:: Issue Analysis

India’s vast market is diplomatic and defense leverage

KIM Chan-Wan Professor of Graduate School of International and Area Studies Hankuk University of Foreign Studies

he year 2010 represented a milestone in the history of ’s diplomacy. The leaders of five permanent members of the UN Security Council visited India over a short span of six months T in 2010. Additionally, the G-20 summit, India-Europe, India- Japan, India-, and India-Russia summit meetings were all held in the same year. What is important is the fact that these summit meetings took place when the talk of the “China threat”suddenly arose. India’s vast market is why India has become a magnet for heads of international powerhouses. It was in the mid-late 1990s when the gigantic Indian market began to work as the leverage to muster strength in diplomacy and national defense. It became a well-known power in the 2000s. In particular, the large defense and power industries in India are attractive enough to draw attention from world leaders. India is engaged in extensive modernization of its military forces to guard against China’s

087 Spring 2011�POSRI Chindia Quarterly military build-up. The Indian defense industry is expected to grow into an approximately 112 billion-dollar industry over the next five years. In addition, India plans to build more than 20 nuclear plants in order to address its power shortages in the future.

○● Obama in India for economic cooperation US president, Barrack Obama, visited India’s economic capital, Mumbai, with an entourage of 200 businessmen in November 2010. While attending the US-India Business Council, he dubbed “Asia, especially India, is the market of the future,” and announced that the two countries sealed twenty trade deals worth 10 billion dollars during his visit. One of them was a 7.7- billion-dollar Boeing deal to provide India’s SpiceJet Airlines with 30 Boeing 737 jets. Also, India has laid the foundation for opening up its vast education market in the future. The remark made by India’s education minister that India needed to establish 800 to 1,000 colleges and universities in the next decade to meet substantially increased demands for higher education, showed the huge growth potential of the education market. The US and India have agreed to hold summit meetings on a regular basis to discuss cooperation in the higher education sector. India has received two presents in return for the economic cooperation it agreed during President Obama’s visit. One of them is that Washington would relax its dual-use export restrictions, which have been in place since 1998 when India carried out nuclear tests. The restrictions were designed to control the export of items that might have been used as military supplies. The US said it would engage in nuclear cooperation in the industrial field with India in March 2005, which led to the US-India civil nuclear agreement. The US provided India with preferential treatment because it pursued a close relationship with India in order to disseminate anti-terrorism and democracy, put China in check, and increase economic cooperation. As a result, the two countries agreed to seek a strategic partnership.

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○● Singh bringing India-Japan closer The relationship between India and Japan has become closer since 2006. The two countries held summit meetings on a yearly basis, building a global strategic partnership in order to discuss and cooperate in not only bilateral but also global matters. With the comprehensive agreements in place, Japan and India concluded the Economic Partnership Agreement (EPA) when Indian Prime Minster Singh visited Japan in October 2010. By doing so, the two countries have established an institutional framework to seek comprehensive cooperation in the political, economic, and security fields. In addition, they agreed to establish “ministerial talks on economy” in order to have concrete plans for close economic cooperation in the future. Moreover, they would work together to bring technical cooperation for nuclear power generation and rare earth resources. Prime Minister Singh called the conclusion of the EPA “a historic achievement” and said that India has begun large-scale infrastructure building projects including the Delhi-Mumbai Industrial Corridor and dedicated freight corridor with the help from Japan, which are expected to bring economic prosperity to India. Tokyo’s focus on economic cooperation with India has been in terms of investment and trade rather than Official Development Aids since India’s request in 2006.

○● Three leaders visit India in a month The French president Nicolas Sarkozy made an official visit to India in early December 2010 along with about 60 business leaders of aircraft manufacturers and the European Aeronautic Defense and Space Company (EADS), to name a few. They were mainly interested in the national defense and nuclear power industries of India. Notably, France wanted to seal the 1.2-billion-dollar repair contract of the Mirage-2000 it sold to India 20 years ago and to participate in the bid for an order of 126 military aircrafts, worth 11 billion dollars, by the Indian Air Force. It was said that President Sarkozy

089 Spring 2011�POSRI Chindia Quarterly did not seal the deal but still had discussions; however, he did not leave India empty-handed. Areva, French nuclear power company, concluded a 9.3-billion-dollar contract to build two 1,650 MW Euro pressurized water reactors in Maharashtra of India. The Chinese Prime Minister Wen Jiabao visited India in December 2010, making a successful entry into the Indian power market. China cut a deal to finance a 1.1-billion-dollar project to import power generation equipment, which are being used to build a 3,960 MW-level Sasan power plant in Madhya Pradesh, India. This is the As a“ balancer”, India is needed biggest financing project that to hold China’s power or size in a Chinese bank has ever check in the future. provided to India. To add to it, China concluded 48 MOUs worth 1.6 billion dollars in total during Mr. Wen’s visit to India and made an agreement with India to raise trade volume between the two up to 100 billion dollars by 2015, which is twice as much as the current level. The Russian President Dmitry Medvedev visited India and cut large deals in defense and nuclear power industries as well. He and his Indian counterpart agreed to work to develop the fifth generation fighters expected to cost about 8-10 billion dollars. Rosoboron export, the sole state intermediary agency for Russia’s exports/imports of defense-related products, and Hindustan Aeronautics (HAL), India’s state-owned aerospace company, signed a contract to design the fifth generation fighters and develop technological drafts. It is known that India would be in charge of the development of the computer in the cockpit, electronic devices and GPS, and then the rest would be handled by Sukhoi, a major Russian aircraft

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manufacturer. Moreover, President Medvedev ensured Russia’s entry into the Indian nuclear power market. Russia and India agreed to work toward the development of the next generation nuclear reactors for nuclear plants, including fast neuron and thorium-fueled reactors. Russia plans to build 18 nuclear reactors in India in the long term. Then what did India get in return for signing big contracts for the defense and power industries? The biggest gain is winning support for taking its seat on the UN Security Council, which is one of the ultimate goals in foreign relation policy. However, although President Obama remarked that he supported India on the matter, India failed to have a specific timeline, such as when to overhaul the permanent members of the Security Council. Nevertheless, leaders from France, Russia, and China echoed India’s qualifications to become one of the permanent members in terms of its economic size or its national status in the international community. In particular, Russia agreed to engage in cooperation with India, which will be a non-permanent member during the 2011-2012 period. India, in effect, has achieved its goal to upgrade its national status by taking advantage of its vast defense and power markets.

○● Indian press was cold to China Unlike President Obama’s visit to China, the Indian government or media did not have high expectations for Prime Minister Wen’s visit. China was mainly focused on economic cooperation and was not very interested in politics, defense, or security. China concluded 16-billion-dollar worth MOUs with India, bigger than the 10 billion dollar deal between the US and India, but it received bad press in India with respect to its handling the border issues or for being biased toward instead of putting the big numbers under the spotlight. In fact, these issues are innate limitations hindering further improvement of bilateral relationship. During his visit, Mr. Wen said that China and India, the world’s factories and offices, should

091 Spring 2011�POSRI Chindia Quarterly work together, but the Indian Commerce Minister, Anand Sharma, responded by saying that India has yet contemplated the FTA deal with China yet. Behind India’s cold reaction, are the ever-increasing trade deficits against China (expected to reach 20 billion dollars in 2010-11) and the high probability that Chinese industrial goods would dominate the Indian market owing to the discrepancy in the industrial structures of two countries.

○● India at the center of the world order India’s presence in the international community has been bigger than in 2010. Recognizing the fact well, India tries to change the landscape of the world order, in its way, going beyond boosting bilateral cooperation via summit meetings. A case in point is that India brought South Africa into the summit meeting. Sitting down with Russian President Medvedev, Prime Minister Manmohan Singh agreed to accept South Africa as an official member at the BRICs summit meeting scheduled to be held in April 2011 in China. He intends to offset the control by China and Russia and to have a bigger say by including South Africa, a member of India-Brazil- South Africa (IBSA) at the BRICs meeting. The IBSA continued to hold a series of working-level and summit meetings since the three countries established it with the goal of promoting economic development and cooperation in 2003 and recently carried out multinational joint naval exercises with all three navies participating. Furthermore, the summit meeting with Russia or China was a stepping stone for India to become a member of the Shanghai Cooperation Organization (SCO). President Medvedev, in particular, promised to support India. India, expecting the BRICs or the SCO summit meetings would be a pillar of the future world order, has shown its commitment to playing an important role in these organizations. On the other hand, the US President’s visit to India and the Indian Prime Minister’s visit to Japan are more like countries in the “circle of

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democracy,” dubbed by the US, visiting each other. At its center are the US, Japan, and India. Quite naturally, the circle appears to try to keep China in check. In other words, Japan has succeeded in stopping China’s intention, in part, to take over East Asia by including India at the East Asia Summit along with Vietnam and Indonesia. As a “balancer”, India is needed to hold China’s power or size in check in the future. This is why major players in the international community including the US, Japan, and Europe rushed to have India as their strategic partner to keep the world order stable. Korea is no exception here. In particular, when there is a sense of urgency to deal with the recent developments on the Korean peninsula, strategic cooperation with a nation such as India would make a big contribution to bringing stability to the peninsula. It is time for us to think about how we could effectively ask India to play its role.

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