Look East, look nearby

While it’s still early days, two distinct strands in the foreign policy of a Narendra Modi-led government seem visible. The first is a conscious move to reach out to India’s South Asian neighbourhood. There was much more than just symbolism in the invite to the leaders of Afghanistan, Pakistan, Nepal, Bhutan, Bangladesh, Sri Lanka and Maldives to attend the new Prime Minister’s swearing-in ceremony. The second, less obvious, is based largely on Modi’s record as Chief Minister of Gujarat, during which he actively engaged with two other Asian countries — Japan and China specifically with a view to attracting investment in manufacturing and infrastructure. Both make for a foreign policy with an ‘Asia pivot’, a change from India’s traditionally more ‘West-centric’ external relations approach.

Increased Asia-focus makes sense both from a strategic and business perspective. The seven SAARC nations (excluding India) have a combined population of around 410 million, which is more than the 310 million of the US and not far short of the European Union’s 500 million. Despite such a potentially large market in close proximity, India’s annual bilateral trade with SAARC was under $20 billion, a mere 2.6 per cent of its total exports and imports in 2013-14. True, India has serious concerns about cross-border terrorism with Pakistan and human rights violations against Tamils in Sri Lanka. Promoting trade may not resolve these differences, but can certainly help bring people together and create a constituency in these countries that sees the mutual economic benefits flowing from such ties. India should even consider extending trade concessions, which it can leverage to extract clear commitments on harbouring terrorists or protecting the rights of ethnic minorities. Currently, it is doing neither. Modi deserves full credit for at least making a beginning. Talking to Nawaz Sharif or Mahinda Rajapaksa is hardly going to compromise India’s interests as his detractors suggest; it will only enhance the country’s international image as a regional superpower seeking to genuinely engage with its neighbours.

The focus on China and Japan has importance primarily from their being potentially huge suppliers of long-term capital to India. While we are desperately short of infrastructure, here are two countries — which together have the world’s largest foreign currency reserves aggregating $5 trillion — equally keen on investing in industrial parks, railways, roads and power projects in India. The first two decades of reforms were about attracting foreign institutional investors mainly from the West into our capital markets. The next 10 years and more should aim at significantly increasing foreign direct investments that contribute to realising India’s unfulfilled potential in manufacturing. This is where China and Japan are uniquely poised to forge a partnership that can be a win-win for all. Our foreign policy should be directed at creating an environment that enables such a partnership to take place.

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