India's Iron Ore and China's Growth

India may well reconsider an option it rejected exactly ten years ago - Banning export of iron ore unless it’s converted into a value added metal. A move which Indonesia has endorsed over the weekend, forcing global miners to announce plans to set up refineries in the mineral rich but heavy industry-poor  South East Asian economic powerhouse.  
Top officials in the steel ministry and planning commission who had a decade back argued that allowing Bellary-Hospet’s mineral riches to be exported to China without any value addition, meant losing out on job creation at home besides reducing export incomes which could come when ore is refined into costlier iron pellets or steel, had their ` Vous a dit si’ or `I told you so’ moment.
Top officials who said they would study Indonesia’s move to see how President Susilo B Yudhoyono’s move helps grow investment and export valuations, had ten years back opposed removing a cap on sale of high grade iron ore lumps and fines from Bellary-Hospet and Bailadilla mines. They had, instead, presented the then NDA Government with an alternate note which proposed encouraging those who wish to import ore from India to set up iron pellet making or steel-making capacity here.
Officials had also argued that ore exports, to China, if allowed, should be linked to barter deals for high grade coal from that nation as India was projected to spend huge amounts on import of in future years. Neither of these arguments were paid much heed to, instead the cap was lifted. The result : 1) India 's export of iron ore, sold at a tenth of the price of steel, zoomed by a 100 per cent in just 3 years to 100 million tonnes; 2)  By 2012-2013, India was spending $ 18 billion in importing 137 million tonnes of coal compared to a couple of million dollars, ten years back.

After the Congress-led UPA government took over a rethink on the old policy started. However, once again the mining lobby won the day and ultimately, the government continued with its policy of allowing ores to be exported. Rules said only fines and lumps with low grade iron would be allowed to be exported. However, the reality which later Supreme Court appointed committees exposed was that high grade iron ore kept being shipped out of the country, with 80 per cent of it headed towards China. 
China’s steel-making capacity based on iron ore imports from India, Indonesian, Australia and Brazil, doubled to 800 million tonnes a year in these 10 years. Imports from India and Brazil were especially prized as these were of high grade ore with iron content of near or above 60 per cent.
In sharp contrast, India's steel making capacity increased from 48 million tonnes in 2004 to around 78 million tonnes in 2014, a fraction of the amount of steel churned out by China, a nation with very poor iron ore resources.
Needless to say economists have long been able to trace a direct correlation to steel production and usage to a country's per capita income growth.

When current Himachal Pradesh chief minister Vir Bhadra Singh, took over as steel minister in 2009, he renewed the battle arguing in notes that India is a  “major producer of iron ore, much of which we export at low price  ... we should rather work towards a policy of encouraging value added exports which fetch us better revenues."
This was reiterated again last year by steel minister Beni Prasad Verma who argued that it "makes more sense to push exports of steel valued at $ 800-1000 per tonne rather than raw materials valued at $100-120 per tonne.”
Ultimately, it was the courts which stepped in to stall ore exports, but not on policy considerations but rather to stop rampant, illegal mining which could degrade the environment.  The result, point out steel ministry officials, has been rather good for value-added iron pellet exports. While iron ore shipments declined drastically with total ore exports likely to be less than 30 million tonnes this financial year, compared to 62 million tonnes in 2011-2012. Iron pellet exports witnessed a boom,  with most of it headed towards China. Exports of pellets which are the costlier replacement for ore in steel making, are likely to be nearly 800,000 tonnes in this financial year or 20 times exports in the previous 2012-2013 year.

Chinese Bug-bear in India's Telecom Story

China's Li Keqiang - on a woo India trip

Chinese Premier Li Keqiang may have chosen India as his first foreign destination, but for India, China remains a bug-bear.

Security issues surrounding Chinese telecom equipment remain a major concern even as Beijing signals its intention for closer ties with its neighbour, seeking greater market integration.

India is working on setting up a testing lab in Bangalore in collaboration with the Indian Institute of Science to check imported telecom gear for bugs.

India imports telecom gear worth about $10 billion annually, much of which is from Chinese firms such as ZTE, Huawei, Dongfang and Cosco. Overall, electronics are the third top import item for India.

The idea of the lab, which the department of telecom says is necessary but not enough to check bugs planted in equipment, comes from a note prepared by the National Security Council (NSC) last month. The note raised concerns over the Chinese firms’ links with the People’s Liberation Army and security establishments, and the fact that some of the firms sold the same devices to Pakistan.

New Delhi decided to act after alerts from local intelligence agencies as well as security experts from the US, Australia and the UK about the possibility of malicious bugs or malwares in telecom gear. A few years back, India had virtually banned the import of Chinese gear but relented after some domestic telecom companies contended that China-made equipment reduced costs and that bugs could come with equipment made by rival European manufacturers, too.

However, India would also like to encourage domestic manufacturing. The government has been mooting the idea of developing a “made-in-India” telecom equipment park. The idea has not got off the ground for want of takers. This is being done to stem the huge drain of forex resources every year in buying costly telecom equipment and even basic mobile sets and components from abroad.

Telecom : the new frontier

The NSC note, too, specifically calls upon the government to step up “efforts to set up manufacturing and fabrication facilities” for telecom gear, including micro-chips, through sops, cheap financing and tax breaks.

Chinese companies already have facilities in India. Most of the Chinese telecom gear makers, including Huawei and ZTE, have set up local units where value addition is done.

India’s preferential market access policy for government procurement, which the cabinet cleared in February this year, does not discriminate between local or foreign firms; it only stipulates that at least 25 per cent value addition should be done locally, which should gradually go up to 45 per cent by 2018.

Chinese firms want to take advantage of this policy. In January, the Cellular Operators Association of India forwarded a representation from Huawei Telecommunications (India), which has become a member of the telecom lobbying body, to the government requesting it to recognise Huawei as a domestic telecom manufacturer and include its name in the lists of local firms circulated by the department of telecom.

The Chinese have already shown eagerness to invest in the domestic telecom market, which is one of their largest markets overseas. Premier Li is expected to take up Chinese firms’ desire to set up industrial parks in India to feed the market locally.

However, security experts point out that this does not necessarily preclude the chances of bugs being implanted in equipment. Bugs could be planted in any key component, whether made in China or India, or even while the gear is being put in place.

Chinese Chequers

The Disputed Region
 

“It’s summer and the Chinese, like us Europeans, probably like camping in your beautiful Himalayas,” quipped a Western diplomat whom I met during the tense few days when a Chinese platoon squatted 19 km deep in Ladakh’s Daulat Beg Oldie sector beyond what both sides tacitly agree as the line of control, raising alarm not only within the country but among a host of nations with which China shares a land or maritime border and has a dispute.

The Chinese eventually walked back but not before wrangling a deal from India that it would do away with observation bunkers (which were later described by Indian foreign ministry officials as sheds) at Chumar which overlooks the strategic Karakoram highway. As one commentator said the Chinese move was an enigma within a mystery.

Intriguingly, the move came weeks before India’s foreign minister Salman Khurshid was to travel to Beijing to be followed by a visit by Chinese Premier Li Keqiang to India. Normally, most nations would try to be on their best behaviour before such high profile visits.

However, the Chinese decided to do just the opposite. Many old China hands say this is typical of the Chinese. They send in probes to test responses ahead of talks, to see how much they can extract from their opponents in any negotiations.

India’s initial response was timid. It planted a platoon of Indo-Tibetan Border Police in front of the Chinese troops and waved flags with Chinese lettering asking them to go back. The Chinese responded by waving their own banners which said in English that Indians have strayed into Chinese territory !

The border between India and China has always been tense ever since a border war in 1962, which saw the Chinese getting the better of India before withdrawing to what is perceived to be the border, though not officially accepted as one by the Chinese. The conflict over the line stems from a border pact negotiated and signed in 1912 by three powers -  British India, Tibet and China which claimed nominal suzerainity over the otherwise independent hermit kingdom. However  Beijing soon rejected the pact as undue British interferencein its affairs. **

Chinese obduracy would not have mattered had not China invaded Tibet in 1949 bringing its troops near India’s and then driven out the Dalai Lama and several tens of thousands of Tibetan into India ten years later. India’s grant of refuge brought the two sides face to face against each other and a series of moves by China nibbling away at the border ended with a full-scale border war in the winter of 1962. Since then there have been many tense face-offs in the Himalayas, some known  to the world, some not so well known.

The recent face off between ITBP border guards and Chinese People’s Liberation Army troopers,  was initially not publicised by either side. However, when Chinese troops simply dug in and attempts through normal diplomatic and military channels did not succeed, someone in India’s Army headquarters quietly broke the story to the Press Trust of India, India’s leading news agency.  The story was quickly picked up by the rest of the media, embarrassing the government of the day into more vigorous attempts to settle the dispute.

Salman Khrshid : Chinese "...acne ..."

Predictably India’s foreign ministry tried to play down the whole affair. Minister Khurshid famously said “One little spot is acne which cannot force you to say that this is not a beautiful face,” while describing the Chinese intrusion into Ladakh, to chagrin of many. However, that stance changed after opposition parties, the Jammu & Kashmir chief minister and even ruling party MPs started demanding the government take some kind of acceptable action.

A deal was eventually hammered through – some claim helped along the way by a prominent Mumbai based industrialist who buys his telecom and power equipment from India’s northern neighbour – which saw both lose some face. The Chinese walked back and Indians agreed to dismantle a couple of strategic bunkers on land which has been de facto Indian for several centuries now.

Which leads to the question – why did it happen at all? What did China gain from it all?

Chinese Take-away !

Some claim the whole brouhaha was a localised affair where a PLA Commander decided to test his Indian counterpart, without letting his masters in Beijing know. Possible,  but difficult given the tight control political commissars exercise over Chinese troops. With the recent change in guard at the top in Beijing, troop commanders would be even more desperate now to prove their loyalty to the new masters, rather than risk their ire with any display of independent thinking.

The Indian bunkers at Chumar, with their spy cameras trained on the Karakorams must have irked the Chinese considerably, but with spy satellites and drones buzzing all over, were a few bunkers and a few cameras enough to endanger the peace in the Himalayas at a time when China is caught up in a raft of border disputes? Partly because of shrewd calculations and partly  fuelled by xenophobia, China is in visible conflict over islands in South China Seas with no less than half-a-dozen nations including military powers Japan, Korea and Vietnam. These islands ranging from tiny islets under Japanese and Korean control to Taiwan and the Spratleys form a girdle around China’s coast and have the potential to be used as bases to choke China’s trade and energy supply lines in wartime.  China wants these islands and the energy rich seas they are in, to be its own.

India wants the seas free to navigate in as it needs to use them to carry on its burgeoning trade with China, Japan and Korea (trade with China alone is slated to go up to $ 100 billion a year within the next two years) and to access its leased oilfields in the Sakhalin in Russian Siberia. This is taken to imply that India supports Japan, Korea and Vietnam in their dispute with China, which it certainly does.  Part of China’s angst is perhaps because of this tacit support that India has been giving to its enemies.

In the Tibetan highlands, China continues to face resistance from a brave and desperate people who refuse to accept their suzerainty excercised through brute military strength. Monks continue to burn themselves and poets continue to write songs dreaming of an independent Tibet. A young prime minister in exile of the Tibetans operating out of Dharmashala,  seems to be slowly filling into the shoes of the Dalai Lama, the God-King and undisputed leader of the Tibetan people till now.

Tibet continues to simmer

Perhaps someone in Beijing (and the new leadership has many minds with experience of running Tibet) shrewdly calculated that a show of strength in the high Himalayas could possibly also help douse some fires in Tibet and squash ideas that India could come to the Tibetans' help, a fond hope that most of China’s oppressed races including Uighurs and Mongols,  nurture.  

For Prime Minister Manmohan Singh, unfortunately, the stand-off could not  have come at a worse time. Except for a resounding win for his party in Karnataka, the news for the PMO and the Congress party has been quite bleak. A Bansal-gate in the railways, Supreme Court’s strictures on the way CBI’s reports were “re-written”, the killing and mutilation of an alleged Indian spy in Pakistan, following beheading of Indian soldiers by Pakistani troops gave people a perception that the  government was perhaps indecisive and worse.

Khurshid's comments on the Daulat Beg Oldie incident did not help either. It showed Singh's cabinet as weak not only before the Indian people, whom the Prime Minister has to face in general elections early next year but also to India’s neighbours who look towards the Asian power for protection from an increasingly aggressive China.  

People contrast his timid response to Indira Gandhi’s handling of China in two incidents – Nathu La in 1967 and Siachen in 1980s. At Nathu La, Indian troops held their ground in the face of Chinese demands that India vacates the pass which leads into Sikkim, then  an Indian protectorate. In the ensuing artillery duel which followed, India extracted a heavy price on the Chinese eventually forcing them to agree to a ceasefire.

In the 1980s, in the face of Pakistani attempts at establishing before the international community, that Siachen, a glacier bounded on three sides by India’s Ladakh, Pakistan-held Kashmir  and Chinese-held Karakoram ranges, was part of its territory, Indian troops quietly moved in. Some in her cabinet at that time had tried to dissuade her by pointing out that China may get involved in the conflict which must ensue. However, those in the know say she did not flinch and stuck to her stand that India should own the high ground.

Siachen
 

 ** Note on Ladakh Border

Ladakh was actually conquered by Gen Zorawar Singh in 1835-36, for the Maharaja of Kashmir Gulab Singh from Tsepal Namgyal, the Gyalpo (King) of Ladakh, a tributary of Tibet till then. This was recognised in treaties signed in 1842 and 1853 by the Tibetan government and recognised by the Chinese who had nominal authority over Tibet. The boundaries of the region were well defined at Panghyong lake on the east and Karokaram range in the north-west and remain so till this date.

Aksai Chin, the icy desert north east of Ladakh, which the Chinese surreptiously annexed in the 1950s was however not part of this treaty, its status lay undefined. Though the Maharaja of Kashmir nominally claimed it in the 19th century after W.H.Johnson, a British officer of the survey of India drew a border in 1865 which placed Aksai Chin within the Maharaja's territory
 

The Elephant, The Dragon and the Beehive Theory

 

Rahul Gandhi at CII : India is a beehive

 

Which is stronger – a dragon, a beehive or an elephant?

Answer – they are not comparable.

Congress leader and possible prime ministerial candidate Rahul Gandhi in his first address to captains of Indian industry, stressed the need to decentralise the Indian power structure in the manner of a `beehive’ to cut through red tape to make `doing business’ easier.

His favourite description of India, of course, is the beehive and not the usual lumbering elephant that most writers and thinkers associate with India. No would he like to think of it as the dragon which symbolises India's northern neighbour China, and Gandhi does believe the three symbols can’t be compared.

Wisecracks about India being a beehive with his mother as Queen bee and everyone else as drones apart, Rahul may have a point. India is teeming with a creative if chaotic society, which encourages thought cross currents and does not shut out dissent, the way regimented societies like China does.

Elephant Vs the Dragon

The India-China debate is old, almost as old as the emergence of the two nations as independent countries in the late 1940s. And much of what he said at a meeting organised by the business chamber – Confederation of Indian Industry – has been heard before. However, he is a young leader, who should be heard, if only to find out whether he is different.

The difference between the two rising Asian economies, according to Gandhi, lies in how the two view power. "China applies power by hand - they are a manufacturing behemoth. India on the other hand applies people's power - the power of the mind."

Gandhi emphasised India needs to continue developing the infrastructure needed to unleash India’s “soft power” – both in terms of roads, ports, electricity, etc., as well as in terms of revolutionising education and linking academic research with industry.

Now that’s a good and popular way of putting it across, even if it’s slightly clichéd. But the fact remains that China has become a super-power and India is still a wannabe power. And the transformation has happened during the last three decades. Nine years of that period, saw India being ruled by his father and grandmother. Five years by another Congress leader trained by his grandmother. Another nine years by a man handpicked by his mother for the job. Someone needs to do some more explaining than the play-acting Rahul did with industrialist Ajay Shriram to explain why India’s `soft power' has not been able to keep pace with China’s `hard power'.
 

The Beehive Theory

On the other hand,  Gandhi’s  complaint that unlike a "beehive which gives every member a voice", the system in India is "clogged" and voices of many at the bottom of the pyramid are not heard, is partially true. Despite boasting of a free press and the longest running democracy in Asia, marginalisation of the poor and unheard, were and are certainly the causes for the small and large rebellions India has witnessed over the decades.

That the ‘unclogging’ of the system is happening is apparent - the number of rebellions has come down – but the few remaining ones ( and they are big ones – a Maoist rebellion in central India and an ongoing disturbance in Kashmir)  are signs  that much more needs to be done.

Gandhi of course, led his `beehive’ allegory onto a subject which was a favourite with his late father prime minister Rajiv Gandhi – decentralisation to the district and village level. The desire to decentralise may not be purely altruistic.

The Congress rule in the centre in Rajiv’s time and now, was and is being increasingly challenged at every stage by states ruled by different ideologies. This is why the Congress party wants to cut past state governments and link up straight with district level governments.

In Jawaharlal Nehru’s time, dealing with provinces was not a problem. Ideologically they were one with him. They were all ruled by Congress party bosses. The chief ministers were strong men – Dr B.C.Roy in West Bengal, K Kamaraj in Madras, Govind Bhallab Pant in Uttar Pradesh – but they were all Congressmen and consultations that the prime minister used to carry out with them on economy, polity or foreign policy were more in a closeted club-like culture.

Mrs Gandhi solved the consultation problem, by simply ignoring state governments. Her force of personality and the fact that she picked up issues which were popular with the masses, meant the states squirmed when their rights were trampled on but did not have the ability to oppose her policies.

Take the example of coal and steel freight equalisation – it hurt Eastern states the most – West Bengal, Bihar and Orissa saw de-industrialisation as a result of this mis-thought policy. But no chief minister dared oppose it as the entire deal came shrink wrapped in Socialist rhetoric which talked about bringing the benefits of industrialisation to backward regions.

In reality, nothing of that sort happened. The policy which had the central government subsidising freight cars carrying steel and coal so that they could be sold at the same price anywhere in the country, helped some moneybags in Bombay make a killing at the expense of mineral rich Eastern India. The poor states remained poor.  

Mrs G got away with it. However, that kind of a deal is no longer possible. When the Dr Manmohan Singh wanted to play down the Sri Lankan Tamil issue at the UN, his DMK `friends’ and his AIADMK `former friends’ just didn’t let him have his way.  When he wanted to gift industrialists like the Ambanis, Adanis and Tatas with a subsidy on  costly imported coal to fire their new electricity plants, by raising the price of locally mined coal which feed ageing state electricity board run electricity plants, states raised a stink, forcing the `good doctor' to backtrack.

No wonder, Rahul called for decentralisation of the beehive, and described that as the panacea for India. The Queen Bee needs to connect with the drones minus the doubting chief ministers in between.

Why The BRICS Bank Refused To Take Off

The BRICS grouping’s grand plans for a development Bank to rival the West’s World Bank-IMF combine has managed to get mired in differences over the size of  corpus, which nation will pay how much equity and where the bank will be sited, holding up an announcement on the issue in Durban earlier this week. 

The BRICS Durban Summit 

Top North Block officials said the tussle over stakes and with it control of the new development bank which could rival IMF held up announcement of the start-up at the just concluded Durban summit.  Indian Finance Ministry economists together with Reserve Bank experts will now draw up a draft roadmap which could be informally discussed at the interim summit at St Petersburg in Russia this September and later fleshed out as a full scale plan before the next full BRICS Summit at Brazil in 2014. 

BRICS, an acronym for Brazil, Russia, India, China and South Africa owes its begining to a report in 2001 prepared by Goldman Sachs which coined the term BRIC. The poltico-economic grouping started in 2006 as a club for the four emerging economies to gather and firm up strategies on trade and ecnomy. With the 2008 economic crisis, the grouping which represents 40 per cent of the global population and 20-25 per cent of the world's GDP assumed importance and in 2010 it turned into BRICS with the inclusion of South Africa.

India had floated the idea of starting the bank with an initial capital of $ 50 billion, with each BRICS nation chipping in with $ 10 billion, sometime last year. However, China’s whose economy easily drawfs the rest of the BRICS nation, wanted the corpus jacked up to $ 100 billion, promising to make up for any shortfalls in contribution by members.  Other BRICS nations, who are hard pressed on finances, wanted the plan pared down to $ 10m billion with contributions of $ 2 billion each. 

Russia and India played shy of the bank proposal after it became clear that Brazil and South Africa would not be willing to pay up much of their share of the corpus, and China by default might get the largest equity share in a bank floated at the current juncture.

Indian officials also wanted a window for participation by non-BRICS nations which were keen to join the bank such as  developing world nations like Egypt and Indonesia  as well as developed world participants like Japan and the US. Though none of the member-countries said `No’ to the proposal, China’s offer to underwrite any unsubscribed capital, seems to have sidestepped that part of the deal.

Global economy share

The problem with accepting China’s generous offer was that the BRICS bank would in effect have become a `Chinese Bank’ with China holding a dominant stake. China has already emerged as one of the biggest `donors’ in the developing world, where it has been accused of leveraging its massive $ 3.5 trillion foreign exchange reserves to dole out cheap loans for infrastructure projects in return for generous mineral or oil and gas concessions.   

Officials said the `battle’ over the bank also extended on where to site it. China wants it in Beijing, where some fear it could manipulate staffing to suit itself, whereas South Africa wants it to be in Johannesburg, as Africa has the most underdeveloped nations which would be potential recipients of the bank’s lending. India is not against the bank being headquartered in Africa but would like ground rules cleared about staffing. 

The World Bank-IMF combine have in the past been accused of  being dominated by economic theories thrown up by Western nations’ and staff drawn from or trained in the West, besides being controlled at the board level by Western countries which put in most of the money required for the banks’ start-up. India, South Africa, Brazil and Russia consequently are cautious about how the new BRICS bank is set up and run. 

India bets big on Africa

India's $ 1.9 tril Elephantine economy 

India’s elephantine economy is getting to be noticed across the Monsoon waters of the Indian Ocean in mineral rich-Africa, with investments touching $ 50 billion and two-way trade some $ 70 billion.

India Inc.’s very best is in a race with Chinese companies to be part of a growing market and resource supplier. Tatas, Mahindra, Bharti, Essar, Godrej, ONGC and Kirloskar are among the big names flocking to the continent. And Africa seems to want more of it. At a India-Africa Conclave in Delhi this week, the venue was thick with Prime Ministers, Vice Presidents and Economy Ministers from African nations. "Arguably, Cameroon is one of Africa's best destinations for investments from India", said Philemon Yang, prime minister of gas-rich Cameroon to a gathering of Indian business leaders.

The three-day Conclave saw some 30 African countries coming up with 475 project proposals worth $ 65 billion, for Indian companies to invest in, ranging from farming to consumer durables to infrastructure to energy, transport, mining, finance and telecom.

India has been trying to woo Africa

Tatas have already invested some $ 1.7 billion, in chemical and automobile plants, hotels, infotech centres among others. “The way Africa is growing … there can be no caps on potential future investments,” said Raman Dhawan, managing director of Tata Africa Holdings. Tatas will continue to set up new automobile plants and bid for projects to set up telecom networks but its future investment focus will be on resources – coal and iron ore to start with – which its plants world-wide require.

If China is workshop for the world and India its services centre, Africa is emerging as the miner for the global economy. Much of India’s investment into Africa is in oil acreages, coal and gold.

Oil accounts for roughly 60 per cent of the trade between the two. Surat gobbles up South Africa’s diamonds while jewellery parks in Calcutta and South India’ tonnes of gold from the continent, accounting for another 10 per cent of the trade. South Africa and Mozambique's coal fuels power stations. India has tied up for uranium from Malawi and Niger to run new nuclear power plants.

But where India differs from China is in the way it’s been doing business. “China’s investment is mostly locked onto resources and state driven … ours is enterpreneur-driven and diversified. Look at Tatas, we have invested in telecom and software … set up chemicals plants,” pointed out Dhawan. India’s biggest investment into Africa is Bharti Airtel’s buy-out of Zain at an estimated $ 9 billion not a gold mine or oil acreage purchase. Airtel’s African operations now cover some 19 countries.

India's Airtel in Africa

Indians also differ by investing in the host society. “We have invested heavily in training African colleagues,” adds P.K Ghosh, Chief Financial Officer of Tata Chemicals. Indians tend to hire a mix of African and Indians, with more Africans than Indians. The Chinese tend to do the opposite.
“What one can readily say is that India’s public relations with Africa is far better,” said veteran Ghanian journalist Francis Kokutse. “Both India and China need resources, we know that but there is a difference in the way the two have gone about.”

Chinese firms in Africa have been known to be less than sensitive about local culture and sensitivities. Sinopec, has explored for oil in a Gabonese national park, causing an uproar. Two years back, Chinese mine managers used shot-guns to disperse agitating workers in Zambia, creating a volatile situation.

India also tends to add value rather than just ship away minerals. Essar took a 80 per cent stake in a mineral venture in Zimbabwe and along with it took controlling stake in a steel plant in the Southern African nation for $ 750 million where it will process iron ore into steel, some two years back. It then followed it up earlier this month with announcement of a $ 275 million investment in a port to handle exports.

However, China still pygmies Indian business effort. Its trade with Africa is three times India’s. China’s diplomatic presence in Africa is far larger. Its staff better trained in the languages that Africa speaks, despite India’s centuries old links with the continent.

Chinese colours on Africa!

It throws largesse by underwriting large railway, roadways and civil construction projects in African nations. No wonder bids by Chinese state-run firms knock out Indian competition when bidding for oil, coal or other mineral resources concessions.

However, Indian business practices may still win more friends and in the process more business in the long run. Said Guy Scott, Zambia’s vice president “African countries can learn from India’s promotion of family business, long term investments and innovation which have proved to be sustainable … and we believe that partnership with Indian investors is a prime means to get there.”

India’s Defence Budget: The Chinese Challenge

Ask the dragon why she’s crawling with eight legs,

And she says, donno, I’m just doing it.

…

Ask a girl why she’s dancing in the wind,
And this is what she says:

Ask an elephant why he’s raising his trunk,
And he says, donno, I’m just doing it.

…

–      from the lyrics `Ask The Dragon’  by Yoko Ono

Just days after India announced a $ 37.4 billion defence budget for the year 2013-2014, China came out with its own official defence budget figures – at $ 119 billion, some three times its southern neighbour’s.

As late as 2000, India's budget for its armed forces at $15.9 billion more or less matched China’s officially given out figures. However, in reality even then the actual Chinese spending was estimated at three times India’s.

Today, the real Chinese defence budget is believed by many, to be nearer 4-5 times India’s. India’s defence budget rose by just 5 per cent, a sign of the difficult economic times the world and India is going through. India’s $ 1.9 trillion economy grew at its decadal low of 5 per cent, its inflation rate rose worryingly and its current account deficit or the difference between the foreign exchange earned by a country and spent by it, breached self-set limits.

However, the real difference is not just in the money figures which the two Asian rivals have put out, but in the way India and China will be spending that money.

India will continue to spend most of its money on its Army with 99,708 crore or 49 per cent of the defence budget, earmarked for the 1.2 million strong land force. Air force will get the next big chunk of money at Rs 57,503 crore. Navy the smallest service will receive Rs 36,343 crore, while the Defence Research and Development Organisation will get a paltry Rs 10,610  crore and India’s Ordinance Factories complex a tiny Rs 509 crore.

Despite a scandal brewing over purchase of VIP helicopters, the Air Force has become the most favoured wing of the defence ministry – with its share of the defence budget going up from 24.9 per cent to 28.2 per cent. Not only that, its allocation for modernisation has gone up by a whopping 30 per cent from Rs 28,504 crore for 2011-2012 to Rs 37049 crore for 2012-2013.

The Air force of course will be going to town with a huge shopping list and needs that money. Among other things, it needs to sign a contract to buy 126 French Rafale fighters, sometime later this calendar year. It also plans to sign deals to buy heavy lift CH-47F Chinook heavy lift helicopters, Boeing Apache longbow attack helicopters and Airbus tanker transporters.

The favour to the air force has meant the Navy and Army’s modernisation plans have received cuts by 2.8 per cent and 3.5 per cent respectively. Last year, some 31 per cent of the Rs 79,198 crore capital budget for the defence forces had been earmarked for Indian Navy, hitherto the most neglected of India’s armed forces as part of a strategy to build up India’s outreach to partly protect sea lanes used by its merchantmen, especially energy tankers which feed India’s growing appetite for crude oil and partly to counter China’s growing naval presence.

However, the real problem with Indian defence spending is that relies heavily on foreign weapon purchases – compared to the Chinese who depend more on domestic manufacture. This means India gets a) fewer aircraft or tanks or weapons for the money both countries spend. b) Their spares have to be continuously bought and c) there is always a fear of disruption of supplies because of the vagaries of foreign relations.

While India has been busy buying the C 130J Hercules heavy lift aircraft, China has been busy producing its Y-20 heavy lift aircraft, with a maximum payload of 66 tonnes and capable of flying 4,400 km. The aircraft is based on Russia’s workhorse – the Ilyushin series and still uses old Russian engines and is certainly not as sophisticated as the US built  Hercules. However, nevertheless, its functional – does the same job and costs a fraction of Hercules’s price and is paid for in China’s own currency.

C 130 J Hercules being inducted in the IAF

Similarly, while India hankers for Chinook helicopters, the Chinese have come out with the 13.8-ton AC313 heavy lift helicopter. Unveiled last year, this aircraft is a larger and modified version of the 7-ton Zhi-8 medium transport helicopter that is a close copy of the French SA 321 Super Frelon. China had bought 13 of the French helicopters in the 1970s and at least one was reportedly disassembled for study and reverse-engineering.

 India, despite its head-start in aircraft manufacturing, having started making aircraft in the 1940s and jet engines in the 1950s, has proved itself incapable of even reverse engineering the many makes of aircraft it has bought and makes under license.

The story with tanks is no different. Despite grand announcements, the Arjun main battle tank has proven to be a flop story. Just under 50 of them have been built and no regiment equipped with these home-made tanks. India still depends on old Russian T-72s and the slightly `newer’ T-90s.

Despite having bought the 155 mm  Bofors howitzer guns in the late 1980s along with the technology, domestic politics, saw projects to build them locally shelved for decades. This year, at long last the Indian army has placed orders with Ordinance Factory Board to build 114 of them with slight modifications.

Bofors Gun in action at Kargil

Contrast this with the Chinese model. Besides, the heavy lift aircraft, Beijing has succesfully reverse engineered Russia’s Sukhoi aircraft and America’s stealth technology. Its J-20 and J-31 aircraft may be doubted by western analysts, but like most Chinese take-aways these advanced fighter jets are likely to be value for money products, though not as advanced as their western counterparts.

Just one and half decade back, China like India, was a major importer of weapons. However, in the last decade and a half, it very consciously worked to `catch up’. It reverse engineered British missiles, worked on Soviet era fighter jet platforms to work in improvements. It used students and scientists sent abroad on exchange programmes to spy on rival systems, a few of which were openly available, some commercially buyable.  It hired out-of-work Soviet weapons scientists and specialists and restructured its own defence research and production labyrinths. 
The Middle Kingdom has also strategised by coming up with innovative ideas to take on its arch rival – the US – whose military size, strength and spending - dwarfs everyone else. Beijing is believed experimenting with `bugs’ in telecom and power equipment which could cause power and communication systems in client countries to collapse. It has again reportedly trained armies of hackers who can play havoc with computer based command and control systems in a wide range of areas and is perfecting satellite warfare capabilities to take out the communication lines of the enemy. It has also reportedly strategised on using low cost, small yet very fast strike craft to disable enemy fleets including aircraft carrier groups.

China's J-31 stealth fighter

Despite this defence-industrial complex model next door, India’s focus on indigenisation is more than missing in its annual budget. It has yet to fully realise the potential for indigenous manufacture of high tech weapons or for innovating new attack systems which could be cheap or involve less high tech inputs.  Unlike the west, the private sector is hardly involved in manufacturing weapon systems in India. India had allotted just under Rs 90 crore in 2012-2013 for projects under which Indian companies can design and make advanced defence equipment. In the year 2013-14, that amount has been cut down to a measarable Rs 1 crore, possibly because the amount set aside for 2013 has been returned unused!

The private sector too has proved itself as yet, incapable of meeting the challenges required to make quality platforms needed by the armed forces. The Mahindra& Mahindra manufactured `Axe’ jeep touted as India’s answer for a Future Infantry Combat Vehicle failed its test and army officers still swear the best vehicle they have used is the old, fuel-guzzling 1960s Jonga. 

However, this could well change. Indian private industry as lethargic as India’s public sector in doing meaningful research or development, has started using its new found cash reserves to buy up foreign firms in technology areas where India needs to catch up. India’s Tata group whose cars such as Indica and Nano weren’t perceived to be among the best technologically, has in the last decade bought Jaguar-LandRover, giving it access to world class technology. Mahindras have similarly bought Korean car-maker Ssangyong. Its cars are not considered great in terms of design but are grudgingly accepted as value for money, robust vehicles. 

A joint venture Memorandum of understanding inked earlier this year, between France’s Dassault Aviation and Reliance Industries Ltd will build components and eventually assemble Falcon business jets in India. These are signs of what may come about. If India can use this new found confidence in its private sector and builds up on the momentum by getting universities to work in tandem with ordinance factories and the private sector, its defence budget can literally earn more bang for the rupee in the years ahead.

Vijay Divas – the Day We Miss out in our Celebrations’ List

by Jayanta Roy Chowdhury

The Pakistani Surrender at Dhaka, December 16, 1971

 

Forty one years ago on December 16, independent India won its finest victory, in a war which was not merely a necessity, but perhaps one of the few in the annals of modern history which could be described as righteous.

The victory was not merely won by military muscle but by a combination of outstanding diplomatic, intelligence and industrial effort. India managed to gain the moral high ground even before entering the battlefield through a sustained global public relations campaign which exposed Pakistan’s ghastly record of murdering 2 million Bangladeshi civilians, raping over a quarter million women and driving out a seventh of its population to Indian refugee camps.

Our intelligence agencies had managed to gather vital intelligence on Pakistan’s war intentions, while fooling the rival army into believing we would not carry through the war effort to liberate the whole of East Pakistan.

The Indian military-industrial machinery had managed to manufacture and supply all necessary munitions and war materials despite a ban on arms sales by Western powers, imposed after the 1965 war with Pakistan.

The creation of a new nation Bangladesh, made the world sit up and look at India in a new light. Not only had India liberated a country, the size of Syria in fortnight’s time and taken some 92,000 Pakistani soldiers prisoners of war in the process, it had defied the most powerful nation in the world – the United States of America – through this war. As everyone knows, the United States famously sent its Seventh Fleet to threaten India’s intervention in East Pakistan, and asked allies Jordan and Turkey to send military aircraft to Pakistan’s aid.

Other western powers too were not exactly happy with the turn of events nor was Pakistan’s all weather friend – China – all of whom saw the emergence of Bangladesh under a new secular leadership as a challenge to their control of Asia. Not much reported, was the movement of a British naval group led by the aircraft carrier Eagle closer to India’s territorial waters in what could have been pincer movement in conjunction with the US Seventh Fleet and exhortations by US President Nixon and his secretary of state Henry Kissinger to the Chinese leadership to `threaten’ India on its northern borders.

Kissinger with Mao

By any account, this was a victory,which could be said to equal that of the Pandavas over Kauravas in the Mahabharatan era, of the Grecian wars against Persia or in more modern times of Rommel against the British in Libya.

Yet, strangely, India does not celebrate this victory outside its military cantonments, nor celebrate the men and women associated with this victory by building statues to them or through street naming ceremonies.

If India had been England or the US or even Australia, we would have been holding public commemorative services for those who died, victory parades with participation of defence forces, students and firemen, with floats and dancers on December 16. Statues of Field Marshall Sam Maneckshaw and Air Chief Marshall P.C. Lal would have dotted town squares along with Indira Gandhi’s. School history textbooks would have had whole chapters devoted to this one single decisive war.

But then this is India. Anything militaristic is frowned upon ever since Pandit Jawaharlal Nehru’s time, perhaps out of a sense of paranoia, fuelled by coups across Asia by Pakistani, Egyptian and Burmese Generals.

Gen J.N.Chaudhuri, who besides winning the 1965 war, also built up the Indian Army after a disastrous rout in 1962 from a 2.5 lakh-strong demoralised army to a three-fold larger and yet more professional national force, was sidelined without much ado by Mrs Indira Gandhi. Documents leaked now, reveal that his phone was probably tapped and that defence minister Y.B.Chavan even went to the extent of questioning him on the possibility of the army trying out a coup-de-etat!

Pt Jawaharlal Nehru with Gen Chaudhuri after 1962 war

Part of the downplaying of 1971 victory is this fear in the minds of India’s political elite that deifying the victory and the victors could result in the rise of a new military culture in this country, which has been an oasis of democracy amidst a continent where military coups have been more the rule than the aberration.

Compounding this fear, was a lack of appreciation on the part of independent India’s leaders of the positive role a modern military can play as an instrument of state policy and in actual policy formulation, especially foreign policy.

Possibly the only two leaders who understood the potential of the military as an instrument of state policy in the 20^th century were Subhash Chandra Bose and Indira Gandhi. Bose, as head of the Azad Hind government during the Second World War, of course, discussed politics and political solutions with the military leaders of the Indian National Army and even went to the extent of consulting them on such issues as whether to declare war on the US and other allied nations or to limit his war to combating Great Britain. Mrs Gandhi is well known to have taken the military leadership into confidence well ahead of the 1971 war and in ensuring a holistic approach to the war effort.
Nehru, on the other hand kept the army at bay by appointing his close aide Krishna Menon, an over-rated intellectual as defence minister and a buffer between himself and the army he rated so lowly.

Menon and Nehru had such a low esteem of the Indian military leadership’s abilities as advisors for their foreign policy, that they never bothered to take their inputs on India’s options in the border spat with China in the early years of the dispute. Rather they treated the army as a police force to be deployed on the border without questions.

Raising the Indian flag at Haji Pir Pass

Lal Bahadur Shastri, disregarded professional military advice after the 1965 war, to sign a disastrous accord in Tashkent after intense bullying by Soviet leaders, which gave back the hard-won Haji Pir pass in Kashmir and land up to Lahore in the Punjab, to Pakistan. A deal which was protested by many Indian military officers with resignations, including by BJP leader Jaswant Singh.
In more recent times, Indian prime minister Manmohan Singh is reported to have been on the verge of signing a deal which would have seen Indian forces vacating Siachen ! Luckily last minute consultations with the Army and apprehensions voiced by the military leadership, besides continued Pakistani belligerence, placed that proposal on the backburner.

Unlike in the US, India does not use policy inputs from its Generals’ in forming its foreign policy. Generals come into the picture as bit players asked to advise when issues related to the border are almost finalised!

On a more philosophical plane, the Indian state has formulated a policy which rejects the use of force as an instrument of politics in favour of a policy of strategic restraint that minimizes the importance of the military.

This is said to spring from Gandhian principles. But in reality stems perhaps from a strong lack of trust of the country’s military among its elected leadership. This anti-militarism despite the reality of conflict and war that followed independence, has effectively tied India’s hands in dealing with states like Pakistan, whose state policy lies in forcing India to part with territory through overt or covert use of its military-intelligence infrastructure.

As a result, India blindly searches for a way to manage Pakistan’s provocations, every time it is hit in the face by it. Whether it be a Kargil, a terror strike in Mumbai, bombings of marketplaces and mosques or nuclear blackmail at every stage.

Similarly, devoid of proper coordination in formulating foreign policy and military planning, India does not know how to proceed when Chinese forces test India with a Sumdrongchu or threaten Indian ships in the South China Sea.
 

Without game theorising involving all essential arms of the government, including the Armed Forces, India can never realise which move by its opponents is a bluff, which a blind, which a real threat. When Chinese forces supposedly threatened India in Arunachal Pradesh in the late 1980s, Pakistan’s bomb was ticking away towards fruition. Were we fooled into a defensive stand, so that Pakistan gained valuable time to complete its Nuclear Bomb, without risking a raid by Indian fighter jets?

19th Century Cartoon on China-phobia

As strategic thinker Stephen Cohen once remarked in an essay “Indian leaders simply have not seen the use of force as a useful instrument of politics”, simply because they did not trust the use of force or those they would have to employ in the effort.

 

However, it is time our leadership gave heed to what Gen Chaudhuri is reported to have told Chavan when quizzed about the possibility of a military coup: (a) there was a deep-seated respect for constitutional government at all levels in the country. (b) The size of India and the degree of decentralisation of its government machinery made it impracticable for the Army to seize power from both the Union and the State governments in a single operation. (c) If the Army were to attempt a coup against the Union government without seizing power in the States simultaneously, the political machinery would remain operational and the coup would almost certainly be ineffectual. (d) Any coup attempt would place a critical strain on the loyalty of Army, since State loyalties and rivalries are a real factor in the Army.

Rather they would do well to understand that in the modern world as in the ancient, power and projection of power are ways to define and shape foreign policy. It was not for nothing, that Theodore Roosevelt, who was US President at beginning of the 20^th century formulated America’s foreign policy stance till the Second World War – “Walk softly, but carry a big stick.”