Time To Put Substance Before Style

China now views itself as an emerging superpower rather than a ‘developing’ country. India should take this into account

Long after President Xi Jinping has flown back to Beijing, there will remain a host of prickly issues that senior ministers and diplomats on both sides will need to bang heads over. During President Xi’s 48-hour whistle-stop through Ahmedabad and Delhi, the climate-controlled atmospherics, the fastidiously choreographed diplomatic pas de deux on Sabarmati, the thunderous rhetoric and the flurry of MoUs made for good optics. But action is always a poor substitute for achievement.

One of the visible thorns in the blossoming relationship is border uncertainty and both President Xi and Prime Minister Narendra Modi did reiterate a need to settle it. But beyond the omnipresent irritation of a virtual border, it is in India’s interest to resolve numerous pending geo-economic issues with China.

Shifts and moves

Start with World Trade Organisation (WTO) first. India invited universal censure after blocking safe passage of Trade Facilitation Agreement (TFA) at WTO’s General Council meeting in Geneva on July 31, 2014. However, China’s unprincipled floor-crossing on that day was truly shocking, after having supported India’s stand in many multilateral fora (such as G-33, G-20) and in bilateral meetings.

China’s mercurial shift could be understandable if India was found to be acting irrationally. But, on closer analysis, it seems India’s actions were justified. Having agreed at the Bali ministerial to approve TFA, on condition that developing countries not be penalised for food security imperatives till a permanent solution is formalised by 2017, India discovered that all discussions thereafter were focused on only TFA. This was contrary to the post-Bali work programme and gave India (and some other developing countries) grounds to believe that once TFA was out of the way, rich countries didn't care much for the Doha Development Agenda, including food security measures.

But, there are some other valid reasons for India’s principled action. For one, India has a sovereign right to provide food security for its citizens, just as US has the right to buy and stockpile crude oil to provide its citizens with energy security. Two, TFA will cause a spike in infrastructure costs for poor countries; the rich nations were to provide budgetary assistance to help them tide over this unplanned expense, but the amount finalised is too low and the modalities are still vague.

Finally, benefits from TFA are ambiguous, with most gains likely to go to the developed world.

China’s sovereign objectives are somewhat aligned with India on this issue, particularly since it too has to provide food at reasonable prices for large sections of its population. Also, China has been a signatory to all the food security negotiations by G-33, a grouping of developing countries with convergent trade issues.

A change of heart?

While it’s not known if Modi-Xi talks included China’s breach of trust, the joint statement issued by both governments was patently anodyne: “As developing countries, India and China have common interests on several issues of global importance like climate change, Doha Development Round of WTO, energy and food security, reform of the international financial institutions and global governance. This is reflected in close cooperation and coordination between the two sides within the BRICS, G-20 and other fora.”

One reason for China’s change of heart could be India’s lackadaisical communications strategy; also, India’s parleys could have conveyed a message that it’s interested in cherry-picking only food stockpiling from a multitude of other development issues. This might have even influenced some of the other large emerging nations, such as Brazil and South Africa, to isolate India.

But there’s another significant development. There's probably a radical shift in how China views itself: as a world superpower and a trade behemoth, competing with the developed countries. Hence, in keeping with this new-found status, TFA makes more sense rather than hankering for food security. While China is indeed a trade colossus, India needs to keep in mind this change in China’s self-perception when negotiating with President Xi’s men in future.

The border incursion, intriguingly timed to coincide with President Xi’s visit, is a reminder of China’s foreign policy dualism: an extended hand of economic friendship to mask the ugly face of geographic expansionism.

The second issue is climate change and India would do well to keep the new Chinese psyche in mind in future multilateral deliberations.

On the surface, both India and China seem to be on the same page. Apart from a common historical stand, both President Xi and PM Modi have also excused themselves from the UN Climate Summit on September 23.

But that’s where the similarities end. China has already signed a separate climate change agreement with US. While these agreements reduce the climate policy distance between the two superpowers, there are still some sticking points. While China and US agree that that rich countries must provide developing nations with wherewithal to upgrade technology, the divergence is whether the old labels of “developing” or “developed” need to be upgraded.

In essence, the rest of the world’s identity — including India’s — is hostage to progress of talks between two superpowers. The initiative seems to be slipping away from India’s grasp; a climate change strategy is required before the big climate summit in Paris next year. While China’s stand may be driven by thickening smog over its cities, India may have to fashion its own position consistent with its economy and stage of development.

Myriad issues

There are many other unresolved issues on the table — using renminbi as a alternative currency, India’s membership in multilateral institutions (such as Asian Investment Infrastructure Bank) and groupings (Shanghai Cooperation Organisation, for example), discussions on how to take the BRICS Bank ahead, enhanced market access for Indian goods and services, are just some of them.

The lessons for Modi are clear: with China what you see is never what you get. Modi will have to take every opportunity to create an independent policy space for india, even if that requires striking trade and investment deals with Japan, USA, EU, Russia or Australia.

The writer is a journalist and senior fellow with Gateway House

Courtesy: The Hindu BusinessLine, edition dated September 22, 2014 (The original can be read here:goo.gl/Cbm3Ex) 

Agriculture, The Engine Of Growth

The structural deficiency of the agricultural economy as a whole and the slipover impact from the rise of crude prices on fertiliser prices as well as on transport costs for ferrying food items need to be tackled urgently

THE meeting of heads of state from G-8 and eight other economically important nations (which included Indian Prime Minister Manmohan Singh) in Japan this week got headlines in the Indian media for all the wrong reasons. While the PM’s presence there provided the focal point of all political action in Delhi, the conclave wound up on Wednesday without reaching any meaningful action plan on the two most contentious issues: combating climate change and controlling global inflation caused by rising food and fuel prices. Preoccupied as he might be with all the political drama, Manmohan Singh should also be worried about food security. Especially, since Maharashtra faces a drought-like situation this year.

The greatest disappointment of the G-8 meeting, however, seemed to be the failure of global leaders to come up with a concrete plan to tackle the food crisis. News agency Reuters filed this report: “The G-8 leaders also acknowledged the economic threat from surging oil and food prices…but came up with no fresh initiatives to tackle what they said were complex problems requiring long-term solutions.” What’s strange is the absence of any acknowledgement from the G-8 leaders that the major reason for the rise in food prices is increasing bio-fuels production in the US and, to some extent, in Europe. The rich countries made no promises to remedy this structural issue, which promises to pull another 100 million people below the poverty line this year, but shifted the responsibility to other big emerging countries. Reuters also filed this report: “The G-8…called for countries with sufficient food stocks to make available a part of their surplus for countries in need.”

The World Bank says this upfront in a position paper (Rising Food Prices — Policy Options and World Bank Response): “Concern over oil prices, energy security and climate change have prompted governments to take a more proactive stance towards encouraging production and use of bio-fuels. The has led to increased demand for bio-fuel raw materials, such as wheat, soy, maize and palm oil, and increased competition for cropland…Other developments, such as drought in Australia and poor crops in the EU and Ukraine in 2006 and 2007, were largely offset by good crops and increased exports in other countries and would not, on their own, have had a significant impact on prices. Only a relatively small share of the increase in food production prices (around 15%) is due directly to higher energy and fertiliser costs.” On a more pessimistic note, the World Bank’s note prepared for the G-8 meeting — Double Jeopardy: Responding to High Food and Fuel Prices — states clearly that food prices are likely to remain above the 2004 levels till at least 2015.

All this raises worries about India’s food situation, particularly since repeated studies have shown that any rise in food prices, rather than fuel prices, is seen to have a greater impact on the common man’s inflationary expectations. This assumes greater importance in the case of the urban poor and the rural landless workers, where food has the lion’s share of the total consumption basket, compared to fuel which is either subsidised or almost free. What is likely to exacerbate the situation is the structural deficiency of the agricultural economy as a whole and the slip-over impact from the rise of crude prices on both fertiliser prices as well as on transport costs for ferrying food items from production centres to consumption hubs. Here are some of the urgent issues that need tackling immediately.

THE first anomaly lies at the macro level. Over 60% of the country’s population is today dependent on agriculture, which contributes to only 20% of GDP. This translates into low income per rural family, which then makes most of them vulnerable to debt traps and pushes them into distress every time there is an exogenous shock. The need is to wean away part of each family into skills-based training, without necessarily alienating the entire family from its agricultural roots. The solution is not to provide them with only urban-based jobs, but to create a talent pool for rural industry, whether it is manufacturing or services-based. Such an industrial base, through linkages, has the potential of bringing about qualitative changes in agriculture as well.

• As a result of so many people depending on agriculture for income, land holdings are exceedingly fragmented, leading to falling crop productivity. According to official statistics, close to 60% of all land holdings in the country are marginal holdings (where land ownership is less than 1 hectare). Consequently, the average size of operational holdings is not even half a hectare, or about 1 acre. Average foodgrain yields, therefore, have been almost stagnant.

• Diversion of crop land into non-agricultural use is growing and could be another cause for worry in the long run. New ways should be found of converting non-agricultural land into agricultural land (without actually reducing the forest cover) and employing technology to increase the productivity of these tracts. Antiquated legislation regulating sale and purchase of agricultural land also needs to be updated, with adequate safeguards, to allow for consolidation of farmland.

• A solution for improving the income and the yields would be to introduce contract farming in a big way. This allows a large corporate to tie up with a large number of farmers with contiguous plots. Both win: while the farmer does not lose his homestead and is assured of an income at the end of the harvest, the corporate is ensured a steady supply of output, which takes some of the uncertainties out of his supply chain.

• Finally, the government has no choice but to rise above petty vote-bank politics and take a hard look at all the handouts (such as loan waivers or cheap credit) and the subsidy structure. According to the World Development Report, 2008, 75% of India’s agricultural budget is spent on such private goods, instead of investing in public goods (such as rural roads, or increasing outlays for agricultural R&D).

In short, agriculture has the potential to become the engine for future growth in the economy, but only if the right cards are played now.

Published as an Op-Ed in The Economic Times (July 11, 2008)