Foreign aid

Indian and Australian aid programs to the Pacific: Opportunities for trilateral aid cooperation

India and Australia can work together to address the clear and present danger of climate change in the Pacific Islands through trilateral aid partnerships, writes Hemant Shivakumar

An edited version of this article appeared here

After the Indian Prime Minister Modi announced India’s big-ticket foreign policy reform – the Act-East Policy – in 2014 at Myanmar, he travelled further east to visit Fiji. Figuratively, it was a fitting statement of intent: flying to the easternmost part of the globe to give shape to his words where he pressed for deeper development partnerships between New Delhi and India’s hitherto neglected Pacific neighbours.

Development assistance partnerships have emerged as recognizable tool in Indian foreign policy thinking. The volume of Indian assistance has grown since the turn of the century – rising seven-fold to rival and surpass many OECD-DAC donors. Modi’s renewed commitments to the Bainimarama regime in Fiji and to the other Pacific neighbours signal the use of development partnerships in India’s renewed engagement with the Pacific. However, as an emerging donor, India’s aid history to the Pacific Islands is relatively new.

Soon after New Delhi was inducted as a dialogue partner into the PIF forum in 2002, the Indian republic announced a grant-in-aid of US$ 100,000 to each of the PIF nations to be used towards socio-economic development. During the visit of the Minister of State for External Affairs E.Ahamed to Cook Islands in 2012, this grant was raised to US$ 125,000 and subsequently increased to US$ 200,000 during Modi’s visit in 2014. In addition, New Delhi’s credit lines through the EXIM Bank have helped build a decade-long partnership towards industrial development of the Fijian sugar businesses.

Rising commitments aside, India’s aid volumes fall well behind behind the other major donors in the Pacific – Australia, China, Japan, USA and New Zealand. Australia for example has successfully maintained a strong focus on the PIF despite a shrinking aid budget. However, political differences with Canberra in the recent past have driven PIF nations to expand its range of development partners, partly explaining the rise of assistance efforts from China, India, and EU in the Pacific.

In March 2016, some PIF nations were among the first countries to ratify the Paris climate change agreement; these nations have also called for others to do the same. PIF nations have also expressed unhappiness about Canberra’s reluctance to help tackle climate change issues, while appreciating India’s leadership on the same. During the FIPIC forum meeting at Jaipur in 2015, the President of the Marshall Islands called India a ‘clean energy crusader’. Not forgetting Canberra’s differences with the islands, Australia’s proximity to the Pacific islands and the presence of a large Pacific contingent in its own shores make the climate refugee problem a looming threat. Despite PIF nations blaming Canberra’s lack of enthusiasm, climate disasters can force these nations to make Canberra their first port-of-call. In addition to its own aid efforts, Canberra could therefore consider providing support to India’s development assistance projects in the region to tackle climate change.

Surprisingly, the aid programs of India and Australia already share a lot of commonalities – overall and in the Pacific too. The overall size of the Indian and Australian aid programs are nearly US$ 4 billion (in purchasing parity terms). The highest proportion of Indian assistance (nearly US$ 80 million) and Australian aid (nearly US$ 700 million) in the Pacific is directed towards the Melanesian region – key recipients include Fiji, Vanuatu, Solomon Islands and Papua New Guinea. Given Canberra’s bigger aid budget to the Pacific, countries such as the Cook Islands, Kiribati and Nauru also receive considerable aid support as well. Both nations focus resources on capacity-building measures such as skill-training, building economic infrastructure and improving social life in the islands. While maritime links, commercial interests and common strategic goals are bringing India and Australia closer, trilateral partnerships to tackle climate change can use the comparative strengths of each nation’s aid program, and reap dividends for all involved.

In the Pacific, trilateral cooperation between DAC-non DAC donors is an emerging trend. China is working with Australia to reduce malaria in Papua New Guinea; it is also partnering with New Zealand for a water supply project on the Cook Islands. With satellite data undoubtedly crucial in supporting the PIF nations against climate change vagaries, Australia could begin with supporting New Delhi’s commitment to set up a satellite monitoring station in the Pacific. Moreover, working with India’s renewable energy sector to build solar or wind energy resources in the islands can help the island nations reduce their dependence on fossil fuels.

An India-Australia trilateral development partnership with a recipient nation in the Pacific therefore seems ripe: building on each nation’s interests and history of engagements in the region to deliver aid. Such efforts are unlikely to face a broadside among domestic constituents in Australia, who desire strong leadership from their government on climate change. For India, knowledge exchange with a DAC donor can help improve New Delhi’s global development assistance programming efforts. Doing so will also move away from a hard-power narrative that threatens to override India’s growing engagements in the Asia-Pacific story.



Why should India bet big on economic integration with the Asia-Pacific?

China is racing to fix speculations around its stuttering economy by laying plans for a domestic consumer-led model, but it has not let its global guard drop: the cargo train that clocked an impressive 10,000 kms to Tehran from China’s eastern city of Yiwu underlined Beijing’s focus on strengthening economic links.

However, attention will swiftly return to the Asia-Pacific, where China’s alleged deployment of surface-to-air missiles in the South China Sea is further exacerbating fears and drawing caustic reactions from several countries in the region. Even as President Obama and leaders from ASEAN nations reassert the need for a rules-based order in the region, it is not yet possible to determine the shape and course such an Asian order might take. During the last few months, a resuscitated Iran has drawn New Delhi’s attention westward. Considering the frantic nature of geo-political developments to its East, New Delhi will do well to assess progress on its engagements in this region. Speeding up India’s economic integration measures to match with its growing maritime ambitions in the Asia-Pacific should underpin the republic’s power goals in 2016.

Since the turn of the 21st century, the Asia-Pacific region has become central to Indian strategic thinking. The Act East policy, unveiled by the Indian Prime Minister Narendra Modi in late 2014, reinforced this ideal. And during his visits to , Australia and at the ASEAN summit, Modi vigorously underlined how India’s destiny was tied to the future of the Asia Pacific.

Given India’s recent growth rates and maritime prowess, countries such as Japan, the Philippines and Australia have lent support to New Delhi’s notions of an enhanced role in the region, leading India to increase its maritime commitments with Japan and Australia in 2015. Furthermore, India’s strategic competition with China, have also driven its increased naval enthusiasm in the Region.  As David Brewster explains, ‘India’s engagement with East Asia has occurred in the context of long-term strategic competition with China’.

Yet, just as Beijing grows increasingly restless in the Asia-Pacific, New Delhi’s eastward economic gallop has considerably slowed.

Even as New Delhi strengthens its ties with the ASEAN – through maritime exchanges and bilateral visits by Indian leaders – several ASEAN countries —  such as Philippines, Cambodia and Indonesia are yet to ratify the India – ASEAN agreement on services trade. In August 2015, New Delhi began a long overdue review process on its trade agreement on goods with ASEAN.

India’s interests in the multilateral ASEAN-led Regional Comprehensive Economic Partnership (RCEP) agreement have also meant that it has deferred the conclusion of a bilateral trade agreement with Australia. Despite India’s optimism – and Chinese pressure – for an early agreement on RCEP, any conclusion on the agreement, which was due in 2015, could take a lot longer. As Commerce Secretary Kher points, delays in multilateral trade agreements like the RCEP will in advancing global value chains. Also, the commercial incentives that the US-led Trans-Pacific Partnership generates for partner countries – six of which are also in the RCEP – could further increase these costs in the region.

New Delhi could use its growing global stature to reinforce its eastward economic goals. China’s aggressive military posture – and US’ rebalancing to a lesser extent – is effectively forcing powers like Australia and Japan to reconsider and reshape their national security priorities. Tokyo is stepping up its defense spending, as is Australia with the 2016 Australian Defense Whitepaper outlining Canberra’s US$ 30 billion outlay over the next decade. Australia and Japan are already drawing closer, and partly aided by Washington’s encouragement, are willing to co-opt India as a strategic partner in the region. In addition, East Asian nations are keen to deepen economic ties with India. The former Australian prime minister Kevin Rudd even boldly suggested that India could join key regional economic organisations such as the Asia Pacific Economic Cooperation (APEC) forum. In addition, East Asian nations are keen to deepen economic ties with India.

However, concerns remain about the pace of India’s economic response to these developments. Since 2012, India’s share of trade with prominent Asia-Pacific nations such as Japan, Australia and ASEAN nations has declined and New Delhi’s commercial partnerships – with Australia, Vietnam, and Japan among others – remain underdeveloped. Japanese exports continue to face tariff barriers that deter their flow to India. Despite Australia offering tariff concessions, India has delayed negotiations on a key bilateral trade agreement with Australia that was expected to be concluded in early 2016.

Developing border infrastructure at trading outposts between India and Myanmar – India’s gateway to Southeast Asia – will improve trade between India and the ASEAN nations. But budgetary allocations to develop such infrastructure have been cut by nearly 30 percent in FY 2016/17 from the previous year.

Whether or not India partakes in larger maritime security arrangements in the Asia-Pacific, strengthening economic ties with the region should be non-negotiable. Modi can begin by pressing his administration to conclude a pending trade agreement with Australia before the 12th round of RCEP negotiations begin in April at Perth. With New Delhi’s emphasis on economic cooperation, as India’s foreign secretary argues, developing connectivity will be crucial. To improve bilateral trade New Delhi should speed up port and road connectivity projects to Myanmar and Thailand, and address tariff concerns to improve bilateral trade. India is undoubtedly looking global, and as it transitions from being a balancer to that of a leading power in the face of Chinese restiveness, it should make better use of its growing ties in the Asia-Pacific to strengthen economic linkages. As the Vietnamese Ambassador to India Ton Sinh Thanh underlined recently, India not only has to act east, but act fast.

You can find an edited version of this article here with the East Asia Forum based in the Crawford School of Public Policy at the Australian National University.

South Asia

Afghanistan’s strategy post WTO membership

For the conflict-torn Afghanistan – a nation whose modern economic revenues depend heavily on foreign aid and a shadow economy of narcotics – it’s accession to the WTO represents both a democratic milestone and an important opportunity to budge towards economic self-sufficiency.

Arriving after nearly 11 years of negotiations, Kabul’s addition to the WTO membership in December 2015 is also a timely reflection of the few successes that the cocktail of multilateral institutions have had in Afghanistan’s nation-(re)building process. Afghanistan continues to be the lowest ranked South Asian country in the Ease of Doing Business Index, (below Bhutan, Nepal and Pakistan), and is beset with corruption issues; yet its new-found WTO status could provide political space for Ashraf Ghani’s government to reinforce fiscal measures and fix a lopsided economy.

With nearly 70 percent of the nation’s labour force employed in agriculture, and its growing manufacturing and services sector reverse-linked to the agricultural economy as well, emphasis on agriculture will help: improving productivity, diversifying agro-exports by moving away from narcotic crops like opium will make Afghanistan’s agricultural framework more robust. Greater public-private partnerships in this sector could also yield results, like the Asian Development Bank’s recent initiatives in boosting horticulture and livestock practices in the nation. Similarly, Afghanistan’s natural resource wealth (estimated to be nearly US$ 1 trillion) also attracts considerable interest from extractive industries in the USA, China and others; the Afghan’s Ministry of Mines could make use of this regulate mining to boost national revenue and generate employment for the Afghanis. Given growing aspirations among Afghani youth – that President Ghani sought to address once elected – job creation in such sectors will generate political goodwill for the current government. As one of Kabul’s most reliable partners, India could be pressed into helping build capacity among Afghanis by extending scholarships for technical training and education to Afghanistan’s bureaucrats and youth that would help with their country’s development.

The Afghan President will also be buoyed by ongoing developments with its neighbours, such as Iran. As the Afghan Ministry of Foreign Affairs observed, development of strategic infrastructure around Iran’s Chabahar port through New Delhi’s US$ 150 million credit line will be favorable to the landlocked Afghanistan, since its trade with New Delhi and other trading nations will receive a shot in the arm with an alternate route. The republic’s optimism about the project was evident during the visit of Afghanistan’s CEO Abdullah Abdullah to Tehran, where the CEO encouraged Afghani investors to explore trading through the Chabahar port. Projects such as the Lapiz Lazuli corridor (connecting Afghanistan’s western Herat province to Turkey via road and rail) and the Asian Development Bank-funded five nations railway project (beginning in China and crossing Afghanistan before connecting to Iran) will diversify Kabul’s trading destinations, and will tow with President Ghani’s vision of transforming Afghanistan into a connectivity hub.

However, Kabul might have little time to secure and turn the WTO welcome into an economic catalyst. The US Defence Secretary Ashton Carter warned of a serious reverse decline in security recently. Growing concerns about Afghanistan’s preparedness to counter an advancing ISIS and the Taliban heavily threaten the emergent development narrative in Afghanistan. Relations with Islamabad – that President Ghani rightly prioritised at the beginning of his term – will therefore be central to Afghanistan’s post-WTO economic vision. The recent thaw in Afghanistan-Pakistan relations during the Heart of Asia conference, and the ongoing Pakistani military offensive in Waziristan against militants near the Afghan border, have ensured that the beleaguered Afghani national armed forces are not overstretched.

Considering bilateral aid commitments by donors such as USA, Germany, Japan and India (in defence equipment too) through the next few years, and with the USA likely to retain its 7000-odd forces in the NATO to support counter-terrorism operations in Afghanistan, Kabul can act on borrowed time to force its way to a strong economic narrative.

Despite Kabul’s suspicions about Pakistan, China’s lofty projects – such as the US$100 billion Silk Road Project and the US$ 46 billion Chinese-Pakistan Economic Corridor – offer considerable economic and political payoffs to Islamabad to work closer with Afghanistan and maintain peace; this (and pressure from the USA) could also partly explain Pakistan’s efforts to lead peace talks with the Taliban. Indian PM Narendra Modi’s recent missives to his counterpart in Pakistan are likely to have strengthened Pakistan’s motives to cooperate in regional economic projects like the TAPI pipeline – a project that Afghanistan’s President Ghani called a beacon of hope and stability to his country.

In the wake of Kabul’s WTO accession, the window of economic opportunity remains for Afghanistan to seize. Domestic restiveness towards engaging with Islamabad is growing in Kabul, and getting Pakistan and the international community – especially US-led military assistance – swiftly on its side will add muscle to President Ghani’s post-WTO plans.

Encouraging private investment and aid to agriculture could spur productivity and improve the agricultural framework. Further, Kabul can use the prospects that large-scale regional projects and the local mining industry generate to secure employment for young and educated Afghans. In an ongoing struggle between the aspirations of a new young society in Afghanistan and the traditional jihadists who threaten to undermine the development narrative, all will hinge on the economic progress that President Ghani can extract.