India and the Silk Road Not Taken

January 14, 2013 Topic: EconomicsTrade Region: India

India and the Silk Road Not Taken

New Delhi has an enormous opportunity in Central Asia.

For India, Central Asia has been a squandered opportunity for twenty years. There is still time for India to play a significant and mutually positive role in Central Asian affairs, but it will require a much more muscular and coordinated effort from India’s foreign policy establishment, business leaders and military strategists.

An invigorated and engaged India augurs a more benign geostrategic partnership for economic and political development in Central Asia than China, Pakistan, Iran or Russia. And conversely, Central Asia provides multi-ethnic and democratic India, still reticent to promote itself as a model to anyone, a platform on which India can further build out its own legitimate economic, military and geopolitical interests. India is a natural accomplice to help fulfill the ambition of countries like Kazakhstan to further diversify their dependence on a number of big global powers, to provide greater employment by developing industries outside energy, and because of geography, to foster specific economic strategies, such as becoming a major logistics hub between Asia and Europe.

India’s recent interaction with Central Asia underscores this potential. In congressional testimony this past July, Assistant Secretary of State Robert Blake surprised his audience by praising Turkmenistan for sending humanitarian aid to Afghanistan to garner goodwill in the buildup of Turkmenistan’s prospective rail and energy links through Afghanistan to India and Pakistan (and possibly Bangladesh, too). This planned Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline illustrates how India can take a leadership role in not only helping to tie Central Asia closer to India but to lash it with the greater South Asia subcontinent, and encourage Central Asian countries, even paleo-isolationist havens like Turkmenistan, to shoulder a larger role in regional economic development.

Because many of the Central Asian footpaths to India literally go through Afghanistan and Pakistan, closer ties between Central Asia and India hold out some hope for more cooperation-by-necessity between them, even if it’s far too little to induce a real rapprochement.

Uzbekistan has encouraged India to put down stakes in its energy development, for example in the Karakal gas reserves. The Indian built Pul-e-Khumri transmission line from Beghlan to Kabul carries Uzbek-generated electricity—a boon to all sides. The Indian energy company GAIL Limited has signed a gas sale-and-purchase agreement during tripartite talks between Pakistan, Afghanistan and India in Islamabad; the outcome will mean a transit fee paid to Afghanistan for transmitting gas to Pakistan and India and the obligation for the Afghan government to protect the TAPI pipeline from terrorist attacks, pressing all three, at least in this one endeavor, into common cause just as the 2014 pullout from Afghanistan imperils Indian security interests—not only in Afghanistan but from the possibility of a new surge of anti-Indian militants infiltrating Kashmir.

An Underachieving Reboot

India has an interlocking history with the vast mountains and grasslands above Afghanistan, a connection never dissolved and sometimes nurtured. It is a long entwined narrative: from Babur marching down from Uzbekistan in the 16th century to found India’s spectacular Mughal dynasty; to Indian prime minister Jawaharial Nehru’s 1955 trip to the Soviet Union and Khrushchev's return visit to India that same fall, resulting in the Soviet Union’s support of Indian sovereignty over Kashmir and other disputed territories; and currently reflected in TAPI, the planned trans-Afghanistan natural gas pipeline originating in Turkmenistan and terminating in New Delhi.

During the Soviet period, India had a robust export trade to Central Asia and a productive cultural exchange that seeded the ardent popularity, sustained to this day, of Bollywood films and Natyashastra dance troupes. India sent large numbers of students to Soviet medical schools located in Central Asia—still a common practice. When the five Soviet Central Asia republics declared independence, India rushed to be one of the first nations to send ambassadors to freshly minted embassies.

At the onset of the 1990s, historical linkages informed an inchoate sense among Indian elites that Central Asia was both fertile ground and a rare opportunity for India to project soft power. Activist policy impulses also were catalyzed by concrete concerns that forging strong ties with Central Asia’s majority Muslim populations was an opportunity to gain important allies in its cold war with Pakistan. And there was an immediate awareness of the potential for Central Asia to provide significant energy resources for India’s thirsty, modernizing economy.

This initial burst of diplomatic engagement, however, did not translate into a sustained and meaningful encounter; instead, it illustrates how Indian foreign policy was hampered, and even sidelined by an overly cautious business and merchant class. Turkey, China, the United States, to some extent Russia and even South Korea cleared a path to Central Asian power centers with aggressive business deals: building factories, investing in new cellular networks, arranging arms sales, and big spending on major banking and infrastructure projects.

But in the 1990s, an Indian government liberalization program meant to decouple business from government oversight and control resulted in Indian industry receiving little incentive to look north, and Indian businesses for the most part did not recognize Central Asia as a promising market.

Indian foreign policy objectives and Indian industrial expansion had the potential to fuel the success of the other, but they moved at very different speeds.

No Empire to Stand On

India’s foreign direct investment inflows are far more important to its economy than its own investments outside the country. India's economic growth has severely slowed over the past year. Foreign direct investment into the country has dropped 43 percent during the first six months of 2012. Meanwhile, Indian-Central Asian bilateral trade topped off at a meager $500 million in 2011. During the same period, China surpassed the United States to become the number one global destination for foreign capital. At the same time, China has invested vast sums in far-flung regions. Investments in Africa have garnered a lot of media attention, but China has also invested an estimated $20 billion in its own backyard of Central Asia, and in the poorer Central Asia republics, like Tajikistan, Chinese loan packages have consumed staggering percentages of these nations’ total sovereign debt.

Chinese investments have been mainly concentrated on energy infrastructure projects, meaning pipelines. This serves Chinese energy security needs but also gives China tremendous diplomatic reach in a region that historically has viewed its giant neighbor with suspicion. “China’s policy of engagement has demonstrated a very pragmatic approach, emphasizing economic gains rather than the pursuit of political dominance. Beijing is, of course, seeking a strategic partnership which will guarantee it the support of Central Asian states when it needs that,” wrote Saule Mukhametrakhimova, Central Asia editor at the Institute for War and Peace Reporting.

In a region famous for its Great Game triangulations, where politicians are supposed to be expert in craftily balancing foreign powers against each other, the idea of offsetting Chinese investment with an Indian hedge would have been welcome. “We were blindsided by the speed in which China could move in,” said Neelam Deo, a former Indian ambassador and co-founder of Gateway House India, a leading foreign policy think tank in Mumbai. “The other thing that held us back is a kind of inertia. We looked to continue to piggyback on Russia in Central Asia, which clearly didn’t happen—instead both countries have lost ground in the region.”

“One problem with India is that the government doesn’t allocate enough diplomat resources as they should. Another is the private sector in India has kind of soured on the government right now. It’s also because Indian industry hasn’t yet looked beyond the US market and European markets,” said Deo.

Among Indian diplomats there is a confidence that China’s emerging dominance in Central Asia cannot hold, that in fact the Central Asian republics are poised to follow the recent trajectory as Myanmar, which they say was reaching out to India 10 years ago as a way to counterbalance its weakness and dependence as a client state to China.

South Korea’s business incursions in Central Asia chiefly relied on leveraging ties with the region’s ethnic-Korean populations—Uzbekistan and Kazakhstan in particular have large ethnic-Korean communities—but Turkey has made deep economic inroads into Central Asia with a state-driven policy of encouraging relationship-building on linguistic, religious and historical commonalities, aggressively locating traction for its investments in banking, telecommunications and construction. This is a strategy that once may have provided a way forward in Central Asia for India. But Central Asia’s political independence not only coincided with Turkey’s monumental economic expansion but also with Turkish AK Party’s neoimperial mission in Central Asia to midwife “its own sense of Ottoman Empire; India has never fit well with the Turkish model,” said Gateway House India’s Deo. “We never saw ourselves competing with Turkey, or with Iran for that matter. I think in the Indian establishment, the talk was more of being in Central Asia before Pakistan got in and spoiled things. We looked at it as an export market, but it was not really one that the private sector was interested in.”

Closer Military Ties

At the inaugural meeting in Kyrgyzstan last June of the India-Central Asia Dialogue, part of a halting India-driven process to finally speed up Indian economic integration into post-Soviet Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, and Turkmenistan), India inaugurated a program called “Connect Central Asia.” The program is meant to further interregional commerce and diplomacy by connecting universities in India and Central Asia, as well as health centers, high tech companies, and other commercial ventures, and, for good measure, to boost tourism, scientific research, and military and security efforts.