Mainstream, VOL LII No 34 August 16, 2014 - Independence Day Special
Habitation and a Name for India in the BRICS
Friday 15 August 2014, by
If the annual BRICS summit meeting, which just ended in Fortaleza, Brazil, assumed an unprecedented level of interest in India, three reasons could be attributed to it.
First and foremost, India has a new govern-ment which took office in late May. The new Prime Minister, Narendra Modi is not exactly a stranger to international diplomacy and foreign policy, but during the election campaign for the 2014 parliamentary poll, he almost exclusively focused on domestic issues, and other than making a few stray remarks of an impromptu nature by way of grandstanding at a highly competitive moment in India’s electoral politics regarding India’s relations with China and Pakistan, he didn’t give any clue to his mind on the profound issues affecting the country’s foreign policy at the present juncture fraught with fluidity in the international system and the world order.
Unsurprisingly, there was expectation that Modi would use the BRICS summit to articulate on the problems of peace and international security and plant some signposts as to the course his government will navigate on the diplomatic front through the coming 5-year period. After all, the BRICS, whose genesis lay in the developmental aspirations of the emerging countries, has lately waded into the torrential streams of regional and international politics and voiced opinions on issues such as terrorism, Afghanistan, Syria, Iran nuclear problem and so on.
Indeed, Modi himself raised high expectations in this regard, as in his departure statement he conveyed an impression that he saw the BRICS summit as “an opportunity to discuss... how we can contribute to international efforts to address regional crises, address security threats and restore a climate of peace and stability in the world”.
However, in the event, Modi’s address at the BRICS summit turned out to be probably one of the most ‘apolitical’ presentations and it steered clear of any substantive content as regards the prevailing highly complicated inter-national situation. Modi trained his mind all but entirely on the BRICS processes in terms of promoting economic and social development. Of course, the Indian Prime Minister made a few concrete suggestions in the speech but they too were unrelated to politics and dealt with such interesting ideas as the establishment of a BRICS Young Scientists’ Forum, of Massive Open Online Courses, and a BRICS University.
Therefore, an impression becomes unavoidable that Delhi wishes to view the BRICS processes in non-political terms. How is it to be explained? One reason could be that the ‘unipolar predicament’ of the Indian elites, which is a legacy of the post-Cold War Indian mindset, and the Washington Consensus, which the previous government adhered to, still linger on, although they have become archaic in the rapidly evolving multipolar global order and the world is moving on.
Indeed, Modi is scheduled to visit Washington in late September at the invitation of President Barack Obama and all indications are that an upswing in the US-Indian ties is on the cards. In fact, US Defence Secretary Chuck Hagel’s visit to India signals a renewed thrust by the Obama Administration in the field of military cooperation with India. At such a juncture of balancing acts, it is probably unsurprising if the policy-makers in the new government estimated that nothing should be said or done that may even remotely hold the danger of causing discomfort to Washington.
Even if Modi is highly unlikely to be someone entrapped in a morbid fear complex, his advisors might have decided to protect him nonetheless and calculated that the safest course would be to keep the head beneath the parapet at Fortaleza instead of tilting at the citadels of Western capitalism from the trenches of the BRICS. In a marked departure from past practice, the Prime Minister’s entourage didn’t include any journalist other than the official media agencies.
A second point of interest devolved upon the fact that the Fortaleza summit signified that the BRICS, finally, is taking wings. The New Development Bank, which will begin with capitalisation of $ 50 billion, and the BRICS Contingent Reserve Arrangement, which will begin with $ 100 billion funding, have become a reality and there can be no two opinions that the foundations of a new global financial architecture are being laid.
The idea of creating the BRICS bank came about as recently as 2013 against the backdrop of the disquieting signs that investors might be pulling money away from emerging economies, hurting their currencies, amidst the expectations that the United States would scale back its economic stimulus programme. The bank will be able to start lending in 2016. Apart from the BRICS countries, other UN members may also participate in the bank’s development, but their total share will not exceed 45 per cent.
Even though the BRICS bank at its inception may seem a small rival to the World Bank (which has capital of $ 223 billion) or the IMF, it could easily get major new funding from China and Russia and could go on to rival the World Bank in a near future. But the crucial difference here will be that while the World Bank is getting printed money from the US, the BRICS bank will be getting real capital savings!
Again, an exciting possibility arises—for Beijing, in particular—whereby future US trade deficits do not necessarily get rolled back into US treasuries, but can be put into the BRICS bank, which means deploying Chinese financial power on a global scale. Thus, the BRICS bank becomes a telling evidence of the shift that is underway in the global economy towards the developing world.
The contingent fund, on the other hand, has been dubbed as a ‘mini IMF’ and is designed to serve as an emergency coffer for BRICS if a member suffers from capital flight or the risk of currency depreciation. Currency swap operations within the fund could be used as a precautionary measure or as an aid to deal with an economic crisis post factum.
To quote Russia’s Finance Minister Anton Siluanov, “We [BRICS countries] have reached an agreement that in the current conditions of capital volatility, it is important for our countries to have this buffer, a so-called ‘mini IMF’—a financial organisation which could react quickly to capital outflow, providing liquidity in hard currency, in particular in US dollars.” Here again, it is a moot point whether the New Development Bank and CRA mirror the World Bank and IMF but the perception even in the West is that there is an implicit challenge shaping up to the US posed by the BRICS’ desire to shift away from the dollar—although none of the member-states openly articulates the challenge.
Eswar Prasad, a Senior Fellow at the Broo-kings Institution and a Professor at Cornell University, has been quoted by the China Daily newspaper as saying that the BRICS bank would be an important symbol of the rising stature of the major emerging market economies, which now have the clout and resources to play a significant role in international finance. Prasad said: “By combining their sources to invest in their own developmental needs, the BRICS are also hoping to initiate a challenge to existing global monetary arrangements and signal their frustrations with the lack of progress on reforming the governance of international financial institutions... This substantive action would be a key step that turns statements and rhetoric about cooperation among these countries into reality.”
In the normal course, the US is a member of, and a major donor to, each major multilateral development bank in the world. The BRICS bank is going to be a glaring exception in this respect. Quintessentially, it is an anti-dollar alliance that aims at weaning the world community off over reliance on the dollars— the phenomenon known as ‘overdollaring’, which means, for example, the prevalent process of making the US dollar operate in international trade in oil or other commodities via instruments such as the Export-Import Bank, global bank settlements, etc. China is already the prime mover on this front and by 2015 roughly 30 per cent of China’s cross-border trade will be settled in the renminbi.
Where does India figure in the new paradigm? The previous government led by Manmohan Singh might have done a favour to the Modi Government by already settling the issue of the location of the development bank in Shanghai, and left it to the foreign policy bureaucracy to somehow manage to keep the decision under wraps.
The detractors of the BRICS within India, mostly drawn from the pro-American lobby, were caught by surprise when it came to be known that the BRICS bank is a closed issue and that it was too late to raise dust over its location, etc. These lobbyists would have hoped that the Right-wing Modi Government took a stridently anti-China stance and staked claim to headquarter the bank in Delhi, but nothing of the sort happened. In reality, though, India scored a big gain by getting China to accept the principle that unlike in the Western-dominated financial institutions, the members will have equal voting rights.
All in all, it is possible to say that the Modi Government decided to inherit the BRICS brief from the Manmohan Singh Government and has not felt the need to tamper with it — at least, not yet. This becomes yet another template of the continuity that can be expected in the Indian foreign policies under the leadership of Modi.
India would have important choices to make in the period ahead even as BRICS’ political profile gets etched in ever-sharper terms. There is no denying the fact that the BRICS’ New Develop-ment Bank presents itself as an alternative to the US-dominated global financial institutions.
Both the bank and the currency reserve pool, which have been formalised at the summit in Brazil, propose to offer financial support for emerging economies worldwide and, in turn, they will become catalysts of change or at the very minimum will compel Washington to do something with the reform package that has been languishing for the past five years in the US Congress awaiting ratification.
It has been the resistance from the US mostly that has held back the reform of the IMF and World Bank. There is a lot of pressure in the US Congress to scale back US funding for these financial institutions both on account of the large US debt and due to what the political establishment in Washington sees as the questionable use of the American taxpayers’ funds. Clearly, with the locus of influence within the Congress shifting to the Republicans, any ramping up of US funding to the global financial institutions or far-reaching reforms that might lead to increased weightage for the emerging economies seem improbable.
What needs to be factored in is that if one were to add up the government debt in America, business debt, mortgage debt and consumer debt, the US economy is in the negative by $ 59.4 trillion. Washington saw an early challenger in the euro; while this challenge has not gone away, it became weaker due to the crisis in the European economies in the most recent years. It is against such a complex backdrop that the BRICS alliance is shaping up as a new challenger to the US dollar, by taking over from the euro through a combination of currencies. Concei-vably, prudent investors would increa-singly work on a diversification strategy that included the BRICS in their portfolio.
Again, the financial aspects aside, the BRICS bank will make a departure from the lending practices of the World Bank—for instance, such proclivity as exists today to set conditions that often enough turn out to be intrusions on the sovereignty of the borrower countries. Above all, the system of weighted voting in the World Bank and IMF has given the rich countries the dominant say within these key financial institutions of the Bretton Woods system and even preserved the informal arrangement whereby the former always has had an American in the top job, while a European invariably led the latter.
The crucial thing in all this is that the political unity behind the BRICS’ economic cooperation is assuming great importance. The Indian policy-makers are probably seized of this matter already—even if the pundits are noticeably lagging behind—as the consensus that emerged over the BRICS bank’s location in Shanghai under an Indian as its first President testifies.
Of course, there has been a concerted attempt by the BRICS’ Western critics (and the detractors in India) to keep harping on the differences amongst the member-states of the grouping (which are evidently there) and the glaring disparity in their physical size and their economies and stages of development (which is absolutely true), or to exaggerate their relative economic slowdown in the past few years—all so patently with a view to run down a process that dares to be audacious to take on Western hegemony.
However, with the Fortaleza summit, the West cannot overlook—even if it still remains reluctant to admit openly—the growing political unity of the grouping and its potential to become a counterweight to the established powers in the West. To quote a Chinese commentator with the Xinhua news agency, “As strategic pivots of their region, the five-nation cluster will also strive to contribute to world peace and pros-perity by pushing for global governance reforms in such aspects as the international financial and monetary system, climate change and regional issues.”
Deepening, Broadening Partnerships
A third aspect of Prime Minister Narendra Modi’s trip to Brazil has been that on the sidelines of the summit, he was expected to have ‘bilaterals’ with Russian President Vladimir Putin and Chinese President Xi Jinping, amongst others. No doubt, Russia and China are top priorities in India’s foreign policy. Put differently, this has been Modi’s first venture on to the high table of world politics insofar as his interaction with his peer group so far in the past 50 days in office as the Prime Minister has been limited to his South Asian counterparts.
Of course, India-Russia high-level meetings do not make the adrenaline flow. The threat they face often enough is their apparent look of being rather ‘routine’. But then, that is the drawback of any relationship that has matured over time and is suffused with immense mutual under-standing and trust.
Thus, Modi’s meeting with Putin was entirely predictable — although substantive issues didn’t appear to have figured in the discussion. But then, Putin is expected to visit India in December for the annual summit meeting with the Indian Prime Minister, and a high level visitor from Moscow—Deputy Prime Minister Dmitry Rogozin—had met Modi in June in Delhi.
Modi spoke on an intensely personal note recalling his visits to Russia and his search and discovery of the historical and cultural links between his native State of Gujarat in western India and the Astrakhan region situated on the banks of the great Volga river where it flows into the Caspian Sea.
Modi was equally effusive in his references to India’s strategic partnership with Russia and emphasised that relations with Russia will “continue to enjoy the priority” in his govern-ment’s foreign policies. Modi expressed the hope to “further deepen and broad-base” the strategic partnership. An intriguing part of the conver-sation pertained to Modi’s pointed invitation to Putin to visit the Kudankulam nuclear power plant, where Moscow had been hoping to sign the contracts for the construction of two more nuclear reactors. The Modi Government is highly enthusiastic about India’s nuclear power development programme.
On the other hand, Modi’s meeting with Xi raised immense curiosity, as happens invariably whenever Sino-Indian high-level exchanges take place. Although Modi has visited China before and has apparently been an admirer of China’s phenomenal rise, there are two narratives possible today as regards his government’s China policies.
One, of course, is the classic narrative borne out of the Hindu nationalist ideology that casts China as an implacable adversary or even ‘enemy country’ and which is deeply suspicious of the Middle Kingdom’s inscrutable mind and real intentions toward India. The ruling party has a sizeable section of followers who hold such views.
At the same time, there is also a second narrative that has been lately struggling to compete, namely, that the mandate of the Modi Government essentially concerns the promises he made as regards the revival of the Indian economy, and that in the fulfilment of that pledge (which becomes accountable to public opinion at some point), increased trade with China and, more important, investment by China in the development of India’s infrastructure and manufacturing sector would be highly welcome.
Having said that, both narratives also con-verge on the need for India to remain vigilant in narrowing the gap in defence preparedness that currently exists vis-à-vis China on the disputed border. The meeting at Fortaleza harped on these contrarian impulses in the Indian sensibility, especially as regards the desirability of reaching a border settlement, which, as Modi told Xi, would be a defining moment that could transform the Sino-Indian ties as a model relationship between any two countries in the contemporary world.
To be sure, there is a sub-text here as well insofar as India has incrementally become conscious of the positive fallouts of working with China on the BRICS forum both for strengthening mutual trust as well as to advance the shared interests and concerns on the world stage as emerging economies that would gain out of a democratisation of the world order. So far, the accent has been on economic issues, but it is important to note that at the summit in Brazil, Modi made a strong pitch for India’s membership of a reformed UN Security Council.
Equally, Xi’s invitation to Modi to attend the APEC summit meeting in China in November (virtually pre-empting an American initiative in this direction) and the suggestion that India should be more active in the Shanghai Coope-ration Organisation as well as Beijing’s offer that India should be a founding member of the proposed Asian Investment Development Bank for the Asia-Pacific region would show that a new gravitas is visible in the Sino-Indian discourse. Xi put it succinctly when he told Modi that China and India don’t have to be ‘rivals’.
A Turning Point
All things considered, therefore, from the Indian perspective, much would depend on the BRICS’ ‘utility’ as a forum for realising its aspirations as an emerging power. Thus, although there is still some angst amongst pundits that the new BRICS bank would be overshadowed by China, the mainstream Indian discourse has veered round to estimating the benefits that accrue to the critical needs of its infrastructure develop-ment for which foreign investment from all, any sources as much as could be available becomes a dire necessity for the country.
In short, the Fortaleza summit could be, in retrospect, a turning point in India’s tryst with the BRICS. The engagement is no doubt gaining traction, notwithstanding the constant berating by the pro-American lobbyists and motivated sections of the Indian media who keep raising the China bogey—that the Big Brother might come to dominate the BRICS.
Interestingly, there is a subtle recognition discernible on the part of China too regarding the need to carry India along and to consciously make space for India to feel comfortable within the BRICS tent. China’s willingness to concede equal voting rights for all members in the new BRICS bank—notwithstanding the fact that the ‘Middle Kingdom’ represents over half of the grouping’s GDP—underscores that Beijing too senses the importance of not creating any heartburn that it is more equal than others in the BRICS tent.
Therefore, no matter Delhi’s ‘de-ideolgised’ perspectives on the BRICS processes hitherto, India is almost inevitably going to be drawn into the overall orientation of the forum, which is steadily crystallising, as a challenger to the established Western-dominated global political and economic system that came into being after World War II. Indeed, there is really no contradiction here, either, since the fact of the matter is that under Modi’s watch continuity by and large will characterise the Indian foreign policies.
What does this continuity mean? In essence, the underlying principle of Indian foreign policy in the post-Cold War period has been what can be called ‘multi-alignment’. It may sound a jettisoning of the past policies of non-alignment, but in reality it has turned out to be non-alignment in spirit without admitting it. ‘Multi-alignment’ implies diversification of relations; avoiding entanglement in big-power rifts; weighing issues on merit and engaging with them in tune with India’s interests; and, keeping an open attitude to positive platforms while at the same time retaining strategic autonomy—on the whole, ensuring the strengthening of multi-polarity in the world order.
Besides, it becomes necessary to appreciate that considering the situation surrounding India, the country has to do some amount of hedging as it navigates the power dynamic regionally and internationally. In such a calculus, BRICS is destined to be a unique asset for Indian diplomacy. Even today’s detractors are bound to appreciate at some point that BRICS has great value for an impatient leader like Modi who is bent on creating new momentum for India’s national policies.
Ambassador M.K. Bhadrakumar was a career diplomat in the Indian Foreign Service. His assignments included the Soviet Union, South Korea, Sri Lanka, Germany, Afghanistan, Pakistan, Uzbekistan, Kuwait and Turkey.