Category Archives: India

Indonesia: Reassessing ‘Global Maritime Fulcrum’ (Poros Maritim Dunia)

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September 7, 2016

Indonesia: Reassessing  ‘Global Maritime Fulcrum’ (Poros Maritim Dunia)

by Ristian Atriandi Supriyanto

With maritime tensions in the region remaining high, and likely to escalate further, Indonesia must reassess its Indo-Pacific strategy, Ristian Atriandi Supriyanto writes.

Indonesia frigate

When asked to describe their country’s geography, Indonesians like to invoke the term posisi silang or ‘crossroad location’.

The term reflects the archipelago’s position straddling two continents – Asia and Australia – and two oceans – the Indian and Pacific. Conceived as early as the 1940s, the term has found new momentum in the narrative of President Joko Widodo’s ‘Global Maritime Fulcrum’ (Poros Maritim Dunia) concept introduced at the time of his election in late 2014.

The term ‘crossroad location’ encapsulates Indonesia’s spatial imagination, or ‘mental map’, of the world. From a purely geographical perspective, the term concisely describes Indonesia’s physical location between the Indian and Pacific oceans. But through a spatial lens, the ‘crossroad location’ term reveals very little about the Indian Ocean’s place in Indonesia’s strategic thinking, especially in comparison to the Pacific.

Instead, this mental map seems to blur, or even obscure, Indonesia’s Indian Ocean character. It conceals the reality that Indonesia has largely been a Pacific nation at the expense of its western frontier. Indonesia’s total trade with China, Japan, South Korea and Hong Kong in 2012 was more than double its trade with India, Australia, Europe, the Middle East and Africa combined. Most of its population and naval bases face the Pacific side of the archipelago. This simple fact naturally predisposes Indonesia’s strategic attention towards the Pacific and relegates the Indian Ocean to a backwater that elicits only occasional blips of awareness, such as the hijacking of the Indonesian-flagged MV Sinar Kudus in 2011 by Somali pirates.

Widodo’s Global Maritime Fulcrum seeks to raise Indonesia’s awareness of the Indian Ocean. Thus far, it has mainly been defined through Indonesia’s Indian Ocean Rim Association (IORA) chairmanship for the period 2015 to 2017. IORA presents Indonesia with the opportunity to demonstrate the heft of its ‘maritime diplomacy’, one of the Fulcrum’s five pillars. Four agendas guide Indonesia’s IORA leadership: the formulation of the IORA Concord; the implementation of a one-time inaugural IORA Summit and Blue Economy Conference in 2017; the establishment of an Indian Ocean Business Innovation Centre; and a consistent campaign for the empowerment of women.

Among these agendas, diplomatic and economic issues appear to dominate. The IORA Concord resonates quite strongly with the 1976 ASEAN Concord as part of which the five original members agreed on a Treaty of Amity and Cooperation (TAC). The Concord is conceived as a ‘code of conduct’ to ‘strengthen regionalism in the Indian Ocean’. When adopted in 2017, the Concord will ‘be a milestone reflecting 20 years of IORA achievements’ and, obviously, a diplomatic win for Indonesia.

The Third Indian Ocean Dialogue in April 2016 also provided an opportunity for Indonesia to air its concerns over illegal fishing. Although Indonesia adopted the controversial measure of sinking seized illegal fishing vessels, the promotion of IORA’s Blue Economy initiatives, aimed partly at promoting sustainable fishing, constitute a better long-term solution.

Given its diverse membership, IORA will nonetheless face difficulties in reaching, let alone implementing, binding commitments. Like the ASEAN Treaty of Amity and Cooperation, the IORA Concord would only commit IORA members to bland diplomatic statements that have little restraining force over signatories’ behaviours. It’s also obvious that the language of the draft would need to accommodate the diverse interests and priorities of IORA members. What IORA can do most in the security arena is promote maritime confidence-building measures, such as naval diplomacy, in coordination with the Indian Ocean Naval Symposium.

Image result for Indian Navy

The Men of India’s Blue Ocean Navy

Absent from these agendas is Indonesia’s own strategy in response to, and in anticipation of, more intense competition between the major powers in the Indian Ocean. Of paramount concern is the safety and security of three maritime chokepoints – the Straits of Malacca, Sunda, and Lombok – which form Indonesia’s approaches to the Indian Ocean. As China and India expand their maritime power so too will their ability to project force throughout the Indo-Pacific increase, including in these chokepoints, alongside the US and some European nations.

Both India and the US have reported an increased presence of Chinese submarines in the Indian Ocean. While these submarines are officially deployed in counter-piracy operations they also conduct ‘area familiarisation’ and, according to the US Department of Defence, demonstrate “an emerging capability both to protect China’s SLOCs [sea lines of communications] and to increase China’s power projection into the Indian Ocean.” Increased foreign military traffic along the chokepoints could heighten Indonesia’s sensitivity over its maritime sovereignty. Worse, it could increase the risk of collisions or incidents between military units whose governments might already have contentious relations with one another.

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The Women of the Indonesian Navy

What the strategy would be to respond to such a scenario, should it arise, remains to be seen. There is no doubt however that it would eventually require strong domestic political support. Unfortunately, the Global Maritime Fulcrum itself is facing criticism for being poorly understood by the relevant government ministries and agencies. The challenge, therefore, begins at home where success or failure could critically determine Indonesia’s Indian Ocean future.

Ristian Atriandi Supriyanto is an Indonesian Presidential PhD Scholar with the Strategic and Defence Studies Centre at the Australian National University.

This article is a collaboration between New Mandala and Policy Forum — Asia and the Pacific’s leading platform for policy analysis and debate.

A policy without a strategy

 

The Hopeful Alternative: A “Brivot” to Asia may now be in order for Britain

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July 10, 2016

The Hopeful Alternative: A “Brivot” to Asia may now be in order for Britain

by Bunn Nagara

http://www.thestar.com.my

Instead of being the end of the good old EU days, Brexit may just be the beginning of Britain’s new productive relations in Asia.

FROM the start, arguments over Brexit had been skewed on several fronts. Mainstream international media tends to be negative about Britain’s exit from the EU. The ills of withdrawal are often seen to overshadow the benefits.

Since a majority of Britons voted for Brexit for distinct reasons, why do media reports fail to portray its benefits – whether substantive or perceived – at least half the time? This may be due to corporate media interests, since EU regional integration favours them over those of small and medium enterprises (SMEs) disproportionately saddled with the costs of EU regulations.

 There is also the secondary causality factor, or “opprobrium by association”. For example, Donald Trump – seen as inhospitable to migrants from minority communities – mistakenly endorses Brexit for shutting out immigrants, so those who consider themselves more liberal on immigration policy reject Brexit for being “xenophobic”.

EU membership in fact discriminates in favour of mainly white European migrants and job-seekers, against those from other continents and even Commonwealth countries.

What’s Up, Mr.Churchill

http://www.usnews.com/news/articles/2016-06-28/how-britain-could-undo-the-brexit

Disentangling itself from the EU allows Britain to form new associations and develop old ones with other countries independently. Prime Minister David Cameron and former Defence Minister Dr Liam Fox mentioned the Commonwealth countries as being among them.

Third, the media disinclination to Brexit may also be caused by the lack of quantifiable benefits, real or anticipated, readily shaped into prime time sound bites. It is much easier to cite the trade volumes Britain may lose in Europe than the greater democratic prerogatives that Britons would enjoy.

Yet even this does not explain the common bias against Brexit. The anticipated or presumed losses, however detailed in numbers, are no more than projections and extrapolations since Britain has yet to leave.

Since both the costs and benefits of Brexit are equally notional or hypothetical, they should be entitled to equal time. But pro-Brexit hopes, aspirations and promise are not entertained anywhere as much as anti-Brexit doom, gloom and warnings.

Even champions of Brexit have been distracted from their primary task in having to defend their position against critics. They might have argued that Britain’s best years were before joining the European project, while many an EU country has seen its worst years after joining it.

The reasons for the rise and fall of European powers are complex and need not directly implicate the EU. But the fact that for decades “Europe” has failed to arrest and reverse the decline of once-mighty colonial powers seems to testify to the EU’s limits.

For now the bigger questions are: must Brexit mean assured decline for Britain, and are there no silver linings at all? EU ideology aside, Brexit can have tangible benefits and some are already emerging.

On July 7, the Wall Street Journal reported that the plunge in interest rates caused by Brexit has produced a spike in US mortgage refinancing. Mortgage rates have fallen along with long-term rates. An index of refinancing activity for the week ending July 1 rose 21%, the highest in 18 months.

On the same day, Associated Press reported that European stock markets rallied in anticipation of the US Federal Reserve holding off on raising interest rates. The lower rates may hold until next year.

Politically, British-US relations are likely to improve as well without a European “filter”. Their “special relationship” is unfazed by Brexit and may grow in the absence of continental encumbrances.

British Secretary of State for Business, Innovation and Skills Sajid Javid is already on a five-nation tour to discuss new and improved trading arrangements.

His first destination was India, which has huge investments in Britain. India’s growth is no less than China’s at some 7%, at a time when all other emerging economies are slowing.

India is already the third-biggest foreign investor (fdi) in Britain, and may soon tie with France for second place. Over the last decade the number of British companies operating in India grew 300%. Today, more than 800 Indian companies in Britain employ well over 110,000 people, while British companies in India employ about 691,000 people. All of this is set to grow on both sides.

Other Commonwealth countries in South Asia are Bangladesh, Pakistan and Sri Lanka. Although many Commonwealth members are small with little economic heft, the major countries in South Asia are in it.

The other countries on Sajid’s list are China, Japan, South Korea and the US. All major economies in North-East Asia are covered, including the world’s second- and third-biggest.

Despite the relative decline in China’s growth data, it is still the world’s most promising economy over the longer term. Vastly improved trade with China remains the grand bargain of many developed countries, particularly those in Europe.

As the jewel in Britain’s mercantile “crown” for centuries, trade with China is not to be underestimated. It was the prime reason for Imperial Britain’s involvement in the “Far East,” including Borneo (Brunei, Sarawak, British North Borneo or Sabah) as a convenient way station for sailing ships to Chinese ports.

Centuries ago, European countries were so strong that they competed among themselves for overseas territories as colonial possessions. Today, the EU is desperately holding them together to prevent many an individual slide into history’s abyss.

As a region, modern East Asia is the hub of global economic activity when it was once divided by various European imperial powers. After an initial focus on North-East Asia, post-Brexit Britain may soon consider building on its links with South-East Asia.

Of the 10 ASEAN countries, four had been part of the British Empire with three of them in the Commonwealth today. Other ASEAN members such as Thailand have also had centuries-old trade with Britain.

However, in upgrading its ties in this region, Britain should avoid the mistake of France in the 1990s.Depending narrowly on nostalgia in the Francophone countries of Indochina to boost its regional influence, Paris found itself irrelevant as the rapidly developing region passed it by.

During the Cold War, Soviet influence meant the older French-speaking generation had been replaced by Russian, then later German speakers, with technical training sourced in East Germany. Few Francophiles have survived.

Today, the CLMV countries are more interested in learning English for better progress in a globalised world. Meanwhile, the US “pivot” focuses on militarism rather than economics.

In the colonial era Britain led Europe in carving out the largest expanse of overseas territories and possessions. More recently, it again led Europe in signing on as a founding member of the China-led Asian Infrastructure Investment Bank (AIIB).

Now, Britain has struck out again on its own to exit the EU, whether or not other member nations follow. The impulse remains to act distinctly and uniquely based on its perceptions of its best interests.

A “Brivot” to Asia may now be in order for Britain. As with Brexit’s concern over immigration, it is about exploring new vistas, not shunning contemporaries by retreating into the past.

Through the AIIB and later One Belt, One Road, Britain could be instrumental in forging vastly productive linkages between East Asia, South Asia, Central Asia and Europe.

That could help revitalise Europe in a way no EU country could have imagined. By then, Brexit would be fully vindicated.

Bunn Nagara is a Senior Fellow at the Institute of Strategic and International Studies (ISIS) Malaysia.

INDIA: Modi’s Personal Diplomacy at Work

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July 10, 2016

INDIA: Modi’s Personal Diplomacy at Work

by KC Singh*

India needs to reconsider geo-political fault lines, history

PRIME Minister Narendra Modi, after two years in office, finally gave a calibrated television interview to a fawning anchor. The PM’s remarks on foreign policy give an insight into his thinking. Undoubtedly, China blocking India’s entry into the Nuclear Suppliers Group (NSG), despite his personal intervention with Chinese President Xi Jinping at Tashkent, was in his thoughts.

Three interlocking comments are noteworthy. First, that the Cold War bipolarity is over. Hence, it was level playing field and India was free to engage the entire global community. Finally, the PM — on his globe-trotting — postulated that as the world came to know “Modi” (referring to himself in the third person), they would perforce be drawn to India. He, naturally, did not mention that he was also bolstering his own image dented by past visa denials.

This strategic perception of the world derives from the Sanskrit phrase Vasudhaiva kutumbakam — the world is one family. While Modi is historically right that the Cold War ended in the early 1990s with the Soviet Union’s collapse, but the new bipolarity between a relatively weaker US and an ascendant China is already upon us. However, while berating Pakistan, he seemed reticent on China. Whether this is dissimulation to avoid open confrontation and calibrated counter-measures, which may follow, or Nehruvian self-delusion, only time will tell.

Rebonding: Mozambique is on the PM’s four-nation African tour, beginning July 7.

Global outreach, as a novel Modi doctrine, ignores history. The developing world, particularly Africa, has always welcomed India because of the relentless Indian support to de-colonisation post-Indian Independence, at the UN. Despite periodic foreign exchange paucity, India maintained training and development assistance to African countries. India joining the Commonwealth led other nations gaining independence from Britain doing likewise. Nonalignment was a quest for the developing world as a family. More recently, Indian lines of credit, grants and training slots to Africa were incrementally enhanced during the UPA rule, as two India-Africa summits were held to bolster ties.

PM Modi’s four-nation African tour from July 7, covering prominent east-coast nations — Mozambique, South Africa, Tanzania and Kenya — builds on this past legacy. It also supplements visits by the President and Vice-President earlier to West and North Africa, respectively. While India has traded with East Africa since time immemorial, the British took Indian workers to run their African colonies from which have spawned the diaspora and the modern links. The five-nation East African Community, founded in 2000 to coordinate infrastructure development, is an East African success story.

The China factor lingers whenever India engages Africa. Deep pockets and hunger for resources during the early part of this century, when Chinese economy was growing at double- digit rate, pales the Indian presence. In 2014, while the China-Africa trade was $200 billion, India’s languished at $70 billion. Indian investments are also $35 billion, considerably below China’s. However, two factors now favour India. One, the Chinese use of its own labour to extract resources with unseemly hurry has created a backlash and is seen as exploitative. Two, the slowdown of the Chinese economy — growing, many believe, well below the target rate of 7.5 per cent — presents India an opportunity, as commodity exporting countries are in recession. The US shale gas revolution has also affected gas exporting nations like Mozambique. Between 2010 and 2014, African countries growing at 6 per cent, or more, fell from 25 to 12, and those with low inflation being only six. Three of them are EAC members. Kenya, with its pro-West tilt, was always an exception to the warm India-Africa ties. However, with a new dynamic President, Uhuru Kenyatta, it is perhaps ready to embrace India.

Africa also can be critical for food security, with 600 million hectares of arable uncultivated land, constituting 60 per cent of the global total, making it tomorrow’s granary for a growing population in the developing world. Even in 1950-60, the then Raja of Faridkot applied for permission to acquire land in Ethiopia, ruled by the then Emperor Haile Selassie. In the period 2000-11, 948 land deals for 124 million hectares were registered; among buyers are rich Gulf states. But land can be an emotive issue and there are reports of local ire over the diversion of water, exploitation of labour, etc. In Africa, only 5 per cent of cultivated land is irrigated, compared to 41 per cent in Asia. There would also be the element of security as many of these states have weak institutions.

The Modi doctrine of personalised diplomacy will flounder, as in the case of NSG, if it ignores geo-political fault lines, or the emerging balance of the power game between China and the US, or, indeed, lessons of history. It can be a useful adjunct to a grand strategy in a de-globalising world. President George W Bush erred in 2001 when he declared on meeting Russian President Putin that he found him trustworthy as he “got a sense of his soul”. A Soviet expert would have told him that former KGB agents do not let their souls interfere with realpolitik.

The Cabinet rejig presents an unintended irony in the Ministry of External Affairs created by again personal chemistry trumping objective analysis. Minister of State Gen VK Singh (retd) — persistently advocating honouring of Maharana Pratap, routed in the Battle of Haldighat by Emperor Akbar’s forces — now faces another Akbar, MJ, perhaps wresting the Gulf and West Asia from him. Modi thereby succumbs to the fallacy that a Muslim is best to deal with the Islamic world, a Congress-perpetrated myth which PM Vajpayee rejected. Do the P5 members of the UNSC even send Muslim envoys to Islamic nations? It was Jaswant Singh, as External Affairs Minister, who struck a vital equation with the then Saudi Crown Prince Abdullah, laying the foundation of the present close engagement.

Resting foreign policy on seeking universal goodwill through personal diplomacy is not a strategy in a world with assertive China, diabolical radical Islam and anti-globalisation and free trade virus in the veins of Europe and the US. Henry Kissinger, in a 1963 critique of the Kennedy administration, wrote that they ran a “government by improvisation and manipulation”. He added their government lacked strategic clarity in “a period of revolutionary change”. He had Vietnam in mind. It sums up the Indian dilemma today. Hopefully, now that the PM is at spring cleaning, seeking a tangible strategy comes next.

*The writer is a former Secretary, Ministry of External Affairs

http://www.tribuneindia.com/news/comment/personal-diplomacy-at-work/262038.html

Japan in Prime Minister Modi’s Vision for India

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March 30, 2016

Asia Pacific Bulletin

Number 337 | March 30, 2016
ANALYSIS

Japan in Prime Minister Modi’s Vision for India

by Titli Basu

Japan constitutes a critical component of Prime Minister Narendra Modi’s Act East Policy. Beyond strategic congruence and coordination in Asia, the role of Japan in facilitating Modi’s economic development agenda is indispensable. As Modi envisions India’s ascent in the international order, the need to strengthen the economic foundation takes precedence. Demonstrating his pragmatic leadership, Modi has articulated several national campaigns including ‘Make in India’, ‘Skill India’, ‘Smart Cities’ and ‘Digital India’. Japan’s support for the success of each of these initiatives is crucial.

India began courting Japan primarily to source capital for investment in infrastructure, accessing civil nuclear technology, and securing the supply of high-end defense technology. The two countries redefined the contours of bilateral defense cooperation with the December 2015 Agreement Concerning Transfer of Defence Equipment and Technology Cooperation. India’s defense modernization offers colossal opportunities for Japanese industry, which since 2014 is exploring the benefits of eased arms export regulations.

Beyond the scope of joint-development of defense technologies, Japan fits well with Modi’s larger goal to make India a center of global manufacturing. Modi’s ‘Make in India’ initiative intersects with Prime Minister Abe’s ‘Partnership for Quality Infrastructure Investment for Asia’s Future’. To facilitate manufacturing, Modi aims to undo hurdles in conducting business, develop necessary infrastructure, and boost the investment climate in India. In this regard, the footprint of Japanese ODA is expanding in Indian infrastructure sectors including high-speed rail, industrial corridors, and urban mass rapid transport systems. Meanwhile, Abenomics is striving to reinvigorate the Japanese economy by benefitting from the growth of the emerging economies. India will continue to be one of the fastest growing economies with a promising market. Japan being a capital rich nation with an aging population and India being a capital poor nation with rich demographic dividends and inexpensive labor compensation underscores the mutuality of economic interests.

Building quality infrastructure and nurturing manufacturing industries is Modi’s priority. While Japan has an international reputation for manufacturing excellence, one of the challenges in the economic profile of this relationship is the limited Japanese manufacturing presence in India. To ease the impediments Japanese firms navigate through while operating in India, Modi institutionalized ‘Japan Plus’, a special management team to accelerate investments from Japan. Advancing industrial networks and regional value chains must be a priority. Japanese corporations are key actors in East Asian production networks but India is yet to significantly feature in them. Robust infrastructure enhancing connectivity between India and the Indo-Pacific region is important for strengthening economic opportunities and meaningfully advancing ‘Make in India’.

Connectivity between India’s Northeast and Southeast Asia is a long cherished goal which benefited from recent Japanese assistance in a Northeast connectivity project aimed at converting the region into a manufacturing center. Japan is offering ODA loans for the North East Road Network Connectivity Improvement Project (Phase I), aimed at strengthening the existing national highway network in and around the northeast states of Meghalaya and Mizoram.

Modi’s ‘Skill India’ is aimed at cultivating a professional labor force catering to the manufacturing sector. This is another area where Japanese experience, disseminated through Japan International Training Cooperation Organization (JITCO) and Overseas Human Resources and Industry Development Association (HIDA), is valuable. Capacity building has found resonance with the Technical Intern Training Program and Advance Soft Skills Development Project in India, which aim to impart Japanese manufacturing practices critical for the success of the Japanese Industrial Townships in India. Moreover, HIDA has delivered in attempting to support skill development in the Delhi-Mumbai Industrial Corridor endeavor.

The core elements of India’s ‘Smart City’ Mission can draw from the Japanese know-how concerning solid waste management, water recycling, urban public transport, and digitalization. There are prospects for joint R&D. In early 2016, the Indian Institute of Technology (Kharagpur) and Nikken Sekkei Research Institute (NSRI) agreed to collaborate and design smart technologies to build sustainable cities. Dealing with urbanization, Modi plans to build 100 smart cities which present opportunities for Japanese companies like Hitachi Data Systems with its social innovation solutions. Moreover, Modi’s reform line-up, together with the ‘Digital India’ plan, offers a chance for Japanese corporations to invest in the information and communications technology (ICT) sector where 100 percent FDI is allowed. Joint projects in Green ICT, including green mobile base-stations and ICT for disaster management, are being explored by engaging Indian and Japanese industrial partners.

As India seeks to achieve sustainable economic development, priority is being accorded to enhancing energy efficiency, conservation and boosting renewable energy. As Japan is one of the most energy efficient economies of the world, India will benefit from technological cooperation and innovative solutions for building smarter communities. Japanese New Energy and Industrial Technology Development Organization (NEDO) and The Energy and Resources Institute (TERI) have done joint research expanding the scope of cooperation in the energy sector. Meanwhile, Modi demonstrated political will by redefining India’s national solar ambitions, targeting 100 GW by 2022. The objective is making solar energy more affordable, dependable, and unproblematic to connect to the grid. In this regard, there is increasing scope for Japanese corporations in the Indian solar market. Soft Bank, along with Bharti Enterprises and Foxconn, plans to invest $20 billion in solar projects in India and they bagged their maiden solar project at a competitive rate of Rs 4.63/kWh.

Japan has a particularly special place in Modi’s economic and development vision for India. In the Asia-Pacific, Modi’s aim is to bolster India’s emerging power status. For this, he is willing to boldly engage, but not align, with all regional actors including Japan to leverage partnerships without diluting the fundamental values of India’s foreign policy. While some in Japan harbor expectation from India to be a balancer vis-à-vis China, India will not be any country’s formal ally. Under Modi, India is more forthcoming than in the past in articulating its position on few specific regional issues in an unambiguous manner where India’s interest is involved, such as freedom of navigation in the South China Sea.

Modi has articulated India’s vision for the Asia-Pacific, engaged in strategic coordination including India-Japan-U.S. and India-Japan-Australia trilaterals, and accepted Japan’s participation into the Malabar exercise. There is certainly a greater strategic coordination on a few specific regional issues. Despite PM Modi’s high hopes for cooperation with Japan, it also needs to be noted that Modi has simultaneously engaged with China in building a closer developmental partnership, has adopted a different approach than Japan with regard to the AIIB, and conducted a joint counter-terrorism drill with China around the same time when Modi created space for Japan in the Malabar exercise. Therefore, a balance of interests is driving Indian policy. Japan is one but not the only important player in PM Modi’s vision.

India will not align but instead looks to pragmatically engage with all the important players in the Asia-Pacific matrix to pursue its quest for multi-polarity and great power identity.

Dr. Titli Basu is a Researcher at the East Asia Centre of the Institute for Defence Studies and Analyses (IDSA) in New Delhi. She can be contacted at [email protected].

The East-West Center promotes better relations and understanding among the people and nations of the United States, Asia, and the Pacific through cooperative study, research, and dialogue.

Established by the US Congress in 1960, the Center serves as a resource for information and analysis on critical issues of common concern, bringing people together to exchange views, build expertise, and develop policy options.

The Asia Pacific Bulletin (APB) series is produced by the East-West Center in Washington.

APB Series Editor: Dr. Satu Limaye, Director, East-West Center in Washington
APB Series Coordinator: Alex Forster, Project Assistant, East-West Center in Washington

The views expressed in this publication are those of the authors and do not necessarily reflect the policy or position of the East-West Center or any organization with which the author is affiliated.

For comments/responses on APB issues or article submissions, please contact [email protected].
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It’s a great time to be Indian

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February 1, 2016

Introducing  http://shreysfinanceblog.com

It’s a great time to be Indian

by Shrey Srivastaya

What is India? India is more than just a country. It’s an amalgamation of hundreds, even thousands, of different cultures and faiths, living together harmoniously under one sky. It’s a country that’s seen its growth halted by horrific oppression (read: Amritsar massacre) due to Western colonialism. It’s the country from which came the world’s first university and the stepping stones to the first ever moon landing. It’s a country that’s justly going to surpass their former ruler, Great Britain, in global power and influence (some argue that it already has). Despite being plagued by poverty and riddled by structural corruption, India has seen substantial levels of economic growth in recent years, along with strengthened relations with many countries both developing and developed, from Afghanistan to the USA. In future, under the watchful gaze of one of the greatest leaders that India has ever seen, Narendra Modi, India is only going to go from strength to strength. It’s already surpassed its rival, China, in terms of economic growth, and will leave it in its wake in the next decade. So, what is India? India is the next global superpower.

A thriving, young workforce is the bedrock of the Indian economy. In 2020, the average age in India will be 29. Compare this to China, where the one child policy has ensured that the average age will be 37, and to Japan, where the average age will be a massive 48. The advantage that comes with having such a youthful population is that the dependency ratio (simply, the ratio of those not working to those working), will be at 0.4 by 2030. This means that the pressure on the productive Indian population will be substantially low, and also means that a very large proportion of the country will be working. The fact that so many people will be working leads to an increase in gross domestic output, and consequently, gross domestic product (GDP), which, in turn, leads to staggering levels of economic growth. These increased levels of economic growth result in a higher average income for the Indian worker, which leads to more taxable income for the Indian government. The increase in government revenue will encourage them to spend more on public services, the most important of which is education, leading to more people having the skill levels to work in the tertiary and quaternary sector rather than the primary sector, thus technologically advancing the country. We can already see this happening in Bangalore, which has been frequently lauded as the “Silicon Valley” of India, generating over $17 billion in revenue a year.

Huge levels of foreign direct investment are perhaps also one of the biggest feathers in the Indian tail. In the first half of 2015, India garnered $31 billion of foreign direct investment, with China only attracting $28 billion and the US $27 billion. Since the economic liberalisation that took place in 1991, foreign inflows of capital into the South Asian country have been skyrocketing, opening up far more job opportunities for a young, newly educated workforce to take. Of course, this will reduce unemployment levels, giving more people the disposable income to invest in Indian goods and services, thus increasing the revenue levels of the companies manufacturing and selling these goods and services, giving them more money to open up more branches and employ more people, who will then spend, in a virtuous cycle. The positive multiplier effect engineered by foreign capital inflows into the country results in a new degree of economic prosperity for the country as a whole, and most importantly, an increase in the quality of work in the country (unemployment is a non-issue, with unemployment rates at 3.6% as of 2014, according to the World Bank). An intrinsic problem with India, along with much of the developing world, is that much of the employment generated there is in the informal sector, which is frequently not taxed. This increase in foreign direct investment into the formal sector of the economy will hopefully result in the growth of this sector, thus resulting in an increase in taxable income and revenue for Modi’s government.

The geographic position of India is also a huge strategic advantage to the country in its quest to become an economic force. In fact, it is the control of India that gave the British Empire such global dominance (unfairly, I might add). It is for this reason that, in 1 AD, India constituted over 30% of global GDP. Nowadays, without any Western anchors to their progress, their geographical position will ensure them a comparative advantage over other countries with regards to trade. India’s geographical advantage is perhaps put best by George Curzon, a British statesman, who proclaimed that “On the West, India must exercise a predominant influence over the destinies of Persia and Afghanistan; on the north, it can veto any rival in Tibet; on the north-east . . . it can exert great pressure upon China, and it is one of the guardians of the autonomous existence of Siam. Possession of India gave the British Empire its global reach.” The favourable relations which India has kept with many other countries will also work in their favour, looking forward. The biggest global power in the world, the United States of America, views India very favourably, with both Narendra Modi and Barack Obama having visited the USA and India respectively in 2015. The USA, along with other countries, has India’s core interests at mind, and will definitely not be a roadblock to any future plans. India also has good relations with many other powers, including the United Kingdom, Spain, France, and even Saudi Arabia. This will serve as a massive boon to Modi’s country in future; with India’s strengthened relationships with China, their biggest direct opposition is Pakistan.

The biggest challenge for India now is to tackle the systemic corruption present within the country, and to solve the issue of poverty within the South Asian nation; large steps are already being taken by Modi’s government to resolve this. Under the stewardship of who will come to be known as one of the greatest Prime Ministers in Indian history, India is proceeding into one of its brightest eras yet.

 

 

The Economic Outlook for Asia 2016

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January 6, 2016

The Economic Outlook for Asia 2016

 by Philip Bowring

http://www.asiasentinel.com/econ-business/economic-outlook-southeast-asia-2016/

Economic forecasting is a mug’s game. But here are a few generalizations about issues likely to impact Asia in the coming year.

asean2

The year 2016 begins not with a bang but with a whimper, to misquote the poet Eliot. It marks the end of two trends without signalling the beginning of a new one. For Asia as a whole this promises to be another dull but not disastrous year. It is one which also sees the formal beginning of the ASEAN Economic Community, a nice idea which faces challenges both from economic nationalism in the larger member countries and competition between China and the US overshadowing the multilateralism of the World Trade Organization.

Of the medium-term factors, first there is the ending – slowly – of the era of minimal interest rates, years when major central banks have attempted with modest success to use monetary easing rather than fiscal stimulus to spur economic growth in the wake of the 2008 financial crisis. Second is the ending of the steep decline in commodity prices seen over the past two years.

The two have conspired to bring about the decline of almost all Asian currencies against the dollar –including those such as China and South Korea that are net beneficiaries of commodity price declines. Indeed for Korea and Taiwan, terms-of-trade gains are being more than offset by weak demand for manufactures from the west, softer markets in China and now difficulties in commodity-dependent developing countries whose currencies have declined by large amounts.

The prospect of higher interest rates should scarcely be frightening given that in real terms they will remain at historically low levels. The dangers lurk however in certain markets such as Hong Kong property where rates have encouraged a bubble which now faces the added challenge of a currency pegged to a rising US dollar.

Debt in Thailand

There is also plenty of corporate debt around the region, not least in Thailand, which was driven by empire-building acquisitions at a time when interest rates were not only low but currency stability against the US dollar had become assumed. There are echoes of 1997/98 – but mostly only faint ones as net foreign debt for most countries is minimal compared with then. The problem is at individual corporate level, not systemic.

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The dramatic decline in energy and most mineral prices is probably close to an end but recovery is still distant. Declines in oil, coal and iron ore in particular have been caused mainly by increases in supply, not the fall-off in China’s growth. That new supply will not go away anytime soon. Similarly with the likes of gold and copper, cheap money and the 2013/14 price bubble saw new mining investment.

The issue for all these commodities now is how far the low-cost producers will go to sustain production in the hope that low prices will drive out the higher cost producer as the Saudis are trying with oil. It is a game of chicken which doesn’t augur well for exporters of iron ore, coal and gas, the most important of which in this region are Australia, Indonesia and Malaysia – all three in the case of Australia.

Agriculture looking good

Agricultural commodities on the other hand have better prospects. The El Niño phenomenon producing droughts in parts of Asia and excessive rain in South America has already caused a 20 percent recovery in palm oil prices. Its impact on rice and other cereal prices, sugar, etc., has so far been limited despite the likelihood of stronger import demand in Indonesia and the Philippines while weak prices as well as the weather could curtail Thai and Vietnamese output. The impact has yet to be fully felt. Any serious 2016 setback in India, currently a significant net agricultural exporter, could have a major impact especially on rice and cotton, and add to its palm oil imports.

Rubber prices can get a little lift from El Niño but cannot recover significantly while oil is still low while other tree crop exports will remain more impacted by weather and other issues in the main global producers.

It is difficult to see any significant improvement in manufactured exports over the year as the recoveries in the west will, even if they continue, remain sluggish. Asian currency falls have been roughly matched by those in Europe.

China

The Chinese economy is neither headed for disaster nor a return to fast growth. Some shakeout of money-losing excess capacity will happen in 2016 which will be of long run benefit but the transition to a more service-oriented economy will remain gradual. Excess capacity is having a depressive impact on global prices particularly of basic materials such as steel.

So a shakeout would be good for the world as well as for China. But don’t expect economic logic to take precedence over interest in staying in power of the Communist Party and state enterprise bosses.

Some boost from infrastructure spending

The scope for wise additional state stimulus for infrastructure is limited but more social spending and improvement in social protection for migrant worker families should benefit the housing sector and consumption. The expected further decline of the yuan against the dollar may not happen and anyway will be insufficient to boost exports – unnecessary anyway given the continuing large trade surplus.

More significant is whether China’s move to higher-value-added exports can continue. Numbers mean little so one can assume that the actual GDP growth is 1-2 percentage points below the official figure. Southeast Asia is supposed to benefit from higher costs in China for other goods but so far at least Vietnam is the only obvious beneficiary and judging by the inflow of foreign investment should continue to support expansion there of 6 percent or so despite weak commodity prices.

Indonesian infrastructure spending problematical

Indonesia’s steep currency fall should in theory attract more manufacturing investment too. In practice the decline has helped the current account respond rapidly to low commodity prices so it is not a matter of concern. However, the upward pressure on import prices is suppressing consumer demand for items such as motorbikes. There is plenty of fiscal and private borrowing space for infrastructure spending to boost investment spending but realization will lag potential.

Malaysia–Fiscal Space in shorter supply

Fiscal space is in shorter supply in Malaysia. The currency may have fallen further than the external situation merits but politicians have yet to learn the lesson that the economy cannot for very much longer be propelled by governments deficits at the same time as private capital leaves the country. There is scant sign of new export industries and the hitherto fast growing tourism and Islamic finance sector will be impacted by the oil-induced problem of their Middle East patrons.

Philippines

Oil may also finally prove a problem for Philippine remittances. To the surprise of many they were barely affected by the 2008 crisis but Middle East countries relying on US$100 a barrel oil will see declines in many sectors and hence their ability to sustain current lifestyles made easier by foreign labor, a major lifeline for many Filipino families in the form of remittances from their overseas members.

This may not be quite sufficient to offset the benefits of lower oil prices for Philippine consumers and continuing demand in developed countries for flexible foreign workers. The candidates for the presidential election cycle in July do not inspire a belief that the nation can make a major move forward but expectations for clean and decisive government are not high so the potential for disappointment is low.

Young demographic important

Like India, the Philippines will continue to fall well below potential but is sufficiently underpinned by labor force growth, lack of commodity dependence and the benefits of low oil prices to grow at 5-6 percent almost regardless. India itself may do better and with its young demographic profile growing faster than China will become the norm – as it should.

The Philippine problem with its labor surplus, which will persist for at least a generation, does however provide a contrast with the opposite fundamental problem of all of East Asia, and now also Thailand and Singapore. The lack of natural increase in the labor force and peaking of the workforce participation rate makes past rates of GDP growth a mirage.

Adding the influx of low-paid, unskilled labor imports – mostly illegal ones from Myanmar and Cambodia in Thailand and with zero rights to permanence in Singapore – to some extent hides the problem but also makes it worse by holding back investment in labor productivity.

It has rightly been noted that proof of a high level of development in big cities is when the rich use public transport and the ratio of domestic servants to population is minuscule. Near-stagnant productivity is already a problem for both. Japan struggles to grow but still manages some productivity growth as its population shrinks by about 300,000 a year and the median age rises inexorably.

Taiwan Stable

Fears that the likely election victory of the DPP in Taiwan will upset trade with China are unlikely to materialize. The weakness of China demand is a problem for Taiwan but just part of the issue of its narrow but advanced export base sustaining competitiveness in a fast-changing electronics environment. Few countries can beat Taiwan for stable economic and monetary management and that will continue, though it may continue to make the stock market one of the least volatile and least expensive in the region.

Korea

Korea’s export base is much broader but some such as shipbuilding have a hard time continuing with over-capacity and Chinese competition. But a bigger problem for the economy as a whole, which enjoys a large current account surplus, is domestic demand given the high level of household debt and low pace of new household formation.

None of the above augurs well for stock markets which are nowhere conspicuously cheap – though cheaper than the US so still potentially attractive to foreign money and now offering yields which can withstand modest rises in interest rates. China’s is so unpredictable that rational analysis is a waste of effort so foreign money may return to other markets.