YCW Conversation – Part II: Is India in Alignment with China’s Economic Strategy?

This is the second part of a two-part conversation on India and China’s “One Belt, One Road” (OBOR) initiative. Catch up to the conversation here.

China’s ambitious “One Belt, One Road” (OBOR) initiative is central to its agenda of economic diplomacy. The hundreds of billions of dollars invested in infrastructure projects across the region, if realized, will transform Asia’s physical and economic landscape. India is a key stakeholder in geo-strategic and economic terms, but its government has maintained a conspicuous silence on OBOR. Analysts are divided over how India will benefit from the connectivity infrastructure, while the $46 billion China-Pakistan Economic Corridor (CPEC), which includes territory disputed by India and Pakistan, has Indian officials on edge. Young China Watchers invited Dr. Jabin Jacob (ICS), Saibal Dasgupta (Times of India), and Santosh Pai (D. H. Law Associates) to discuss whether the goals and grand strategies of these two regional powers are at odds or in alignment.

Jabin T. Jacob is Assistant Director and Fellow at the Institute of Chinese Studies (ICS), Delhi. He holds a PhD in Chinese Studies from the School of International Studies, Jawaharlal Nehru University, New Delhi. Jacob’s current research interests include China-South Asia relations, China’s new ‘Silk Roads’ policy, Indian foreign policy, Sino-Indian border areas, and centre-province relations in China.

Saibal Dasgupta has been the Times of India’s Beijing correspondent for nine years. He has covered the Chinese parliament, the Communist Party, and interacted with dozens of influencers: politicians, businessmen and heads of state-run enterprises, and universities. Over the past two decades he has been a journalist in India, Singapore, and Hong Kong.

Santosh Pai is the founder and Head of the India-China practice at D. H. Law Associates. The firm advises some of the largest Chinese investors in India and also helps Indian companies in negotiations with Chinese investors. He has lived in China for five years and visited more than 40 cities. He has undertaken an MBA at Peking University and a master’s in Chinese law at Tsinghua University. He is an alumnus of the National Law School of India University, Bangalore.

Young China Watchers

In our last conversation, there seemed to be consensus on an accord between OBOR and India’s economic objectives, particularly in terms of connectivity and Chinese investment in the Indian government’s flagship programs. However, conflicting political and ideological systems mean there are few shared strategic interests. There were also strong opinions, particularly from Jabin and Santosh, that India is not doing enough to take economic advantage or articulate its own strategic alternatives. These seem to be the biggest policy challenges for India vis-à-vis OBOR.

Going forward, what steps do you propose the Indian government take to capture Chinese investment and tap OBOR’s potential in meaningful ways? Simultaneously, is it possible for New Delhi to maintain a balancing act between OBOR’s geo-strategic impact and India’s own role as an Asian power?

Jabin Jacob

To “tap OBOR’s potential in meaningful ways,” India first needs the capacity to devote to the task. China studies in India is underfunded. Indian businesses do not have the same sense of philanthropy towards building research and analytic capacity that they display in the education sector. In part, this has to do with the laws around corporate social responsibility (CSR)—research activity is not an unambiguous CSR option that earns tax breaks in India.

This is also due to a lack of understanding of the challenges of doing business with China. Small Indian businessmen taking a chance and heading to China with nothing but their calculators and hand signals to do business cannot be the vehicle for taking India-China economic relations to the next level. If big businesses in India are to truly tap both market and investment potential in and from China, they will have to engage with Chinese enterprises and individuals directly, without mediation from Westerners. This requires investment in human resources at home and a stomach for the long-term. Or else, China’s OBOR investments will flow to markets elsewhere.

In the absence of such investment in research and learning, whether from Indian entrepreneurs or the government, it may not be possible for New Delhi to balance OBOR’s geo-strategic impact while simultaneously promoting India’s great power ambitions. After all, these are tasks that require skilled human resources—training in foreign languages and international relations, including specific regions of the world. Where is the funding required of a country with great power ambitions? India’s Ministry of External Affairs (MEA), even in coordination with other ministries, has nowhere near the numbers of China’s Ministry of Foreign Affairs. While reforms, including lateral entry and expansion of the MEA have been proposed for several years now, these changes are occurring far too slowly, if at all.

Now with the state governments in India increasingly seeking investment from China and elsewhere, there are still more demands of the MEA and the central government. In China, by contrast, there is a well-oiled machinery of foreign contacts and exchanges at the province level and the major cities, supported by a cadre of trained foreign language speakers and area specialists. It is on the back of this human resources infrastructure at the national and sub-national levels that China’s OBOR has been developed and expanded. Whether to compete with China or take advantage of the opportunities it offers, India will need to develop the same kind of human resources.

Saibal Dasgupta

The recent economic slowdown in China has presented new opportunities for India to drive useful bargains in OBOR projects. Beijing’s rising desperation to open up business possibilities for its construction and equipment companies has added to the earlier strategic and foreign policy objectives that formed the basis of OBOR.

Let’s look at the different goals that China and India are really pursuing versus those they are perceived to be chasing. It is essential that the two countries are viewed in the context of their national imperatives to avoid using a similar yardstick to judge them. There are differences in objectives: what China and India are seeking and why. The only common factor is that both countries are at present led by ambitious and aggressive leaders who still feel the need to establish themselves as strong masters of their respective country’s destiny. There is no doubt that India’s vast market and future potential holds a special attraction for the starved Chinese manufacturing sector. But it would be erroneous to overemphasize this aspect.

Simply put, India’s value lies in the fact that it has significant influence in the Western world, as well as the ability to give or deny access to the Indian Ocean and the Arabian Sea in ways superior and more cost-effective than what Myanmar, Bangladesh, and Sri Lanka can offer. Besides, these countries cannot be persuaded to ignore India and tilt entirely towards China. The past few years have thrown up political obstacles for Beijing with major implications for OBOR, including: ruling political parties close to China losing elections in Nepal, Myanmar, and Sri Lanka; Chinese infrastructure projects being cancelled or delayed in Sri Lanka, Myanmar, and possibly Bangladesh; and serious issues cropping up during the implementation of OBOR’s pilot and showcase project—the $46 billion China-Pakistan Economic Corridor. These difficulties, including the economic slowdown at home, are exerting greater pressure on Beijing to make a success of OBOR in India. The question is whether Indian negotiators will be able to take advantage of the situation.

Santosh Pai

Plenty can be said on this topic at a general level, but as a practitioner involved in advising Chinese investors in India over the last five years, let me get into the specifics.

The first point of contact for Chinese investors is the visa process. Despite vast improvements, this process still suffers from an element of unpredictability. Under no circumstances should it take more than the promised 48 hours for any Chinese national to obtain a business visa to India or a rejection of application. There should be a 99.99% adherence to this rule, and not just as an occasional best-case scenario. Multiple-entry visas must be issued for longer durations, since Chinese investors frequently visit India for short durations in the period leading up to their investments. Employment visa rules must be simplified; for example, rules such as, “X number of employment visas for Y dollars of investment made or Z number of Indian jobs created,” should be introduced. These are low-hanging fruits, which will have a disproportionately powerful signaling effect when it comes to attracting Chinese investments.

The company registration process in India is another source of obstacles. The archaic requirement for submission of notarized and consularized documents should be minimized as these procedures take several weeks to complete in China, unlike in Commonwealth countries where notarization is a simple formality.

State governments in India have begun offering incentives to attract investment, but there is a mismatch between the type of incentives offered and expectations. This gap must be reduced to the furthest possible extent. Targeting Chinese investments requires dedicated effort and meticulous follow-up. Efforts employed for other foreign investors might not work with the Chinese.

When it comes to Chinese investments in India, it is a common misconception that simplification of business or investment procedures is synonymous with lax security measures. India must develop robust security measures that do not impede or interfere with ease of business initiatives. For example, if there is a perceived security concern about Chinese investments in a specific industry, it is better to adopt a transparent stand on this issue rather than encourage Chinese participation in tenders, only to reject their bids on flimsy pretexts or voice security concerns at a later stage. Predictability is a prerequisite and essential to enhance India’s profile as an investment destination.

Providing a more hospitable environment for Chinese investments in India will not take away from promoting India as an Asian power. In fact, India can act as a manufacturing hub for Chinese companies looking to tap other Asian markets.

Lastly, as pointed out by Jabin, availability of appropriate human resources is a huge bottleneck in the India-China business corridor. For instance, there is only one program focused on training managers for India-China business at the Indian Institute of Management Shillong, one of the country’s top business schools. But many such programs will be required to meet the complex managerial demands in this space.