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March 2019

This month, the Indian news media focused on several global political and regulatory developments and their impact on India.  News sources weighed in on the arrest of Nirav Modi, the main accused in the US$2bn Punjab National Bank fraud, in London, China blocking the UN Security Council’s initiative to tag Jaish-e Mohammad chief Masood Azhar as a “global terrorist”, and President Trump’s plans to withdraw tariff concessions to India under the Generalized System of Preferences (GSP).

China blocks India’s bid to declare JeM chief Masood Azhar global terrorist for fourth time

China has blocked a bid to designate the leader of the group behind an attack which brought India and Pakistan to the brink of war a terrorist.  This is the fourth time that China – a close ally of Pakistan – has blocked attempts to have Masood Azhar designated as a terrorist.  Multiple media publications expressed frustration at China’s stance of blocking a global consensus at the behest of Pakistan and evaluated India’s various options to try to persuade China to change its stand by means of incentives or coercion.  A column in the Indian Express detailed out China’s various economic interests in Pakistan such as the China Pakistan Economic Corridor (CPEC), creating challenges for its Asian rival India and putting across a point to western powers led by the United States as the key reasons for China blocking the bid. “Why is China so keen to shield Azhar, blocking a global consensus at the behest of Pakistan? Its standard line is that it wants to “uphold the authority and validity of the 1267 Committee”.  But its real reasons are far less lofty — and range from protecting its “all weather” ally in South Asia to its business interests in the China Pakistan Economic Corridor (CPEC), and from making things difficult for its Asian rival India to making a point to western powers led by the United States…  the brightest jewel in Chinese President Xi Jinping’s ambitious Belt and Road Initiative (BRI), which aims to connect Asia, Europe and Africa by building and upgrading road, rail, and sea infra on a massive scale. CPEC runs across the length of Pakistan, linking Kashgar in China’s Xinjiang province to the Gwadar deep-sea port on the Arabian Sea near Pakistan’s border with Iran.  Chinese firms have invested close to $40 billion in around 45 CPEC projects, about half of which are nearing completion.  China is determined to protect this gigantic investment of money, personnel and time.  Access to the sea through Gwadar will remove the need for it to take the long route west through the Straits of Malacca and around India, and dramatically increase its proximity to the oil shipping lanes through the Strait of Hormuz.  Good relations with Pakistan, and international protection for ISI proxies like Jaish provide China with insurance against terrorist attacks on CPEC infrastructure and the thousands of Chinese working on the ground.”

The Livemint outlined China’s consistent stand block the listing of Jaish-e-Mohammad chief Masood Azhar as a global terrorist as regrettable and condemnable:  “In what may make India re-evaluate its options, China again blocked the proposal to get Jaish-e-Mohammed (JeM) chief Masood Azhar designated by the United Nations Security Council as a terrorist…  Listing of Azhar as a terrorist would have meant a significant diplomatic victory for India and resulted in restrictions on his travel and freezing of his assets.  China recorded its “technical hold” with the ‘1267 sanctions committee’ that aims to impose strictures against individuals and entities associated with Al-Qaeda and the Islamic State. China had earlier blocked, at the behest of Pakistan, several attempts by India, France, the UK, and the US to sanction Azhar under UN Resolution 1267 for links to Al-Qaeda…  India has been working the diplomatic channels at the United Nations, with the proposal to collar Azhar whose group JeM has claimed responsibility for the Pulwama attack that killed 40 Indian security personnel initiated by France, the UK and the US.  The unwavering Chinese stand in Pakistan’s favour comes in the backdrop of US under secretary of state for political affairs David Hale and India’s foreign secretary Vijay Keshav Gokhale holding foreign office consultations on Tuesday…  China has historically used Pakistan to try to thwart India’s rise as a challenger to China’s dominance in Asia. China considers Pakistan an all-weather ally, describing their friendship as “higher than the Himalayas and deeper than the deepest sea in the world, and sweeter than honey”.  The Chinese support to Pakistan has been attributed to a host of reasons such as China and Pakistan being “all-weather friends” to Pakistan’s support for China within groupings like the Organisation of Islamic Cooperation (OIC) and others like the Non-Aligned Movement where China has no representation. Also, India’s growing proximity to the US, sheltering Dalai Lama, and Pakistan’s role in China’s One Belt One Road strategy are said to be the reasons for China’s protecting Pakistan’s interests.”

An article in The Hindu covered the government’s options including continuing to pursue the Azhar issue with China, to abandon the effort, or to lobby other UNSC members to try and change the veto system entirely. “Despite weeks of a diplomatic campaign after the Pulwama terror attack, China’s decision to place a “hold” on the United Nations Security Council (UNSC) listing of Jaish-e-Mohammad chief Masood Azhar as a global terrorist has come as a setback to India.  It will force New Delhi to reconsider its strategy on the issue and consider various options and priorities in the weeks ahead…If the Government of India wishes to make China change its stand, it must consider a more transactional approach…where China will want India’s support or that of the U.S., the U.K. and France in return.  While Prime Minister Narendra Modi’s Wuhan summit with President Xi Jinping has failed to move China to align its position on terrorism to India’s thus far, another opportunity will come for India when Mr. Xi travels to New Delhi for the next informal summit expected shortly after the general election.  Still others suggest that India should work with other UNSC members to ensure that China is unable to stop the listing process as it has been able to do in the past four attempts to list Azhar…  In the next two months, Pakistan will face a review of its actions at the Financial Action Task Force (FATF), and many say India’s diplomatic efforts will be better employed in keeping the focus on those actions, which would include changing Pakistan’s anti-terror laws to allow the prosecution of leaders like Azhar and Saeed, ensuring both and their groups are unable to address public rallies, or collect funds as they have been able to do until quite recently, and to see what the Ministry of External Affairs (MEA) calls “credible, verifiable and sustained” actions to shut down the terror camps and other infrastructure inside Pakistan.”

Nirav Modi arrested in London on India’s extradition request

A little over a year after jeweler Nirav Modi fled India after allegedly defrauding Punjab National Bank of US$2bn, the fugitive diamantaire was arrested in London.  Various media publications labelled the arrest as a big victory for India’s investigative agencies and commented on its potential political value for the Bharatiya Janata Party (BJP) in the upcoming national elections.  The Livemint hailed the arrest as an important prerequisite in rebuilding the trust quotient in the country; in the aftermath of several big-ticket corruption scandals. “The arrest in London, the rejection of bail owing to fears of flight risk, and subsequent incarceration of Nirav Modi last week is undoubtedly a shot in the arm for India’s investigating agencies. In fact, it is much more.  That the fugitive, who is the key accused in the ₹14,356 crore fraud that nearly brought down Punjab National Bank (PNB), is now closer to being extradited for trial in India is also a big endorsement that the rule of law is finally beginning to take root in India…  For too long India has been an exceptions-based regime; something which has fueled the rapid spread of corruption.  The elite’s capture of key institutions in the country ensured status quo; this in turn created the culture of IOUs among middlemen to facilitate the exceptions from the application of rules in return for pecuniary payoffs.  This is exactly how corruption spread its tentacles rapidly, manifesting at the wholesale level as crony capitalism and at the retail levels as petty corruption…  To be sure, India has over the last decade taken baby steps towards creating a rules-based regime.  One example is the idea of triangulating a beneficiary of government subsidies using their Aadhaar and bank account to target the benefits and also eliminate illegal claims; similarly, the decision to auction resources, such as licenses for coal mining and spectrum, are good instances of implementing transparent mechanisms.  But there is a still long way to go before India can realise the ideal social order based on the rule of law—without which its potential will elude it. So, every step in that direction should be a moment to cherish.”

The Hindustan Times highlighted Nirav Modi’s arrest as a major boost for Prime Minister Narendra Modi’s BJP ahead of the Lok Sabha polls. “Reacting to the developments, minister of state (independent charge) housing and urban affairs Hardeep Singh Puri tweeted: “You can run but cannot hide from the country’s #Chowkidar. As wheels of justice grind, after Vijay Mallya, fugitive Nirav Modi has been arrested in London. Clear sign that this is not the India which will allow economic offenders to loot the country & evade the long arm of law”.…  Modi’s arrest is a boost in the arm for the Bharatiya Janata Party which is seeking re-election in the summer’s parliamentary elections.  It was criticised by its opponents for allegedly letting Modi, and before him, liquor baron Mallya (who owed banks around Rs 9,000 crore) escape.  The arrest is also timely.  On Saturday, Prime Minister Narendra Modi launched the Main Bhi Chowkidar campaign to showcase his fight against corruption.  He also changed his twitter display name to mention the workd chowkidar (watchman). Almost the entire Union cabinet followed suit as did a few million of Modi’s followers.”

The Outlook commended the arrest but exercised caution on the timeline for Nirav Modi’s extradition to India given the various requirements under the British law “Fugitive billionaire Nirav Modi was, on Tuesday, arrested in London by the Metropolitan Police days after a UK court issued an arrest warrant against him in response to a request by India’s Enforcement Directorate for his extradition…  However, the controversial diamantaire who allegedly duped the Punjab National Bank of over Rs 13,000 crore before fleeing India last year, may not be brought back to the country any time soon…  Sources say the judicial process against Modi may be as long drawn as former UB group chief Vijay Mallya, whose extradition to India was recently approved by the UK authorities after nearly two years of long drawn legal proceedings but is still pending a final nod from Britain’s Home Office.  Sources in the Enforcement Directorate, which had sought the extradition warrant against Modi, say that the requirement to present Modi before the London court was a technical one.  On March 29, if Modi is granted bail, the London court will set a date for arguments to commence in the extradition case against him…  “Even in the event of the court expediting the case, which in itself is unlikely as the London court will not be influenced by the political rhetoric in India over Nirav Modi, a final order on his extradition may take months, if not a year,” an ED source said. He added that once the Magistrate’s Court rules in the case, an appeal will be made in a higher court by either parties depending on the order, and this too will take months to reach finality.  It is pertinent to note that even the case against Mallya, who had fled India back in 2017 and has been roaming free in London after being granted bail by the court, has still not reached closure even though the Indian government can claim some success on the fact that his extradition was ordered by the UK Home Secretary, Sajid Javid, last month. The file on Mallya’s extradition is still under process in the UK.”

 

US to Suspend India’s Preferential Tariff Status

US President Donald Trump announced his decision to withdraw India’s name from the Generalized System of Preferences (GSP) program with Washington, accusing India of raising a wide array of trade barriers that prevent American businesses from getting equivalent, if not reasonable, access to Indian markets.  While Indian media have unanimously reported that this will not have a major impact on India’s bilateral trade, they believe the withdrawal of the GSP should serve as a wake-up call for India, highlighting that India’s current trade barriers need to be revaluated.   The Hindu wrote about how the US’ withdrawal of duty benefits to its US$5.6bn of exports would have minimal impact on India’s bilateral trade. “The duty-free status available to 3,500 Indian goods exported to the US market will end soon as the Trump administration has decided to withdraw the benefits extended to the country under the Generalised System of Preferences (GSP). The concession has been rolled back on the grounds that India is not providing equitable market access to American businesses.  The withdrawal of the scheme will not have a significant impact on exports to America, as the benefits to exporters added up to just about $190 million annually…The Trump administration listed India among the countries with which the US runs a trade deficit, and asked the US Commerce Department to “identify every form of trade abuse and every non-reciprocal practice that contributes to the US trade deficit.”  Washington has not recognised New Delhi’s efforts to trim the trade deficit. The trade deficit narrowed by almost 6 per cent in 2017 to $22.9 billion, according to the USTR. With India buying oil and gas from the US for the first time in 2018 for an estimated $3 billion, the gap is expected to shrink by about $4 billion.  The US was India’s top export destination in 2017-18 with shipments worth $47.88 billion. India’s imports from the country were worth $26.61 billion.”

An interview with Economist, Bhaskar Chakravorti by The Financial Express highlighted the bigger picture that while the direct impact from the GSP withdrawal will be relatively small for India, it is expected to raise costs for the American firms and hinder strengthening of the Indo-US relations.  “The direct impact might be relatively small, the loss of $190 million worth of a tariff advantage out of $5.6 billion worth of goods that the US imports from India. However, it could have an adverse effect more widely as in making the Indian exports more expensive and vulnerable to increased competitiveness from alternatives across the board from cheaper locations. In particular, much of the products that India exports under the GSP is an intermediate good (an input into a finished product); so manufacturers in the US might be tempted to look for alternatives…  Both the countries have been short-sighted in their trade policies. India has been leaning towards greater protectionism and the US as well; in fact, the US is engaged in an outright trade war with China. India is clearly an important geopolitical alternative to China as far as the US is concerned – and it is important that the relations between the two countries continue to get stronger.  For its part, India is concerned about the longer run presence of China in its region and the more immediate flare-up with Pakistan. On both fronts, India needs a strong ally in the US. Net, I believe that there are larger interests in play that point towards stronger India-US relations and trade issues will be a minor irritant in the relationship. The main problem is, of course, that the US political establishment has an incoherent foreign policy and India is going through an election cycle, so its foreign policy will remain in suspended animation for the next several months.”

A columnist in The Livemint was critical of India’s current trade policy and highlighted that the country is unlikely to benefit from its current trade barriers and that its own best interests lie in participating fully in the trading system that has made so many other countries rich. “US President Donald Trump intends to remove imports from India (and Turkey) from the Generalized System of Preferences (GSP) scheme that allowed some goods tariff-free access to US markets.  The Indian government has downplayed the move, claiming that the GSP only provided $190 million or so worth of benefits to Indian exports. But, this is misleading. India was the largest beneficiary of the GSP scheme, with about $5.6 billion worth of its imports qualifying. Many of these will lose a crucial degree of competitiveness as a consequence of Trump’s decision—particularly when compared to competitors from countries such as Mexico that have free trade agreements with the US…  The US administration’s argument is simple: India isn’t lowering its trade barriers enough. To the contrary, it’s raising new ones…  India’s turn towards protectionism may have gone relatively unremarked in the rest of the world so far, but there was always going to be damaging blowback. Many of the exporters that will suffer as a consequence of the GSP withdrawal are in sectors such as engineering—precisely the sort of value-added manufacturing businesses that India needs to see more of if it’s to create jobs for the millions of young people who join its workforce yearly…  This should be a wake-up call for the Indian government. The world trading system is in a state of flux. The weight of China’s manufacturing sector has bent it out of shape. Now it is being hammered into a new configuration. An India that is busy putting up barriers will be in no position to benefit.”

 

 

 

1. Collective term used by the Government of India to classify castes which are educationally or socially disadvantaged, see the National Commission for Backward Classes