Beggar thy neighbour

Dhiraj Nayyar
Posted online: Thursday , August 28, 2008 at 21:29 hrs

The recent economic blockade of the Kashmir valley and the subsequent demand from some people in the valley for the government to allow trade across the LoC has brought economics to the fore of what is considered a largely political problem. The trouble in Kashmir can be used as an effective springboard to spur greater economic integration between India and Pakistan and in South Asia more generally.

Consider this: India’s total exports in 2007-08 were worth $159 billion. Of this, a large share of $61 billion goes to OECD countries. Interestingly enough, a slightly larger share goes to other developing countries: $67 billion. Rather dismally, India’s exports to Saarc countries were a mere $8.9 billion. If one disaggregates the export figures within Saarc, the numbers reveal something more interesting: India exports more (in value terms) to Bangladesh ($2.5 billion) and to Sri Lanka ($2.7billion) than to the much larger and faster growing Pakistan ($1.8 billion).

The numbers are similar on the imports side. India’s total imports were worth $239 billion in 2007-08. Of this, some $75.8 billion comes from OECD countries and $80.6 billion comes from developing countries. Imports from Saarc countries were a mere $2.1 billion. Again, disaggregated figures for Saarc show that India imports more from stagnant Nepal ($628 million) and from tiny Sri Lanka ($631 million) than from Pakistan ($287 million).

Politics, then, clearly—and to the detriment of the peoples of South Asia and India and Pakistan, in particular—dominates economics. India’s trade with another troublesome neighbour, China, however, shows much better health. India’s exports to China were worth $10.7 billion in 2007-08 and imports were worth some $27 billion. Despite numerous disputes, politics has taken a seat behind economics in Sino-Indian relations.

Given the dismally low trade between countries of South Asia, it is difficult to argue against lowering of trade barriers between these countries. Regional free trade areas, of course, create trade (through lower barriers between members) but they may also divert trade (because of comparatively higher barriers for non-members who may have earlier been the partners of choice). If trade creation is more than trade diversion then it is in global interest that the free trade area exists. Research suggests that those free trade areas which have a more encompassing membership and those with low barriers to trade with non-members are likely to be superior. In South Asia, any free trade area will cover at least one-fourth of the world’s population, which is large and encompassing enough. Most of the potential member countries do not have very high tariff or non-tariff barriers to the rest of the world (because of WTO commitments). Absurdly enough, it may just be the case that they have higher barriers towards their neighbouring countries than to the rest of the world—Pakistan’s refusal to grant India most-favoured nation (MFN) status is a case in point. Given this scenario, a move towards a free trade area can correct some of the imbalances and enhance trade and well being in one of the poorest regions in the world.

Cross-border investment could be as important as trade in boosting the economies of the region. According to the Unctad World Investment Report 2007, India is the only significant exporter of capital (investment) in the Saarc region (Pakistan at second place had an FDI outflow of just $107 million). Outflows of FDI from India in 2006 were close to $10 billion. Government estimates peg the number at $17 billion for 2007-08. Significantly, most of these outflows—around 80%—are directed towards developed countries. This is somewhat counter-intuitive because theoretically capital should flow to resource scarce countries—it is also very different from the experience of Brazil and China whose outward FDI flows are more to developing countries. There are fewer regions and countries as resource-scarce as members of Saarc other than India. Pakistan’s receipt of FDI inflows, second highest in the region to India’ $16 billion, was just $4 billion in 2006. Bangladesh received only $625 million and Sri Lanka received $480 million, all Unctad figures for 2006. Surely, some of the capital going out of India should go into these countries which are registering good rates of economic growth and present economic opportunity—but FDI flows from India to other Saarc countries are near zero. Pakistan, of course, deliberately kept Indian FDI out of the country. Now for the first time in the trade policy of 2008, the government of Pakistan has opened talks with Indian investors—for the manufacture of CNG buses and for building power generation capacity. Bangladesh, due to petty politicking and bureaucratic inertia, also lost out on Tata’s proposed investment of $3 billion in power, steel and fertilisers.

The fundamental problem of much of South Asia (and this includes India) is that politics much too often disrupts the best laid economic plans. India has done more than its neighbours to reform its domestic economy. As the largest country in the region, it must take the initiative to liberalise regional barriers to trade and investment. Unilateral liberalisation with Saarc countries is in India’s economic interest. Also, some of the region’s most vexed political problems, often based on economic isolation or deprivation—including Kashmir and the Tamil Eelam—can be solved using economic initiatives. South Asia needs to urgently awake to the great economic promise of this otherwise impoverished region.

dhiraj.nayyar@expressindia.com

Why I had to recognise Georgia’s breakaway regions

By Dmitry Medvedev
Published: August 26 2008 18:48 Last updated: August 26 2008 18:48

On Tuesday Russia recognised the independence of the territories of South Ossetia and Abkhazia. It was not a step taken lightly, or without full consideration of the consequences. But all possible outcomes had to be weighed against a sober understanding of the situation – the histories of the Abkhaz and Ossetian peoples, their freely expressed desire for independence, the tragic events of the past weeks and inter­national precedents for such a move.
Not all of the world’s nations have their own statehood. Many exist happily within boundaries shared with other nations. The Russian Federation is an example of largely harmonious coexistence by many dozens of nations and nationalities. But some nations find it impossible to live under the tutelage of another. Relations between nations living “under one roof” need to be handled with the utmost sensitivity.
After the collapse of communism, Russia reconciled itself to the “loss” of 14 former Soviet republics, which became states in their own right, even though some 25m Russians were left stranded in countries no longer their own. Some of those nations were un­able to treat their own minorities with the respect they deserved. Georgia immediately stripped its “autonomous regions” of Abkhazia and South Ossetia of their autonomy.
Can you imagine what it was like for the Abkhaz people to have their university in Sukhumi closed down by the Tbilisi government on the grounds that they allegedly had no proper language or history or culture and so did not need a university? The newly independent Georgia inflicted a vicious war on its minority nations, displacing thousands of people and sowing seeds of discontent that could only grow. These were tinderboxes, right on Russia’s doorstep, which Russian peacekeepers strove to keep from igniting.
But the west, ignoring the delicacy of the situation, unwittingly (or wittingly) fed the hopes of the South Ossetians and Abkhazians for freedom. They clasped to their bosom a Georgian president, Mikheil Saakashvili, whose first move was to crush the autonomy of another region, Adjaria, and made no secret of his intention to squash the Ossetians and Abkhazians.
Meanwhile, ignoring Russia’s warnings, western countries rushed to recognise Kosovo’s illegal declaration of independence from Serbia. We argued consistently that it would be impossible, after that, to tell the Abkhazians and Ossetians (and dozens of other groups around the world) that what was good for the Kosovo Albanians was not good for them. In international relations, you cannot have one rule for some and another rule for others.
Seeing the warning signs, we persistently tried to persuade the Georgians to sign an agreement on the non-use of force with the Ossetians and Abkhazians. Mr Saakashvili refused. On the night of August 7-8 we found out why.
Only a madman could have taken such a gamble. Did he believe Russia would stand idly by as he launched an all-out assault on the sleeping city of Tskhinvali, murdering hundreds of peaceful civilians, most of them Russian citizens? Did he believe Russia would stand by as his “peacekeeping” troops fired on Russian comrades with whom they were supposed to be preventing trouble in South Ossetia?
Russia had no option but to crush the attack to save lives. This was not a war of our choice. We have no designs on Georgian territory. Our troops entered Georgia to destroy bases from which the attack was launched and then left. We restored the peace but could not calm the fears and aspirations of the South Ossetian and Abkhazian peoples – not when Mr Saakashvili continued (with the complicity and encouragement of the US and some other Nato members) to talk of rearming his forces and reclaiming “Georgian territory”. The presidents of the two republics appealed to Russia to recognise their independence.
A heavy decision weighed on my shoulders. Taking into account the freely expressed views of the Ossetian and Abkhazian peoples, and based on the principles of the United Nations charter and other documents of international law, I signed a decree on the Russian Federation’s recognition of the independence of South Ossetia and Abkhazia. I sincerely hope that the Georgian people, to whom we feel historic friendship and sympathy, will one day have leaders they deserve, who care about their country and who develop mutually respectful relations with all the peoples in the Caucasus. Russia is ready to support the achievement of such a goal.


The writer is president of the Russian Federation

AIR WAR INDia vs Pakistan

I read a n interesting article in newsweek which I like to share ...


In 1981, about two years after the Soviet Union invaded Afghanistan, the United States provided General Zia-ul-Haq, Pakistan's military ruler, with $3.2 billion in loans and grants. The idea was to elicit Pakistan's help in ousting the Soviets from Afghanistan. Included in this package, at Pakistan's insistence, were 40 F-16 aircraft. India and human rights organizations in the United States argued that the aircraft could only serve one purpose: to launch a major conventional war with India. The sale went through anyway, with disastrous results. India turned to the Soviets for arms, kicking off an arms race on the subcontinent that ultimately led to Pakistan's clandestine nuclear weapons program.
Last week the Bush administration proposed repeating this mistake. It wants to divert funds earmarked for counterterrorism to upgrade Pakistan's fleet of F-16s. This would do little or nothing to strengthen the Pakistani military's counterterrorism capabilities. Instead, it would give the Pakistani Air Force greater strike capabilities against India. This would give India an incentive to hasten the on-going modernization of its air force and expand its capabilities, thereby precipitating a further arms buildup in the region.
Since September 11, 2001, the Bush administration has delivered close to $10 billion in economic and military assistance to the military regime of General Pervez Musharraf. As of late 2007, U.S. officials have been aware that a disproportionate segment of military assistance intended for counterterrorism has instead been diverted to acquiring military technology best suited for a war against India. Although India has not yet responded militarily to these Pakistani malfeasances, its patience is finite. If the Bush administration diverts counterterrorism funds to the enhancement of Pakistan's strike capabilities, New Delhi will be forced to reassess its growing strategic partnership with the United States.
Bolstering Pakistan's air force could not have come at a more inopportune moment in U.S.-South Asian relations. Just last week Prime Minister Singh braved unbridled parliamentary opposition designed to bring down his regime to ensure that his government could proceed apace with the U.S.-India civil nuclear agreement. To abruptly offer technology upgrades to the Pakistan's air power would be construed as a gratuitous insult to an emerging great power and a potential strategic partner. This decision will undermine Prime Minister Singh's resolve to forge a viable working relationship with the United States. His critics from both ends of the political spectrum will now gleefully caricature his seeming naïvete in reposing his trust in the United States. To protect his domestic flanks, Singh may now have to authorize the acquisition of 120 new long range strike aircraft to replace an aging Soviet-era fleet. He surely won't do his shopping in the United States.
The decision is also a setback to democracy in Pakistan. In February, General Musharraf's minions lost Pakistan's parliamentary elections and a coalition government came to power. This elected civilian government has yet to consolidate its position after nearly a decade of military rule. Removing critical funds intended to help stem the terror that threatens to engulf Pakistan and placing them at the disposal of a bloated military establishment is hardly conducive to the fostering of a working democracy.
The experience of the 1980s offers an object lesson to the United States. At that time, a number of analysts of South Asian security issues, both within and outside of government, quickly learned that substantial assistance intended for the Afghans made its way into the pockets of the Pakistani military establishment. Given the anti-Soviet crusade under way at the time, Congress kept mum; it was not about to challenge a popular president who was trying to stand up to the Communist foe. This time around, it would be tragic if Congress were to roll over for fear of seeming weak on terror. The costs are likely to be high.



Sumit Ganguly is the director of research of the Center on American and Global Security at Indiana University, Bloomington, and an adjunct fellow of the Pacific Council on International Policy in Los Angeles.