One Belt One Road: How India Can More Than Match China’s Grand Design

China strode big and tall in its “coming out” ceremony, its biggest and grandest demonstration of emerging big power status, at the Belt and Road Forum in Beijing on Sunday. The event and the importance the country attaches to it were not lost on most countries, especially India, which chose to not participate and did not send a delegation.

The monumental strategic project that China has referred to under various names over the years – “One Belt One Road” (OBOR), “Belt Road Initiative”, etc - is basically envisaged as a modern-day equivalent of the Silk Road that traversed Eurasia in mediaeval times. In its modern avatar, China has re-envisioned it as an economic corridor connecting landmass and sea stretching from the Pacific Ocean to the Mediterranean Sea on the one hand and from South China Sea to the Indian Ocean on the other.

The initiative is breathtaking in its enormity of scale, size of intended investment, and the number of regions and countries it purports to affect positively. The initial outlines of the OBOR project, though sparse, contemplate six routes or economic corridors encompassing rail, road, ports, power, and other infrastructure. Understandably, a host of mostly small nations have signed on, notably Pakistan. The latter sees huge benefits that are both economic and defence-strategic in its relations with India.

India, however, was quite alone in deciding to stay out despite several, increasingly strident, invites by China – that alternated between barely-concealed threats of being left out and without a voice in the future to a desire to be seen as a genuine effort by it at forging an equitable international alliance for global development. Sixty-five countries, however, participated with at least 20 of those sending heads of state to attend. The major economies of the US, Japan, and the EU sent in delegations.

The OBOR Initiative

China’s OBOR initiative, first announced in September 2013 during President Xi Jinping’s visit to Kazakhstan, is estimated to cost anywhere from $700 billion and $1 trillion. Of this amount, about $50 billion are to be spent on the China-Pakistan Economic Corridor (CPEC) that is the primary instigation for India’s opposition and refusal to participate in OBOR. The corridor passes through Gilgit-Baltistan region in Pakistan-Occupied Kashmir (PoK), between China’s Kashgar in Xinjiang province and Rajkot in Pakistan’s Punjab.

CPEC will comprise road and rail networks, oil and gas pipelines, power generation infrastructure, complementary special economic zones along the network, and ending at a major commercial and military port complex in Gwadar in the unstable Baluchistan province in south-western Pakistan bordering Iran.

The sheer size of CPEC and its supposed ability to supercharge economic activity, not to speak of bringing a sharp edge to its defence capability, has Pakistan salivating at the prospect. It cannot individually have conceptualised, let alone execute, a huge and complex project of this size but, with China, it now has what it believes a fighting chance to bring home investments that elevate its nineteenth century economy to a modern one at one stroke. It believes it can then have the steel frame to stand up to India. Who will ultimately pay for this is a question that Pakistanis have to ask themselves but, clearly, the country is neither getting these for free nor will it appropriate all the gains itself. That, equally clearly, is also China’s strategic reasons for pushing the ambitious endeavour forward.

Aside from Pakistan, OBOR is intensification and deepening of a slew of infrastructure investments, particularly relating to energy, that China has made since the 2000s. These include the Aktau-Alashankou oil pipeline that traverses the length of Kazakhstan, natural gas pipeline from western Turkmenistan through Uzbekistan and Kazakhstan to Xinjiang in China, and other regional gas export distribution lines such as Beineu-Bozoi-Shymkent.

The ambitious OBOR now builds upon these earlier investments and include the China-Central Asia pipeline, the Eurasian rail corridor originating in China’s port city Lianyungang and traversing through Kazakhstan, Russia, Poland, to terminate in western Europe; the West Asia corridor that is a rail spur originating in Astana, Kazakhstan, and coursing through Uzbekistan and Turkmenistan to terminate in Iran; a trans-Kazakhstan rail from the Caspian Sea port of Aktau to Khorgos; a high speed rail link from Kashgar/Kashi in Xinjiang province to Osh in Uzbekistan; China-Mongolia-Russia corridor; and a high speed rail line from Moscow to Kazan within Russia.

However, not all of China’s external investments have succeeded and evidence of this comes from the troublesome “distributional conflicts” in many countries. In Burma, the $3.6 billion Myitsone dam was suspended owing to politics, anti-Chinese sentiments, and ongoing conflict between Kachin rebels and the government. Sinophobia is now increasingly in evidence in central Asia and Africa where investments by Chinese state owned enterprises have often sidelined local employment, resulted in ecological degradation, political payoffs, and uni-directional rewards going to China.

How Can India Respond?

The fact is India cannot directly compete with China. Not yet. Owing to blunders of omission committed in the past, its economy is about one-fifth the size of China’s, infrastructure that does not begin to compare with it, and a heft in the global economy that is miniscule by comparison. This country has a long way to go before it reaches a state of reasonable parity that was on display until the 1970s.

However, India still retains considerable advantages that could be harnessed to reshape economic and political relationships to its advantage. China may bring extraordinary weight and credence, especially in the size of its indicative investments, but India is not without its own core share of strengths that emphasise a multi-cultural and multi-ethnic ethos and a better capability for more efficient deployment of far limited resources, especially by the private sector.

China’s foreign investments have been a mixed bag that surfaces its inability to match bombast with recipient expectations. India’s response could be sequential and calibrated that leverages both its strengths and China’s weaknesses.

The key lies in recognising its advantages in the following:

• Historical cultural ties with neighbouring countries in South and South East Asia. This is clearly not lost on Prime Minister Narendra Modi in his attendance of Sri Lanka’s International Vesak Day celebrations. India’s cultural impact across the region is visible and uncontested but one that could, and should, be closely coupled with people links that are both economic and cultural.
  
• Recognise that, as a democracy, it has a much more sophisticated feel for diversity, demands, and expectations. That’s what democracy is all about, of taking everyone along, that China with its monopoly on opinion can never begin to appreciate. In foreign lands, this appreciation is worth its weight in gold.
  
• Contiguous landmass, from Sri Lanka to the ASEAN member-nations that could be integrated with the Indian economy. Sri Lanka is an island, but we need to remove the image of a sliver of water separating the two countries and begin the job of tighter integration to mainland India. Job #1 in this effort is a huge push to infrastructure, particularly modern expressways and rail that connects countries from Sri Lanka to Singapore.
  
• Within India, the much-debated goods and services tax (GST) is almost here and would herald the beginning of an “Indian Common Market” (ICM). As the country is today also the fastest growing large economy in the world, it requires creative thinking and effort to pass on the benefit of the ICM to contiguous neighbours without delay, minus Pakistan which clearly is uninterested at the prospect. This cannot happen without giving up selfish notions of enhancing only the domestic economy; rather, to willingly share the fruits of its large economy so that neighbours prosper as well. This would garner a harvest of goodwill.
  

How Can This Be Achieved?

As a first step, India could boldly outline an infrastructure programme of its own. While not comparable to OBOR, greater gains could be had with far limited resources that are narrowly targeted. But done differently from the Chinese: India should lay out its cards, take a consultative approach, and articulate a transparent, pragmatic vision. This way, both the present and future win-wins are ensured and all parties co-opted.

At the same time, India should refrain from the kind of huge, complex, and multi-dimensional investments that characterize OBOR. Instead, it should opt for focused activity. India already has developed very good and extensive national expressways; all it needs now is to connect these to similar infrastructure cutting across neighbouring countries and integrate with ASEAN (Association of South East Asian Nations). The network effects of these are sufficient for the investments to pay off in the long run.

For instance, a road-cum-rail connectivity project could be designed with Sri Lankan participation that connects Tamil Nadu with Colombo and beyond. This could be contemplated as a modern infrastructure where Sri Lanka benefits hugely. The same should be pursued with Bangladesh and other neighbours and could be extended to ASEAN.

All of the above hinge on the idea of a win-win that India should design into its neighbourhood foreign policy and strategy. China may well find its OBOR difficult to execute and keep its partners engaged.

One reason, not articulated by any of the countries today but would become a bone of contention in the future, is that the projects are being designed with a loan component from Chinese financial institutions to the recipient nations. This burden would likely become onerous as time passes given the size of these loans and China may seek to advantage itself with the countries finding themselves at the deep end. A second reason is that OBOR will expectedly see China benefitting more than the partner-countries: in the form of domestic companies that are given contracts to develop the infrastructure, employment of Chinese labour during development, and commerce that seeks to find markets for China’s manufacturing capacity when the projects are completed. Finally, a third reason that could be argued against OBOR is that it either has security and political insecurity to navigate in certain regions (eg: Pakistan) or partner-countries who have unresolved territorial disputes with the benefactor (eg: Philippines).

India does not have these issues, having resolved the one pending territorial issue with Bangladesh. If it approaches the issues with clarity and a spirit of generosity whereby it contributes the bulk of the financial resources involved at no cost to the benefiting country as with the South Asia satellite and simultaneous opening of the ICM to these nations to both products and services, we may yet achieve a virtuous alignment of the neighbourhood that China would find hard to beat.

OBOR is a strategic threat and India’s choice of staying out means we are more likely to see disadvantages of being surrounded by Chinese investment that is commercial with a dual defence possibility. It is also huge that would likely tell upon China’s vaunted expertise to scale with issues it never had to contemplate within its own boundaries. Added to all these are contemporaneous issues that would weigh China down: a demographic playout of its one-child policy that is already evident in the form of increasing labour costs; declining growth and overcapacity in its manufacturing owing to a slowdown of the world economy and increasing protectionism in the advanced economies; and a potential ticking time bomb in the size of its domestic debt burden to finance its domestic infrastructure buildup that would now begin to include external OBOR investments. These investments represent loans given by Chinese banks to various participating nation-states many of whom may find themselves unable to service the debt, thereby increasing stressed assets on the Chinese balance sheets.

These very weaknesses in China run counter to the OBOR narrative that is at once eye-popping in its imagination and scale.

A market-driven, conservative capital-spending, and more cautious India has distinct advantages that China does not: efficient capital use that could be harnessed in this strategic foreign-cum-economic policy effort to build our own neighbourhood network that binds the Indian Common Market more tightly with the rest of South Asia in the form of a South Asian Union and with ASEAN. Such a “tight binding” would additionally have historical cultural and religious ties at its foundation.