Dawn News

Through an economic lens

ON Wednesday, US Secretary of State Hillary Clinton and Indian External Affairs Minister S.M. Krishna will meet in Washington for the third annual US-India Strategic Dialogue.

The ever-closer ties between Washington and New Delhi are a cause of many sleepless nights and conspiracy theories in Pakistan. But developing a nuanced understanding of the present state and likely trajectory of US-India relations should prevent Pakistan’s short-term foreign policy from falling prey to hysteria and paranoia.

Last week, Pakistanis were angered to see the US and India bonding over the fact that they share a complicated relationship with Pakistan during US Defence Secretary Leon Panetta’s trip to New Delhi. In addition to critiquing Pakistan’s counterterrorism efforts, Panetta called on India to play a greater role in Afghanistan and provide additional support to Afghanistan’s fledgling security forces.

In the context of collapsing US-Pakistan relations, Panetta’s comments in New Delhi seemed to indicate that the US and India are looking to close ranks over Afghanistan and work together to contain Pakistan.

To think that regional security, in particular an anti-Pakistan convergence, is the crux of the US-India relationship would be a big mistake. As the meetings in Washington this week are likely to show, Washington and New Delhi are currently focused on strengthening their economic partnership — everything else is a sideshow.

There are incentives on both sides for better economic ties. India is the world’s third largest economy, but America’s 13th largest trade partner. New Delhi has investment agreements with 80 countries across Europe and the Asean, but has failed to fiment treaty with Washington, putting US investors at a disadvantage compared to other foreigners. The share of Indian trade with the US has also dropped from 10.6 per cent to 7.3 per cent between 2005-06 and 2010-11. In short, the US feels like it’s missing out.

On the Indian side, GDP growth slowed to a nine-year low of 5.3 per cent in the last quarter, causing Standard and Poor to temper its outlook for the Indian economy.

Last month, the Indian rupee also fell to an all-time low. Political opposition — which led the government to rescind its decision to allow Walmart-style, multi-brand retail outlets to invest in India — has also undermined the country’s investment climate. In this context, seeking more direct investment from the US is a greater priority for India than playing bully with Washington.

Even in Afghanistan, Indian interests are largely economic, focused on gaining access to minerals and other raw materials. In April, four state-owned companies made it to a short-list to bid for four copper and gold projects in Afghanistan’s Ghazni, Badakshan, Herat and Sar-e Pol provinces.

This effort follows a successful bid last year by a consortium of Indian state-owned and private companies for rights to the Hajigak iron ore mines in Bamiyan. India’s search for mineral wealth abroad is propelled by the fact that the process of acquiring licences to mine within the country has become extremely complex as a result of widespread illegal mining, which has decimated the environment — in certain districts, the Indian Supreme Court has banned iron ore mining to prevent further ecological damage.

In the short term, then, US-India cooperation has more to do with economics and less to do with a joint desire to clamp down on Pakistan. But this will not remain the case in the long term. As US-India economic ties strengthen, New Delhi is likely to ask for greater political support from Washington as well. (As an aside, the US has already asked for — and to some extent received — political support from India on the matter of reduced oil imports from Iran; though grudgingly, India in May reduced oil imports from Iran by 38 per cent from the previous year. As a result of this “substantial” import reduction, India hopes to gain exemptions from American sanctions without having to entirely cut off Iranian oil flows.)

A study conducted earlier this year by the Foundation for National Security Research (FNSR), a New Delhi think tank, revealed what India expects of its strategic partners. After assessing the benefits for India of its strategic partnerships with the US, UK, Russia, France, Germany and Japan, the study gave top billing to Russia.

Despite having the lowest volume of trade with India from among the six countries assessed (approximately $5bn annually), Russia won out because it consistently backs the Indian stance on Kashmir, Pakistan, Afghanistan, China’s rise and regional terrorism.

The US, meanwhile, ranked second after scoring poorly on FNSR’s ‘political-diplomatic’ scale. The study pointed out that US support for India on Kashmir, Pakistan, Afghanistan and its bid to become a permanent member of the UN Security Council is “insubstantial and inconsistent”. Ultimately, then, India values political support from its strategic partners, even those with whom it has strong economic ties.

What does this mean for Pakistan? In the short term, the country should consider US-India ties through an economic perspective, rather than an exclusively geopolitical lens.

Acknowledging that there is more to the US-India bilateral relationship than stymieing Pakistan will allow Islamabad to continue the process of normalising ties with New Delhi and rescuing relations with Washington from the trash bin in Chicago. Continued engagement with the US and India is Pakistan’s only option for avoiding diplomatic isolation and preventing the fear of a US-India gang-up against Pakistan from becoming a self-fulfilling prophecy.

The writer is a freelance journalist. huma.yusuf@gmail.com Twitter: @humayusuf

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Comments (37) Closed

Jun 11, 2012 09:01pm
I must correct this, India is the 4th largest economy(3rd in asia ) in the world.
Jun 11, 2012 06:38pm
"India is the world’s third largest economy"...since when?
Jun 11, 2012 06:33pm
Third biggest in Asia, not in the world
Jun 11, 2012 06:13pm
India is indeed the third-largest economy in the world on a PPP (Purchasing Power Parity) basis. Even on a nominal GDP basis, it is currently a 2-trillion dollar economy after the latest quater, and in the top ten (it is difficult to place countries because of large currency value fluctuations these days).
Jun 11, 2012 05:40pm
A well balanced article by Huma advising Pakistan not to get paranoid on Indo-US relationship. However, this relationship has also bearing on China who is posing as a big threat to both countries on economic and security fronts respectively.
Jun 11, 2012 05:59pm
ummm...if you read anything other than jang, or roznama phol news papers, you'll notice the figures are correct ;) Excellent article
azmat khan
Jun 11, 2012 05:56pm
she is huma yusaf
Altaf Hussain-Mumbai
Jun 11, 2012 04:38am
Excellent analysis.
Jun 11, 2012 04:32am
It is about time Pakistanis realize that the world does not go to sleep thinking about Pakistan and does not wake up thinking about Pakistan. There is a whole world out there to wonder about and worry about.
Jun 11, 2012 08:32am
A first rate analysis.
Jun 11, 2012 07:49pm
Author is right. It is really all about the money!
Jun 11, 2012 08:03pm
The author is quoting those comparative figures based on Purchasing Power Parity (PPP). Check World Bank statistics. Why do you doubt her other figures? Is it because you can (or feel entitled to) without giving a reason or do you have other figures that are different from hers? Please enlighten the rest of us.
T Ahmed
Jun 11, 2012 07:32pm
Pakistani "strategic thinkers" who think they are being clever with their double games are their own worst enemies. They are incapable of understanding the practical wisdom behind the proverb "honesty is the best policy".
Raj Patel
Jun 12, 2012 01:13am
Be in a deenial mode forever. Does it make any difference to Pakistan whether India is 3rd, 4th, 5th economy in the world. Definately much bigger then economy of Pakistan and that is enough to realize. Assert between the lines comments.Pakistan would be nowhere in the globle economy within next decade if it doesen't change their attitude towards the world.
Jun 12, 2012 12:13am
India is the third largest economy by PPP - which is a more accurate measure of the economic size of countries. It overtook Japan last year.
Ubaid Rehman
Jun 11, 2012 08:34pm
These are good analysis ! traffic work !
Jun 11, 2012 08:33pm
in PPP india is 3rd largest economy now. PPP is considered a better measure compared to nominal. Read wiki "economy of india".
Jun 12, 2012 03:11pm
you really need to start reading newspapers
Jun 11, 2012 08:18pm
India has the third largest economy in the world when you look at the GDP by purchasing power parity (PPP). Ignoring that, India has the 11th largest economy.
Jun 11, 2012 12:46pm
I don't know, from where, the author took the figure that India is the third largest economy. I think, she needs to revisit this figure. Similarly, i also doubt other figures, and simple the whole analysis.
Jun 11, 2012 01:33pm
India has 3rd largest GDP(PPP) and thus 3rd largest economy in the world. Didnt u knew that? Get out of ur dark cave.
N.K Nair
Jun 11, 2012 02:02pm
There is nothing wrong with author's stated figures. In terms of PPP (Purchasing Power Parity) India is considered world's third largest economy (US $ 4.457 trillion). http://en.wikipedia.org/wiki/India
Jun 11, 2012 12:55pm
Good one Yushuf bhai, i didn't know that Pakistan has sensible thinkers like you.
Jun 11, 2012 02:31pm
@Faiz: India overtook Japan to become the third largest economy early 2012, by PPP terms. It is one of the two valid measures, other being nominal GDP. Use google before commenting negatively.
Jun 12, 2012 12:01pm
No need to panic -- with Indians nothing concrete will come out of the meeting.
Ferhan Zeb
Jun 12, 2012 10:03am
Well as far as Pakistan's foreign Policy is concerned, one must understand that its single time in the past 65 years that we are on the right path. Our prosperity is tied with regional alliance, not with some one on the other end of the world. As far as our relations with India China, Russia and Iran are concerned, we must look for solutions to sum up our conflicts. From USA perspective we must reshape our policies and renew our previous deals/contracts on "give and take" terms. We have been only giving since past 65 years, now its the time to take. All contracts with Multiplication companies (who have looted our blood) must be renewed. Civil and Military Contracts be reshaped. Interest based Grants/Aids be changed and accountability for each rupee we spent must be set.
Jun 11, 2012 05:43pm
Bizarre analysis. huma has always been critical of our national policies. people sitting here in decision making seats are more concerned and can access better what is required to be done
Jun 11, 2012 05:22pm
India is third largest economy in PPP terms. In nominal dollar terms ofcourse it is 11th largest.
Jun 11, 2012 05:06pm
I'm glad to see the "old" Huma back - right on the button on the analysis above. The earlier piece she did was an aberration.
Jun 18, 2012 10:47pm
"Pakistan economy is bigger,better and will be topmost economy in thr world very soon. India is way behind". Now, that should make Faiz very happy.
Jun 11, 2012 03:27pm
India is third largest economy of Asia ... as far as my knowledge goes...please enlighten us with correct figures
Jun 11, 2012 03:02pm
ummm, in terms of PPP (purchasing power parity), India in fact is THIRD/FOURTH largest economy behind US & China and comparable to Japan.
Jun 11, 2012 01:04pm
A very unbiased view,good stuff
Jun 11, 2012 09:34am
Pakistan should get rid of this self induced myopic outlook that the world is out to "get us" .
An Indian
Jun 11, 2012 07:09am
Ferhan Zeb
Jun 12, 2012 11:02am
Well as far as Pakistan's foreign Policy is concerned, one must understand that its single time in the past 65 years that we are on the right path. Our prosperity is tied with regional alliance, not with some one on the other end of the world. As far as our relations with India China, Russia and Iran are concerned, we must look for solutions to sum up our conflicts.
Aug 14, 2012 12:50pm
Plagiarized work