Birth pangs of a new Asian order

MK Bhadrakumar
Former Ambassador

THE Indian foreign policy is making a momentous transition. The keynote address by Prime Minister Narendra Modi at the Shangri La Dialogue in Singapore on June 1 outlined the new narrative. Strategic autonomy is the key word — so are multilateralism and plurilateralism, regionalism and inclusiveness. Economic diplomacy is gaining primacy even as strong turbulence has appeared in India's external economic environment. The mounting pressures are compelling the government to reset the compass and navigate the voyage in a new direction. The trajectory pursued through the past four-year period has proved not only unproductive but also turned out to be dangerously counterproductive. 

Meanwhile, a profound redistribution of power is taking place in the world order, characterised by the growing isolation and depletion of influence of the US and the ascendancy of a polycentric international system. India must be on the right side of history. The birth pangs of the new world order are starkly visible in the Indo-Pacific region. The PM's speech in Singapore had three templates. 

First, his informal meetings with Chinese and Russian counterparts at Wuhan and Sochi, respectively, shouldn't be seen as "standalone" events. If the Sochi meeting asserted India's "strategic autonomy" and its commitment to a strong multipolar world order,  the Wuhan meeting cemented an "understanding" with China for building "strong and stable relations", which provide the underpinning for expanding cooperation. (Modi used these expressions.) 

Second, while India's global strategic partnership with the US is steadily deepening and has "extraordinary breadth", Modi tweaked the US-Indian "shared vision" in the Indo-Pacific. He prefers to call it an "open, stable, secure and prosperous" Indo-Pacific region as against the US formulation of a "free-and-open" Indo-Pacific (which observers have regarded as code word for its containment strategy against China). The shift in nuance is self-evident. It gets reflected in Modi's other remarks that Indo-Pacific is a "natural region" and a "geographical definition" —rather than "a strategy" or "a club of limited members". Simply put, Modi advocated an inclusive Asia-Pacific region, which embraces "all in a common pursuit of progress and prosperity… (and) includes all nations in this geography." 

Third, Modi flagged that India is a beneficiary of globalisation and an open and stable international trade regime, implicitly rejecting the thrust of the Trump’s America First. (Modi twice referred to climate change). In strategic terms, he stated India's aversion to great power rivalries and geo-strategies, "forcing new divisions" in Asia, and he drew the bottomline that "our friendships are not alliances of containment". He emphasised a rules-based order, but also endorsed the ASEAN (and China's) commitment to adhere to a code of conduct. 

Modi's speech signaled overnight that the big Indian ship is changing course. Beijing has warmed up to it and noted that the speech "added to evidence that the Modi government has been rethinking its China policy" and Sino-Indian ties are expected to enter a new phase. Beijing's 'sherpa' for Wuhan, Vice Foreign Minister Kong Xuanyou travelled to Delhi on June 5 for consultations — his second visit in two months. The External Affairs Ministry statement said Foreign Secretary Vijay Gokhale and Kong "reviewed the follow-up action on the understandings reached at the Wuhan Informal Summit and discussed the agenda for bilateral engagement in the coming months, including the preparations for the forthcoming meeting between the Prime Minister and President Xi Jinping at the SCO Summit in Qingdao on June 9-10, 2018." Presumably, Kong's agenda included discussions regarding concrete projects that might be announced very soon. 

Meanwhile, more signals appeared. At the US instance, a senior officials' meeting was shortly convened in Singapore on May 7 in the US-Australia-Japan-India format, but it failed to produce a joint statement. The Indian statement distinctly deviated from the three western countries' (which were obviously coordinated). It omitted references to "freedom of navigation", "democratic values and principles" etc in Indo-Pacific being the DNA of the four-nation format. Instead, India intends to partner with "all countries of the region" and promote its regional vision through "plurilateral forums" (read SCO, BRICS, RIC, ASEAN, etc). India refrained from undertaking any commitment on "safeguarding and promotion" of any specific regional order and also did not seek any "continuing discussions on a regular basis" within the "Quad" format in future (unlike the three western participants. India underscored that the PM's speech in Singapore conveyed the essence of its stance on Indo-Pacific. Plainly put, Delhi prioritises the improvement of ties with Beijing and cannot identify with a US-led containment strategy against China. 

What cannot be overlooked is that this foreign-policy transition has an economic dimension. The spectre of an Asian financial crisis is haunting India (and China), as in 1997-98 — but potentially more damaging because today's India is a globalised India. For one, oil prices have soared 20 per cent since January alone. China is the world's biggest oil importer, and India the third biggest (after the US). China expects a whopping annual oil import bill of $280 billion this year, and India roughly $90 bn. This staggering burden translates as higher costs and rising inflation and Indian consumers and businesses will be hit hard, since consumption and manufacturing costs are certain to rise. These are grave implications for India's political economy.

What compounds matters is that not only does this emergent situation involve more payouts in US dollars, it also coincides with rising global protectionism, which is threatening to create shortage of US dollars. Meanwhile, the surge in US debt yields is creating another crisis front. The US Federal Reserve Board's policies have ratcheted up the yield on America's 10-year Treasury bond to a seven-year high and it is luring dollars home. The Indian rupee is weakening against the dollar. India's current account and fiscal deficit situation is reaching a criticality as 74 per cent of its foreign exchange reserves are in the form of dollar liabilities with a residual maturity of one year. The level of vulnerability is exceedingly high, to put it mildly. 

A stunning commonality of interests between India and China is appearing. The two countries are circling the wagons and exploring how to exploit the complementarity of their economies in trade and investment. The comparative advantages are such that big-time Chinese investments can relieve India's current trade deficit, spur its industrialisation and create jobs, while China gains more avenues for growth. But mutual trust and cooperation are prerequisites of such a relationship. Suffice to say, the new foreign policy narrative is, in perspective, a reflection of India's national policy.