Indian Ocean and in its immediate neighbourhood. There is institutionalised strategic dialogue between India and the US on the affairs of the South Asian region but India is cautious to ensure that enhanced US military and strategic presence in the countries of the region like Nepal, Bhutan, Sri Lanka, Maldives, Bangladesh and also Myanmar, as an imperative of the ‘pivot’ strategy, does not curtail its own strategic space and priorities in the long run. In this respect, the US Secretary of Defense Panetta tried to assure the Indian leaders during his visit in June 2012 that: We are not setting up any new bases. We are not in the process of what we did in the Cold War that is power projection. We want to develop capabilities of neighbouring countries in the Asia-Pacific region through rotational presence and that is the better way of ensuring security.27

25 26

Hugh White, The China Choice – Why America Should Share Power, Black Inc, Melbourne (Australia), 2012. These views were expressed by the Japanese and Koreas experts in a trilateral ‘1.5 track’ meeting between India, Japan and Korea in New Delhi in July 2012. The Daily Pioneer June 7, 2012 http://dailypioneer.com/home/online-channel/360-todays-newspaper/71193india-... (Accessed on June 8, 2012).

India welcomes better understanding on the US part about India’s security interests in Afghanistan and greater role in stabilising the country after the US and NATO forces have completed their ‘downsizing’ by July 2014. There is also some uncertainty about what role the US will continue to play in keeping Afghanistan stable and terror-free after its withdrawal. However, any US pressure and repeated pleas to India to accommodate Pakistan ignoring its track record on abetting ‘cross-border terrorism’ are unacceptable. So also is the continued US supply of weapons systems to Pakistan that bear no relevance to its expected role in the ‘war on terrorism’. The pursuing of ‘pivot’ strategy has precipitated renewed and enhanced tensions in the region, particularly between China and its South China Sea neighbours. The US support for its allies like Philippines and ‘partners’ like Vietnam has infuriated China and in return China has moved to augment its naval presence in the area by setting up a garrison in Sansha city of tiny Yongxing (Woody) Island , some 350 km off the disputed Paracel Islands chain. This has resulted in the exchange of harsh words between the two countries through media and official channels. 28 In the wake of these tensions, the ‘pivot’ strategy has come under criticism both within and outside the US.29 Even some of the partners and allies of the US seem to be uneasy about this development. The Singapore Defence Minister Ng Eng Hen for instance underlined the need in Asia “to avoid arms race, and to reduce the potential for strategic miscalculations and misunderstandings…”30. The Australian Defence Minister Stephen Smith has ruled out any possibility of providing a base for the US Carrier Strike Group being explored under the ‘pivot’ strategy.31 The dilemma of the Asia-Pacific countries arise from the fact that while they are having profitable economic relations with China, the Chinese military assertiveness is a matter of concern for them and they do not want to take sides in the rising tensions between US and China.

30 31

For some reports on the South China Sea disputes, see Michael Auslin, “Beijing Crosses a Line”, The Wall Street Journal July 30, 2012; Zhang Yunbi, “US military swings to Asia-Pacific region” China Daily August 6, 2012; “Beijing tells US to ‘shut up’ over South China Sea tensions”, Telegraph (London) August 6, 2012; Peter Symonds, “US stokes disputes in South China Sea” World Socialist Website August 7, 2012 <http;//www.wsws.org/tools/index.php?page=print&amp;url=http%3A%2F%2Fwww.ws…> (Accessed on August 27, 2012). Jane Perlez, “China flexes its muscle to reassert sea claims”, New York Times (Global Edition) August 13, 2012. John Glaser “ Washington Aggravating Asian Territorial Disputes”, News from Antiwar.com August 11, 2012 http://news.antiwar.com/2012/08/11/washington-aggravating-asian-territorial-disputes/. (Accessed on August 13, 2012). Morton Abramowitz; Stephen Bosworth, “The Pivot and its Discontents”, The National Interest, July 27, 2012 http://nationalinterest.org/print/commentary/the-pivot-its-discontents-7250. Greg Earl, “US wrong on China: Keating”, The Australian Financial Review August 7, 2012 http://www.afr.com/p/national/u s_wrong_on_china_keating_Bjp2FY9i9j5ahuD7iGsQBP (Accessed on August 7, 2012). Tom Shanker, “Study Criticizes Pentagon Over Its Plans for a Greater Focus on Asia’, The New York Times July 31, 2012. TODAY August 8, 2012. The Information Daily (Formerly eGovmonitor), August 6, 2012 http://www.egovmonitor.com/node/53149 (Accessed on August 8, 2012).

Caught in the same dilemma, India has also cautioned a slow pace in the ‘pivot’ strategy. In his discussions with Leon Panetta in June 2012, India’s Defence Minister underlined India’s position that in international waters, “It is desirable that the parties concerned themselves should settle contentious matters in accordance with international law”. He also laid greater emphasis on “strengthening multilateral security architecture in the Asia-Pacific” and against arming the nations in the dispute, and in doing so he preferred to “move at a pace comfortable to all countries concerned”.32 While India has continued to engage itself with the South China Sea nations, like Vietnam, it cannot afford to antagonise China and precipitate a conflict which can halt or slow down its own pace of economic development and military modernisation. In the context of rising tensions in Asia, questions are raised in India’s strategic community if the “rebalancing” of US’ Asia strategy will in reality put Asians against the Asians and if, by keeping Asia divided thus, the US leadership will be sustained. The US balance of power strategy in Europe, which precipitated the Second World War by keeping France and Germany divided, is recalled for broad comparisons. If that is the real intention of the ‘pivot’ strategy, then India, while also opposing Chinese intentions to dominate Asia, cannot be a party to perpetuating US leadership of Asia. India also cannot compromise on its strategic and foreign policy autonomy by doing anything that makes it blindly follow the US moves in Asia.33 It has diversity of engagements in Asia and the world, institutionalised in the form of triangular and multilateral groupings like BRICS, IBSA, India-China-Russia and those with Japan, Australia, and the US. India, therefore, cannot become just a “spike” in the US ‘pivot’ where any of these engagements are compromised or jeopardised.

Prospects What then is expected out of India in relation to the US ‘pivot’? Some analysts compared the evolving strategic partnership between India and the US to the complex affair between the Egyptian queen Cleopatra and the Roman General Mark Antony, which was masterfully portrayed by Shakespeare. They were both charmed by and longed for each other but were not prepared to compromise with each other on their respective turfs, imperial possessions and areas of influences. Likewise India and the US have found their strategic partnership valuable and are trying their best to expand and reinforce it, but would not like to compromise on their respective autonomy (India), leadership (US) and strategic spaces. This would likely be the bench mark guiding their engagement in relation to the US ‘pivot’.

The Daily Pioneer June 7, 2012 http://www.dailypioneer.com/home/online-channel/360-todaysnewspaper/71193-india-... (Accessed on June 8, 2012). Robert M. Hathaway, “India and the US Pivot to Asia”, YALEGLOBAL ONLINE February 24, 2012 http://yaleglobal.yale.edu/print/7638 . (Accessed on August 24, 2012).

India would, therefore, continue to build its capabilities and outreach in the Asia-Pacific region. And in doing so, seek US support and help as much as possible without militarily aligning itself with the US. South China Sea region is important for India not only because China is caught in a conflict there but also because India’s trade through these waterways is growing at an impressive pace. It is necessary for India to uphold the international norms of freedom of navigation and to ensure that, it will support the US or any other regional initiative. India’s upgrading of military facilities in Andaman and Nicobar Islands must be seen in the context of protecting its burgeoning security and commercial interests in the region. The commissioning of the INS Baaz, an air surveillance base at Campbell Bay on the Greater Nicobar Island that strategically overlooks the Malacca Strait is an important step in the direction of building the ‘tri-service command’ in the Andaman & Nicobar Islands.34 India will also continue to strengthen its strategic cooperation with key regional players in the Asia-Pacific region like Japan, Korea, Australia, Indonesia, Singapore and Vietnam. India will be cautious to avoid any impression that these relationships are based on any anti-China premise. India, as already mentioned, cannot afford any conflict with China at the present stage of development, nor can it match Chinese economic clout and growing military capabilities. But it must always be prepared to face the potential challenge of a conflict if it is thrust on it from the Chinese side either as design or miscalculation and accident. India will also continue to strengthen its Look East policy through increased engagement with the countries and regional groupings of East and Southeast Asia like ASEAN, EAS, BIMSTEC and Ganga-Mekong Initiative. In East Asia, India’s clear preference is for ASEAN leadership and keeping these organisations open and inclusive without making them compact negotiating forums. India may also be happy if invited to become a member of APEC. The tenor and thrust of India’s response to the US ‘pivot’ will, to a significant extent, also depend upon how China conducts itself in the region as also in relation to its bilateral issues with India. Chinese undue assertiveness and inclination to dominate the region will naturally drive all others in the region closer to each other and to the US. China’s persisting reluctance to resolve the boundary question with India and the Tibetan question with the Dalai Lama and his representatives will also keep India-China tensions live pushing India towards the US in regional affairs. China has always been supporting Pakistan and its increased active involvement with other South Asian countries like Nepal, Bhutan, Sri Lanka and Bangladesh will also encourage a greater responsiveness on India’s part towards the US ‘pivot’. Contrary to this, if China leaves India’s sensitivities in its immediate neighbourhood unruffled and makes concrete moves to 34

“INS Baaz commissioned as first Naval Air Station in Nicobar Islands”, Indian Defence Review August 1, 2012 http://www.indiadefencereview.com/print/?print_post_id=7259 (Accessed on August 28, 2012). Also Rajat Pandit, “India Commissions INS Baaz to counter China’s moves in the India Ocean” The Times of India August 1, 2012.

stabilise the border region between the two countries, then India will be calculative and calibrated in its support for the US initiatives in the Asia-Pacific region.

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ISAS Working Paper No. 160 – 24 October 2012 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Small States in UN System: Constraints, Concerns, and Contributions Iftekhar Ahmed Chowdhury1

Abstract Small states in the global system are seeking to organise themselves effectively in the international scene. They face many challenges and constraints but also possess the potential to contribute to better global governance. The study notes Singapore’s role in this regard and examines the contributions of two South Asian small-states, namely Bhutan and the Maldives in the creation of global norms. If present political trends continue, the paper extrapolates that the number of small states will grow.

Introduction The United Nations (UN) comprises an overwhelming number of small states. It is a multilateral body that is oftentimes seen as ‘The Parliament of Man’.2 The Member-States, therefore, are akin to constituencies from which ‘Representatives’ (in the case of the UN, ‘Permanent Representatives’) are sent to this legislative body (the ‘General Assembly’, the only principal 1

Dr Iftekhar Ahmed Chowdhury is Senior Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He was the Foreign Adviser (Foreign Minister) of Bangladesh from 2007 to 2009. He can be contacted at isasiac@nus.edu.sg. The views expressed in this paper are those of the author and do not necessarily reflect those of ISAS. Paul Kennedy ‘The Parliament of Man: The Past, Present, and Future of the UN (New York: Random House, 2006). Kennedy borrows the title from a poem by Alfred Lord Tennyson, entitled ‘The Lockesley Hall’ and written in the Nineteenth Century.

organ of the institution where all have seats). This fact, together with that of the principle of sovereign equality, would render San Marino or Liechtenstein the same status as the United States, or Bhutan or Maldives as India. This is not just in theory but in practice, though not always without murmurings of complaints from the bigger players.3 However, when the UN seeks to assert force, as it does when it acts through its Security Council, such equality becomes a myth. The role of the Small States in the UN system reflects a continuing tension between myth and reality. Time was when powers were invited to the table of multilateral diplomacy, because they were important. Such invitations were of ‘enormous value to a state’s prestige’.4 When the United Nations was set up, following the Second World War, it was designed to be a permanent conference where all, big and small states, were invited to the table, provided they were sovereign. It was not a difficult concept to grasp because even in international diplomacy in the earlier centuries, the protocol of equality among individual sovereigns was an established norm. Only then, the right to be heard of the small had not taken the firm roots as it now has, as global political values have evolved.

Definitional Dilemma The definition of a ‘small state’ has been much debated. David Vital proposed one on the basis of the size of the population and state of development, that is ten to fifteen million in the case of economically advanced countries and less than twenty or thirty million in the case of underdeveloped countries.5 The idea of using population as a criterion was an important contribution, which, as we shall see, many international organisations have now adopted. Keohane, on the other hand, suggested influence instead. To him, a ‘small state’ is one whose leaders consider that it can never, either acting alone or in a small group, make a significant impact on the globe.6 Military power was proposed as the index by Robert Rothstein who defined a ‘small state’ as one which recognises that it cannot obtain security primarily by its own capabilities and that it must rely fundamentally on the aid of other states, institutions, processes and developments to do so.7 Karl Deutsch on the other hand, emphasised the aspect of economic

4 5

One outspoken former Permanent Representative of the United States, Ambassador John Bolton, has written: “It is inherently untenable that America submit to any decision-making process in which it is simply one nation with one vote among 192 ‘equal’ nations. There is nothing ‘equal’ about them except the diaphanous idea of “sovereign equality though no one outside the UN pays the slightest attention to them”. Surrender Is Not An Option: Defending America at the United Nations and Abroad (New York: Threshhold Editions, 2007). p.442. G. R. Berridge, ‘Diplomacy: Theory and Practice’, Third Edition (London, Palgrave Macmillan, 2005) p.154. D. Vital, The Inequality of States: A Study of Small Power in International Relations (Oxford: Clarendon Press, 1969), p. 8. Robert Keohane, ‘Lilliputians Dilemmas: Small States in International Politics’, International Organization, Vol xxiii(Spring 1969), p. 296. See, R. L. Rothstein, Alliances and Small Powers (New York: Columbia University Press, 1968).

strength8 while more recently, Laurent Goetschel called it one that poses no threat to neighbours.9 A pragmatic connotation was proffered by Hey who said she knew one when she saw one.10

Behaviour-Patterns How do small states tend to behave in the international setting? Let us look at it at two levels: (a) regional; and (b) global. James Rosenau, who has been viewed as one of the greatest experts on comparative foreign policy, has suggested that small-state behaviour would vary according to three traits: the size, the level of development and finally the political system of any given state.11 The perceived adversary of a small power is usually the predominant regional state actor. Hence, Hedley Bull’s axiomatic assertion that ‘the deepest fears of the smaller units in the global system are their larger neighbours’.12 If a neighbouring state is the pre-eminent country in the region, it will be seen as a ‘regional hegemon’ with the ability to exercise ‘power’ in the neighbourhood as defined by the French philosopher, Raymond Aron which is ‘the capacity of a political unit to impose its will upon other units’.13 At a regional level, such apprehensions would generally lead the small state to behave in one of three different ways. One is what the Scandinavian analyst Erling Bjol has described as ‘pilot-fish behaviour’ that is keeping close to the shark to avoid being eaten.14 Finland’s relations with the Soviet Union are an example. These were based on early Finnish perceptions that its ‘national interests do not permit ties nor the pursuit of an alignment with an anti-Russian [Soviet] policy’.15 A second option for the small power would be to enmesh itself in a web of international linkages, hoping to draw strength from beyond the region to redress the regional power-imbalance.16 This is also true if the small power is poor, and in need of foreign aid for development, thus dependent on 8

9 10

11 12 13

Karl W. Deutsch , The Analysis of international Relations (Englewood Cliffs, N. J.: Prentice-Hall Inc., 1968), p.31. p.31. See his Small States Inside and Outside the European Union, ( Kluwer Academie Publishers, 1998). . See Jeanne A. K. Hey (Ed.), Small States in World Politics : Explaining Foreign Policy Behavior (London: Lynne Reiner Publishers, 2003). Hey, op. cit. H. Bull, The Anarchical Society: A Study of Order in World Politics ( London: Macmillan, 1977) p.310. R. Aron, Peace and War: A Theory of International Relations (Trans.) Richard Howard and Annette Baker Fox ( London: Weidenfeld and Nicolson, 1966) , p. 71.. Erling Bjol, ‘The Small States in International politics’ in August Schou and Arne Olav (eds.), Small States in International Relations (Stockholm: Almqvist and Wiksell,1871), p.33. President Urno Kekkonen’s speech at the Swedish Agrarian Union in Stockholm , 7 December 1943 in Thomas Vilkuna (ed.), Neutrality: The Finnish Position , Speeches Given by Dr Urno Kekkonen (Trans.), P. Ojansu and L. E. Keyworth (London : Heinemann, 1970), p. 30. . Iftekhar A. Chowdhury, ‘Strategy of a Small Power in a Sub-System’, Australian Outlook, April 1980, Vol 34, No. 1. , p..

multiple donor countries and international institutions. A third behaviour-pattern could be for the small powers, because of their limited interests, to have a low level of international involvement, as argued by Ronald Barston.17 There is yet a fourth interesting option, that is, to drop out from the international system whenever felt necessary, as what Burma did in in the earlier days.18 (However, contemporary Myanmar, led by Thein Sein and Daw Aung San Suu Kyi, has deeply involved internationally). At a regional level, then, it is difficult to extrapolate a pattern of common behaviour for all small states. Each will behave differently, sometimes reacting to circumstances and sometimes even proactively. Some will limit external interactions, preferring to play a limited role, because of multiple domestic problems (Nepal), while others will seek to increase international stakes in them which will enhance their sense of security (Switzerland) without joining any regional grouping. There are those (Bhutan) who would prefer to rely on the single pre-eminent regional power for protection, while there are those (Luxembourg) who will join a collective regional organisation for the sake of protection and prosperity. It is therefore, unwise to seek to construct a theory of regional behaviour-pattern for the small states. It is somewhat different on a global matrix. On it, small states tend to behave in a manner in which some commonalities can be delineated. First of all, they seek an orderly world. The small states tend to be weaker, and even one of the strongest amongst them, Israel, would seek a global system that would conform to certain norms, such as respect for borders.19Indeed, as many as six and half decades ago, the British political writer, Martin Wight, made the point that weaker states wish to see the prevalence of greater international order.20 Secondly, they are quick to join larger international groupings. At the United Nations, for instance, the weaker or smaller states almost always belong to a multiple of such organisations such as the Group of 77 (whose membership now exceeds by far that original number), Non-aligned Movement, Organization of Islamic Cooperation and so and so forth. Small states have organised themselves into the Forum of Small States (FOSS), which we shall discuss at greater length later. This satisfies two requirements: one, that safety lies in greater numbers and two,that it allows them to speak to global issues in a ‘trade unionist’ way without actually affronting the larger powers. A third behaviour-pattern would be a ‘higher profile’ on ‘low-risk issues’ and ‘lower-profile’ on ‘high-risk issues.’21

17 18

20 21

‘The External Relations of Small States’, in August Schou and Arne Olav (eds.), op. cit., p.41. See, Ralph Pettman, Small Power Politics and International Relations in South Asia (Sydney: Holt, Rinehart and Winston, 1976). This largely explains Israeli Prime Minister’s sensitivity to the Iranian nuclear programme on grounds that Iran is defying acceptable international rules and standards. See M. Wight, Power Politics (London: Royal Institute of International Affairs, 1946, Reprinted 1949). For instance, Jordan plays a leading role at the United Nations on issues related to International Criminal Court, a comparatively ‘low-risk issue’ as evidenced in Seminar remarks by Prince Zeid Raad Al Hussein, Permanent Representative of Jordan at the UN, at the Institute of South Asian Studies, Singapore, 10 May 2012). Senior officials from small Middle Eastern countries have generally shied away from speaking significantly on ‘high risk’ issues such as the Arab Spring.

At International Organisations Several international inter-governmental institutions have started to formalise the grouping of small states. A good example is the Commonwealth, headquartered in London, an overwhelming majority of whose membership – over two-thirds – comprise small states. The Commonwealth Secretariat’s definition of ‘small states’ is quite straight forward. It is countries with a population of 1.5 million or less, also possessing unique special developmental challenges such as limited diversification, limited capacity, poverty, susceptibility to natural disasters and environmental change, remoteness and isolation, openness and income volatility (interestingly it also included larger member countries such as Botswana, Jamaica, Lesotho, Namibia, and Papua New Guinea because they shared many of the characteristics of small states).22 Conversely the group included countries like Malta and Cyprus who were neither poor nor remote. Obviously, a modicum of politics and a calculation of benefits were factored into the determination of the membership of the group. The remit of the Commonwealth, with regard to the group of small states, was clearly stated. It included ‘promoting high level attention to the particular issues of small states at Commonwealth and other international meetings; providing specific assistance (to small states) to help them address the problems and challenges they face; and building partnerships with international agencies and mobilising support to implement(the small states) programme’.23 According to a publication of the New Zealand government, the Commonwealth played an influential role as a ‘collective voice and advocate’ for small states and is contributing to ‘greater international awareness of issues affecting them.’24The protection and promotion of small states in the Commonwealth received a special fillip during the period in office as Secretary General of the New Zealander, Sir Donald McKinnon (1999-2009), who took considerable interest in the promotion of their welfare. Since many small states in the Commonwealth are also members of the United Nations, they carry with them traditions between the two organisations. Indeed, the Commonwealth funds common office space in New York for many small and needy Caribbean and Pacific countries which have such common membership. At the world’s largest international institution, the United Nations, the then Singaporean Permanent Representative Ambassador, Chew Tai Soo, helped create in 1992 an informal grouping called, the Forum of Small States (FOSS), to serve as a ‘platform for small states’ – in this case, those with a population of 10 million or below -- ‘to exchange ideas on issues of shared concerns’. Singapore has chaired it ever since, thus playing a key role. It sees itself as a ‘small, but relevant spot in Asia’.25 The grouping comprises 105 of the 193 members of the United 22 23 24 25

http://www.thecommonwealth.org?Internal?180407?. Accessed on 5 October 2012.. Ibid. The New Zealand Ministry of Foreign Affairs and Trade. Accessed on 11 October 2012.. Prime Minister Lee Hsien Loong of Singapore, in a television interview with Charlie Rose in the United States, 13 July 2005.

Nations as of now. Their resources and capabilities are naturally varied. What runs as a common thread among them is their perception that to survive and thrive, as Singapore Foreign Minister K Shanmugam very aptly declared in an address to the UN General Assembly that “a predictable, stable, rule-based system is crucial”.26 Indeed, the protection and promotion of ‘small states’ is seen as being close enough to Singapore’s national interest for the small islandrepublic to take a leading role in yet another formation of such countries on a global scene, the ‘Global Governance Group’ (3G).

Constraints However, as naturally to be expected, ‘small states’ do face enormous constraints. First, they lack the power and clout the larger countries possess. While some like Switzerland, Singapore and Qatar are affluent, more often than not, like Bhutan, El Salvador and Burundi they are indigent (Costa Rica, for instance deems it fit not to maintain an Army!). Therefore on a global matrix they lack military might, and or trade partners, are not in possession of economic strength. As in all cases there are exceptions. Qatar, a small state in the Gulf, for instance, tends to punch above its weight in the international arena. Indeed, it has been called ‘the pygmy with the punch of a giant”.27It played a key role in the Libyan crisis in 2011, and its Permanent Representative to the United Nations, Ambassador Nasr al Nasr, presided successfully over the General Assembly. He made up for personnel deficiency by simply using Qatar’s resources to broaden the catchment area of his staff, thereby significantly enhancing capabilities in an area where most small states with less resources fall short. This is very much an exception rather than the rule. Secondly, most small states do not possess the wherewithal to follow debates and discussions as effectively as larger states, given limitations imposed by the size of their missions. Every individual by necessity has to be multi-tasked. The United States, by contrast would have a separate Ambassador with the a retinue of staff for each of the UN’s major Councils (under, of course, the overall control of the Permanent Representative). The ‘small states’ often need to make up for this shortcoming by providing ‘thought-leadership’. Certain individual representatives from such countries do play a leadership role by either chairing an important committee, or by assisting UN hierarchs in their tasks. Cases in point are Ambassador Christian Weneweser of Liechstenstein, who, among other things, ably led the State Parties to the International Criminal Court, and the influential Ambassador Daniele Bodini of San Marino, a tiny country described by UN Secretary-General Ban Ki-moon as a ‘driving force’ behind UN Reforms and one which ‘is an excellent example of the indispensable role played by small states (in the UN)’.28 Again the Holy See (Vatican), which is only an Observer State at the UN and 26 27 28

Straits Times, 1 October, 2012. As cited in The Economist, 5 November 2011. UN News Centre, 6 June 2008.

perhaps the tiniest by every definition, is hugely important with regard to the Catholic countries in Europe, America, Africa and Asia. A third constraint is the fact that almost every small state is a member of yet another grouping, either regional or thematic, which exercises a greater pull on its loyalty than does FOSS. For instance, Latvia would find itself unable to act beyond what its European Union membership would require, as would Angola beyond the African Union, or the Maldives beyond the Organization of Islamic Cooperation. Most groupings are useful as electoral vote banks, and are usually approached by member-states or by their candidates seeking elections to high offices. The aspirants are more likely to approach the regional or thematic groups first, rather than FOSS which cuts across many fault-lines. Yet for candidates FOSS still remains a forum to air their positions, and because voting is often secret, every forum for lobbying could be useful. Finally, if it can be called a constraint at all, small states usually cannot enjoy the luxury of ‘flashy’ foreign policies that may be assessed as aggressive by the powerful states. Most often, their policies are likely to be subdued, unless they are strategically linked to a more powerful country, with absolute assurances of support. Albania could afford to defy the Soviet Union, and did, which is an example of contrarian behaviour, only because it was allied to China. As Simon Tay says: “Lilliputians (small states) should not hope to tie down Gulliver (Large State)…rather prevent giant state from stepping on them inadvertently or otherwise’29

Contributions The fact that even the biggest and the most powerful consider small states as important is illustrated by the US Secretary of State, Hillary Clinton, together with Secretary-General Ban Kimoon, attending the FOSS session on the sidelines of the General Assembly on 1 October 2012. In her remarks, Clinton specially identified ‘human rights’ as an important thematic area for contribution by small states, identifying in the process two such countries, Mauritius and Slovenia.30 This article will examine two contributions to the realm of ideas at the UN by two South Asian small states. The first is that by Bhutan in getting the index of ‘happiness’ accepted at the UN as a measure of development, which was further elaborated by Prime Minister Jigmi Thinley, a former UN-based diplomat. The concept was originally floated by Bhutan’s constitutional monarch King Jigme Khesar Namgyal Wangchuck, in the hope that Gross National Happiness (GNH) would replace Gross National Product (GNP) as a mark of progress. The word spread, and indeed in 2011, the UN General Assembly adopted Resolution 65/309 entitled ‘Happiness: 29

Cited in ‘The Malaysian Insider’,’G 20:Gulliver and Lilliputians?’.http.//www.themalaysianinsider.com/breaking views/article/g-20-Gulliver-and-Lilliputian… US Department of State, Diplomacy in Action, 1 October 2012.

Towards a Holistic Approach to Development’. Equally importantly, it elicited support for the concept from illustrious economists like Amartya Sen, Jeffrey Sachs and international personalities like Prince Charles of the United Kingdom.31 A second is the contribution by the Maldives to the broad area of climate change. As an environmentally threatened country, climate change has always been a topical issue with the Maldives. In 2008, it was able to launch an innovative idea that ‘human rights’ was linked to ‘climate change’. At the UN Human Rights Council on 28 March it tabled and obtained consensus on a resolution to that end. The Resolution called upon the UN to conduct studies into the effects of climate change on economic, social and cultural rights of human beings. It was to, thereafter, form the basis of a debate in the Human Rights Council. Following this, the conclusions of the studies and the debate were to be fed into the negotiating process of the United Nations Framework Convention (UNFCCC). The idea was that it would raise political awareness about the human dimension of global warming.32 It is through such activities that small states seek to be relevant to the international community, to seek out space for themselves, in justification of their existence in the global system.

Conclusion While ‘small states’ continue to see the UN as an ‘insurer’ of security, this matter has to be approached with a modicum of circumspection. It is true that when Iraq invaded Kuwait in 1990, the UN, albeit a trifle slowly, did seek to restore Kuwaiti sovereignty and ultimately this was done by mustering international backing, most importantly the support of the Bush Administration of the US. David Malone, a keen observer of UN issues, wrote: “The Security Council’s capacity to legitimise the use of force provided the legal basis for the international action to expel Iraqi forces from Kuwait in 1991”.33 Sometimes UN involvement in restoring stability in a small state is looked upon warily by analysts of that country. When in 2006, following the signing of the Comprehensive Peace Agreement in Nepal, the UN Security Council adopted Resolution 1740 according the UN Mission in Nepal special tasks, a Nepalese observer wrote: ‘This was the first time that the UN was allowed to monitor a cease-fire agreement in this part of the world and also ensure that the weapons of a state’s national army and that of the insurgents [in this case the Maoists] remained 31

Stewart Patrick, ‘UN Happiness Summit’, CNN.com.Blog. http://globalpublicsquare.blogs.cnn.com?2012/04/01 /the-u-n-happiness-summit/ Accessed on 11 October 2012. ‘Maldives Secures UN Resolution on Human Rights and Climate Change’, Ministry of Foreign Affairs, Maldives. http//www.foreign.gov.mv/v3/?p=menu_item&sub_id=51&submenu=Maldives%20Sec. Accessed on 11 October 2012. David M. Malone, The International Struggle over Iraq: Politics in the UN Security Council 1980-2005.(New York: Oxford University Press Inc., 2006), p. 16

locked up, thereby effectively coming into what was inherently the internal affairs of a sovereign country.’34 Some small states may worry about the possibilities of intervention by large states, using the UN and such of its principles as the ‘Responsibility to Protect’ (R2P) in order to further their own interests. The ‘R2P’itself has built-in safety clauses. For instance, interventions under it can take place only in four specific circumstances: ‘genocide’, ‘war crimes’, ‘ethnic cleansing’ and ‘crimes against humanity’.35 So the legitimate grounds for such interventions are clearly marked out.36Yet, there are those who think that the intervention in Libya was motivated by the desire on the part of the UK and France for ‘regime change’, rather than anything else. Therefore, some have argued for another method of its implementation rather than through the Security Council.37 Others have demanded that it may be made ‘less open to manipulation by powerful countries’.38 For small states, the UN provides a good forum to air their views on issues of global importance. Here, their leaders can put forward ideas, for good ideas are not necessarily the prerogative of the powerful. Also here, they can speak up for the ‘right’ and ‘noble’ causes, which buttresses their ‘feel-good’ sense, and also impresses their domestic audience. The UN also provides the small states a platform to carry out diplomatic interactions among themselves or with the larger states in UN headquarters such as New York, Geneva, Vienna and (in the case of environmental issues, Nairobi) without having to incur the expenses of maintaining bilateral embassies in the world’s capitals. (Where else but in New York and Geneva can Tuvalu interact with El Salvador?) Small states feel more at ease with ‘collective actions’ than with ‘unilateral actions’ on the part of a big power. They believe, with Inis Claude, that “collectivism spells responsibility: unilateralism stands for arbitrariness”.39 Small-state leaders often see their ability to be ‘nimble’ in policy-making (facilitated by their smallness) as the key to their aspiration to remain ‘relevant’ to the rest of the world. At a recent seminar at the Harvard University Asia Centre, Singapore’s Emeritus Senior Minister Goh Chok Tong said: “We (in Singapore) strive to be exceptional, outwardly oriented, competitive and strategically useful, both regionally and locally”, also pointing out that the four most competitive countries identified by the World Economic Forum are small states: Switzerland, Singapore, Finland and Sweden.40 This also raises the question that there may be small states, either too indigent or wanting in capacity, to exist by themselves or ensure sufficient security for 34 35

37 38 39

Nishal Nath Pandey, New Nepal: The Fault Lines (New Delhi: Sage Publications, 2010) , p. 8.. The author was instrumental in its drafting as a ‘Facilitator’ on UN Reforms in 2005 working with the then President of the General Assembly, Foreign Minister, Jean Ping of the Gambia. See Gareth Evans, ‘When is it legitimate to intervene?’, Straits Times 29 April 2011. Evans is a former foreign Minister of Australia and one of the original propagators of the broad concept. David Hillstrom:’The Libyan No Fly Zone : R2P and International Law’, Foreign Policy Journal 21 March 2011. K. Kesavapany, R2P: A Good Norm in Search of Fairness’, Straits Times 20 April 2011. Inis L. Claude, Jr. ‘The Growth of International Institutions’, The Aberystwyth Papers: International Politics, 1919-1969 (London: Oxford University Press, 1972), p.295. Straits Times, 18 October 2012.

themselves or for others (oftentimes even posing a threat, Somalia being an example). If Northern Mali is to secede, it may face this predicament. The UN would therefore also have a ‘responsibility to ensure’ that any emerging small states are not destabilising to the region, or to the world. It is worth considering perhaps whether small states need to pursue an element of ‘kiasu-ism’, a Hokkien term popular in Singapore, which literally means ‘fear of losing’. It implies a somewhat aggressive individualistic behaviour aimed at forging ahead. More acceptable social mores often seek to tame it with ‘kiasi-ism’, another Hokkien expression for ‘fear of death’, implying taking measures to avoid it. An appropriate golden mean could be a balance of the two, aiming at careful forward movement, not individually but collectively (for small states). Despite the recent tendencies for wider regional groupings, as evident in the formation of the European Union, African Union or the Association of Southeast Asian Nations, it seems that nation-states will continue to be at the heart of the international system, and thus of the United Nations. Indeed, consolidation of large regional groupings which would provide essential core requirements like ‘defence’, or ‘security’ or ‘currency’ might actually lead to the creation of a greater number of smaller states in order to be able to respond more effectively to local governance requirements. What we have seen in recent times in the old Soviet Union, or in the former Yugoslavia or in the Sudan, lends credence to this possibility. In Europe itself, developments in Belgium, between its French and Dutch speaking halves, Catalonia in Spain and Scotland in the UK merit watching in this regard. So the expansion of the number of small states, also within the UN system, is a distinct possibility. This will require the UN to move in the direction that small states generally want: a more stable international order and better global governance. Ultimately, this would benefit all, both large and small.

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ISAS Working Paper No. 161 – 30 October 2012 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Transition in Afghanistan: Winning the War of Perceptions? Shanthie Mariet D’Souza1 Abstract A decade after the military intervention that dislodged the Taliban-Al Qaeda combine, peace and stability continues to elude Afghanistan. There is still no consensus in Western capitals on what constitutes the ‘end-state’ in Afghanistan. The Western public's frustration with a long-drawn war has coalesced with the global economic slowdown, the Euro crisis and the pressures of electoral campaign politics in the United States – thereby complicating the efforts for the longterm stabilisation of Afghanistan. Premature announcements of exit and dwindling financial assistance have added to the Afghan anxieties of being ‘abandoned’ once again. This paper brings to light the divergent perceptions among the key stakeholders in Afghanistan and in the international community (IC) on the trajectory of the ‘inteqal’ (transition) process. The paper argues that the war in Afghanistan is essentially a war of perceptions on progress made thus far. This widening gap in perceptions is bound to complicate the transition and long term stabilisation process. 1

Dr Shanthie Mariet D’Souza is Research Fellow at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. She can be contacted at isassmd@nus.edu.sg. The views expressed in this paper are those of the author and do not necessarily reflect those of ISAS. The author’s views and findings are based on her extensive interactions, discussions and interviews with serving and former ministers, potential presidential contenders, political leaders, government officials, security personnel, media, academia, members of think tanks, international organisations (IO), non-governmental organisations (NGO), civil society and women’s groups, entrepreneurs and locals during field visits to Afghanistan in October 2010, March 2011, May-June 2011, October 2011, January-February 2012 and June-July 2012.

The Af-Pak Strategy, Surge & Exit President Barack Obama, in emphasising on a renewed focus and more resources to the ‘good war’ in Afghanistan, announced a troop surge in his speech at West Point on 1 December 2009. Along with the surge, by setting the end of 2014 as the date for drawdown of forces, he ended speculations of the United States’ intent in that country and at the same time provided some clarity to his domestic constituency. It assuaged the concerns of the civilian team, led by VicePresident Joe Biden who had opposed the military commanders' (General Stanley McChrystal and General David Petraeus) request of deploying additional troops for a population-centric counter-insurgency (COIN) campaign. However, the announcement of a date of drawdown sent a different message to the ‘friends and foes’ in the region. While it evoked concerns particularly among the Afghans, the message fed into the propaganda of the Taliban-led insurgency.2 The US Secretary of Defence Leon Panetta exacerbated the situation in early 2012 by stating that the transition process could be completed by 20133, a year earlier than 2014. Likewise, calls for early withdrawal by NATO allies have further added to the concerns inside Afghanistan and the region. Although the declaration arrived at the 2010 Lisbon summit had stated that the ‘transition will be conditions-based, not calendar-driven, and will not equate to withdrawal of ISAFtroops’4, there was a perceived turnaround at the Chicago Summit in May 2012. President Obama and the NATO leaders agreed to end their role in the Afghan war, stating it is time for the Afghan people to take responsibility for their own security and for the US-led international troops to go home.5 The Summit decision called for the beginning of full transition in all parts of Afghanistan by mid-2013 and the Afghan forces taking the lead for security nation-wide. As per the plan, the ISAF will gradually draw down its forces to complete its mission by 31 December 2014.6

The present-day Taliban-led insurgency is an agglomeration of various anti-government elements (AGE) and armed opposition forces (AOF) which include followers of Afghan warlord Gulbuddin Hekmatyar’s radical group Hizb-i-Islami, the Haqqani network, Al Qaeda and its affiliates, religious clerics, power brokers, narcotic traffickers, bandits, smugglers, unemployed youth, tribal fighters in the Pakistan-Afghanistan border region. Discussions with government and security officials in Afghanistan, May-June 2007 and June-July 2012. Media Availability with Secretary of Defence Leon Panetta, US Department of Defense, 1 February, 2012, http://www.defense.gov/transcripts/transcript.aspx?transcriptid=4967. Accessed on 23 April 2012. Lisbon Summit Declaration, North Atlantic Treaty Organization, 20 November, 2010, http://www.nato.int/cps/en/natolive/official_texts_68828.htm. Accessed on 21 April 2012. Helene Cooper and Matthew Rosenberg, ‘NATO Agrees on Afghan Security Transition in 2013’ The New York Times, 21 May 2012, http://www.nytimes.com/2012/05/22/world/nato-formally-agrees-to-transition-on-afghansecurity.html?pagewanted=1&_r=1&smid=fb-share. Accessed on 23 May 2012. Chicago Summit Declaration on Afghanistan – Issued by the Heads of State and Government of Afghanistan and Nations contributing to the NATO-led International Security Assistance Force (ISAF), 21 May 2012, http://www.nato.int/cps/en/natolive/official_texts_87595.htm. Accessed on 23 May 2012.

Such hasty announcements of early troop drawdown, largely perceived as ‘exit’, have been the source of obvious concerns inside Afghanistan, especially when the insurgency is perceived to be growing in strength and the capacity of the Afghan National Security Forces (ANSFs) to withstand the insurgent onslaught remains suspect. Analysts in the West posit that the withdrawal of Western forces, in such a situation, would lead to a collapse of the evolving security system.7 Others point out that transition will either fail or be determined by Afghanistan’s internal dynamics and the role of regional states, regardless of what the US, Europe, and other aid-donors do.8 Amid such pessimistic assessments, the talks and attempts of actualising an effective transition and stabilisation process appear to be a mere lip service. It is, thus not surprising that Afghans view the inteqal (transition) process as a last opportunity for the international community to set the course right in their country.9 The paper is an exercise at stock-taking of the ground realities vis-a-vis the varying perceptions among the Afghans and the international community on the progress and challenges for Afghanistan's transition and long-term stabilisation. While the West in its haste to ‘exit’ wants to demonstrate progress, there remain concerns on the ground on the fragility of these achievements. The Afghans, while acknowledging progress, seek longer international commitment to address the grey areas that could undermine gains achieved thus far. More importantly, ‘unity of effort’ and an appropriate strategic communications strategy10 is imperative to address this widening perception gap. Unlike pessimistic analyses that predict a return of the Taliban in post-2014 Afghanistan, the paper argues against such possibility. The paper highlights the tangible gains made in the security, political, governance and economic sectors during the decade-long international presence in the country and also, the areas where gains remain fragile and reversible. Unless unified effort is made to shore up the state and institution building processes before the drawdown date of 2014, the dangers of reversal are imminent resulting in a civil war (worse case scenario) or the continuation and intensification of chaos and instability (stalemate), with the external power interventions and the regional proxies further exacerbating the internal-external conflict dynamics (internecine warfare). 7

Gilles Dorronsoro, Afghanistan: The Impossible Transition, The Carnegie Papers South Asia, Carnegie endowment for International peace, June 2011, http://www.carnegieendowment.org/files/impossible_ transition.pdf. Accessed on 10 June 2012. Anthony H. Cordesman, Afghanistan: The Uncertain Economics of Transition, Center for Strategic & International Studies, April 2012, http://csis.org/files/publication/120418_afghanistan_uncertain_econo mics_transition.pdf. Accessed on 10 June 2012. Author’s discussions with serving and former ministers, political luminaries, government officials, media personnel, security personnel, academia, members of think tanks, international organisations (IO) and nongovernmental organisations (NGO), Kabul, June-July 2012. Muhammad Sabir Siddiqi, ‘Role of Strategic Communication and Public Awareness in Actualizing Transition’ in Shanthie Mariet D’Souza (ed.) Afghanistan in Transition: Beyond 2014?, (New Delhi: Pentagon Press, 2012).

The Evolving Security Situation and the Taliban Insurgency Afghanistan continues to encounter a fragile security situation. While the 2010 troop surge achieved notable security gains on the ground, analysts argue that such gains are reversible and almost un-sustainable by the ANSFs alone. According to the drawdown plan, the additional troops of 33,000 have been withdrawn in September 2012 leaving behind 68,000 US troops in the country. As the debate on the usefulness of the surge continues, 11 the US-Afghan Strategic Partnership Agreement signed on 1 May 2012 has ensured a minimal troop presence (20,00030,000) for limited counter-terrorism, ‘train and assist’ mission. While the security situation is said to have improved in south-western Afghanistan, eastern Afghanistan, primarily provinces of Paktika, Paktia, and Khost (known as the P2K region), bordering Pakistan’s Federally Administered Tribal Areas (FATA), and area of operations of the Haqqani Network, remain deeply insurgency infested. The campaign of violence by the insurgents has been lethal and continues to sap the nascent institutions of the Afghan state. By employing asymmetric tactics with increasing use of improvised explosive devices (IEDs) and suicide bombers, the insurgents have managed to keep the levels of troop deaths high. Highprofile attacks on symbolic targets like the Intercontinental hotel in Kabul (June 2011), British Council (August 2011), the American embassy (September 2011), Kabul Star Hotel (April 2012), Qargah attack (June 2012), Camp Bastion (September 2012) demonstrate their deep strike capability and intent to garner instant and worldwide media attention. The Taliban have adopted brutal tactics of violent retribution and intimidation of the population, targeting those deemed to be associated with, or sympathetic to, the government. This strategy witnessed rampant killing and abduction of government officials, aid workers, teachers, religious and tribal leaders. . Systematic targeting and elimination of power brokers, government officials and police chiefs in 2011 added new set of complexities and raised the spectre of civil war in the north. Likewise, elimination of key government officials and power brokers in the South, has led to a power vacuum in the Pashtu areas. The Taliban have established shadow governments in areas where the writ of the Afghan government was limited or non-existent. 11

Rajiv Chandrasekaran, ‘The Afghan Surge Is Over: So did it work?’, Foreign Policy, 25 September 2012, http://www.foreignpolicy.com/articles/2012/09/25/the_afghan_surge_is_over?page=full. Accessed on 26 September 2012; Frances Z. Brown, Taking stock of the surge - from the bottom up, The Af-Pak Channel, Foreign Policy, 26 September 2012. http://afpak.foreignpolicy.com/posts/2012/09/26/taking_stock_of_the_surge_from_the_bottom_up. Accessed on 27 September 2012.

Much of the insurgent strength is derived from the sense of safety the insurgents are accorded across the Durand line, within Pakistan. Taliban recruits and enjoys safe havens in that country. The Pentagon’s April 2012 report to Congress on Security and Stability in Afghanistan stated that despite progress, international efforts to stabilise the country ‘continued to face both longterm and acute challenges’. ‘The Taliban-led insurgency and its Al Qaeda affiliates still operate with impunity from sanctuaries in Pakistan,’ the report said. ‘The insurgency’s safe haven in Pakistan, as well as the limited capacity of the Afghan Government, remain the biggest risks to the process of turning security gains into a durable and sustainable Afghanistan’, it added.12 The heightened tensions between Pakistan and the US over the assassination of Osama bin Laden by American Special Forces in the garrison town of Abbottabad in May 2011 and the subsequent accidental killing of 28 Pakistani security forces during a NATO air raid in Salala in November 2011, the increase in drone strikes inside Pakistani territory, have added complexities and limited the scope of the counter-terrorism cooperation with Pakistan. This has also resulted in Pakistan being at the ‘margins’13 in the evolving end game in Afghanistan.

Security Sector Reform (SSR) and Preparedness of ANSF At the 2010 Lisbon Summit, NATO provided a road map to transfer security responsibility to the Afghans. The first tranche of provinces, districts, and municipalities, which has 25 per cent of Afghanistan’s population, was handed over to the Afghans in July 2011. The second and third tranches were announced in November 2011 and March 2012 respectively. While the second tranche put the Afghans in the lead of providing security for more than 50 per cent of the country’s population14, with the beginning of the third tranche, 75 per cent of the Afghan population will be living in areas where the ANSF have lead security responsibility. 15 As per the decisions arrived at the May 2012 Chicago Summit, full transition in all parts of Afghanistan will begin by mid-2013.

Jim Michaels, ‘Pentagon: Strategy in Afghanistan is sound, despite hurdles’, USA Today (2 May 2012), http://www.usatoday.com/news/military/story/2012-05-01/afghanistan-taliban-coalition-progress/54666318/1. Accessed on 9 August 2012. Rasul Bakhsh Rais, ‘Pakistan`s Perspective on the Afghan Transition’ in Shanthie Mariet D’Souza (ed.) Afghanistan in Transition: Beyond 2014?, (New Delhi: Pentagon Press, 2012). Statement by NATO Secretary General on Afghan Transition Announcement, North Atlantic Treaty Organization, 27 November 2011, http://www.nato.int/cps/en/SID-656CC458-77FAA000/natolive/news_81 068.htm. Accessed on 20 April 2012. Louisa Brooke-Holland and Claire Taylor, Afghanistan: The Timetable for Security Transition, Briefing Paper, British House of Commons, 9 July 2012, www.parliament.uk/briefing-papers/SN05851.pdf. Accessed on 9 August 2012.

The natural corollary of the ANSF taking charge of the security of Afghanistan is a change in NATO mission – from combat to an advisory role. The shift to ‘train and assist’ mode has further compounded the complexities and brought to sharp focus the levels of preparedness of the Afghan forces for independent action. The contours of post-2014 security assistance to Afghanistan will be mentoring, training, and funding the ANSF. Although numerically, both the Afghan National Army (ANA) the Afghan National Police (ANP) are impressive, with 194,466 troops and 149,642 policemen16 respectively, widespread reservations have been expressed on their capacities. Will the ANSF, product of a rushed, under-resourced and frequently revamped recruitment and training procedure, be able to deliver, remains a critical question. While the US and NATO and the Afghan security officials17 are willing to underline the latter's ascending capacities, such views have been viewed with considerable scepticism among civil society and women groups, NGOs and people in Afghanistan. The impressive performance of the ANSF during some of the high-profile and well co-ordinated insurgent attacks has been cited as evidence of its growing strength and capabilities. Analysts insist that they have come of age and are no longer the ‘rag tag’ men in uniform they used to be. At the same time, concerns still exist on the ANSF capability to gather adequate intelligence on the planning and execution of well-coordinated multiple sieges, an insurgent tactic that has gained predominance. Example is cited of the multi-city Taliban attack on 15 April 2012, when Taliban suicide attackers carried out attack on Kabul, and three other eastern provinces – Nangarhar, Logar and Paktia. The fact that the insurgents could slip into the protected capital evading several security check points with a huge stockpile of weapons and penetrate the most secure inner circle of Kabul’s ring of steel is a matter of deep worry. NATO commended the ANSF for effectively defending the city and ultimately quelling the attack. But observers are quick to point out that the operation appeared impossible to conclude without the back-up support from NATO helicopters and Special Forces. NATO’s praise for the ANSF is understandable, for it is on such success that the exit strategy is predicated.18

Report on Progress Towards Security and Stability in Afghanistan: United States Plan for Sustaining the Afghanistan National Security Forces, US Department of Defence, April 2012, p.4, http://www.defense.gov/pu bs/pdfs/Report_Final_SecDef_04_27_12.pdf. Accessed on 1 May 2012. Discussions with General Sheer Mohammad Karimi, Chief of Staff, Afghan National Army, Kabul, 27 June 2012; Gen Azimi, Spokesperson, ANA, Kabul, 26 June 2012; ISAF officials, Kabul, 25 June 2012.. The contrasting views on the prevailing security condition and preparedness of ANSF were evident during discussions with civil society groups, NGOs and locals in Afghanistan. Also see Arian Sharifi, ‘Security in Afghanistan Beyond 2014: Preparedness of the Afghan National Security Forces’ in Shanthie Mariet D’Souza (ed.) Afghanistan in Transition: Beyond 2014?, (New Delhi: Pentagon Press, 2012). Discussions with ISAF officials, Kabul, 25 June 2012. Also see Bilal Sarwary, ‘Analysis: What Kabul attacks say about Afghan security’, BBC News, 16 April 2012, http://www.bbc.co.uk/news/world-asia-17725266. Accessed on 16 April 2012.

The ANA has been primarily employed to augment the international forces’ COIN campaign. In 2011, over 90 per cent of ISAF operations were conducted in conjunction with the ANA, an increase from 62 per cent of such operations in spring and summer of 2008. However, this projected conjunction could actually be a misnomer. According to a recent US Department of Defence report in 2012, only 13 out of the 156 Afghan Army battalions are classified as ‘independent with advisers’ and only 74 are seen as ‘effective with advisers’. In effect, there is very little to indicate that the ANA will be able to act autonomously over large swathes of the countryside in the next two or three years. Especially remote in the coming years is the possibility of transferring responsibility for the protection of the provinces bordering Pakistan to the Afghan army.19 Alongside the questions of capacities, maintaining a huge security force establishment is a financial impossibility for the resource-starved Afghan government. The total strength of the ANSF in October 2011 reached 306,903 (170,781 soldiers and 136,122 policemen). Future plans envisage an increase to 352,000 personnel (195,000 ANA and 157,000 ANP) by October 2012. Final ANSF end-strength post-2014, however, remains to be determined by prevailing security, political and financial conditions. The government in Kabul is bound to face the most formidable challenge of mentoring the forces and finding continuous funding for such a huge project. These numbers would be highly unsustainable for an external-aid-dependent state whose core annual budget is barely US$2.685 billion for the 2012-13 financial year. It was after much deliberation, the US and its allies, at the Chicago summit, envisaged a force of 228,500 with an estimated annual budget of $4.1 billion.20 This amounts to what the US currently spends every 12 days in Afghanistan.21 The greater worry, however, lies in the scenario of acceleration of training impinging on the quality of the forces. Analysts suggest that the ANSF is already ‘unmanageable’ and hence, the term ‘expansion’ is nothing but a paradox.22 While observers perceive some success in terms of raising a capable and independent ANA, serious concerns have been expressed about the capabilities of the ANP and the convoluted attempts in establishing rule of law. Analysts point out that while the ANA is seen as a relative success vis-a-vis the ANP, the chronic deficiencies 19

Gilles Dorronsoro, Afghanistan: The Impossible Transition, The Carnegie Papers, South Asia, Carnegie endowment for International Peace, June 2011, http://www.carnegieendowment.org/files/impossible_transitio n.pdf. Accessed on 20 May 2012. Fact Sheet: Chicago Summit - Sufficient and Sustainable ANSF, The White House, Office of the Press Secretary, (21 May 2012), http://www.whitehouse.gov/the-press-office/2012/05/21/fact-sheet-chicago-summit-sufficientand-sustainable-ansf. Accessed on 23 May 2012. Luke Coffey, The 2012 NATO Summit In Chicago: NATO In Need Of American Leadership, Eurasia Review, (17 May 2012), http://www.eurasiareview.com/17052012-the-2012-nato-summit-in-chicago-nato-in-need-ofamerican-leadership-analysis/#.T7VZ86u17Hk.email Accessed on 18 May 2012 Thomas Johnson and Matthew Dupee, ‘Transition to Nowhere: The Limits of “Afghanization”’, Foreign Policy, 22 March 2011, http://afpak.foreignpolicy.com/posts/2011/03/22/ transition_to_nowhere_the_limits_ of_afghanization. Accessed on 5 April 2011.

and problems of funding, equipment, training, desertion, ethnic balancing and infiltration cannot be overlooked.23 There are serious concerns of creating a ‘hyper-militarised’ state.24 The feasibility of building a large army without addressing larger issues of civil-military relations has been questioned, particularly when the government in Kabul is perceived to be weak. The lingering concerns of ethnic balancing and representation combined with the challenges of building a national army on meritocratic lines remain. Despite major efforts by the NATO Training Mission in Afghanistan (NTM-A) in recent years, the development of the institutional capacity of the ANSF will take years. The ANSF's quality, its professional and institutional capability and its capacity to function in an unstable and conflict-ridden environment are bound to be tested in the coming years.25 The rising incidence of ‘green on blue attacks’, i.e. rogue soldiers and police turning their weapons on their ISAF mentors, remains a serious concern. In 2011, 35 NATO soldiers and trainers were killed in 21 incidents of such ‘green on blue’ attacks by the Afghan soldiers. In the first half of 2012, there have been 32 such incidents, killing 40. The Taliban are quick to claim credit for such attacks, claiming infiltration of its cadres into the ANSF ranks. NATO commanders, on the other hand, argue that many such attacks are driven by personal grudges rather than loyalty to the Taliban or other groups.26 In addition to problems associated with inadequate vetting mechanisms and background checks due to the rush to recruit, the increased number of attacks has led to a ‘trust deficit’ between the Afghan soldiers and their mentors leading to scaling down of the NATO’s training and mentoring assistance.27 While the ANA is construed to be relatively successful, the Afghan National Police (ANP) is bedevilled with problems. The ANP is expected to perform law enforcement, border protection and counter-narcotics functions. However, the ANP is not only perceived to be ineffective, corrupt and ill-disciplined28, it faces the problems of funding, training, recruitment, equipment, 23

26 27

Author’s discussions with academia, members of think tanks and non-governmental organisations, civil society and women’s groups in Kabul, June-July 2012. Julian Glover, ‘Few politicians say it, but most think it: our Afghan war is a disaster’, The Guardian, 11 April 2011, www.guardian.co.uk/commentisfree/2011/apr/11/afghanistan-strategy-failed. Accessed on 11 April 2011. Ali A. Jalali, ‘The Challenges and Prospects of Transition in Afghanistan’ in Shanthie Mariet D’Souza (ed.) Afghanistan in Transition: Beyond 2014?, (New Delhi: Pentagon Press, 2012). Author’s discussions with ISAF officials, Kabul, 25 June 2012. Greg Jaffe and Kevin Sieff, Training suspended for new Afghan recruits, The Washington Post, 2 September 2012, http://www.washingtonpost.com/world/asia_pacific/training-suspended-for-new-afghan-recruits/2012/09/ 01/adc4ed1c-f398-11e1- b74c-84ed55e 0300b_story.html. Accessed on 3 September 2012. Despite Improvements in MoI’s Personnel Systems, Additional Actions Are Needed to Completely Verify ANP Payroll Costs and Workforce Strength, SIGAR (Office of the Special Inspector General for Afghanistan

infiltrations and desertions. ANP's development has been hindered by lack of institutional reform, widespread corruption, insufficient international military trainers and advisors. As a result, ANP has minimal control over the urban centres, with almost no presence in Afghan villages where they are most needed. To address the inadequacies of the ANP, a stop-gap measure of recruiting tribal militias under the Afghan Local Police (ALP)29 has been initiated. In a spate of anti-Taliban uprisings, on the lines of the Anwar Awakening in Iraq, these forces have been successful in repelling the harsh Taliban edicts, school closings in Ghazni, music bans in Nuristan, beheadings in Paktia and murders in Laghman, among other causes. However, concerns remain of such independent and ‘well-stocked armouries-militias and they typically behave like the Taliban with a different name’. 30 The project of replicating the Iraq model runs imminent danger of a contravention of the efforts of long-term institution-building and reforms in the security sector. These persisting weaknesses and ‘quick fixes’ are bound to affect the ANSF performance in the long term.

Political Sector, Constitutional and Electoral Reform While most of the debate on transition has veered towards security sector, meaningful discussion on the transition in the political sector, particularly when the year of handover of responsibility coincides with the 2014 presidential elections in Afghanistan, seems to be missing. Analysts posit that ‘placing sole responsibility for Afghanistan’s future stability on the ANSF without making progress in creating a stronger political consensus among Afghanistan’s diverse factions, both armed and unarmed, is a high-risk gamble’.31

Reconstruction), 25 April 2011, www.sigar.mil/pdf/audits/SIGAR%20Audit-11-10.pdf. Accessed on 22 May 2012. C.J. Radin, ‘Afghan Local Police vital to General Petraeus' strategy’, The Long War Journal, 26 March 2011, www.longwarjournal.org/archives/2011/03/afghan_local_police.php. Accessed on 29 March 2011. According to analysts, most ‘uprisings' fail to secure any kind of sponsorship, as neither Kabul nor ISAF have the resources or flexibility to offer anything of substance to such a large number of groups in equal need, David H. Young, “The anatomy of an anti-Taliban uprising”, The Af-Pak Channel, 12 September 2012, https://mail.google.com/mail/?shva=1#search/uprisings/139c0e93b3b69ce8. Accessed on 13 September 2012. Habib Khan Totakhil, ‘Taliban Targeted by Local Uprisings’, The Wall Street Journal, 20 September 2012, http://online.wsj.com/article/SB10000872396390444620104578006201295641128.html?mod=googlenews_wsj. Accessed on 21 September 2012. Caroline Wadhams, Colin Cookman & Brian Katulis, Afghanistan Transition: Elevating the Diplomatic Components of the Transition Strategy at the Chicago NATO Summit and Beyond, Center for American Progress, 17 May 2012, http://www.americanprogress.org/issues/2012/05/afghanistan_transition.html. Accessed on 20 May 2012.

Over the past decade, the highly centralised executive form of political system has been constantly challenged, both by the insurgent campaign to discredit the present political system and also by the challenges from within the system. The constant bickering between the President and Parliament, deteriorating security, poor governance and the near-absence of rule of law have sparked debates inside and outside Afghanistan for the need for wide-ranging political sector reforms. The magnitude of the problem and simmering discontent has led observers to forewarn: ‘If in 2001 the West was afraid that the absence of a strong centralised government in Kabul would prompt Afghanistan’s dissolution, by 2011 the West has come to fear that a dysfunctional centralised government could cause this same outcome.’32 In addition to the existing challenges in the political sector, the complexity of holding elections in the year of handover of authority is daunting. Analysts point out: ‘The Afghan presidential election slated for 2014 is an uninspiring prospect given the sky-high levels of corruption, nepotism, and patronage that beleaguers the Afghan political system. To make things worse, President Hamid Karzai has suggested holding the elections in 2013 to avoid an overlap with the planned end of NATO’s combat mission. And there is still no functional plan in place for a smooth transfer of political power to a post-Karzai government.’33 In the absence of large scale political sector and electoral reform, the danger of repeat of previous instances of electoral malpractices at a crucial time of transition is cause for widespread concern.34 The challenges associated with institution-building in the political sector stem from inadequate steps taken by the international community to help build a robust political system based on a sound understanding of the nature of the Afghan state and the political processes, which shape the local preferences. According to Fawzia Koofi, a potential presidential contender and Member of Parliament (MP) from Badkshan, the main issue facing post-conflict societies is the construction of a politically stable and democratic state that has both the institutions and legitimacy to remain viable in the long run.35

Thomas Barfield, ‘Afghanistan’s Ethnic Puzzle: Decentralising Power before the US Withdrawal’, Foreign Affairs (September/ October 2011). Javid Ahmad, ‘Election 2014: Afghanistan's chance to get it right?’, Foreign Policy, 10 May 2012, http://afpak.foreignpolicy.com/posts/2012/05/10/election_2014_afghanistans_chance_to_get_it_right. Accessed on 20 May 2012. Author’s discussion with various political leaders and potential presidential contenders mainly from the National Coalition and National Front – Ahmed Zia Massoud, Ahmed Wali Massoud, Dr. Abdullah, Fawzia Koofi,Kabul, June-July 2012. Fawzia Koofi, ‘Challenges of Institution Building in Afghanistan’, Presentation at an international workshop on Afghanistan in Transition: Beyond 2014?, Institute of South Asian Studies, Singapore, January 9-10, 2012. For more details see Shanthie Mariet D’Souza (ed.), ‘Afghanistan in Transition: Beyond 2014?’, New Delhi: Pentagon Press, 2012.

Afghan observers point out that the first and second Bonn conferences did not address the need for political reform. The 2004 Constitution, which is sourced mostly from the 1964 Constitution when Afghanistan was a monarchy, has established one of the most highly centralised governments in the world. A gradual political reform towards a less centralised government is a necessary step. Amending the 2004 Constitution to establish different forms of government based on decentralisation, while preserving the unity of Afghanistan, remains the only viable option. This would help build consensus among Afghans and lay the foundations of durable peace as the international military footprint recedes in 2014. If Afghanistan is to achieve some degree of stability after 2014, a concerted effort must be exerted towards political reform through checks and balances.36 Two rounds of elections in Afghanistan have identified the ineffectiveness of the current electoral system. The Afghan Constitution has shown limitations in providing answers to disputes arising from power relations of three branches of the government and jurisdictions of institutions over governing elections.37 Despite a decade-long international commitment to rebuilding Afghanistan, not much has been done for institution-building, improving governance and establishing the rule of law. The nascent democratic government led by President Karzai is perceived as weak, corrupt and ineffective by the international community and the local population. The fraud-marred parliamentary elections of September 2011 further strengthened this perception. Moreover, the reliance on local power brokers and warlords in the security operations and aid-delivery has undermined the development of effective state institutions and the rule of law. Consequently, the government now lacks credible institutional and political muscle to offset the influence of local power brokers and their deeply entrenched patronage systems. This has resulted in corruption that permeates and impedes not only governance but also the political and economic sectors and has become a major obstacle in achieving security and development.38 Problems in the political sector have been exacerbated by a corresponding governance deficit.39 The near absence of an effective and independent Afghan civil service is another area of concern. The Afghan government runs almost entirely on 'contract employment' and most of the better-qualified government employees are getting their pay from donor-financed project. This effectively means that when the donors leave with their funds, most of these government officials would also leave with them, leaving the country with an even poorer prospect of establishing servicedelivery mechanisms. 36

Ahmad Wali Masoud, ‘Political Reform and Peace-building in Afghanistan’ in Shanthie Mariet D’Souza (ed.) Afghanistan in Transition: Beyond 2014?, (New Delhi: Pentagon Press, 2012). Author’s discussion with Sima Samar, Chairperson, Afghan Independent Human Rights Commission (AIHRC), Kabul, 1 February 2012. Ali A. Jalali, ‘The Challenges and Prospects of Transition in Afghanistan’ in Shanthie Mariet D’Souza (ed.) Afghanistan in Transition: Beyond 2014?, (New Delhi: Pentagon Press, 2012). Shahmahmood Miakhel, ‘Myths and Impact of Bad Governance on Stability in Afghanistan’ in Shanthie Mariet D’Souza (ed.) Afghanistan in Transition: Beyond 2014?, (New Delhi: Pentagon Press, 2012).

The lack of effective governance as also of anti-corruption measures and the absence of more inclusive politics would impede effective transition. Despite repeated attempts, the international community has been unable to convince President Karzai to permit political parties to assume a more direct role in the election process. This combined with a peculiar voting system of Single Non-Transferable Vote (SNTV) has contributed to the country’s fragmented politics and often immobilised legislative process. Analysts forewarn that the international community’s leverage with Afghan government in pressing for political sector reforms would decline as its presence in the country reduces.40 The presidential elections are scheduled to be held in 2014, coinciding with the pullout of international troops. In the absence of large-scale political sector and electoral reform, the danger of repeat of previous instances of electoral malpractices at a crucial time of transition remains a cause for widespread concern. The Afghan Constitution does not allow President Karzai to run for a third term. A smooth transition of power to a new elected president and an expansion of the political basis of the government will have a positive impact on the stabilisation of the country. On the contrary, any attempts by the present-day government to delay the elections as part of a power-sharing deal with the Taliban or to introduce measures such as convening a ‘Loya Jirga’ to rubber stamp an unconstitutional move to stay in power or appoint a ‘successor’, or resort to a la Putin technique could see the country slide back into renewed civil strife.41

Peace Talks, Reconciliation and Reintegration The ambiguity of the peace processes, reconciliation, reintegration, talks and negotiations with the insurgents has complicated the search for the ‘political solution’ to end the long war in Afghanistan. As individual countries are involved in unilateral and parallel efforts of negotiations, setting up office and contacts outside Afghanistan, this has further reinforced the notion that the West is willing to cut a deal with the insurgents and leave. Such secretive and uncoordinated attempts have also raised concerns among the women and human rights groups and ethnic minorities. According to a survey conducted by Asia Foundation, ‘most Afghans want their girls educated, they want women to be able to go to the marketplace freely, they want them to be in public freely, they don’t agree with what the Taliban had done in the 1990s’. 42 However, in the present discourse on transition, not just the gender narrative has taken a back seat, there 40

Marvin Weinbaum, ‘US Perspectives of the Afghan Transition Process’ in Shanthie Mariet D’Souza (ed.) Afghanistan in Transition: Beyond 2014?, (New Delhi: Pentagon Press, 2012). and factions– Dr. Abdullah, Fawzia Koofi, Ali A. Jalali, Ahmed Zia Massoud, Ahmed Wali Massoud, Amrullah Saleh, Hanif Atmar, Sima Samar, Kabul, October 2011, January-February and June-July 2012. Ruth Rennie (ed.), Afghanistan in 2011: A Survey of the Afghan People, The Asia Foundation, 2011, http://asiafoundation.org/resources/pdfs/TAF2011AGSurvey.pdf. Accessed on 15 May 2012.

are impending fears that the achievements made in the last decade with regard to women’s rights could be lost.43 The indigenous peace-building efforts like the High Peace Council (HPC) and the Afghan Peace and Reintegration Programme (APRP)44 appear to be casualty in the process, of both the insurgent onslaught45 and the international community's strategy of omission. Even with the long-standing focus on negotiation with the high-ranking Taliban leaders, it is unclear if the international community has moved beyond a phase of opportunistic negotiation, i.e. negotiating with whosoever is available and willing rather than with insurgents of consequence and insurgents enjoying the sanction of top leaders in the insurgent hierarchy. It is still not clear whether the process involves the Taliban leadership based in Quetta (Quetta Shura Taliban). Or, is it simply trying to rope in people who have grown irrelevant to the insurgent movement, sometimes even getting duped by impostors who pose as interlocutors or representatives of the Taliban? While the lack of credible information on the identity of the interlocutors is a lesser problem, several critical hurdles remain for the parties involved to make any significant headway. The most important is the demand of the US that it would retain bases within Afghanistan beyond 2014. President Karzai has downplayed the talk of permanent presence of US troops, stating that it would be an impediment for negotiations with the Taliban who demanded complete withdrawal of foreign forces as a precondition for talks. Some moves were made to release imprisoned Taliban commanders from the detention centre at Guantanamo Bay, the failure to do so prompted the Taliban to suspend the peace talks in March 2012. Efforts, however, continued to keep the fledgling negotiation process going, both by the US and its allies. Lack of a Pakistani endorsement, rooted in the country's fear of being sidelined from the endgame in Afghanistan, has also played spoiler. In 2009, the negotiation prospect with the Taliban made some progress through a Taliban commander Mullah Baradar, second in command to Mullah Omar, the leader of the Taliban. However, Pakistani establishment stepped in and arrested Baradar in early 2010, derailing the entire process. The same process resumed in 2012. Some other sources identified Tayyeb Agha, head of the political committee of the Taliban as 43 44

Author’s discussions with women’s groups and civil society organisations, Kabul, January and June 2012. For more details on the HPC and APRP, see Mohammad Masoom Stanekzai, ‘Peace, Reconciliation and Reintegration in Afghanistan: Challenges and Milestones Facing Peace Talks, Transition and Stability in the Region’ in Shanthie Mariet D’Souza (ed.) Afghanistan in Transition: Beyond 2014?, (New Delhi: Pentagon Press, 2012). The killing of the HPC chief Burhanuddin Rabbani in September 2011 by a Taliban ‘peace emissary’ was a major setback for the peace process. On 14 April 2012, Salahuddin Rabbani, the son of slain Burhanuddin Rabbani was chosen to lead the HPC. The next day, Taliban carried out multiple siege attacks, showing a complete disdain towards the peace process.

another key interlocutor for the back channel talks. Tayyeb, too, was rumoured to have been arrested by Pakistan in 2010 along with some other Taliban leaders. The control of the Pakistani military and intelligence over the Taliban leadership, seen as the ‘strategic assets’, would make any meaningful Afghan-led reconciliation process an arduous task. The US desire to talk to the insurgents from a position of strength continues to be a pipe dream. With the beginning of drawdown of international forces, the Taliban perceive themselves to be winning. In addition, by launching a successful campaign of violent retribution and targeted assassinations, the Taliban managed to create a power vacuum of sorts in southern Afghanistan. Three major assassinations in 2011 – Ahmed Wali Karzai, half brother of President Karzai, and presidential aide Jan Mohammed Khan, both powerful warlords and the Mayor of Kandahar, Ghulam Haider Hamidi – created a power vacuum in the south with consequent erosion of President Karzai’s support base among the Pushtuns. As the contours of the negotiations remain unclear, the high-profile killings in the north and systematic elimination by the insurgents of those who oppose the negotiations process have raised fears among other ethnic and women groups. It has also led to polarisation of among other ethnic groups 46 with whispers of civil war gaining momentum. The talk of the early withdrawal of international forces and the ongoing negotiations with the Taliban have not only raised the levels of anxiety but have also been exploited by various actors as they position and jockey for power and influence in post-2014 Afghanistan. The negotiations with the Taliban constitute one such source of anxiety. As Americans claim that they have established contacts with the insurgents for peace talks in Qatar, various segments of the insurgency and power brokers are aiming to outbid each other in order to secure a larger portion of the pie. Not surprisingly, most of the violence has taken place in areas dominated by the Hizbe-Islami. Its leader Gulbuddin Hekmatyar, is eyeing a major share of the peace deal.

Aid, Economic Development and Regional Cooperation Most of the discourse on transition has focused on the numerical strength of the troops that would be adequate to maintain the country’s security. Civilian capacity building, economic opportunities, trade, transit and investment that would change the narrative of Afghanistan from being an aid-dependent ‘rentier state’ to a self-sustaining economy, thereby bringing in longterm stability, have received comparatively less attention. The intrinsic nature of aid-giving and 46

Author’s discussion with various political leaders including the National Coalition and National Front – Ahmed Zia Massoud, Ahmed Wali Massoud, Dr. Abdullah, Amrullah Saleh, Fawzia Koofi, Kabul, June-July 2012.

execution of development projects through contracts and sub-contracting, has done little to build on state capacities or local ownership. Afghanistan’s problem essentially lies in the lack of ‘unity of effort’ (UoE) on the part of the international community in developing a well-coordinated and long-term strategy to build and strengthen the institutions and ‘bring the state back’ into the development process. In rebuilding conflict-ridden states like Afghanistan, aid-delivery through ‘alternate delivery mechanisms’ like the IOs and INGOs or direct delivery through embassies, and community-based groups plays a crucial role in providing immediate humanitarian relief and assistance but in the long term have not been helpful in building state institutions of delivery and implementation.47 At a time of dwindling international financial assistance to Afghanistan, concerns abound on sustaining its economy and revenue beyond 2014. Contrary to the Afghan government's November 2011 estimate, it requires US$120 billion (at the rate of US$10 billion per year) in aid in the post-2014 period, through 202548. At the Tokyo summit in July 2012, international community promised to give US$16 billion through 2015 to build its economy and make necessary reforms. Such dwindling financial aid is construed as a natural corollary of the declining interest of the West in Afghanistan. Development aid from US, the largest aid donor, has dropped from US$3.5 billion in 2010 to about US$2 billion in 2011. Aid to support democracy, governance and civil society dropped by more than 50 per cent and from US$231 million to US$93 million in the same period.49 Amidst such a drop in aid-giving, exploring avenues for revenue generation, trade, foreign investment and development of indigenous economic base remains critical. Over the coming years, Afghanistan will have to compensate for such shrinkage of external support. The full impact of the shrinkage on Afghanistan’s economic growth, fiscal sustainability and service delivery will probably not be felt until after 2014. The huge international spending in Afghanistan over the past decade has dramatically raised domestic prices (particularly of skilled workers and residential/commercial properties) that the country is no longer export-competitive vis-a-vis other South Asian countries. At least in this respect, the gradual scaling down of foreign spending might help lower prices closer to 'South Asian levels', which may help Afghanistan in increasing its exports although 'transit' issues will still remain a challenge.

For a grassroots perspective on aid effectiveness see Rangina Hamidi’s, ‘Aid, Development, Women, NonGovernmental Organisations: Grassroots Perspective’ and Najeeb Ur Rahman Manalai, ‘Afghanistan in the Course of Transition: Civilian Surge, Aid Coordination, War Economy and Alternative Livelihood’ in Shanthie Mariet D’Souza (ed.) Afghanistan in Transition: Beyond 2014?, (New Delhi: Pentagon Press, 2012). Towards a Self-Sustaining Afghanistan, An Economic Transition Strategy, Speech of President Hamid Karzai, Bonn Conference, 30 November 2011.Government of the Islamic Republic of Afghanistan, and dated November 29, 2011. Julian Borger, ‘Afghanistan conference promises support after troop withdrawal’, The Guardian, 5 December 2011, http://www.guardian.co.uk/world/2011/dec/05/afghanistan-conference-support-troop-withdrawal. Accessed on 20 May 2012.

The transition process also assumes that Afghanistan will remain an aid-dependent state, in need of assistance to its economy and development for at least another decade. While the second Bonn conference on ‘Afghanistan and the International Community: From Transition to the Transformation Decade’ held in December 2011 has set an extended period of international assistance: 2014-24 and has termed it the ‘transformational decade’, the contours of international assistance and engagement remain highly unclear. A series of international conferences seems to miss the crucial point that stabilising Afghanistan by devising quick-fix solutions and setting arbitrary timelines do not meet the needs on the ground. A successful transition is contingent on the continued, albeit slow, growth in the administrative capacity of government ministries, and on improvements in local governance, civil service, development and employment opportunities at the district level. Afghanistan’s tragedy lies in the fact that time and again its internal contradictions have got trapped in the external power agenda. With the intensification of the search for the ‘end-game’, a regional consensus50 by forging greater cooperation is seen as a way out of the imbroglio. One way of building a cooperative regional architecture is through greater trade and transit, investment opportunities, including energy pipelines. The Istanbul Conference for Afghanistan: Security and Cooperation in the Heart of Asia, held on 2 November 2011, provided a new agenda for regional cooperation, by placing Afghanistan at its centre and engaging the ‘Heart of Asia’ countries in sincere and result-oriented cooperation for a peaceful and stable Afghanistan, as well as a secure and prosperous region as a whole. The emphasis for the first time on a regionally owned process led by Afghanistan, with support and collaboration from its near and extended neighbours, would make this effort ‘sustainable and irreversible’ in the long term.51 As the first follow-up ministerial meeting of the Istanbul Process, the ‘Heart of Asia’ Ministerial Conference, convened on 14 June 2012 in Kabul, re-affirmed the commitments enshrined in the 2002 Kabul Declaration of Good Neighbourly Relations and in the document on principles stipulated in the Istanbul Process on Regional Security and Cooperation for a Secure and Stable Afghanistan. The narrative has thus been gradually shifting to regional confidence-building, development, governance, and most lately, trade, transit and investment, aiming to use the country's resourceand transit- potential to build its economic viability, sustainability and self- reliance. To a large extent, the genesis of this thinking is based on the inadequacies of the security-dominated approach of the last decade. The discovery of huge reserves of minerals and natural gas has raised hopes of possibility of revenue generation, foreign investment and employment 50

Haroun Mir, ‘Is Regional Consensus on Afghanistan Possible?’ in Shanthie Mariet D’Souza (ed.) Afghanistan in Transition: Beyond 2014?, (New Delhi: Pentagon Press, 2012). Author’s interview with Javed Ludin, Deputy Foreign Minister, Government of Afghanistan, Kabul, 30 June 2012.

opportunities. To what extent these strategies can overcome the need to bring in security remains to be seen. The Afghanistan International Investment Conference of 30 November 2010 held in Dubai and the Brussels Euro Mines Conference of 26 October 2011, aimed at promoting economic investment in Afghanistan, made valuable recommendations, but they essentially put the onus for investment on actions to be initiated by Afghanistan. The 28 June 2012 Delhi Summit, taking into consideration the realities and needs on the ground, explored near-term and long-term possibilities in the current environment and at the same time, sought a mechanism to address the needs of foreign and private sector investors and the government of Afghanistan. This is reflective in the efforts geared to catalyse investment decisions and forge cross-country and international partnerships to promote cooperation and greater collective confidence. A collective view of security for foreign investors would emerge from the reality of venturing together, rather than individual investors risking an uncertain environment all by themselves. The long term economic benefits, revenue and employment opportunities arising out of investment, trade and transit would help build ‘constituencies of peace’. The TurkmenistanAfghanistan-Pakistan-India (TAPI) pipeline is another regional collaborative venture that has enormous potential of bringing in economic dividends through mutually beneficial regional cooperation. By forging a greater stake and regional commitment to rebuilding Afghanistan through alternate economic opportunities, foreign investment and local development strategies, capitalising on Afghanistan’s location, energy and mineral resources in a mutually interdependent regional framework, could pave the way out of the stability-instability paradox. Not all is lost in Afghanistan. As Afghanistan traverses a difficult course of transition, there is an immediate need to bridge the perception gap between the Afghans and the international community to build on the gains and address the immediate areas of concern. In the decade-long international involvement, a unified vision and effort of putting Afghans in the lead for rebuilding their state and society remains the missing link in the stabilisation efforts. It is critical to rectify this trajectory and set realistic timetables on drawdown based on conditions on the ground. The gains made thus far are substantial but remain fragile. Unless critical efforts are made to shore up the state’s institutions and capacities before the drawdown date of 2014 and unless long-term international commitment, a unified strategic communications strategy and regional cooperation is guaranteed, stability in Afghanistan would remain a distant dream. .....

ISAS Working Paper No. 162 – 16 November 2012 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Northeast India-Southeast Asia Connectivity: Barrier to Bridge Laldinkima Sailo1 Abstract Despite being the only part of India that provides land connectivity to Southeast Asia, the Northeast Region (NER) has received very little or negligible attention under New Delhi’s Look East Policy. In fact, the region was not considered a part of the policy for many years but there has been a change. Today, the Northeast Region is portrayed as an important focal point, and the development of this region is often cited as one of the main objectives of the Look East Policy. Indeed, the impression about the region has transformed from that of a barrier to a bridge between India and Southeast Asia. This paper traces the internal dynamics, the Government of India’s attitude towards the region and the external factors that have led to this transformation. “Geography is no longer a buffer. Events taking place across borders, near and far, impact on a much more direct manner on us. In some cases, such developments affect our bilateral relations and regional relations; in other cases, they affect our economic and social fabric….. India is aware of the geo-economic potential of the North-Eastern region as a gateway to East and South-East Asia. I am convinced that by gradually integrating this region through cross-border 1

Mr Laldinkima Sailo is Research Associate at the Institute of South Asian Studies (ISAS), an autonomous research institute at the National University of Singapore. He can be contacted at isasls@nus.edu.sg. The views expressed in this paper are those of the author and do not necessarily reflect those of ISAS.

market access, the North Eastern states can become the bridge between the Indian economy and what is beyond doubt the fastest growing and dynamic region of the world.”: Pranab Mukherjee as the External Affairs Minister of India2 in 2007.

Introduction On 16 June 2007, the then External Affairs Minister of India announced the changing attitude of the Central Government towards the Northeast Region (NER). He made clear what was already known but never acknowledged officially. That the Northeast Region was a buffer and a frontier for colonial British India and subsequently independent India and its main usefulness to India was to serve as such and remain governed within that paradigm. This was set to change, but this context also gives a glimpse into why the region was not part of the Look East Policy (LEP), despite being the only region in India that provides land connection to Southeast Asia. It is only 15 or more years after the announcement by the Narasimha Rao government that Northeast India has come under the purview of India’s efforts to engage with its eastern neighbours. Until now, Indian policymakers, heeding the advice of security officials, considered it best not to deviate too much from the way the region was treated by the British colonial administration as it suited the geopolitics of the time. The hilly regions of Burma provided the necessary buffer against China as well as the French, who were then moving up the Mekong River from Saigon.3As a frontier region, once it became part of India, it was widely held that the NER’s rugged terrain, impregnability and inaccessibility provided the best form of barrier against China and this suited the security establishment. It was often argued that opening up of the borders with greater physical connectivity would expose the region to increased scale of armed infiltration and greater vulnerability. Besides the external threat, the Northeast states’ extremely limited connectivity within their own borders made any effort to connect the region to other parts of India, Bangladesh or Myanmar economically unviable4. It was also documented that this lack of connectivity within the region was the crucial missing link as to why economic development could not take off, at a time when Assam saw huge investments in the 19th and early 20th centuries5. Economic theorists have also supported this 2

Speech by the Minister of External Affairs, Mr Pranab Mukherjee at a Seminar on Look East Policy organised by the Public Diplomacy Division, Ministry of External Affairs, Govt. of India. Shillong 16 June 2007. Myint-U, Thant (2011). Where China Meets India: Burma and the New Crossroads of Asia. New York: Farrar, Straus and Giroux, p 58. See also Scott, James C. (2009) The Art of Not Being Governed: an Anarchist History of Upland Southeast Asia, New Haven & London: Yale University Press. P 272. Shekhar, Vibhanshu (2008). ‘Northeast’s Look East Policy: Securitizing the Region through Development’, South Asia, 2494, New Delhi: Institute of Peace & Conflict Studies. Barua, Alokesh (2005). ‘History, Trade and Development’ in Alokesh Barua (ed.), India’s North-East: Developmental Issues in a Historical Perspective, New Delhi: Manohar, p. 434

view based on the conjecture that if growth is modelled in a way where it does not affect a segmented pool of the poor and if there are areas not linked to the mainstream or inner cities which are structurally delinked from the main city where growth is occurring, then growth will pass the poor by6. The encouragement of economic activities -- trade, investments, tourism etc -- also requires an understanding of the region in terms of its historical experiences in this regard. While we know that Assam had extensive trade links with Tibet through Bhutan and with Southwest China, there is scanty evidence of trade taking place among the hill tribes of the Northeast, though their cultural and social linkages with other hill tribes of Southwest China and Southeast Asia are documented. By and large, hill tribes limited their economic relations with valley markets (in this case Assam)7 and were not part of any known mercantile communities. Even today, trading or merchant communities or classes, of the kind that have come to dot many parts of South Asia and Southeast Asia, are difficult to identify and conspicuously absent in Northeast India. The question of whether the NER will benefit by serving as a bridge between the Indian economy and the Southeast Asian economies, and whether there are any historical trade links between the NER and Southeast Asia that can be built on to enable trade to take place now, are important and key considerations in any effort to use the NER as a bridge between India and Southeast Asia. This paper will however limit itself to investigating how there has been a turnaround in the way India sees the NER - from a barrier to a bridge! This will be assessed through an examination of internal dynamics towards the NER as well as New Delhi’s foreign policy imperatives that have brought about the current thinking. This paper will look at the evolution of India’s Look East Policy and how it has come to incorporate the Northeast Region in the policy framework for deepening its relationship with Southeast Asia. Juxtaposed with this, the paper will also assess the internal discourse on how the Central Government has changed its strategy towards its handling of the region. It will also attempt to address the question whether the need to incorporate NER has come about because of larger foreign policy objectives or whether it is part of a genuine effort to search for solutions to end insurgency and usher economic development in the NER.

Bhagwati, Jagdish and Srinivasan, T. N.(2002). ,’Trade and Poverty in the Poor Countries’, American Economic Review. 92 (2), p 180-183. Scott, James C. (2009). The Art of Not Being Governed: an Anarchist History of Upland Southeast Asia. New Haven & London: Yale University Press, p. 107.

External Factors Even before India renewed its engagement towards its eastern neighbours, in what is loosely identified as the Look East Policy (LEP) sometime in the beginning of the 1990s, Nehru had espoused a vision of a ‘closer union’ with the East on the basis of ‘geographical proximity, similarity of historical experiences, cultural identity, economic interests and common strategic concerns’8. This holds particularly true for the Northeast Region and Southeast Asia which form a continuous geographical landscape with similar historical experiences, strong cultural and language affinities which are even at times malleable and overlapping! Even after Independence and the drawing of boundaries over what was once a single continuous economic unit, trade and economic activities continued to thrive across the international borders, albeit ‘informally’. This was however not what Nehru referred to nor was it to be seen as a building block on which closer relations between India and Southeast Asian could be built. The focus has rather been on Buddhist and Hindu links as well as maritime trade between the two regions. The circumstances under which India looked to the East in the 1990s had nothing to do with any intention to position the Northeast region as an integral part of the policy. The looming global context in which India was forced to look eastward was the end of Cold War and the collapse and disintegration of the Soviet Union, India’s staunchest ally. Bereft of a strong partner and an ally, “India was forced to explore other options, both regionally and globally, in search of preserving and promoting its economic and strategic interests and there, the eastern neighbours offered a promising area of engagement”9. Southeast Asia, along with South Korea, Taiwan and China showed spectacular economic achievements in the previous years, with Japan leading the earlier round of an Asian resurgence and now driving growth in the region through its investments. The consolidation of the region provided an opportunity, both as a source of investments for India as well as market. This was at a time when India was liberalising its economy in the face of severe balance of payment (BoP) crisis, which made the eastward orientation all the more crucial. There are also other important strategic factors that triggered India’s LEP. The end of the Cold War placed the Asia Pacific region on focus for India. Prime Minister Narasimha Rao said ‘While one cannot deny the overwhelming military superiority of the United States, one cannot ignore the significant military development of China, Japan and Australia. The stakes in the Asia-Pacific region are indeed high. They involve rights of passage through crucial waterways,

Muni, S.D. (2011, February) ‘India’s ‘Look East’ Policy: The Strategic Dimension’, ISAS Working Paper, 121 (1). p 5. Ibid.

security of navigation from piracy, claims over disputed lands, maritime zones and resources and hostilities through history that have been diffused but not dispelled’10. India was particularly concerned about China’s increasing influence in Southeast Asia and particularly in Myanmar (Burma). China, along with Pakistan, was fast expanding influence with the post-General Ne Win military leadership. There were reports of Chinese listening posts in Myanmar’s Indian Ocean islands to monitor developments in India’s missile programme. According to some analysts, strategic competition with China was the ‘undeclared element’ of LEP, based on the alarming trade value between China and Southeast Asia11. India’s evolving relationship with Myanmar is particularly important in the context of bringing the Northeast as a consideration in the LEP and will be dealt with in greater detail later. Besides these, there were allegations of India’s naval expansion and assertive intentions in the Indian Ocean which prompted the move to develop closer relations with the eastern neighbours to allay suspicion and build a relationship that would be mutually beneficial for India as well as Southeast Asia 12. As India’s engagement with Southeast Asia increased, the Northeast Region remained unaffected. India’s trade with ASEAN has grown from US$ 2.3 billion in 1991-92 to US$ 45.34 billion in 2008-09. There had been phenomenal growth in trade between India and China during the same period. At the beginning, India laid emphasis on the older ASEAN members -Singapore, Malaysia, Thailand and Indonesia. Singapore played a particularly important role in facilitating India’s institutional linkages with the regional grouping and also enjoys the closest relations with India in the whole of the region. India became a Sectoral Dialogue Partner of ASEAN in 1992, a full ASEAN Dialogue partner in 1995, and a member of the ASEAN Regional Forum in 1996. Much of the emphasis of the LEP was on economic relations at the time the Rao Government conceived it13. Initially, the sectors identified for partnership were trade, investment and tourism but extended to include human resources development, science and technology, transport, infrastructure, health, small- and medium-scale enterprises and people-to-people relations involving cultural and professional exchanges14. In 1991-92, India’s exports to ASEAN countries amounted to US$1.27 billion and accounted for 10 per cent of India’s total exports. Although the ASEAN’s foreign direct investment (FDI) flow into India was a meagre INR 15.5 million or 0.29 per cent of India’s total FDI inflows, it rose sharply to INR

13 14

See, Chak Mun (2009). India’s Strategic Interests in Southeast Asia and Singapore. Singapore: Macmillan for Institute of South Asian Studies (ISAS), p.54. Batabyal, Anindya (2011 ‘Balancing China in Asia: A Realist Assessment of India’s Look East Strategy’, China Report. 42 (2), p. 179. Muni, S. D. (2011, February). ‘India’s ‘Look East’ Policy: The Strategic Dimension’, ISAS Working Paper 121 (1), 10. Also, Santarita, Joefe B. (2011). ‘Exploration or Implementation: The Current State of India’s ‘Look East’ Policy’, FPRC Journal, 8 (Special Issue: India’s Look East Policy). See, Chak Mun, India’s Strategic Interests in Southeast Asia and Singapore, p. 52. Muni, S. D. ‘India’s ‘Look East’ Policy: The Strategic Dimension’,p. 15

1.4 billion the following year, and by 1995, it reached a peak amount of INR 447.3 billion or 14.75 per cent of India’s FDI inflow that year15. Vietnam joined ASEAN in 1995, Lao PDR and Myanmar in 1997, and Cambodia on 30 April 1999, making up what is today the 10-member ASEAN. The inclusion of these countries was significant in that it provided a land connection for India to Southeast Asia through Northeast India. It enabled India to build on the “fund of goodwill and close understanding”16 with these countries and provided an impetus for deeper strategic engagement with them, particularly with regard to mutual interests and China. It also opened an opportunity for India to explore new regional groupings and provided space for manoeuvre. ASEAN’s own view is that India’s trade with Cambodia, Laos, Myanmar and Vietnam will serve as an “opportunity to help these newer, less-developed members of the organisation catch up and further intra-ASEAN trade and unity”17. In 1997, with Thailand taking the initiative, India became a founding member of a sub-regional grouping called Bangladesh, India, Myanmar, Sri Lanka, and Thailand Economic Cooperation (BIMSTEC) which subsequently changed its name to the Bay of Bengal Initiative for MultiSectoral Technical and Economic Cooperation, while retaining its acronym. However, it was only in 2002 that BIMST-EC gained strategic importance “when it coincided with India’s change in attitude towards regional trade agreements”18. In 2000, India along with Thailand, Cambodia, Laos, Myanmar and Vietnam launched the Mekong-Ganga Cooperation (MGC), with the objective of restoring old religious-cultural ties and to demonstrate close geographical proximity between them through sub-regional co-operation in tourism, culture, infrastructure, and information technology. The priority of infrastructure cooperation included the development of transport links, through road, rail and air, connecting Northeast India with the countries in Southeast Asia, and eventually Northeast Asia. Physical connectivity between India and Southeast Asia was also pursued through the Trilateral Highway Agreement and the Trans-Asian Railway initiative under the Asian Land Transport Infrastructure Development (ALTID) Project. ALTID, in turn, has been a priority project under the New Delhi Action Plan on Infrastructure Development in Asia and the Pacific (1997-2006)19. In 2003, at a summit in Bali, India’s Prime Minister A B Vajpayee announced an “open skies” policy, to connect all 10 ASEAN capitals with four metropolises in India through daily flights, 15 16 17

18 19

See, Chak Mun, India’s Strategic Interests in Southeast Asia and Singapore, p. 53. Muni, S. D. ‘India’s ‘Look East’ Policy: The Strategic Dimension’, p. 13. Chachavalpongpun, Pavin (2011), ‘Look East Meets Look West: India-Southeast Asia Evolving Relations’, FPRC Journal 8 (Special Issue: India’s Look East Policy). See, Chak Mun, India’s Strategic Interests in Southeast Asia and Singapore, p. 75. Development of the Asian Highway, UNESCAP. < http://www.unescap.org/jecf/p06highway.htm>, Accessed 13 September 2012

without further bilateral discussions. It also offered ASEAN member-nations flights to 18 tourist destinations in India to improve people-to people connectivity20. At an earlier summit, in Phnom Penh in 2002, Mr Vajpayee brought up the idea of linking New Delhi and Hanoi with a railway line, an idea that was first mooted in 1992 by the Transport Department of United Nations Economic and Social Council for Asia Pacific (UNESCAP). At the time, it was reported that serious objections were raised by the Indian Home Ministry. It was feared that it could lead to an increase in the smuggling of drugs and arms to militants in India 21 but clearly there had been a change in attitude since then. The idea behind the development of a rail link is that it will boost trade between India and ASEAN substantially and that Cambodia, Laos, Vietnam and Myanmar — the four newest members of ASEAN, all of whom will be on the rail route — along with Singapore, have been portrayed as being most vocal in pushing India’s case for closer ties with ASEAN22. Currently, the rail connectivity among Myanmar, Vietnam, Laos and Cambodia is poor. During Prime Minister Manmohan Singh’s visit to Myanmar in May 2012, an agreement was signed to set up a joint committee to explore the possibility of developing rail infrastructure from India, through Myanmar, to Hanoi and other destinations in Southeast Asia.23. On the Indian side, the infrastructure development needed to focus on the border region. A past feasibility study conducted by the Rail India Technical and Economic Services Ltd on the proposed freight corridor, estimated the Jiribam- Imphal-Moreh rail link to cost US$ 649 million, the Tamu-Kalay-Segyi link in Myanmar US$ 296 million, and the cost of refurbishing the Segyi-Chungu- Myohaung line was pegged at US$ 62.5 million24. India’s proposed projects invited competition in the form of China’s initiative to build railway lines to connect South China to Southeast Asia. Another railway line was initiated to connect Kunming to Singapore. Yet, another rail network was constructed from Myitkyina (in Myanmar) near the Chinese border, to Yangon via Mandalay, bringing remote areas together and opening up Myanmar to Chinese economic expansion. China has built roads from three districts, namely Yinchaing, Lungchuan, and Tengchung of Yunnan province to Myanmar towns25.

22 23

‘PM Announces ‘Open Skies’ Arrangement with Asean’(2003, October 9), The Financial Express. <http://www.financialexpress.com/news/pm-announces-open-skies-arrangement-with-asean/95458/0.>, Accessed 13 September 2012. ‘Race with China on Hanoi Train- PM Breathes Life into Plan for Transnational Track’ (2012, September 5), The Telegraph, < http://www.telegraphindia.com/1030905/asp/frontpage/story_2335157.as>. Accessed 13 September 2012 Ibid. Media Briefing by Foreign Secretary in Nay Pyi Taw on Prime Minister’s Ongoing Myanmar Visit. Ministry of External Affairs, Govt. of India. <http://www.mea.gov.in/mystart.php?id=190019561>, Accessed on 13 September 2012 Bhattacharya, Anushree (2008), ‘Linking Southeast Asia and India: More Connectivity, Better Ties’, IPCS Special Report 50. Ibid.

In 2004, drawing from a proposal made by Mr Vajpayee, a car rally was flagged off by Prime Minister Manmohan Singh from Guwahati and it ended in Vientiane, Laos. A news report at the time noted, “In accordance with the policy of focusing on the development of Northeastern states, it was decided to flag off the rally from Guwahati26”. Later this year, to commemorate the 20 years of the ASEAN-India association another rally is being planned. This time it will symbolically start from Yogyakarta, Indonesia, on November 25 and will actually get going from Singapore on November 28 and pass through Thailand, Malaysia, Vietnam, Cambodia, Laos and Myanmar and finally enter India from the border of Moreh near Imphal in Manipur, come to Kohima and Dimapur in Nagaland and then reach Guwahati, Assam, on December 16. Some cars will thereafter proceed to Delhi27. In addition to the above, work on the multi-modal project, linking Mizoram in the Northeast through inland waterway and roads to Sittwe, Myanmar began in 2008 and is expected to be completed by 201528. Another agreement signed in 2012, as part of the commitment to the Trilateral Highway Project, will see the development of a road link from Moreh in Manipur to Myanmar that will eventually reach Mae Sot in Thailand. The target date of completion for this is 2016.

Northeast India and Myanmar India’s focus of attention under the LEP vis a vis the Northeast has been Myanmar because the latter is crucial to the development of infrastructure. This is because all the proposed projects have to pass through Myanmar and India’s policy towards the country is a factor that determines New Delhi’s position on the NER. The changing dynamics of the two countries’ relationship has an effect on the Northeast as well as New Delhi’s objectives in how it should engage Myanmar. Myanmar’s own domestic and foreign policies have a high potential to directly impact on several significant components of India’s strategic interests. Reported among them include the protection of India’s territorial integrity in the Northeast; the economic growth and development of India’s remote Northeast states; the ending of long-running insurgencies in the Northeast states; India’s strategic interests in the Indian Ocean and the Bay of Bengal as well as the security of the Andaman and Nicobar Islands. In addition to these are India’s energy requirements from 26

India-ASEAN Car Rally Begins (2004, November 23), Rediff News,. http://www.rediff.com/sports/2004/nov /23rally.htm. Accessed 13 September 2012. ‘ASEAN Car Rally Arrives to India‘ (2012, May 17), Insurance Round Up- ICICI. https://www.icicilombard.c om/insurance-updates/ASEAN-Car-Rally-Arrives-to-India.html . Accessed 13 September 2012. Prime Minister’s address to think-tanks and business community at an event organised by Myanmar Federation of Chambers of Commerce and Industry and the Myanmar Development Resource Institute in Yangon on India and Myanmar: A Partnership for Progress and Regional Development. Ministry of External Affairs, Govt. of India. http://www.mea.gov.in/mystart.php?id=190019561, Accessed on 13 September 2012.

Myanmar as it is a rich source of natural gas; a meaningful Look East policy, Myanmar being the only land bridge between India and Southeast Asian countries; and, China’s ambitions in South and South East Asia29. And indeed, India’s engagement with Myanmar has been propelled by and so far focused on three crucial factors: the lure of economic opportunities - presented particularly by trade and energy imperative -- attempts at countering China’s growing influence and the desire to tackle insurgency in the Northeast30. While trade across the border is significant, as mentioned, the focus so far has been on other areas. India's imports from Myanmar (US$ 876.13 million in 2010-2011) are dominated by agricultural and forest-based products including beans, pulses, timber and wood products. On the other hand, India's exports (US$ 194.75 million) to Myanmar, though small, are diverse, ranging from primary commodities to manufactured products and is dominated by pharmaceutical products besides iron and steel, electrical machinery, mineral oil, rubber and plastics31. India’s investments in Myanmar are focused on a few large state-sponsored infrastructure projects. Indian investment in Myanmar is estimated at US$189 million for five projects which include investments by companies including OVL, GAIL, and Essar Oil Ltd. Jubilant Energy has won the contract for the onshore block PSC-I in 2011. In addition to the above, Indian companies like Punj Lloyd, L&T, Apollo Hospitals, Tata Motors, Essar, NHPC, VNL, Jindal Steel, Nipha Exports etc. are active in Myanmar in various sectors32. Although trade in traditional goods on head-load basis has been the customary practice for a long time, the Border Trade Agreement signed in 1994 gave it a legal framework. The Moreh- Tamu point in the Manipur sector was operationalised in April 1995 and a second border trade point at Champhai - Rhi in the Mizoram sector was opened in 2004. A third border trade point is proposed to be opened at Avakhung-Pansat/Somrai. India also proposed to build a 45 hectare Integrated Customs Station at Moreh. India and Myanmar have agreed to upgrade the status of Border Trade to Normal trade and have expanded the tradable list items from 18 to 40 since 2008. With an estimated border trade of US$ 12.8 million (2010-11), major items bought by Myanmar traders from the Indian side are cotton yarn, auto parts, soya bean meal and pharmaceuticals, (there are reported smuggling of items like fertilisers and vehicles , especially 29

Gupta, Ranjit (2012). ‘A Review of Indo-Myanmar Relations’ Heinrich Boll Stiftung Foundation, <http://www.in.boell.org/downloads/Ranjit_Gupta_Myanmar_in_Transition__For_HBF%281%29.pdf. Accessed 13 September 2012. Egreteau, Renaud (2008). ‘India’s Ambitions in Burma: More Frustration Than Success?’, Asian Survey, 48 (6). p. 939-944 India – Myanmar Economic and Commercial Relations, Embassy of India in Myanmar. http://www.indiaembass y.net.mm/index.php?option=com_content&view=article&id=165%3Aeconomic-a-commercialrelations&catid=10%3Aindia-myanmar&Itemid=62&lang=en, Accessed 13 September 2012. Ibid

two wheelers etc.) ; betel nut, dried ginger, green mung beans, black matpe, turmeric roots, resin and medicinal herbs. According to the Myanmar Department of Border Trade, the border trade turnover between India and Myanmar has ranged from US$ 10 million to US$ 22 million, though it is probably higher if informal arrangements are taken into account. At the institutional level, Confederation of Indian Industry (CII) has developed links with the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI). The CII and NASSCOM have established linkages with the Myanmar Computer Federation (MCF) since 2004. North East India Federation of Investment and Trade signed a Memorandum of Understanding with UMFCCI on bilateral trade in July 2009. While there was a break in India’s diplomatic relations with Myanmar in the wake of the crackdown on the pro-democracy movement in 1988, India went on a rapprochement with the military junta in 1993. In the wake of the crackdown, at the time, India openly and officially condemned the acts of the military junta; and China, also reeling under isolation following the Tianenmen Square protests, took the opportunity to mend what was until then a shaky relationship, into a multi-dimensional relationship with Myanmar. India was particularly uneasy with China’s Myanmar policy on three fronts, namely that it was serving as the key to circumvent the Malacca dilemma; its assistance in rebuilding roads, bridges and infrastructure throughout Myanmar and that it was making inroads into Myanmar to gain credible access to its natural resources, market and military bases that were close to India 33. India perceived all of these as threats since it feared that China would, in the process, gain easy access to India’s Northeast. At the time, there were also rumours about the Chinese construction of a surveillance network, ranging from the Burmese islands of Zadetkyi in the Tenesserim Division, Man Aung off the Arakan State to suspected naval bases at Kyakkami near the city of Moulmein, including Monkey Point in Rangoon, Great Coco Island in the Andaman Sea, and the ports of Hainggyi and Kyaukphyu on Ramree Islands34 . This raised great concerns among Indian officials. Since then, India and Myanmar have worked towards greater cooperation between their Navies and achieved considerable success in mitigating developments that might be seen as being detrimental to India’s security interest. This, in turn was welcomed by Myanmar. In the early 1990s, India’s immediate interest in the Northeast was to foster stability and tackle the insurgency movements in the seven states. It had become well known that the Naga, Assamese and Manipuri armed groups had established clandestine networks of jungle training 33

Majumdar, Munmun (2011), ‘Engaging Myanmar Through India’s Look East Policy: How Far Have We Gone?’, FPRC Journal 8 (Special Issue: India’s Look East Policy). Egreteau, Renaud (2008), ‘India’s Ambitions in Burma: More Frustration Than Success?’, Asian Survey, p. 951

camps, arms and drug trafficking routes, and an elaborate extortion system in the neighbouring Saigaing Division and Kachin State in Myanmar. After India’s rapprochement with the military regime in 1993, the then Indian Foreign Secretary, J. N. Dixit, visited Rangoon and the two countries conducted a joint counter-insurgency operation called Operation Golden Bird in 1995. While the operation considerably weakened the rebel groups, Rangoon withdrew before the operation could come to a conclusion as India selected Aung San Suu Kyi, Myanmar’s prodemocracy leader, for the Jawaharlal Nehru Award for International Understanding. As many of the armed groups from the Northeast continue to operate from the remote hills of Western Myanmar, much of India’s engagement with Myanmar vis-à-vis Northeast was related to tackling insurgency, even to the extent of blocking the connectivity projects for fear that the insurgents may benefit from them. In the midst of this, there has always been a huge constituency in favour of Aung San Suu Kyi in the highest echelons of all of India’s political parties, and in academia, civil society and media because of her very strong Indian connections. Individuals including former President K RNarayanan and former Defence Minister George Fernandes were notable in their support of the democracy movement. Border-states including Nagaland, Manipur and Mizoram also hosted a number of pro-democracy activists seeking refuge in India. Many of these refugees in the Northeast have relatives and connections which enable them to blend into society without much difficulty. Over the years, New Delhi has attempted to incorporate different dimensions of cooperation into the India-Myanmar relations with regard to the Northeast. A change in attitude and efforts was seen when India’s Prime Minister Manmohan Singh visited Myanmar earlier in 2012. Significant among the agreements that were made included the signing of the MoU on India-Myanmar Border Area Development, Air Services Agreement between India and Myanmar and the MoU on Establishing Border Haats (markets) across the border between India and Myanmar. These agreements related to roads, health centres, bridges, and agriculture and would boost the related training activities in the area35. During this trip, a proposal to start a bus service from Moreh in Manipur to Mandalay was mooted but was not pursued as the road on the Myanmar side was in poor condition. Some of the projects that India has pursued in Myanmar have, however, not been taken up in consultation and or with the confidence of the people in Northeast who may be directly affected. In 2004, India and Myanmar signed an agreement to construct the Tamanthi Dam Hydro project in the Chindwin River in West Myanmar, east of Nagaland. India had to bear the cost of this 35

Graham, John (2012, August 2). Back in the Game: India Strengthens Political and Economic Ties with Myanmar, M-zine Plus Magazine, http://www.mea.gov.in/mystart.php?id=230319872, Accessed 13 September 2012.

project and 80 per cent of the electricity produced from the Dam is to be used by India and the rest will be used in Monywa Copper Mine, Sagaing Division. After much delay, work commenced in 2011 but is still facing difficulties. Many communities along Nagaland and Manipur have protested against the construction of the dam36 amidst fear of serious environmental damage, loss of biodiversity and human displacement. On a separate note, it was recently reported that India's Ambassador to Myanmar has suggested withdrawing from the project. This is in a bid to save India's image amid the local perception that Indian companies are incapable of completing projects within scheduled deadlines. The Ambassador’s reported reasons for the recommendation include “Myanmar government's inflexibility under Chinese influence and 'sarkari' attitude of state-run hydel utility NHPC”37. Indigenous rights groups as well as students’ organisations in the NER also opposed the building of a gas pipeline that was proposed to go from Sittwe in Myanmar to West Bengal 38 as there were concerns of environmental degradation that might affect the livelihood opportunities, practices and lifestyles.

Internal Dynamics New Delhi was in a dilemma in deciding the trajectory that would best meet its foreign policy objectives regarding Myanmar vis-à-vis Northeast India. This partly resulted in its inability to draw a clear road map for the future of the Northeast Region. The evolution of New Delhi’s policy for the Northeast lacked clarity and a deep understanding of the region and it also failed to capture and incorporate the views of the people. New Delhi’s policy towards the Northeast has also often been hostage to India’s larger foreign policy objectives, particularly the Look East Policy. At a 2005 symposium titled Gateway to the East: a ‘Symposium on Northeast India and the Look East Policy, Jairam Ramesh, an Indian minister, in his presentation titled, ‘Northeast India in a New Asia’39 defined the different paradigms that have “driven India’s approach to the 36

‘India and its Geopolitics: Tamanthi Dam- A Blessing for India, a Curse for the Nagas’,(2012, April 27) The Naga Journal, http://www.nagajournal.com/articles/india-and-its-geopolitics-tamanthi-dam-a-blessing-for-indiaa-curse-for-the-nagas/7879. Accessed 13 September 2012 & ‘Kuki Women Protest Against Tamanthi Dam’(2011, December 9), The Sangai Express, < http://www.thesangaiexpress.com/sangai-expressnews.php?newsid=1135. Accessed 13 September 2012. India ‘Suggests Exiting Out of the Tamanthi Hydel Project to Escape from China Pressure’ (2011, May 26), The Economic Times, < http://articles.economictimes.indiatimes.com/2011-05-26/news/29586113_1_hydel-tamanthiproject. Accessed 13 September 2012. Students’ Organization Say No to Gas Pipeline in Northeast, Down to Earth (2006, September 15), <http://www.downtoearth.org.in/node/8390, Accessed on 13 September 2012. Ramesh, Jairam (2005). Northeast in a New Asia, Seminar, #550,. http://www.indiaseminar.com/2005/550/550%20jairam%20ramesh.htm. Accessed 13 September 2012.

Northeast”. He pointed out four dominant paradigms and concretised the idea of ‘political integration with India and economic integration with Southeast Asia’ as the future for Northeast India. The first paradigm -- the Cultural Paradigm, preponderant largely in the 1950s and the ’60s -- was marked by the view that “Northeast cultures were seen as exotic, endangered; which needed to be kept in museums and protected from the big bad wolf called ‘economic development’”. Then sometime in the 1960s, perhaps after the Chinese incursion in1962, a Security Paradigm dominated as the Northeast began to be seen as a strategically significant region, not only geographically but also in a larger geopolitical sense of India’s role in East Asia and Southeast Asia. “Thinking of the Northeast as a security frontier in a geostrategic sense – began to animate government thinking towards the region”. During this period, insurgency movements had also broken out in different corners of the region. Then, in the early 1970s, a transition to the ‘Politics Paradigm’ was made. The thinking was that the region required political representation; the diverse tribal cultures and diverse sub-nationalities required participation in ‘mainstream’ democratic process and new states began to be formed with the idea that people required a ‘voice’. This, however did not end the problems, it neither solved the insurgency nor ushered greater development in the region. It was during the 1980s, a shift to the ‘Development Paradigm’ was made. Development, in this case, the building of schools, bridges, internet centres, technical institutes and refineries- was thought to be a panacea. The thinking was that, given development, “they will forget about problems of identity, problems of assertion, problems associated with creating a nation out of essentially tribal communities”. This and the subsequent period were marked by a substantial increase in public expenditure in this region. This paradigm continued though the first part was marked with huge injection of central funds into the region, without a clear direction but with the hope that economic activities will pick up. The second and reigning one has been marked by the idea that trade, particularly with Southeast Asia, could be the driver of economic growth and development. At a conference in Delhi on India’s Look East Policy in 2007 40, Prof Alokesh Baruah of Jawaharlal Nehru University, reiterated that it was the 1997 High Level Commission Report to the Prime Minister41 titled, Transforming the Northeast (also known as the Shukla Commission report), that was influential in aligning concerns of development in the Northeast with the Policy, thereby ushering in a new development mantra and a paradigm. Incidentally, 1997 was also the year Myanmar joined ASEAN. The report envisioned development taking place in the Northeast in the context of several concentric circles: first, the local community; second, the autonomous 40

Conference on India’s Look East Policy- Challenges for Sub-Regional Cooperation, October 7-9 2007, Indian Council for Research on International Economic Relation (ICRIER) held in Guwahati. Transforming the Northeast: Tackling Backlogs in Basic Minimum Services and Infrastructure Needs, High Level Commission Report to the Prime Minister (1997), India: Planning Commission of India.

councils/states; third, the Northeast Region, in view of the interdependence of the several constituent entities and the overriding reality of a common gateway to the heartland; beyond that, the bigger Ganga-Brahmaputra-Meghna (GBM) resource region; and, finally, the larger world of Southeast Asia and Southwest China. An assertion that ‘Northeast is indeed India's cultural and economic bridgehead to the fast growing economies of Southeast Asia’ was made. This idea was considerably built upon and by 2008; the Northeast Vision 2020 document, prepared by the Ministry of Development for North Eastern Region (MDoNER) and the North East Council had embedded the development of the region in line with the Look East Policy. This is evident from the opening quote noting that the development of the Northeast region should become an important part and objective of the Look East Policy itself. Dr Jayanta Madhab, who was involved with the preparation of Vision 2020 and numerous other documents on the Northeast, has attested that the Shukla Commission Report provided direction for the preparation of the Vision 2020 document when Prime Minister, Dr Manmohan Singh mooted the need for one42. In the period between the release of the two documents mentioned, the Ministry of Development for North-Eastern Region was created, first as a Department in 2001 and then as as a full-fledged Ministry headed by a cabinet level minister in 2004. The Northeast is the only region with a Central Ministry whose job is to advocate the development of the region with other Central Ministries and the Planning Commission. It also serves as the nodal organisation of the Central Government to deal with matters related to the socio-economic development of the eight States (including Sikkim) and is also concerned with the creation of infrastructure for economic development of North-Eastern region43. Besides delineating the importance of grassroots and participatory development as a way of going forward, the vision document also visualises the development of the region in parallel with the Look East Policy. It affirms that India’s Look East Policy holds potential for the region to break out of its landlocked borders and engage in cultural, economic and tourism-related interactions with its international neighbours44. For this to happen, the report notes the need for the augmentation of transportation infrastructure to ‘make the Look East Policy meaningful for the region by connecting it with Southeast Asian markets’45. In fact it goes as far as to suggest that the Look East Policy should focus on the North Eastern region as ‘Southeast Asia begins from North Eastern India’, playing on the postulation made by the then DoNER Minister, Mani Shankar Aiyer. This will enable the region to ‘regain its place as a centre of flourishing trade with East and Southeast Asia through the land (silk) route to China and Myanmar and through

43 44 45

Madhab, Jayanta (2009, January-March). ‘The Story of North East Vision 2020’, Dialogue (a publication of Astha Bharati), 10 (3), http://www.asthabharati.org/Dia_Jan%2009/madh.htm. Accessed 7 September 2012. Ministry of Development of North-Eastern Region (MDoNER), http://mdoner.gov.in/. Ministry of Development of North-Eastern Region (2008) North Eastern Region Vision 2020. p. 129. North Eastern Region Vision 2020 (2008) Ministry of Development of North Eastern Region (MDoNER), p.4.

the sea port from Chittagong and Kolkata’46. It suggests that there is much to be gained by removing trade barriers with the neighbouring countries to enable access to seaports and inland waterways47. Further, the report is cognisant of the need for a ‘qualitative change in the relationship with the neighbouring countries, particularly the larger countries of Bangladesh, China and Myanmar’48. All this, it is hoped, will in turn ‘improve the quality of people’s lives’49. While acknowledging that the fortunes of the people of the region are inextricably intertwined with those of their neighbours, the report however notes that so far the NER has gained very little or negligible benefits from the Look East Policy and that despite the recent focus on development for the region in the Look East Policy, the NER remains economically underdeveloped50. Despite some measure of good intentions, the different paradigms have been marked by internal contradictions. The ‘Cultural Paradigm’ saw the imposition of Assamese language as the official language of undivided Assam51 that included today’s Arunachal Pradesh, Mizoram, Meghalaya and Nagaland, while disregarding the other local languages which caused great discontent. The ‘Security Paradigm’ came to have an overbearing effect on the region, marked by the preservation of a security mindset and the imposition of the draconian Armed Forces Special Powers Act (AFSPA). The ‘Politics Paradigm’ saw the creation of dependent states with no real devolution of power to the people at the grassroots52. The ‘Development Paradigm’ was entangled with remnants of the previous paradigms, creating confusion in the vision and direction that is intended for the region. It has often been argued that the huge influx of money that characterised the first part of the development paradigm led to the creation of new elites and fostered corruption, which in turn has also financed many of the insurgents operating in the region. The current phase of the ‘Development Paradigm’ is marked by a desire for increased regional engagement, trade and participatory grassroots development. But the region, ‘poised on the cusp of an unprecedented transformation of its historical position as a frontier’, is not able to shake off the old practices through which, ‘one sees the extension of a garrison mentality, where the Northeast is sought to be micromanaged by policy makers for whom the people and the region is

46 47 48 49 50

51 52

North Eastern Region Vision 2020 (2008) Ministry of Development of North Eastern Region (MDoNER), p.18. North Eastern Region Vision 2020 (2008) Ministry of Development of North Eastern Region (MDoNER), p. 20. North Eastern Region Vision 2020 (2008) Ministry of Development of North Eastern Region (MDoNER), p. 34. North Eastern Region Vision 2020 (2008) Ministry of Development of North Eastern Region (MDoNER), p. 20. North Eastern Region Vision 2020 (2008) Ministry of Development of North Eastern Region (MDoNER) p. 34, 260. In 1960. McDuie-Ra, Duncan (2009). ‘Vision 2020 or Re-vision 1958: The Contradictory Politics of Counter-insurgency in India’s Regional Engagement’, Contemporary South Asia, 17 (3), 313-330.

a veritable military terrain’53. Furthermore, ‘despite the opening of more border posts and the encouragement of trade, borders are becoming more fortified and policed’54. Even the intention of the Central Government to devolve power and bring in greater participation of the people for whom the vision is being created, as laid down in the Vision 2020 document, was contested. The main criticism came in the form of the contradictory policy of the Centrestate patronage relationship where funds are allocated and disbursed by Central Government agencies in a way that creates ‘embedded patronage relations fed by top-down development’55. The focus on big development, resource-extractive industries and in particular the focus on hydro power projects itself is seen as ‘a mechanism of nation-building; paternal and controlling’ where, ‘in the Northeast this takes on extra dimensions as control is not just a cultural project but a security project’56. Again, any decentralised development that devolves too much power to state and sub-state bodies in the Northeast is seen as too risky a proposition as that may jeopardise counter-insurgency57. Even the idea of whom or what constitutes the public is problematic in the Northeast. It is restricted by both civil society itself – dominated by identity politics and ethno-nationalist organisations -- as well as by the government which determines who should participate and on whose behalf58.

Conclusion The evolution of the Northeast as a consideration in India’s Look East Policy and its transformation from a barrier, a frontier, and now to a bridge cannot be traced to a decisive moment nor can it be attributed to a particular change in policy or attitude of the Central Government in New Delhi. It has grown out of a gradual process. It is clear that there are internal dynamics as well as external events that have led to the shift and that the interaction between internal discourse and foreign policy considerations is a continuing process. In the debate around the role of foreign policy, in furthering the national interest of a country, for India, multiple national interests contest for space, and similarly in the case of the Look East Policy there are multiple interests but none of them has so far incorporated the notion of national interest taken from the perspective of the Northeast Region. As the NER assumes some measure of prominence in India’s Look East policy, new debates incorporating the aspirations of the people from the region will need to be initiated to define the national interest that takes into account local 53

55 56 57 58

Barbora, S. (2006, September 2), ‘Rethinking India’s Counter-insurgency Campaign in North-East’. Economic & Political Weekly, 3805-3812. Duncan McDuie-Ra (2009), ‘Vision 2020 or re-vision 1958: the contradictory politics of counter-insurgency in India’s regional engagement’ Contemporary South Asia, Vol 17, No 3. 313-330. Ibid Ibid Ibid Ibid

concerns. As Joseph Nye suggests, ‘a better-informed political debate is the only way forward for our people to determine how broadly or narrowly to define our interests’59. In the process of bringing the NER into the LEP paradigm, the element of reaction is conspicuous, particularly to China’s moves, such as its attitude and policies towards the development of the Yunnan province and its policy towards Myanmar. While all this has seemed to be a slow process, akin to anticipating the chess-board-like strategic manoeuvrings, some of it seems to be a case of groping in the dark. The vagueness of the direction with which New Delhi has handled the Northeast is somewhat congruous to its own expression of the Look East Policy, one that can be defined to take new dimension as it moves ahead. One can certainly conclude, however, that the period around 1997 and the following decade were significant in the transition of the Northeast region into a bridge. By 2007, the Ministry of External Affairs, through its Public Diplomacy Division, had clearly included aspects of land connectivity and the idea that the Look East Policy is an initiative that is designed to bring in development for the Northeast by facilitating trade with Southeast Asia. On the external front, the expansion of ASEAN, China’s communication and infrastructure inroads into Myanmar and India’s own changing relationship with Myanmar during this period were particularly significant events. On the internal front, the booming Indian economy led to a change in the thinking of policymakers to incorporate ideas of economic development and establishment of trade linkages as a panacea to the problems in the Northeast. This stands out. As the idea of developing land connectivity between India and Southeast Asia through Northeast India gains momentum, New Delhi will need to make clear its own vision and plans for the region. It will also need to look at aligning the objective of what land connectivity will mean to New Delhi as well as to the people of the region. While much of the official Look East Policy concentrates on the flow of goods and services, interest among the people of the NER regarding greater connectivity is heavily related to the idea of the possibility of a free flow of people -building on the continuous cultural landscape existing among the border regions 60. Finally, to give a meaningful context to the Look East Policy, where real development can take place in Northeast India as a spinoff of trade and economic activities, there needs to be a reimagination of Northeast India as a bridge and as part of a larger composite region that should eventually include Southwest China (Sichuan), Bhutan and Bangladesh besides Myanmar (and

Joseph S. Nye, Joseph S. Jr. (2002). The Paradox of American Power: Why the World’s Only Superpower Can’t Goit Alone. (Oxford: Oxford University Press). Das, Samir Kumar (2010), ‘India’s Look East Policy: Imagining a New Geography of India’s Northeast’, India Quarterly, 66 (4), 343-358.

eventually the rest of Southeast Asia), with which the region is known to have traditional trade and cultural links61 before the present-day international boundaries came into existence.

.....

Ray, Harprasad (2005), ‘The Silk Route from North-East India to China and the Bay of Bengal: Some New Lights’ in Alokesh Barua ed.), India’s North-East: Development in a Historical Perspective. New Delhi: Manohar).

ISAS Working Paper No. 163 â&#x20AC;&#x201C; 28 December 2012 469A Bukit Timah Road #07-01, Tower Block, Singapore 259770 Tel: 6516 6179 / 6516 4239 Fax: 6776 7505 / 6314 5447 Email: isassec@nus.edu.sg Website: www.isas.nus.edu.sg

Economic Inefficiencies in Farm-Market Linkages in Agriculture Value Chain in India: Problems and Solutions Anshul Pachouri1 Abstract Indian Agriculture sector is the backbone of Indian Economy which employs more than 50% of the total workforce. The percentage contribution of Agriculture sector in Indiaâ&#x20AC;&#x2122;s GDP is around 14%, which is growing by just merely 2.8% for the period of 2011-12. The growth of Agriculture sector is extremely important for India to ensure food availability and sustaining rural livelihood. The agriculture value chain of India is suffering from many bottlenecks which lead to low income to farmers and high inflation in food-prices. The paper focuses mainly on the horticultural commodities like fruits and vegetables value chain and studies the different inefficiencies in the agriculture value-chain of India focusing on farm-market linkages. This paper presents the different reasons of these inefficiencies in the present value chain and possible remedies for the same.

Anshul Pachouri is Research Intern at the Economic Advisory Council to Prime Minister. He can be contacted at anshulpachouri@yahoo.co.in. The views expressed in this paper are those of the author and do not necessarily reflect those of ISAS.

1. Introduction India, with its population of more than 1.2 billion is considered to be one of the most emerging economies in the world. India is expected to beat China in terms of total population by 2030 and feeding such a big population would be a big challenge. India is one of youngest nation in the world with nearly half of the population lying in the working age group, which is a big demographic dividend advantage. India has some great advantages for agriculture. India has more than 20 agro-climate regions, where sunlight hours and day length are suited for round the year cultivation. Nearly, every type of climatic conditions, from Snow Mountains in Himalayas to sand deserts in Rajasthan, exists in India. The soil fertility of India is considered to be very good for the agriculture, which is one of the biggest advantages for agriculture in India. The agriculture value chain is much crucial for the food security of the country, especially for the people living in urban areas. The urban population of the country has increased many-folds from 79 million in 1961 to 377.1 million in 2011. This huge rise in the total urban households and total population of the country is putting an increasing pressure on the agriculture sector to produce more. However, more than the productivity increment, the development of effective food supply chain is of utmost important to satisfy the hunger of the growing population. The agriculture value chain is of central substance to all the farmers, processors, logistics partners, wholesalers and retailers. The main reason behind the rising food inflation in the recent periods are inefficiencies in the agriculture value chain especially of high value items like fruits and vegetables, meat etc. The supply-side constraints are influencing the food prices largely both at local, national and global level. Market imperfections, like lack of proper infrastructure in rural areas, shortage of storage and transportation facilities further add to food inflation (Ministry of Agriculture, 2012). All of these points converge to the point, that there is urgent need to deal with the inefficiencies in the whole agriculture value chain. There have been some significant changes in the whole agriculture value chain or food supply chain over the past several years. First and foremost is the huge increment in the total food volume flow to the urban areas. According to Reardon & Minten, (2011), the total urban food expenditure has tripled in the past three decades and reached to US $ 45 billion in 2006. The share of urban food expenditure in the total food expenditure has become one-third in 2006 from one-fourth in 1971. This increased supply of food is provided by the domestic farmers through various food supply-chains. The second change in the agriculture value chain is in terms of the change in the consumption pattern. The share of cereals in diet of people in both urban and rural areas is declining (Figure 1). On the other hand, the consumption of the consumption of processed food and value added

items like milk, meat, vegetables and fruits has increased in a significant manner (Figure 2). The food basket of Indian consumer has become more diversified over the past several decades.

Figure 1: Percentage share of cereals in monthly per capita expenditure for total food items in India 45.00 40.00 35.00 30.00 25.00

Rural

20.00

Urban

15.00 10.00 5.00 0.00

1987-99

1993-94

1999-00

2004-05

2009-10 Data Source: NSSO

Figure 2: Percentage share of high value items in monthly per capita expenditure for total food items in India 45.00 40.00 35.00 30.00 25.00

Rural

20.00

Urban

15.00 10.00 5.00 0.00 1987-99

1993-94

1999-00

2004-05

2009-10 Data Source: NSSO

The third change is in terms of the changing role of government in the whole agriculture value chain especially in connecting farms to markets. The government role in agriculture marketing and development of agriculture markets is very dominant. The contract farming and permission to farmers to sell their produce in the unregulated markets is given recently and, still, all states have not implemented the same. The traditional farm-market linkages in the agriculture value chain are more dominated by multiple layers of brokers and intermediates, which have caused much inefficiency in the movement of agriculture causing high inflation and post harvest losses. The farmer, who should be at the central focal point of the agriculture value chain, suffers the most and gets lower profits/price for its own agriculture produce, while the brokers/traders enjoying the highest margins. According to Minten, (2011), the direct role of government in marketing of grain output has increased from 12% in 1970s to 24% in early 2000s. The government role in food marketing out of overall food economy is stagnant to nearly 7% for the period of 1970â&#x20AC;&#x2122;s to early 2000â&#x20AC;&#x2122;s. The government however, doesnâ&#x20AC;&#x2122;t have much direct role in food marketing, but it can greatly influence the market by playing with minimum support prices and parastatal procurement. The fourth and the last significant change in the agriculture value chain is the increasing role of private players, organized retail and food processing industry. With rising middle class, the demand of processed food has also increased and more consumers demand for properly graded, packed and ready to eat food items. The government has also introduced a series of reforms to promote the participation of private sector in the agriculture value chain, especially, in the development of market infrastructure, construction of warehouses and establishment of cold value chain at the back to ensure food safety and minimize post-harvest losses.

2. Indian Agriculture Sector: An Introduction India is the largest producer of wheat and paddy in the world after China in 2010. On the horticulture side, India is the largest producer of fruits and second largest producer of vegetables in the world in 2010. India has the largest arable land of nearly 184 million hectares in the world after United States. According to World Bank, the arable land is around 53.1% out of total land area as compared to 11.8% in China and 17.8% of USA. Unfortunately, India is unable to leverage this advantage and has lower productivity as compared to other economies. The productivity of India in various crops except Fruits as compared to China and other advanced economies is extremely low. The yield of wheat and paddy in India is nearly half of China. However, the yield of fruits in India is twice of China. The yield of vegetables in India is not even one-fifth of USA. These figures points to the fact that there is urgent need for India to focus on improving its yield.

Table 1: Yield of Various Crops for year 2010 (Kgs/Hectare) Wheat

Paddy

Vegetables

Fruits

China

4748.6

6548.1

16505.8

3306.4

India

2839.1

3382.6

13603.8

6516.7

USA

3116.7

7537.5

76845.5

12553.2

Data Source: FAO

The percentage share of India in world agriculture in terms of net agriculture production value has remained nearly stagnant from 9.4%-10.4% in the past twenty years. It shows that the Indian agriculture sector hasn’t grown much as compared to the rest of the world in the past 20 years. Figure 1: % Share of India in World Agriculture (Measured through Net Agriculture Production Value – 2004-06 International $) 11.00 10.50 10.00 9.50 9.00 8.50 8.00

Data Source: FAO

With the advancement of any economy, its dependence on the agriculture, in terms of economic output decreases significantly. The Agriculture sector contributed more than 50% to Indian GDP at the time of independence. With the advent of time and more industrialization, the contribution of agriculture started declining and decreased to 14% in 2012. The trend of decreasing share of Agriculture sector in India’s GDP is shown below. The agriculture and allied has experienced an average growth rate of merely 3.7% for the period of 2006-12. The slow growth in the 5

agriculture and allied sector is a big problem for Indian Economy. India needs a sustained growth rate of minimum 4% in the agriculture sector to take India back on the high growth trajectory.

Figure 2: Percentage Contribution of Agriculture & Allied Activities in Indiaâ&#x20AC;&#x2122;s GDP 60.0 51.9 47.8

50.0

40.9 40.0

33.9 29.9

30.0

23.3

20.1

20.0

18.3

15.8

14.0

2009

2012

10.0 0.0 1950

1960

1970

1980

1990

2000

2003

2006

Data Source: RBI Handbook of Statistics 2011-12

3. Traditional Agriculture Value Chain in India In 1950â&#x20AC;&#x2122;s, the agriculture marketing in India was highly regulated and badly organized. The overburdened agriculture marketing mechanism leads to ineffective farm-market linkages, leading to low income to farmers, high post harvest losses and high marketing costs. Many regulations and acts were in place, which controlled the storage, transportation, exports, imports and direct marketing of agriculture produce. The government has enacted APMC act (Agriculture produce and Marketing Committee) to regulate the agriculture produce market in 1963. Many researchers and academicians argue that this act over the past several years have led of ineffectiveness and inefficiencies in the agriculture markets. The Act prohibited directly selling of agriculture produce to consumers by mandating the selling to agriculture produce through regulated government mandis. The APMC act gives more power to the bureaucrats for the management of APMCs and market fee is charged for each transaction which contributes to the government revenues. Agriculture marketing in a particular state is regulated by the stateâ&#x20AC;&#x2122;s APMC act with variations existing among states. An Agriculture produce marketing committee is responsible for a particular market area, if implemented. These committees have local famers as their members are often administrated by bureaucrats with no regular elections (Acharya, 2004). The committee is responsible and empowered to establish markets, manage the issue and admission of traders, levy 6

market fees and manage the local operations. The APMC collect significant amount of revenues for the government, but in turn the investments for the development of wholesale markets and facilities is very low. APMC act was enacted to protect the farmers from market shocks and help them to get the justified price for their produce. Unfortunately, over the years due to traders monopoly and government over-regulation required innovations and development of new markets is missing in the present agriculture marketing system. The committee allots the shops in the wholesale market yard to various brokers and traders based of the eligibility criteria upon the payment of the license fees. Normally, the number of license holders exceeds the total number of shops available in the market yard which causes mess many a times due to lack of space. The licenses given to the brokers are renewable every year which can be done easily and passes from one generation to other (Minten, 2009). The figure below shows the traditional agriculture value chain which still dominates the agriculture marketing in India. The numeric percentage figures in the figure shows the distribution of the final price paid by the consumer among different components of the value chain. Figure 3: Traditional Agriculture Value Chain in India

Source: IFPRI, CII, Ministry of Agriculture

The number of regulated wholesale markets/mandis is more in the states of Andhra Pradesh, Bihar, Maharashtra, Madhya Pradesh, Uttar Pradesh and West-Bengal. The above six states accounts for nearly 53% of the total regulated wholesale markets/mandis in India. It is found that some of the regulated wholesale markets are not functional and transactions happen outside the market premises but the market fee is collected by the APMC (Pandey et al, 2010). The exporters, processors or retail chain operators due to the regulations in the APMC act were not able to procure directly from the farmers. They have to come to mandi first and then buy the agriculture produce through normal auction method. An agriculture commodity moving from one state to other attracts â&#x20AC;&#x153;mandi feeâ&#x20AC;? everytime it enters a new regulated market. Various studies have shown that farmers get only 35-40% of the retail price paid by the consumer and rest remained with the middlemen (Pandey et al, 2010). The number of wholesale markets increased from 268 from independence to nearly 6300 in 2007 (Chauhan, 2008). According to Acharya (2004), 98% of these markets were regulated in some way or other which shows the intensity of government intervention in the agriculture marketing. It is estimated that there are around 20,870 rural primary/temporary markets which might supply to the urban wholesale markets (Minten et al, 2009). The farmers have the options to sell to local primary markets, local village agents who are someway connected to the brokers, collection centers of companies or government regulated agriculture markets/mandis. It is found that majority of the agriculture produce is sold through brokers or traders in wholesale or local primary markets due to limited number of options. There are also some sub-urban wholesale markets in India who buy agriculture produce from local primary markets and sell it to urban wholesale markets. The retailers in the urban areas and some consumers directly buy from these urban wholesale markets. 95% of the sale of fresh produce especially in the horticulture sector happens through traditional value chain (Pandey et al, 2010). The various stakeholders of the agriculture value chain farmers, wholesalers, processors, retailers etc work in silos rather in an integrated or coordinated manner. The concepts of collaborative demand forecasting and production planning in the backend with information sharing is missing in agriculture value chain causing many inefficiencies in the system. The middlemen or brokers charge exorbitant margins for the services they render and cause delays in the transactions. The small farmers who are largely unorganized lacks the power of negotiation and gets the low share of price paid by the consumer (Pandey et al, 2010). The brokers or middlemen have no incentive to work efficiently. The wholesale markets are very poorly planned and crowded (Coulter, 2004). The retailers are basically roadside vendors, kiosks, stalls and moving carts who deliver home to home. The last link the value chain is the end consumer. Unfortunately, the consumer has no choice but to consume whatever is available and has no control on quality of the food. If any 8

consumer wants to buy fresh produce of certain quality it is extremely difficult to get the same (Pandey and Tewari, 2010).The post harvest loss in fruits and vegetables is around 40% which is due to lack of proper storage, handling & processing facilities and lack of marketing channels (Singh et al, 2002). The huge post harvest loss is also due to poor handling of perishable commodities (Gandhi and Namboodiri, 2006). On an average, the fruits and vegetables pass through six to seven middlemen before reaches the final consumer (Pandey et al, 2010). The process of the agriculture marketing in regulated government wholesale markets/mandis works in a very inefficient manner. The farmer comes to the wholesale market and to the shop of the particular broker. The broker then sell the agriculture produces through open-auction method and buyers purchase from there. The brokers normally donâ&#x20AC;&#x2122;t take the possession of the agriculture produce and just take their commission and are also known as commission agent. The majority of the wholesale markets donâ&#x20AC;&#x2122;t have proper facilities of weighing, storage and grading of the agriculture produce. The sanitation facilities are very poor with very few public toilets and drainage facilities. The proper pest control is also missing which combined all the above factors led to huge post-harvest losses. It can be concluded that wholesale markets for both staple and non-staple crops are not developed (Fafchamps et al, 2008). Many researches in this area (Matto et al, 2007) , (Banerji and Meenakshi, 2004) etc points that this present traditional marketing system lacks integration, are not efficient and causes high level of physical wastage. The government has realized this problem and had amended the APMC act in 2003. The amended Act allows direct marketing of agriculture produce, contract farming and development of the market infrastructure by private players. The implementation of the amended APMC act varies from state to state and presented in the paper below.

4. Inefficiencies in The Traditional Agriculture Value Chain 1. Ineffective Laws: According to APMC Act, the broker charges and market fees are fixed. However, it is found that the broker rates differ significantly from each other and are charged from farmer against the regulation (Minten et al, 2009). It clearly shows that the present system of the implementation of APMC act doesnâ&#x20AC;&#x2122;t work in an effective manner and there is an urgent need of more compliance in the whole agriculture marketing system. 2. High Transaction Costs for farmers: The farmers incur labor costs for loading and offloading of agriculture produce and weighing costs also, which increases their total cost of selling their agricultural produce and hence, reduces their income. It is estimated that the total cost of transportation of the agriculture produce from farms to the wholesale markets accounts for nearly 10% of the total value of agriculture produce in many cases. The total time taken by the farmer to transport the produce sometimes takes 3-4 hours 9

which is a big pain. Many times, farmers donâ&#x20AC;&#x2122;t even negotiate the price of their agriculture produce with the broker before going to wholesale market. As a result, they are bound to sell at the given price at that particular time in order to save the costs of transporting the agriculture produce back to their farms. 3. The Dual Role of Broker & Wholesaler: APMC officials give two licenses, one for the broker and another for wholesaler. The broker is a person who doesnâ&#x20AC;&#x2122;t take the ownership of the produce, but connect the buyers and sellers through auctions. He earns from the fixed brokerage rate as commission fee charged from the buyer. On the other hand, wholesaler is the person who takes the ownership of the produce and earns from the difference in the price at which he buys from the farmer and sells it further. It is found that, many times, same person takes the licenses of both, broker and wholesaler. This creates a conflict of interest and confusion in the minds of the farmers. It may lead to an opportunistic situation for the wholesaler, who can charge a commission rate from the buyer, which never took place in case farmer is not present there. Secondly, wholesaler may not be completely transparent to farmers regarding the actual prices, unlike traders in order to get high profits. 4. Flaws in the Information Flow and Lack of Quality Check: There is no effective mechanism in place, which looks at the food quality and safety in the wholesale markets. Brokers and retailers touch some the agriculture produce for few minutes to check the freshness. No information on the quality of seeds, use of fertilizers, and other inputs used in the production are discussed or given during the auction process. The weighting methods used in the wholesale markets are often old, and there are complaints about the rounding off effects from the farmers where the advantage is taken by broker. It is observed in different studies that due to the lack in information integrity, the farmers are often paid less for their high quality agriculture produce and at the same time, retailers feel that they have paid more for lower quality food. 5. Lack of Options other than Broker System: Farmers have very less selling options apart from the brokerage system. However, they can choose among the different brokers in the wholesale market. Many farmers are found to be dealing with only one broker for a number of years and developing some kind of relationship with them. Brokers within themselves are united and they form unions to negotiate with the government and influence the market. With the information of unions, they are able to establish their monopoly in the market and APMC act has reinforce the same by mandating the farmers to sell their agriculture produce at regulated wholesale markets.

It is found that the margin in transactions between the buyer and the seller at the wholesale markets is around 13-26% (Minten et al, 2009). Due to all the above problems and inefficiencies in the traditional agriculture value chain, the farm-market linkages are very weak and imperfect. This leads to the lower margins to the farmers and high prices for the retailer. However, both, retailers and farmers, earlier used to buy from wholesale markets due to APMC act and later due to no other choice. It is interesting to note that despite of all these problems and inefficiencies, the broker system is still very prevalent in the whole agriculture value-chain. It is an important and integral part of the farm-market linkages and the agriculture marketing in India. The different reasons which make the broker systems still existent in India are: 1. Reducing the Transaction Costs: Farmers tend to develop a kind of relationship with a particular broker over the years, they think that dealing with a single broker saves a lot of time incurred in transactions and searching. Dealing with a particular broker ensures more trust and farmers can get better prices from the broker.

2. Getting access to credit: The Indian agriculture is dominated by a large number of small and marginal farmers who are dependent on credit for their needs of financing. The brokers have emerged as an important source of credit to these small farmers, which actually mandates that farmer will sell its produce to that particular broker from whom he has taken the credit. Under these circumstances, farmers are not in good position to get better prices for their produce as they cannot wait for a longer time to get fair price due to the liability of repaying the loan.

3. Access to Inputs: The farmers often incentivize their relationship with broker in terms of input advances. The broker gives money to the farmer for buying seeds, fertilizers and other agriculture inputs. Many times, the brokers also provide seeds and other inputs directly to farmers instead of cash. All of these things point to the fact that the primary reasons behind the prevalence of the broker system are lack of development of micro-finance for farmers, lack of crop insurance facilities and lack of options to sell other than brokers. The APMC act which was initially framed to promote fair trade of agriculture commodities have now become the biggest enemy of the farmerâ&#x20AC;&#x2122;s interests. With the advent of time, inefficiencies have piled up and India needs a new rational approach to tackle this problem.

5. Reforms in Agriculture Marketing The government has initiated some fundamental reforms to remove the inefficiencies in the traditional agriculture value chain and to benefit the farmers. Agriculture is a state subject and hence, state governments are more concerned and influential in implementing these agriculture marketing reforms. In order to increase the income of farmers and promote the role of private sector in the agriculture marketing, a model APMC act was introduced by Ministry of Agriculture in 2003. The model act aims to remove all the barriers and monopoly of brokers in the present agriculture marketing system. Some of the key features of model APMC act are:    



 

Allow establishment of private market yards and purchase of agriculture produce directly from farmers. Permission to establish and operate National Integrated Produce Market (Terminal Market) to sell horticulture crops. Allow contract farming under written agreement recorded within the market committee and enable e-trading. Permission to sell the agriculture produce to in market yards, private yards and other places to license holders, without actually bringing the produce to save the transportation cost and handling losses. It is mandatory for the seller to pay the buyer on the same day else the penalty of 1% per day will be levied for next five days. If the payment is not been made even after 5 days, it would lead to cancellation of the license of the holder. Allows market committees to fix the market fee from 1-2% of the price of the agriculture produce which can only be charged once as compared to paid in each market yard earlier. The market fees should be paid by buyers and not the seller or farmers.

The present status of the agriculture marketing reforms and the progress in the implementation of the APMC act is shown in table below. Seventeen states have already amended the APMC act as per the provision of model act and seven states have also notified APMC rules under their act.

Table 2: Progress of Reforms in Agriculture Marketing as on 31.10.2011

Reforms

States/Union Territories

States/UTs where APMC act reforms has been done for direct marketing, contract farming and markets in private and co-operative sector

Andhra Pradesh, Arunachal Pradesh, Assam, Goa, Gujarat, Himachal Pradesh, Jharkhand, Karnataka, Maharashtra, Mizoram, Nagaland, Orissa, Rajasthan, Sikkim, Uttarakhand and Tripura

4. 5.

States/UTs where APMC act reforms a)Direct Marketing: NCT of Delhi, Madhya have been done partially Pradesh and Chhattisgarh b)Contract Farming: Chhattisgarh, Madhya Pradesh, Haryana, Punjab and Chandigarh States/UTs where there is no APMC act Bihar, Kerala, Manipur, Andaman & and hence no reforms are required Nicobar Islands, Dadra & Nagar Haveli, Daman & Diu, and Lakshadweep States/UTs where APMC act reforms Tamil Nadu are already there States/UTs where administrative action Meghalaya, Haryana, J&K, West Bengal, is initiated for the reforms Puducherry, NCT of Delhi and Uttar Pradesh. Source: Adapted from â&#x20AC;&#x153;Chapter 5: Agriculture Prices and Marketsâ&#x20AC;?, Ministry of Agriculture, 2012

5.1 Market Intervention Scheme The Department of Agriculture and Co-operation has Market Intervention scheme (MIS) for horticulture commodities which are perishable and not covered under Price support system or MSP system. The MIS objective is to protect farmers from the economic and market shocks like in case of surplus production leading to crashing of prices. The MIS is implemented when the state is willing to share 50% of the loss in case if happened on implementation. The actual loss is shared on 50-50 basis between the central and state government is limited to 25% of the total procurement value which includes cost of commodity procured plus permitted overhead expenses. Under MIS, a pre-determined quantity at a fixed price is procured till the prices become normal.

5.2 Linking Farmers directly to Markets: Government Initiatives The government has taken some initiatives to link farmers directly to markets through innovations in infrastructure and technology. Two of these initiatives Rythu Bazar and Shetkari Bazar are discussed below: 1. Rythu Bazar: It is an initiative taken by Andhra Pradesh government to enable farmers to sell directly to consumers. The aim of this initiative is to ensure fair and better prices for farmers, and consumers also get fresh and quality agriculture produce in return. Producers/farmers are able to get 15-40% more prices for their agriculture produce and on the other hand consumers pay around 25-30% less prices for the same vegetables and fruits as compared to other markets. 13

A rythu bazar consists of 10 to 15 villages and at least 250 farmers including 10 Self Help Groups. All of them are selected by a team constituted by Mandal revenue officers, agriculture officers in the villages, which are the part of the Bazar. The adequate transportation facilities are arranged for the movement of agriculture produce from the farms to this bazaar in collaboration with the state transport authority. Online information of prices and movement of agriculture commodities is also available on the internet. It is estimated that more than 100 rythu bazars are in existence and has benefited more than 4500 farmers till date. 2. Shetkari Bazars: Shetkari Bazar was set-up by Government of Maharashtra in 2002 and Maharashtra state agriculture board was made nodal agency to implement the same. The Shetkari Bazars are located in all districts and talukas of the state and managed by the local APMCâ&#x20AC;&#x2122;s (Agriculture produce marketing committees) from the area. The local committees are being set-up to monitor the prices. The intermediaries are removed from this system and agriculture produce comes to the bazars with minimum handling so to ensure good quality. It has resulted in better prices, both for farmers and consumers. At present, there are nearly 12 Shetkari Bazars operating in the state and additional 33 Bazars have been sanctioned. These types of farmer led markets are very much beneficial for small farmers who find it extremely difficult to sell their produce directly to end consumers. The farmer led markets also help farmers to understand the consumer needs and diversify their crops. Direct marketing helps to reduce the transportation cost in a significant manner and improves price realization for farmers.

5.3 Market Research Information Network Market information is very important to farmers, consumers, processors, wholesalers, etc, to do proper planning and take other market related decisions. To cater to this need for market information, Ministry of Agriculture has launched ICT (Information and Communications Technology) based central scheme of marketing research and information network in year 2000. It connects to nearly 3000 wholesale markets in the country with a central portal to disseminate the information regarding price and other market related information. The portal provides daily price and arrival information for more than 300 commodities in more than 1900 wholesale markets (Ministry of Agriculture, 2012). The efforts are going on to prepare a national real time database which provides information about the availability of marketing infrastructure, storage facilities and other post-harvest

requirements. The project covers the development proposal which is related to one lakh IT kiosks in different parts and villages of the country by Department of Information Technology.

5.4 Rural Godown Scheme (Grameen Bhandaran Yojana) The government has launched Gramin Bhandaran Yojana in 2011 which aims to increase the storage capacity in the rural areas equipped with modern scientific facilities. It will strengthen the existing marketing infrastructure and can significantly reduce the post-harvest losses and hence, can improve the income of farmers. Under this scheme, 25% subsidy is provided on the total project cost incurred to establish the warehouse and storage capacity. Under this scheme, 24706 godowns with a capacity of 283.26 lakh tones and with a subsidy of Rs 696.45 Crores has been sanctioned till March 31, 2011 (Ministry of Agriculture, 2012).

5.5 Development/Strengthening of Agricultural Marketing Infrastructure, Grading and standardization Scheme (AMIGS) This is a reform linked scheme launched by the government in 2004. It is applicable only in the states where APMC reforms, which allow contract farming and direct marketing, have taken place. Under this scheme, the government provides incentives and subsidies for the development of market infrastructure facilities, like grading, packaging, sorting, auction platform etc. The assistance under this scheme can be given to entrepreneurs, co-operatives and state bodies. The projects that have been approved under this scheme cover milk chilling facility, fruits packaging, combined harvesting, etc which can reduce the post-harvest losses.

6. Challenges and Bottlenecks in Current Agriculture Marketing Infrastructure The different challenges and bottlenecks in the present agriculture marketing infrastructure are given below: ď&#x201A;ˇ

Five states Madhya Pradesh, Andhra Pradesh, Punjab, Haryana and Maharashtra have more than 60% of the total storage capacity of all the godowns in the country. Other states are slowly picking up and focusing on increasing the storage capacity with the help of private sector but still there is long way to go.

ď&#x201A;ˇ

The long payback periods and limited availability of credit from financial institutions are the main reasons behind this imbalance. Due to these reasons, private sector is very slow in investing in marketing infrastructure, despite new reforms initiated by the government. 15



There is very low investment in the development of logistics facilities in the whole value chain. There is again huge diversity among the states in terms of availability of marketing facility.



The government due to its undergoing fiscal crisis is unable to put adequate funding for the development of adequate marketing infrastructure in agriculture value chain.

7. Key Strategies and Recommendations to Remove Inefficiencies in Agriculture Value Chain There are following recommendations to tackle the problem of various economic inefficiencies in the present traditional agriculture value chain: 1. Delisting from APMC Act: Horticulture commodities mainly fruits and vegetables should be removed from the APMC act so that anybody can buy or sell perishables commodities anywhere in the country. The horticulture commodities are perishable in nature and have a very small life-term as compared to food-grains. The mandated selling of horticulture commodities through APMC regulated markets results in high postharvest losses. These losses are due to mishandling of the commodities, lot of consumption of time in transportation of one commodity to another and lack of adequate cold storage facilities. The farmers don’t have any options other than brokers to sell their horticulture produce due to APMC Act. Horticulture farming is considered as one of the most profitable form of farming. It is also one of the most viable forms of farming considering the fact that more than 60% of farmers have less than 1 hectare of land. Due to coverage of horticulture commodities under APMC Act, the famers are unable to realize the actual market value of horticulture commodities. They hardly get 30-40% of the total price paid by the consumer and rest goes to the brokers. Hence to increase the farmer’s income it is very important to delist the horticulture commodities from APMC Act. The situation gets worse when these commodities are transported from one state to other through the network of middlemen and wholesalers again causing high loss in terms of both quality and quantity of the horticulture commodities. The degradation of the horticulture commodities caused due to longer transportation time attracts adulteration in the horticulture commodities. Various types of harmful chemicals and injections are used to improve the visibility of the commodity so that it seems to be fresh to local consumers. As most of the wholesale and retail markets don’t have any effective mechanism to check the quality and artificial freshness of the horticulture commodities, it has severe harmful consequences on health and environment.

2. Strengthening the Central Board: The National Horticulture Board should be made more responsible to forecast the future demand & supply of fruits & vegetables in India. The regulator should record the price information and each transaction of the regulated wholesale markets through an efficient IT based system. It can also be done by strengthening the existing market research information network. The National Horticulture Board at present records the price information and quantity traded of major horticulture crops in bigger APMC markets but that’s not enough. It doesn’t give the overall picture of the trading in the horticulture commodities where restricts the capability of the government to control inflation. 3. Proper Implementation of Contract Farming: The contract farming should not be simply perceived as purchasing from farmer at a pre-determined price. It is an essential component of vertical integration in the agriculture and food supply chain. It has some big socio-economic consequences attached to it which makes it more important in today’s context. The contract farming should be encouraged for longer duration where the companies can provide inputs advance and share the right information to increase the yield of the crop. All the contract farming agreements should be registered with law and an effective redressal mechanism should be put in place. The contract farming is become more important for Indian agriculture due to recent high growth in food-processing Industry. The local APMC’s network can be leveraged for proper implementation of contract farming. All contract farming contracts can be registered under local APMC committees which should be made responsible for proper enforcement of the contract. The biggest problem in contract farming is the mismatch of desired and delivered quality of the agriculture produce mentioned in the contract. The companies can simply deny many a times to procure the agriculture produce on the pre-determined rates on the quality grounds which should be addressed properly because it kills the farmers. They are not even able to cover the cost of cultivation and the loans they have taken for farming. These issues need to be taken care of at the signing of the contract itself. To avoid these problems, more deeper engagement between the companies are farmers is required where companies can help farmers to adopt new agriculture practices and use high yield seeds for farming. The examples of Nestle engagement with farmers of Africa is one good example of the same.

4. Improve functioning of APMCs: There is an urgent need to upgrade the facilities at the APMC’s regulated market yards. Majority of the APMC markets don’t have any cold storage facility and the godown storage facility also many a times is inadequate. The lack of adequate cold storage facilities leads to post-harvest loss of the horticulture 17

commodities. The weighting and handling facilities also many a times are inadequate and everything is mismanaged. The lack of proper facilities at APMC markets increases the transaction cost of the farmers which in turn also reduces the profitability only for farmers. The APMC’s committee should be made more responsible in terms of proper implementation of APMC act and dual license of broker and wholesaler shouldn’t be issued to the same person under any circumstances. There should be a proper checking that broker’s fee should not be charged from farmers and it shouldn’t exceed its prescribed limit which normally happens in many states in India.

The government should encourage and invite private sector to invest in upgradation of APMC markets under PPP model and facility of viability gap funding should also be introduced from the government. The government should facilitate the capacity building of APMC at regular intervals for its effective functioning. The government can also look to promote the establishment of private markets maintained and operated by the private sector for marketing of horticulture commodities. The setting up of terminal markets for horticulture commodities is one good step in this direction. Setting up of private agriculture markets will definitely give more options to farmers to sell their produce which will reduce the monopoly of brokers in the whole agriculture marketing system and value chain. There is urgent need that government now should facilitate the development of new agriculture value chain by the private sector which reduces the involvement of middlemen to minimum and remove existing economic inefficiencies. 5. Encouraging Farmers Co-operatives and Associations: The government should encourage the formation of farmer co-operatives and associations like Ruthu Bazars, in every part of the country. The association of farmers will improve the negotiation power of small farmers especially to get the higher price for their produce. The farmer’s associations or co-operatives should initiative local packaging and grading mechanisms to get the higher value of their produce. They should aim to sell directly in the urban wholesale markets bypassing the brokers to save the transactions time which will also control food inflation to desired levels. The establishment of such kind of system will also create local employment and promote non-farm economy. These co-operatives and associations should be encouraged by the state governments locally. The state governments can provide some incentives and schemes for the formation of farmer’s association. These incentives may include the transport subsidy for movement of agriculture produce from villages to urban wholesale markets, basic training for proper packaging especially of horticulture commodities, giving land or facilitation in opening of farmers markets etc. Apart from the state government, the farmer’s co-operatives or associations can also be encouraged by some private players who already have good experience of working in co-operative sector. Mother Dairy Food 18

and Vegetable venture Safal is one good example of the same. Mother Dairy procures fresh fruits and vegetables directly from farmers associations and sells it in urban retail markets. Such kind of arrangement eliminates the middlemen and more profits are realized by the farmers and at the same time consumer also pay lesser price for good quality fruits and vegetables. 6. Freedom on Inter-state movement of agriculture produce: The government should keep all the taxes levied on inter-state movement of agriculture produce to the minimum. A scheme of green permit can also be introduced to reduce the checking time of the vehicle carrying agriculture produce. It can significantly reduce the post-harvest losses caused during transportation and multiple handling. All the taxes and duties can be collected at single point to save the transit time while moving through various inter-state tax collection centers. It seems to be a problem more related to the Ministry of Transportation and authorities which look at the inter-state movement. But it needs to be understood that the various hurdles in the movement of agriculture commodities between different states are another reason for high inflation in horticulture commodities which needs to be addressed. 7. Compulsory buying of agriculture produce directly from farmers for organized retail players: It should be mandated by law that organized retail players should buy agriculture produce directly from farmers instead of urban wholesale markets. The compulsory buying of the agriculture produce directly from farmers has multi-level benefits for farmers, consumers and companies as well. Direct procurement from farmers first of all creates more options for farmer to sell their produce. Secondly, it will automatically lead to the development of private agriculture value chain or modern agriculture value chain which will be free from various inefficiencies in traditional agriculture value chain. Thirdly, it has the potential of significantly controlling the postharvest loss especially in horticulture commodities. Lastly, it can lead to better profitability realization both for farmers and organized retail players in long run. 8. Improving the agriculture extension services: The quality of agriculture extension services also plays a crucial role in agriculture marketing. The use of Information and Communication Technology in providing critical information about prices in various markets, weather forecast and prices of inputs can greatly help the farmers to take informed decisions. Reuters Market Light (RML) is one successful of the same. The company provides critical information related to markets and prices in eight different languages. The farmers using RML services are found to have 5-25% increment in their incomes as claimed by the company.

8. References   

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I am very grateful to Dr. C. Rangarajan, Dr. Alok Sheel, Dr. K.P. Krishnan, Ms. Tapasya Nair, Ms. Seema, Mr. Amit Aggarwal, Mr Vibeesh E.M., Mr. Suresh Phadnis and Ms. Prachi Mishra of Economic Advisory Council to Prime Minister for many useful discussions which greatly improved the work. I am also very thankful to Dr. Ashok Gulati (Chairman, CACP – Ministry of Agriculture) Dr. Devesh Roy of IFPRI for their valuable comments and suggestions during the course of this study.

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