Volume 10 No. 1, 2016

AREA STUDIES A Journal of International Studies and Analyses

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UGC Centre for Southeast Asian and Pacific Studies Sri Venkateswara University, Tirupati Published under UGC Unassigned Grant AREA STUDIES A Journal of International Studies and Analyses

seaps

UGC Centre for Southeast Asian and Pacific Studies Sri Venkateswara University, Tirupati Published under UGC Unassigned Grant AREA STUDIES A Journal of International Studies and Analyses

CONTENTS Dealing with Pakistan: Dimensions and Dilemmas 1 P. Krishna Mohan Reddy

An Analysis of the South Korean Welfare State 10 Ranjit Kumar Dhawan

A Comparative Analysis of Best Practices of 21 Mobile Banking in ASEAN Countries and India A.V. Ajay Babu

India-Vietnam Defence Cooperation and the 39 China Factor: From 1991 to 2016 Area Studies: A Journal of International Studies and Analyses Tilottama Mukherjee UGC Centre for Southeast Asian and Pacific Studies Sir Venkateswara University, Tirupati Evaluation of structural Changes in the Tea Plantation 56 Sector: A Study on the Growth of Small Tea Growers in India and Sri Lanka © UGC Centre for Southeast Asian and Pacific Studies ISSN 0975-6035 (Print) A.S. Chandrabose Year: 2016

Reprint permission may be obtained from: The Editor Email: [email protected]

The responsibilities for facts and opinions presented in the articles rests exclusively with the individual authors. Their interpretations do not necessarily reflect the view or the policy of the Editorial Committee, National and International Advisory boards of Area Studies: A Journal of International Studies and Analyses.

Layout & Printed at: D&Dee - Designing and Creative Production, Nallakunta, Hyderabad - 500 044. Ph No: +91 9440 726 907, 040 - 2764 3862. ii iii AREA STUDIES A Journal of International Studies and Analyses

CONTENTS Dealing with Pakistan: Dimensions and Dilemmas 1 P. Krishna Mohan Reddy

An Analysis of the South Korean Welfare State 10 Ranjit Kumar Dhawan

A Comparative Analysis of Best Practices of 21 Mobile Banking in ASEAN Countries and India A.V. Ajay Babu

Reprint permission may be obtained from: The Editor Email: [email protected]

Layout & Printed at: D&Dee - Designing and Creative Production, Nallakunta, Hyderabad - 500 044. Ph No: +91 9440 726 907, 040 - 2764 3862. ii iii Dealing with Pakistan: Dimensions and Dilemmas

P. Krishna Mohan Reddy Assistant Professor, Dept. of History, Sri Venkateswara University Tirupati-517502, Andhra Pradesh, INDIA Email: [email protected]

Abstract Indo-Pakistan bilateral relations have entered a new phase in the 21st century. Despite the Kargil war of 1999 or the 26/11 Mumbai attacks India has been consistently trying to bring normalcy in the bilateral relations. The National Democratic Alliance (NDA) government led by Prime Minister Narendra Modi has surprised many by inviting the Pakistani Prime Minister Nawaz Shareef to Modi's swearing ceremony as the Prime Minister. However, Modi's efforts to develop friendly relations with Pakistan have been continuously derailed by the military establishment and the terrorist outfits in Pakistan culminating in the Pathankot and Uri attacks in 2016. The present paper aims to analyze the dimensions of Indo-Pak relations and the choices India has in framing a positive bilateral policy with Pakistan in light of these attacks.

Introduction There has been a general perception among the public as well as some former military personnel and security experts that the Bharatiya Janata Party (BJP) led National Democratic Alliance (NDA) government of Prime Minister Narendra Modi will pursue an aggressive policy towards Pakistan. Narendra Modi has shocked all the Left, Liberal, the Right as well as the other 'Modi-critics' by inviting the Pakistani Prime Minister Nawaz Shareef to Modi's swearing in ceremony as Prime Minister. With Prime Minister Modi's announcement of 'Neighborhood First' policy, everyone realized that 'election slogans' and 'poll rhetoric' do not dictate India's foreign policy even during Narendra Modi's government. Prime Minister Modi offered a hand of friendship with Nawaz Shareef and made sincere efforts to improve Indo-Pakistan bilateral relations. Unfortunately, for the past three decades democratically elected civilians or even former military generals have been unable to build friendly relations with India owing to the clout of the Army and the Inter Services Intelligence (ISI) on the governments, political parties and politicians in Pakistan. Despite sincere attempts by the Indian leadership, there has been a continuous sabotage of the Indo- Pakistan bilateral relations by the Pakistani terrorist groups,

Area Studies 1 Dealing with Pakistan: Dimensions and Dilemmas

P. Krishna Mohan Reddy Assistant Professor, Dept. of History, Sri Venkateswara University Tirupati-517502, Andhra Pradesh, INDIA Email: [email protected]

Area Studies 1 P. Krishna Mohan Reddy Dealing with Pakistan: Dimensions and Dilemmas culminating in the Pathankot and Uri terrorist attacks. At this successful elections and elected governments in Jammu and juncture, there is a need for the Indian security and political Kashmir. Until the 1999 Kargil war, Kashmir hardly figured in the establishment to develop a holistic policy to address Indo-Pak India-Pakistan bilateral relations. Then since 2015, surprisingly, relations. Kashmir became a factor once again in these relations as exemplified by the frequent ceasefire violations by Pakistan, increasingly Dimensions aggressive separatist trends from a section of society and Huriyat Under the normal description, a State is supposed to design, develop culminating in the encounter of Burhan Wani. These phenomena and deal any policy including the foreign policy of a nation. This have, interestingly coincided with the Pathankot attack and Uri applies to every democratically elected government baring a few attack. The important question a researcher needs to pose is, how will military-induced/supported or Religion-induced or extreme groups the present phase shape the future Indian policy towards Pakistan supported democracies. Unfortunately, Pakistan, even for the bilaterally? foreign policy experts and diplomats has posed a challenge in its categorization as a State. Not only India, but any western nation finds As far as Pakistan is concerned, it should be emphasized that it difficult to understand and operate bilateral relations with Pakistan's elected civilian governments or the political leadership do Pakistan with its unique character of the 'State' where multiple not enjoy as much freedom as India does in terms of framing and players interact and exercise their authority in the functioning of the following a foreign policy with India. Unfortunately, Pakistan has to State. In recent times, the politics in Pakistan have perilously obey and follow the guidance provided by the military acquired a fundamentalist trend, often dictated by a few militant establishment. The role of former diplomats, the intellectuals, media Islamic scholars or organizations. Along with the tacit support of the and even public opinion in Pakistan hardly influence Pakistan's military establishment of Pakistan, these groups and individuals military establishment and its 'world view'. On the other hand, in have succeeded in stifling the voices of the moderate and secular India, even under the so called Right Wing governments, the elected scholars and intellectuals. As a result, the Pakistani society itself is governments and the Indian political leadership seek open public slowly transforming into a precariously conservative and opinion. The debates in the media, the writings and talks of former fundamentalist entity. Any democratic nation, including India, has diplomats, military personnel, intellectuals, as well as the public to contend with this distinctive nature of 'Multiple State' in Pakistan. opinion in India do influence its foreign policy. It has to take into account the elected civilian government in An analysis of Indo-Pakistan bilateral relations in the last three Pakistan, the political parties including the opposition, the army and decades would help us in understanding the different dimensions of the ISI who control the Pakistani Islamic militant organizations, the Indo-Pakistan relations. Most of the Pakistani leaders who were Mullahs and their moods, the former military personnel and defense- democratically elected in the post-Ziya ul Haq period seem to have defense industry lobby, the Pakistani civil society, and the media. adopted a provocative stance against India. Perhaps, the pressure Kashmir has been the core element of the Pakistan's India policy from the Pakistani military establishment or the pressure from Jihadi since the very inception of Pakistan. The 1971 Bangladeshi war groups or their own political compulsions or all the cited reasons demonstrated that India and Pakistan rivalry can be caused by non- compelled these leaders to take such a stand. Some Pakistani Prime Kashmir issues too. It took a decade for Pakistan to recover from the Ministers, however, in the beginning of their rules, did extend a hand humiliation from this war and it once again took up Kashmir issue in of friendship to India. Benazir Bhutto-Rajiv Gandhi meeting in the late 1980s when a militant movement in India ruled Jammu and Islamabad in December 1988, Nawaz Shareef-Atal Bihari Vajpayee Kashmir began. After a decade of militancy in Kashmir, the bus travel and 1999 Lahore Declaration can be cited as examples. movement lost its momentum not only because of liberation of After the Declaration the chances of Benazir Bhutto who was seeking Afghanistan from the Soviet occupation but also because of the compromise and peace with India increased. After the 26/11

2 Area Studies Area Studies 3 P. Krishna Mohan Reddy Dealing with Pakistan: Dimensions and Dilemmas culminating in the Pathankot and Uri terrorist attacks. At this successful elections and elected governments in Jammu and juncture, there is a need for the Indian security and political Kashmir. Until the 1999 Kargil war, Kashmir hardly figured in the establishment to develop a holistic policy to address Indo-Pak India-Pakistan bilateral relations. Then since 2015, surprisingly, relations. Kashmir became a factor once again in these relations as exemplified by the frequent ceasefire violations by Pakistan, increasingly Dimensions aggressive separatist trends from a section of society and Huriyat Under the normal description, a State is supposed to design, develop culminating in the encounter of Burhan Wani. These phenomena and deal any policy including the foreign policy of a nation. This have, interestingly coincided with the Pathankot attack and Uri applies to every democratically elected government baring a few attack. The important question a researcher needs to pose is, how will military-induced/supported or Religion-induced or extreme groups the present phase shape the future Indian policy towards Pakistan supported democracies. Unfortunately, Pakistan, even for the bilaterally? foreign policy experts and diplomats has posed a challenge in its categorization as a State. Not only India, but any western nation finds As far as Pakistan is concerned, it should be emphasized that it difficult to understand and operate bilateral relations with Pakistan's elected civilian governments or the political leadership do Pakistan with its unique character of the 'State' where multiple not enjoy as much freedom as India does in terms of framing and players interact and exercise their authority in the functioning of the following a foreign policy with India. Unfortunately, Pakistan has to State. In recent times, the politics in Pakistan have perilously obey and follow the guidance provided by the military acquired a fundamentalist trend, often dictated by a few militant establishment. The role of former diplomats, the intellectuals, media Islamic scholars or organizations. Along with the tacit support of the and even public opinion in Pakistan hardly influence Pakistan's military establishment of Pakistan, these groups and individuals military establishment and its 'world view'. On the other hand, in have succeeded in stifling the voices of the moderate and secular India, even under the so called Right Wing governments, the elected scholars and intellectuals. As a result, the Pakistani society itself is governments and the Indian political leadership seek open public slowly transforming into a precariously conservative and opinion. The debates in the media, the writings and talks of former fundamentalist entity. Any democratic nation, including India, has diplomats, military personnel, intellectuals, as well as the public to contend with this distinctive nature of 'Multiple State' in Pakistan. opinion in India do influence its foreign policy. It has to take into account the elected civilian government in An analysis of Indo-Pakistan bilateral relations in the last three Pakistan, the political parties including the opposition, the army and decades would help us in understanding the different dimensions of the ISI who control the Pakistani Islamic militant organizations, the Indo-Pakistan relations. Most of the Pakistani leaders who were Mullahs and their moods, the former military personnel and defense- democratically elected in the post-Ziya ul Haq period seem to have defense industry lobby, the Pakistani civil society, and the media. adopted a provocative stance against India. Perhaps, the pressure Kashmir has been the core element of the Pakistan's India policy from the Pakistani military establishment or the pressure from Jihadi since the very inception of Pakistan. The 1971 Bangladeshi war groups or their own political compulsions or all the cited reasons demonstrated that India and Pakistan rivalry can be caused by non- compelled these leaders to take such a stand. Some Pakistani Prime Kashmir issues too. It took a decade for Pakistan to recover from the Ministers, however, in the beginning of their rules, did extend a hand humiliation from this war and it once again took up Kashmir issue in of friendship to India. Benazir Bhutto-Rajiv Gandhi meeting in the late 1980s when a militant movement in India ruled Jammu and Islamabad in December 1988, Nawaz Shareef-Atal Bihari Vajpayee Kashmir began. After a decade of militancy in Kashmir, the bus travel and 1999 Lahore Declaration can be cited as examples. movement lost its momentum not only because of liberation of After the Declaration the chances of Benazir Bhutto who was seeking Afghanistan from the Soviet occupation but also because of the compromise and peace with India increased. After the 26/11

2 Area Studies Area Studies 3 P. Krishna Mohan Reddy Dealing with Pakistan: Dimensions and Dilemmas

Mumbai attacks, unusually, Asif Zardari sent the head of ISI to India. Gurdaspur and Pathankot attacks were carried out. When Nawaz The Pakistani National Security advisor Mohammed Durrani subtly Shareef ordered an enquiry on Jaish-e-Mohammed, militancy shot admitted the Pakistani nationals' involvement in the 26/11 attacks. up in Kashmir. Therefore, it is apparent that, the Prime Minister and Such gestures were very encouraging to the Indian establishment. his office or the political leadership in Pakistan cannot carry out Unfortunately, such friendly and compromising gestures from the policies, even if they can formulate, unless the army approves them. Pakistani leadership resulted in disastrous consequences. Benazir Imran Khan and the Canadian Islamic scholar Tahir ul Khadri were Bhutto government was toppled in 1990. Nawaz Shareef was forced used against Nawaz Shareef. These two leaders paralyzed and seized to remain exile in England in 1999. Benazir Bhutto was assassinated the capital Islamabad until the army 'requested' them to leave!! All in 2007. Asif Zardari was sidelined and Durrani was sacked from his these events indicate the fading authority of the Pakistani Prime position of NSA. Each of these significant events had the same Minister. The Indian establishment does understand the limitations pattern without exceptions. The military establishment is stronger of the Pakistani civilian government and the Pakistan's political than the political leadership and democratic institutions in Pakistan. establishment. It is extremely difficult to deal with such a 'Quasi- No leader can afford to follow a policy which is disliked by the State' or even a 'Failing State' as some call it, especially to India. military. The same military establishment could easily topple Nawaz India's consistent effort to impress upon the world community about Shareef both in 1993 and 1999. It is important to note that Nawaz the 'terror manufacture' in Pakistan for the last three decades has Shareef came back and became the Prime Minister of Pakistan with been showing some effect in the recent years. However, it is a fact that tacit support of the military establishment. Nawaz Shareef's more Pakistani innocent citizens have been killed in the terrorist campaign against the military dictator General Musharraf and his attacks in Pakistan itself than the Indians those were killed by the wisdom in helping the democratically elected Zardari's government same Pakistan-rooted Islamic terrorists in India. In so far as the media to be in power for full term (the first time in Pakistan's history) in Pakistan is concerned, save a few journalists and intellectuals, greatly enhanced his own image and popularity paving way for him except during the 26/11 Mumbai attacks, it has been in denial mode to get an absolute majority in the National Assembly. It is extremely with regard to the terrorist attacks perpetrated by the Pakistani significant that without speaking against India and without raising terrorists. The media organizations, editors and journalists in Kashmir a word about Kashmir, Nawaz Shareef and his brother Pakistan have to operate under the scrutiny of the military Shahbaz scored huge majorities in the elections. establishment and they enjoy a limited freedom. The latest example With the majority in the National Assembly and the tide of popular is the travel ban on Cyril Almeida who wrote a story in the Dawn support in Pakistan, Nawaz Shareef attempted to initiate a essential newspaper on October 6, 2016 about the rift between the civilian and and positive change in the national political establishment with great military leadership in Pakistan over ISI's covert support to terror fervor. He also attempted to usher in essential changes in Indo-Pak groups in Pakistan. The ban was, however, lifted because of the relations. The new Pakistani Prime Minister has also carefully chosen massive criticism of the government and the military from media Raheel Shareef who hails from the popular army family of Punjab. houses and journalist associations. Later, the Pakistan government Nawaz Shareef attempted to award legal punishment to Musharaf formed a probe committee headed by a former High Court Judge to on the charges of sedition and treason. However, this was not investigate this 'leak' which led to the publication of the news report. acceptable to the military as well as the old political establishment. Dilemmas Consequently, Nawaz was forced not to press charges but also let In India, the opinion about the nature of Indo-Pakistan bilateral Musharraf leave Pakistan safely. As has always been the case in relations and the policy India should adopt is divided. The school of Pakistan, it would have been naïve on the part of Indian thought led by the former military-defense personnel prefers a establishment not to expect any calamity when Nawaz hosted and positive and aggressive bilateral policy towards Pakistan with celebrated on the occasion of Modi's birthday. Very soon, the

4 Area Studies Area Studies 5 P. Krishna Mohan Reddy Dealing with Pakistan: Dimensions and Dilemmas

4 Area Studies Area Studies 5 P. Krishna Mohan Reddy Dealing with Pakistan: Dimensions and Dilemmas adequate military preparedness, proper border management and an were published in the popular dailies opposing such a military action effective political leadership which can boldly support the army in by India. In their opinion, Sub-military options for India, which were times of terrorist attacks such as 26/11, Pathankot attacks and Uri suggested after the 26/11 attack in 2008, are not viable even in 2016, attacks. Another school of thought led by the former diplomats, as merely hitting a few terrorist camps inside Pakistan-occupied foreign policy academicians and researchers prescribes a sober Kashmir can hardly hurt Pakistan. It is argued that, in 2008, India foreign policy with Pakistan taking into consideration the enormous lacked the spectacular raids like the one by Israel Defense Forces at risks involved if a war erupts with Pakistan. They underline the need Entebbe, the German GSG 9 Forces in Mogadishu in the 1970s or the to utilize the trade relations and people-to-people contacts for taking out of Osama bin Laden in Abbottabad by the US Navy SEALs building peaceful and friendly ties with Pakistan. A section of the in 2011. Even in 2016, according to this opinion, India's Special Forces former military establishment and some former diplomats highlight of the Army, Navy and the Air Force do not have adequate the futility of such an exercise given the nature of State and the bitter capabilities of this kind. Unlike the UK's Special Air Service (SAS) experience India has had with Pakistan based terrorism. By and and Special Boat Service (SBS), the Green Berets and SEALs of the US, large, the political parties converge on a non-aggressive policy with Germany's GSG 9 and Russia's Spetsnaz, these are primarily Pakistan mindful of the dangers involved if friction with Pakistan intended for military operations. The Special Frontier Force and the leads to a full-blown war. National Security Guard which have some capability, are not in the It was in the summer of 1990, during Prime Minister V.P.Singh's same league as the GSG 9. Strategists, experts and diplomats were regime that for the first time Pakistan threatened with a nuclear surprised by the meticulously planned and extremely professionally attack. All the successive Indian governments, defense and foreign executed surgical strikes by the Indian armed forces on the terrorist policy experts, diplomats and the media seem to have believed that training camps and infrastructure in September 2016, only a few days such a threat can not be brushed aside. Hence, the threat of nuclear after these opinions were being expressed. Initially, some experts did attack formed an important element of Indian bilateral relations and expect a backlash from the Pakistani security forces or the terrorist foreign policy with Pakistan. The attacks like the Pampore attack, outfits, but nothing of that kind has happened. As soon as the Pathankot attack and Uri attack in 2016 were also received with the surgical strikes were officially announced by India a couple of former same caution even with the military-defense experts and the strategic military personnel and a senior diplomat (retired) like G. community in India. They felt that any aggressive military move by Parthasaradhi, who worked as an High Commissioner in Pakistan, India probably will lead to nuclear retaliation by Pakistan. Jaish-e- argued in the television debates that Pakistan would not use nuclear Mohammad (JeM) is alleged to have carried out the Pathankot attack weapons as retaliation because Pakistan military establishment may and the Uri attack. The JeM is believed to be the handmaiden of ISI be 'adventurous but not suicidal'! In it the present circumstances, as which obeys implicitly and acts directly on the directions of the ISI. of now, it is apparent that the Pakistani military establishment is not Hence, there is a message from the Uri attack coming from the prepared for even a minor war or a Sub-military option, leave alone deepest recesses of the 'Pakistani Deep State'. Furious television the nuclear option. At this crucial juncture the Indian establishment debates ensued both these attacks where a few former military needs to sit and prepare a practical and viable policy in the Indo-Pak strategic thinkers argued for military action since they believed it is bilateral relations. the only option left for India to deal with Pakistan. Hard Power or Soft Power? Almost every former diplomat, scholar and military-defense Contrary to the earlier beliefs and opinions, the surgical strikes by personnel and researchers in strategy, except a couple of them, India have proved to be immensely effective reiterating that Hard vehemently opposed even a minor military operation against Power is not only exceptionally valuable but also enormously Pakistan citing the imminent dangers involved. A series of articles inevitable. The Soft Power propounded by Joseph Nye has received

6 Area Studies Area Studies 7 P. Krishna Mohan Reddy Dealing with Pakistan: Dimensions and Dilemmas adequate military preparedness, proper border management and an were published in the popular dailies opposing such a military action effective political leadership which can boldly support the army in by India. In their opinion, Sub-military options for India, which were times of terrorist attacks such as 26/11, Pathankot attacks and Uri suggested after the 26/11 attack in 2008, are not viable even in 2016, attacks. Another school of thought led by the former diplomats, as merely hitting a few terrorist camps inside Pakistan-occupied foreign policy academicians and researchers prescribes a sober Kashmir can hardly hurt Pakistan. It is argued that, in 2008, India foreign policy with Pakistan taking into consideration the enormous lacked the spectacular raids like the one by Israel Defense Forces at risks involved if a war erupts with Pakistan. They underline the need Entebbe, the German GSG 9 Forces in Mogadishu in the 1970s or the to utilize the trade relations and people-to-people contacts for taking out of Osama bin Laden in Abbottabad by the US Navy SEALs building peaceful and friendly ties with Pakistan. A section of the in 2011. Even in 2016, according to this opinion, India's Special Forces former military establishment and some former diplomats highlight of the Army, Navy and the Air Force do not have adequate the futility of such an exercise given the nature of State and the bitter capabilities of this kind. Unlike the UK's Special Air Service (SAS) experience India has had with Pakistan based terrorism. By and and Special Boat Service (SBS), the Green Berets and SEALs of the US, large, the political parties converge on a non-aggressive policy with Germany's GSG 9 and Russia's Spetsnaz, these are primarily Pakistan mindful of the dangers involved if friction with Pakistan intended for military operations. The Special Frontier Force and the leads to a full-blown war. National Security Guard which have some capability, are not in the It was in the summer of 1990, during Prime Minister V.P.Singh's same league as the GSG 9. Strategists, experts and diplomats were regime that for the first time Pakistan threatened with a nuclear surprised by the meticulously planned and extremely professionally attack. All the successive Indian governments, defense and foreign executed surgical strikes by the Indian armed forces on the terrorist policy experts, diplomats and the media seem to have believed that training camps and infrastructure in September 2016, only a few days such a threat can not be brushed aside. Hence, the threat of nuclear after these opinions were being expressed. Initially, some experts did attack formed an important element of Indian bilateral relations and expect a backlash from the Pakistani security forces or the terrorist foreign policy with Pakistan. The attacks like the Pampore attack, outfits, but nothing of that kind has happened. As soon as the Pathankot attack and Uri attack in 2016 were also received with the surgical strikes were officially announced by India a couple of former same caution even with the military-defense experts and the strategic military personnel and a senior diplomat (retired) like G. community in India. They felt that any aggressive military move by Parthasaradhi, who worked as an High Commissioner in Pakistan, India probably will lead to nuclear retaliation by Pakistan. Jaish-e- argued in the television debates that Pakistan would not use nuclear Mohammad (JeM) is alleged to have carried out the Pathankot attack weapons as retaliation because Pakistan military establishment may and the Uri attack. The JeM is believed to be the handmaiden of ISI be 'adventurous but not suicidal'! In it the present circumstances, as which obeys implicitly and acts directly on the directions of the ISI. of now, it is apparent that the Pakistani military establishment is not Hence, there is a message from the Uri attack coming from the prepared for even a minor war or a Sub-military option, leave alone deepest recesses of the 'Pakistani Deep State'. Furious television the nuclear option. At this crucial juncture the Indian establishment debates ensued both these attacks where a few former military needs to sit and prepare a practical and viable policy in the Indo-Pak strategic thinkers argued for military action since they believed it is bilateral relations. the only option left for India to deal with Pakistan. Hard Power or Soft Power? Almost every former diplomat, scholar and military-defense Contrary to the earlier beliefs and opinions, the surgical strikes by personnel and researchers in strategy, except a couple of them, India have proved to be immensely effective reiterating that Hard vehemently opposed even a minor military operation against Power is not only exceptionally valuable but also enormously Pakistan citing the imminent dangers involved. A series of articles inevitable. The Soft Power propounded by Joseph Nye has received

6 Area Studies Area Studies 7 P. Krishna Mohan Reddy Dealing with Pakistan: Dimensions and Dilemmas mixed response from the world leaders. When George Bush, the Bibliography: Junior was the US President the first time, his Defense Secretary Ayesha Siddiqa, “No Option But to Talk,” The Hindu, (September 29, 2016). Donald Rumsfield, was asked whether he believes in Soft Power and Dixit, J.N., India's Foreign policy 1947-2003, (New Delhi, Picus Books, 2003). Donald asked back 'what is it'! It is said he answered innocently the most famous question! Joseph Nye explained that the decision to Dulat, A.S, “The Two NSAs Must Meet,” The Hindu, (September 20, 2016). employ Soft Power or Hard Power is decided by the circumstances. Happymon Jacob, “Solving the Pakistan Puzzle,” The Hindu, (September 26, Even Nye says that Soft Power can never be a substitute for Hard 2016). Power. Can we employ Soft Power in Indo-Pak relations? Is our Soft Joseph S. Nye, Soft Power: The Means to Success in World Politics, (Public Affair, Power only food, culture, literature and sports? If it is the case, then New York, 2004). China would have ruled our minds and hearts. What India has more Manoj Kumar Mishra, “Soft and Hard Power in India's Foreign Policy,” than what we project. The food, music, the arts and the most World Affairs, Vol.20. Number 2, Summer (April-June) 2016, pp. 34-45. important the Bollywood have had incredible positive impact on the Pakistani people. But, India can exercise its Soft Power more through Massod Ali Mir, “Pakistan's Shifting Stand on Kashmir,” South Asia Politics, its national and secular values, democracy, maturity and quality of Vol. 14. No. 7. November 2015, pp.37-38. our politics as well as its strong institutions of governance. Indian Muni, S.D., India's Foreign policy: The Democratic Dimension, (Foundation Soft Power is not limited to show our movies in the Pakistani Books, New Delhi, 2009). televisions or the Pakistanis singing our Bollywood songs and acting Narayanan, M.K, “The Best Among Limited Options,” The Hindu, in our movies or worshipping our sportsmen. The real strength of (September 21, 2016). Indian Soft power lies in better democracy, more liberalized society, Narayanan, M.K, “Address the 'new normal' in Kashmir,” The Hindu, the way our society treats minorities, more freedom of expression, (October 10, 2016). sensible and questioning media, the civil courts, the environmental Prashanta Sahoo, “A History of India's Neighbourhood Policy”, World laws etc. All these combined exhibit an attractive Soft Power Affairs, Vol.20, Number 3, Autumn (July-September, 2016), pp. 66-81. towards Pakistan. After all, the common man of Pakistan has nothing against India. In fact an average Pakistani desires peace and Rajindar Sachar, “Good Indo-Pak Relations Necessary,” South Asia Politics, friendship with India so that he or she can live safely. Indian Vol. 14, No. 10, (February 2016), pp.9-10. hospitals and Indians have warmly responded to the Pakistani Rajiv Sikri, Challenge and Strategy Rethinking India's Foreign Policy, (Sage, New children who were suffering from diseases like the heart ailments. Delhi, 2009). Bangalore hospitals provided the healthcare for the Pakistani Shashi Tharoor, Pax Indica India and the World of the 21st Century, (Penguin children almost a decade and half back which was known as 'Noor Books, New Delhi, 2013). Effect” building friendship between Indians and Pakistanis. Sheikh Farooq Ahmad, “Bus Diplomacy: Kashmir's Road to Peace,” South Therefore, India should act with caution and wisdom to win the Asia Politics, Vol. 15. No. 1, (May 2016), pp.39. hearts of the people of Pakistan with more service and more people to Suhasini Haidar, “A Pirouette on Pakistan,” The Hindu, (September 23, 2016). people contacts. The dealing with the 'State' of Pakistan which is so layered, and the policy to be followed, even if it is a Hard Policy, Utathya Bandyopadhyay, “Pakistan Army: The Real Boss of the Land,” Indian leadership would do well to engage with Pakistan's military South Asia Politics, Vol. 15, No. 5, (September 2016), pp.41-43. establishment too as the Western nations do. By no means, India should abandon its Soft Power. After all, if India wins Pakistani hearts slowly, probably the Pakistani people themselves force their militants and military to abandon their guns!

8 Area Studies Area Studies 9 P. Krishna Mohan Reddy Dealing with Pakistan: Dimensions and Dilemmas mixed response from the world leaders. When George Bush, the Bibliography: Junior was the US President the first time, his Defense Secretary Ayesha Siddiqa, “No Option But to Talk,” The Hindu, (September 29, 2016). Donald Rumsfield, was asked whether he believes in Soft Power and Dixit, J.N., India's Foreign policy 1947-2003, (New Delhi, Picus Books, 2003). Donald asked back 'what is it'! It is said he answered innocently the most famous question! Joseph Nye explained that the decision to Dulat, A.S, “The Two NSAs Must Meet,” The Hindu, (September 20, 2016). employ Soft Power or Hard Power is decided by the circumstances. Happymon Jacob, “Solving the Pakistan Puzzle,” The Hindu, (September 26, Even Nye says that Soft Power can never be a substitute for Hard 2016). Power. Can we employ Soft Power in Indo-Pak relations? Is our Soft Joseph S. Nye, Soft Power: The Means to Success in World Politics, (Public Affair, Power only food, culture, literature and sports? If it is the case, then New York, 2004). China would have ruled our minds and hearts. What India has more Manoj Kumar Mishra, “Soft and Hard Power in India's Foreign Policy,” than what we project. The food, music, the arts and the most World Affairs, Vol.20. Number 2, Summer (April-June) 2016, pp. 34-45. important the Bollywood have had incredible positive impact on the Pakistani people. But, India can exercise its Soft Power more through Massod Ali Mir, “Pakistan's Shifting Stand on Kashmir,” South Asia Politics, its national and secular values, democracy, maturity and quality of Vol. 14. No. 7. November 2015, pp.37-38. our politics as well as its strong institutions of governance. Indian Muni, S.D., India's Foreign policy: The Democratic Dimension, (Foundation Soft Power is not limited to show our movies in the Pakistani Books, New Delhi, 2009). televisions or the Pakistanis singing our Bollywood songs and acting Narayanan, M.K, “The Best Among Limited Options,” The Hindu, in our movies or worshipping our sportsmen. The real strength of (September 21, 2016). Indian Soft power lies in better democracy, more liberalized society, Narayanan, M.K, “Address the 'new normal' in Kashmir,” The Hindu, the way our society treats minorities, more freedom of expression, (October 10, 2016). sensible and questioning media, the civil courts, the environmental Prashanta Sahoo, “A History of India's Neighbourhood Policy”, World laws etc. All these combined exhibit an attractive Soft Power Affairs, Vol.20, Number 3, Autumn (July-September, 2016), pp. 66-81. towards Pakistan. After all, the common man of Pakistan has nothing against India. In fact an average Pakistani desires peace and Rajindar Sachar, “Good Indo-Pak Relations Necessary,” South Asia Politics, friendship with India so that he or she can live safely. Indian Vol. 14, No. 10, (February 2016), pp.9-10. hospitals and Indians have warmly responded to the Pakistani Rajiv Sikri, Challenge and Strategy Rethinking India's Foreign Policy, (Sage, New children who were suffering from diseases like the heart ailments. Delhi, 2009). Bangalore hospitals provided the healthcare for the Pakistani Shashi Tharoor, Pax Indica India and the World of the 21st Century, (Penguin children almost a decade and half back which was known as 'Noor Books, New Delhi, 2013). Effect” building friendship between Indians and Pakistanis. Sheikh Farooq Ahmad, “Bus Diplomacy: Kashmir's Road to Peace,” South Therefore, India should act with caution and wisdom to win the Asia Politics, Vol. 15. No. 1, (May 2016), pp.39. hearts of the people of Pakistan with more service and more people to Suhasini Haidar, “A Pirouette on Pakistan,” The Hindu, (September 23, 2016). people contacts. The dealing with the 'State' of Pakistan which is so layered, and the policy to be followed, even if it is a Hard Policy, Utathya Bandyopadhyay, “Pakistan Army: The Real Boss of the Land,” Indian leadership would do well to engage with Pakistan's military South Asia Politics, Vol. 15, No. 5, (September 2016), pp.41-43. establishment too as the Western nations do. By no means, India should abandon its Soft Power. After all, if India wins Pakistani hearts slowly, probably the Pakistani people themselves force their militants and military to abandon their guns!

8 Area Studies Area Studies 9 An Analysis of the South Korean Welfare State An Analysis of the South Korean Welfare State developmental state gave welfare measures low priority. The state Ranjit Kumar Dhawan largely depended on the family and big business groups or chaebol3 PhD candidate at the Korean Studies Division, Centre for East Asian Studies, for providing welfare to the masses. The lack of welfare measures in School of International Studies, Jawaharlal Nehru University, New Delhi, India Korea was not felt until the 1990s when the Korean state under Email: [email protected] pressures of democratic uprising and economic globalisation started to dismantle the structures of the developmental state. The 1997 Abstract Asian financial crisis was the turning point in Korean political South Korea (hereafter Korea) witnessed rapid economic development since the 1960s. economy as the socio-economic consequences brought by the crisis The emergence of the “developmental state” in Korea under the authoritarian regime of were quite severe. After the financial crisis Korean state started to Park Chung-hee successfully brought about economic transformation of the country through planning and export-oriented development strategy. This economic increase its expenditure on the welfare policies. But the total transformation of the country was also egalitarian as there were lesser income disparities expenditure on the welfare in Korea has remained lowest among the and job security was ensured through various policies of the state. However, the “growth OECD countries4 and the focus of the state continues to be economic first-distribution later” strategy of the Korean developmental state gave welfare measures growth. In the recent years Korea has been witnessing an increase in less priority. With the democratic consolidation and economic globalisation in Korea led the socio-economic problems in the country. There has also been a to dramatic changes in the political economy of the country. The democratic leaders pursued neoliberal economic policy which was beneficial for the expansion of the Korean huge concentration of wealth in Korea as the total sales of top ten economy and chaebol groups but increased socio-economic problems of the masses. The chaebol groups was reported to be equivalent to eighty percent of 1997 Asian financial crisis was a severe blow to the Korean developmental strategy as Korea's gross domestic production in the year 2011.5 Korea has high thousands of people lost their jobs and several business groups went bankrupt. After the youth unemployment and has high suicide rate. The middle class has financial crisis, Korea started building a welfare state in the country. This paper is an been shrinking and the birth rate has gone down. In order to mitigate effort to analyse the welfare state in Korea. the rising socio-economic problems Korea needs a robust welfare Key words: South Korea, developmental state, welfare state, globalisation, state system. This paper makes an analysis of the welfare state in economic development, 1997 Asian financial crisis Korea. The state-led economic development in Korea and the Introduction issue of welfare The economic transformation of South Korea (hereafter Korea) is The developmental state in Korea emerged under Park Chung-hee often referred to as the “Miracle of the Han River.” However, this who initiated an export-oriented development strategy and brought economic miracle in Korea was a result of the active role of the about a paradigm shift in the economic development of the country. Korean “developmental state,”1 which through economic planning The absence of any major interest group provided autonomy to the and export-oriented development strategy made Korea an “Asian developmental state in Korea and enabled it to pursue the objectives tiger economy.”2 The developmental state in Korea emerged under of economic development.6 A powerful Economic Planning Board the authoritarian regime of Park Chung-hee who came to power (EPB) was created to formulate policies for the rapid economic through a military coup in 1961. Within a few decades Korea development of the country. Banks were nationalised and through transformed from an economically poor country to become a the control of finance the developmental state in Korea promoted member of the Organisation of Economic Co-operation and those chaebol groups which performed well in the export-oriented Development (OECD) in 1996. This state-led economic development development strategy. Korea is relatively poor in natural resources in Korea also ensured an egalitarian distribution of the resources as but has comparative advantage in terms of skilled human resource. there were less income disparities and employment rate was high. The developmental state in Korea effectively mobilised the labour However, the “growth first-distribution later” strategy of the Korean force in the country in the labour-intensive industries to produce goods at a cheaper cost. With this low cost manufacturing Korea was

10 Area Studies Area Studies 11 An Analysis of the South Korean Welfare State An Analysis of the South Korean Welfare State developmental state gave welfare measures low priority. The state Ranjit Kumar Dhawan largely depended on the family and big business groups or chaebol3 PhD candidate at the Korean Studies Division, Centre for East Asian Studies, for providing welfare to the masses. The lack of welfare measures in School of International Studies, Jawaharlal Nehru University, New Delhi, India Korea was not felt until the 1990s when the Korean state under Email: [email protected] pressures of democratic uprising and economic globalisation started to dismantle the structures of the developmental state. The 1997 Abstract Asian financial crisis was the turning point in Korean political South Korea (hereafter Korea) witnessed rapid economic development since the 1960s. economy as the socio-economic consequences brought by the crisis The emergence of the “developmental state” in Korea under the authoritarian regime of were quite severe. After the financial crisis Korean state started to Park Chung-hee successfully brought about economic transformation of the country through planning and export-oriented development strategy. This economic increase its expenditure on the welfare policies. But the total transformation of the country was also egalitarian as there were lesser income disparities expenditure on the welfare in Korea has remained lowest among the and job security was ensured through various policies of the state. However, the “growth OECD countries4 and the focus of the state continues to be economic first-distribution later” strategy of the Korean developmental state gave welfare measures growth. In the recent years Korea has been witnessing an increase in less priority. With the democratic consolidation and economic globalisation in Korea led the socio-economic problems in the country. There has also been a to dramatic changes in the political economy of the country. The democratic leaders pursued neoliberal economic policy which was beneficial for the expansion of the Korean huge concentration of wealth in Korea as the total sales of top ten economy and chaebol groups but increased socio-economic problems of the masses. The chaebol groups was reported to be equivalent to eighty percent of 1997 Asian financial crisis was a severe blow to the Korean developmental strategy as Korea's gross domestic production in the year 2011.5 Korea has high thousands of people lost their jobs and several business groups went bankrupt. After the youth unemployment and has high suicide rate. The middle class has financial crisis, Korea started building a welfare state in the country. This paper is an been shrinking and the birth rate has gone down. In order to mitigate effort to analyse the welfare state in Korea. the rising socio-economic problems Korea needs a robust welfare Key words: South Korea, developmental state, welfare state, globalisation, state system. This paper makes an analysis of the welfare state in economic development, 1997 Asian financial crisis Korea. The state-led economic development in Korea and the Introduction issue of welfare The economic transformation of South Korea (hereafter Korea) is The developmental state in Korea emerged under Park Chung-hee often referred to as the “Miracle of the Han River.” However, this who initiated an export-oriented development strategy and brought economic miracle in Korea was a result of the active role of the about a paradigm shift in the economic development of the country. Korean “developmental state,”1 which through economic planning The absence of any major interest group provided autonomy to the and export-oriented development strategy made Korea an “Asian developmental state in Korea and enabled it to pursue the objectives tiger economy.”2 The developmental state in Korea emerged under of economic development.6 A powerful Economic Planning Board the authoritarian regime of Park Chung-hee who came to power (EPB) was created to formulate policies for the rapid economic through a military coup in 1961. Within a few decades Korea development of the country. Banks were nationalised and through transformed from an economically poor country to become a the control of finance the developmental state in Korea promoted member of the Organisation of Economic Co-operation and those chaebol groups which performed well in the export-oriented Development (OECD) in 1996. This state-led economic development development strategy. Korea is relatively poor in natural resources in Korea also ensured an egalitarian distribution of the resources as but has comparative advantage in terms of skilled human resource. there were less income disparities and employment rate was high. The developmental state in Korea effectively mobilised the labour However, the “growth first-distribution later” strategy of the Korean force in the country in the labour-intensive industries to produce goods at a cheaper cost. With this low cost manufacturing Korea was

10 Area Studies Area Studies 11 Ranjit Kumar Dhawan An Analysis of the South Korean Welfare State able to industrialise at a faster pace. This rapid industrialisation drive there was also an increase in the democratic aspirations of the people. in Korea ensured almost full employment and several welfare With the expansion of the middle class and civil society organisations measures were provided by the chaebol groups which included the opposition to the authoritarian regime increased. There were “subsidized housing loans, educational scholarship for the children, massive protests across the country against the authoritarian and the use of luxurious company-owned vacation facilities.”7 Also, developmental state. As a result, in the late 1980s the democracy was some residual welfare measures were provided by the Korean state restored in Korea. to bureaucrats, teaching staff and military personals as they were Democratic consolidation and economic globalisation important for the ruling coalition. However, unlike the Western welfare states the Korean developmental state did not provide direct in Korea welfare measures to the masses. The people's movement in Korea made it a successful case of the “third wave of democracy.”14 After decades of authoritarian rule The strategy of the Korean developmental state was to make people there was restoration of the democratic system in the country in 1988. self-reliant by providing jobs and “welfare through work.” Since then Koreans have been exercising their democratic rights in According to Ahn Byung Young, “the combination of economic the elections and there has been smooth transfer of power between growth, high employment and individual self-reliance served as the the political coalitions belonging to different ideologies. The end of hegemonic social ideology during the period of the developmental the Cold War was also a significant development for Korea as it was state.”8 The dominance of conservative political ideology in Korea one of the frontline states in the “containment of communist” was also not conducive for the welfare measures in the country.9 The expansion in North-East Asia. The triumph of liberal ideology gave conservatives often regard that economic poverty is the result of impetus to the economic globalisation. The democratic regimes in one's laziness and welfare measures make people lazy. Jungho Roh Korea pursued the policy of economic globalisation. The “civilian writes, “The anti-welfare perception seems pervasive and deeply 10 government” of President Kim Young-sam (1993-98) initiated the rooted in the South Korean [Korean] society.” Welfare was regarded Segyehwa policy for the globalisation of the Korean economy. His as a burden to the national economy, so the people were encouraged government also dissolved the EPB and liberalised the finance sector to work hard and contribute to the development of the country which were key components of the developmental state system in through “self-help.” The threats of the communist invasion from Korea. These changes played a crucial role in the expansion of the North Korea also played a major role in generating patriotism among Korean economy and Korea joined the elite club of OECD countries the people for the national development and gave welfare issues in 1996. The per-capita income in Korea increased rapidly since the lesser priority. liberalisation of the economy (Table 1). However, despite the lack of welfare policy, the economic However, with the economic globalisation the chaebol groups started distribution in Korea was better than several welfare and socialist investing in overseas markets which led to a reduction in the jobs states of the period. The economic disparities were low and people within Korea. There was also a large scale entry of foreign worked hard for the national goal of the “catch-up” to the West. To investments in the country. The debt-equity ratio of several chaebol mitigate the rising rural-urban disparities the developmental state in 11 groups went very high. The introduction of the labour market Korea initiated Saemaul Undong programme. The authoritarian flexibility reduced the employment security of the workers. developmental state in Korea also brought egalitarian educational 12 Ironically, the policies of the democratic governments in Korea policy by dismantling the elitist school education in the country. increased the socio-economic problems of the common masses. The These measures were quite popular among the masses as they were economic stability and egalitarian economic growth faded away “inclined to accept political authoritarianism in exchange for better 13 with the neoliberal restructuring of the Korean economy. There was living conditions.” But with the rising prosperity in the country shrinkage in the size of the middle class and the suicide rate increased

12 Area Studies Area Studies 13 Ranjit Kumar Dhawan An Analysis of the South Korean Welfare State able to industrialise at a faster pace. This rapid industrialisation drive there was also an increase in the democratic aspirations of the people. in Korea ensured almost full employment and several welfare With the expansion of the middle class and civil society organisations measures were provided by the chaebol groups which included the opposition to the authoritarian regime increased. There were “subsidized housing loans, educational scholarship for the children, massive protests across the country against the authoritarian and the use of luxurious company-owned vacation facilities.”7 Also, developmental state. As a result, in the late 1980s the democracy was some residual welfare measures were provided by the Korean state restored in Korea. to bureaucrats, teaching staff and military personals as they were Democratic consolidation and economic globalisation important for the ruling coalition. However, unlike the Western welfare states the Korean developmental state did not provide direct in Korea welfare measures to the masses. The people's movement in Korea made it a successful case of the “third wave of democracy.”14 After decades of authoritarian rule The strategy of the Korean developmental state was to make people there was restoration of the democratic system in the country in 1988. self-reliant by providing jobs and “welfare through work.” Since then Koreans have been exercising their democratic rights in According to Ahn Byung Young, “the combination of economic the elections and there has been smooth transfer of power between growth, high employment and individual self-reliance served as the the political coalitions belonging to different ideologies. The end of hegemonic social ideology during the period of the developmental the Cold War was also a significant development for Korea as it was state.”8 The dominance of conservative political ideology in Korea one of the frontline states in the “containment of communist” was also not conducive for the welfare measures in the country.9 The expansion in North-East Asia. The triumph of liberal ideology gave conservatives often regard that economic poverty is the result of impetus to the economic globalisation. The democratic regimes in one's laziness and welfare measures make people lazy. Jungho Roh Korea pursued the policy of economic globalisation. The “civilian writes, “The anti-welfare perception seems pervasive and deeply 10 government” of President Kim Young-sam (1993-98) initiated the rooted in the South Korean [Korean] society.” Welfare was regarded Segyehwa policy for the globalisation of the Korean economy. His as a burden to the national economy, so the people were encouraged government also dissolved the EPB and liberalised the finance sector to work hard and contribute to the development of the country which were key components of the developmental state system in through “self-help.” The threats of the communist invasion from Korea. These changes played a crucial role in the expansion of the North Korea also played a major role in generating patriotism among Korean economy and Korea joined the elite club of OECD countries the people for the national development and gave welfare issues in 1996. The per-capita income in Korea increased rapidly since the lesser priority. liberalisation of the economy (Table 1). However, despite the lack of welfare policy, the economic However, with the economic globalisation the chaebol groups started distribution in Korea was better than several welfare and socialist investing in overseas markets which led to a reduction in the jobs states of the period. The economic disparities were low and people within Korea. There was also a large scale entry of foreign worked hard for the national goal of the “catch-up” to the West. To investments in the country. The debt-equity ratio of several chaebol mitigate the rising rural-urban disparities the developmental state in 11 groups went very high. The introduction of the labour market Korea initiated Saemaul Undong programme. The authoritarian flexibility reduced the employment security of the workers. developmental state in Korea also brought egalitarian educational 12 Ironically, the policies of the democratic governments in Korea policy by dismantling the elitist school education in the country. increased the socio-economic problems of the common masses. The These measures were quite popular among the masses as they were economic stability and egalitarian economic growth faded away “inclined to accept political authoritarianism in exchange for better 13 with the neoliberal restructuring of the Korean economy. There was living conditions.” But with the rising prosperity in the country shrinkage in the size of the middle class and the suicide rate increased

12 Area Studies Area Studies 13 Ranjit Kumar Dhawan An Analysis of the South Korean Welfare State

(Table 2). The birth rate declined and more people started living in IMF guided neoliberal measures brought significant transformation single households. In 1997 Korea was hit by the Asian financial crisis of the developmental state in Korea. Several chaebol groups were which led to an increase in unemployment as several chaebol groups restructured and the labour market was made more flexible. As a went bankrupt. The severity of the 1997 Asian financial crisis result, there was an increase in unemployment and the number of revealed the mismatch between the Korean economic growth and the non-permanent workers increased dramatically. The “people's need for a welfare state in the country. government” of Kim Dae-jung (1998-2003) took major initiative to strengthen the welfare measures in the country and there has been a Table 1: Gross national income per-capita in Korea gradual increase in the welfare expenditure in Korea since the 1997 GDP GNI GDP per capita GNI per capita Asian financial crisis (Table 3). President Kim Dae-jung was from the Year progressive ideological background and was a staunch opponent of Billion Billion Ten Ten Billion won Billion won thousand Dollar thousand Dollar dollars dollars won won the authoritarian developmental state which had promoted “crony 1990 197,712.3 279.3 197,414.7 278.8 461.2 6,514.0 460.5 6,505.0 capitalism” in the country. His vision of “mass participatory economics” was also reflected in his welfare programmes. According 428,927.1 427,012.2 12,337.0 12,282.0 1995 556.3 553.8 951.2 947.0 to Ho Keun Song, 635,184.6 630,614.3 11,951.3 11,865.3 2000 561.8 557.8 1,351.2 1,341.5 The Korean state did not wither away because of the waves of 2005 919,797.3 898.0 912,608.6 890.9 1,910.7 18,654.0 1,895.8 18.508.2 globalization. On the contrary, it found itself reinvigorated with new roles, new networks, and new instruments - this time, in the 2010 1,265,308.0 1,094.3 1,266,579.8 1,095.4 2,560.8 22,147.4 2,563.4 22,169.7 issue area of social policy - because the socioeconomic 2011 1,332,681.0 1,202.7 1,340,529.8 1,209.7 2,677.2 24,159.8 2,692.9 24,302.1 consequences of globalization created new political demands on 15 2012 1,377,456.7 1,222.4 1,391,595.5 1,234.9 2,754.7 24,445.1 2,782.9 24,696.0 the democratic state. 2013 (Projected) 1,428,294.6 1,304.3 1,441,063.5 1,316.0 2,844.1 25,972.5 2,869.5 26,204.7 The legacy of President Kim Dae-jung was carried forward by his Source: National Account (The Bank of Korea), cited from the Statistics Korea (Social Indicators in 2014) successor Roh Moo-hyun (2003-08) who was also from the http://kostat.go.kr/portal/english/index.action (Accessed on 3 May 2015). progressive party. The Roh administration tried to establish a Table 2: Cases of suicides in Korea (Unit: per 100,000 population) “participatory welfare” state in the country. However, the governments of both Kim Dae-jung and Roh Moo-hyun gave Year 1990 1995 2000 2005 2010 2011 2012 2013 primary importance to the economic growth and they failed to Suicides 7.6 10.8 13.6 24.7 31.2 31.7 28.1 28.5 provide stronger welfare measures to the masses. After a decade of Source: Annual Report on Causes of Death Statistics (Statistics Korea, 2014) rule by the leaders with progressive ideological inclinations, there http://kostat.go.kr/portal/english/index.action (Accessed on 3 May 2015). was a return of the conservative party to power in 2008. President Lee The 1997 Asian financial crisis and building of a Myung-bak (2008-13) continued with the neoliberal measures. welfare state in Korea Under the milieu of rising socio-economic problems in the country The 1997 Asian financial crisis was a severe blow to the Korean Park Geun-hye won the 2012 presidential elections in Korea. Before developmental strategy as the social consequences were huge. the elections she pledged for “economic democratization” and 16 Thousands of people lost their jobs and several chaebol groups went instituting a “Korean-style welfare system.” The administration of bankrupt. Under these conditions President Kim Young-sam Park Geun-hye also initiated the building of a “creative economy” for approached the International Monetary Fund (IMF) for a $58 billion increasing job opportunities and to promote technological bailout package. But the IMF bailout package came with several innovations in Korea. conditions for neoliberal restructuring of the Korean economy. The

14 Area Studies Area Studies 15 Ranjit Kumar Dhawan An Analysis of the South Korean Welfare State

Table 3: Total social welfare expenditure in Korea (Amount) (Unit: Million Won) of its welfare system. In order to maintain profitability in the era of globalisation the Korean chaebol groups also reduced several welfare Year Total Public Expenditure Legal Private Expenditure Voluntary Private Expenditure measures. The 1997 Asian financial crisis shook the Korean economy 1997 31,239,505 18,445,484 2,999,027 9,794,994 as a large number of people became jobless and business groups 1998 39,013,791 25,352,730 5,441,148 8,219,913 went bankrupt. Under these conditions Korean state came up with several welfare measures to protect those people who were 1999 47,989,046 33,274,201 3,928,653 10,786,192 adversely affected by the neoliberal restructuring of the economy. 2000 45,154,284 28,743,968 5,224,906 11,185,409 Since the 1997 Asian financial crisis the expenditure on welfare has 2001 50,380,214 33,893,522 4,468,860 12,017,831 increased in Korea. Paradoxically, the Korean welfare state started 2002 54,305,088 36,518,940 4,300,778 13,485,370 expanding with the neoliberal restructuring and globalisation of the economy. But the Korean expenditure on the welfare remains one of 2003 61,605,059 41,055,377 5,058,198 15,491,484 the lowest among the OECD countries as the “growth first” ideology 2004 67,574,424 49,775,799 5,581,099 12,217,525 is still dominant among the policy makers. 2005 75,143,610 55,826,575 5,575,979 13,741,056 Korea is a country which lacks natural resources that are required for 2006 89,068,357 67,088,739 5,911,196 16,068,421 the industrial development and has been an export-dependent 2007 98,400,775 73,848,563 6,583,012 17,969,201 economy. Therefore, the focus of the Korean state has been on the 2008 107,513,706 84,465,595 7,488,008 15,560,103 economic development. The Korean economic miracle was a result of the developmental policies of the state and effective utilisation of the 2009 126,188,235 99,856,386 9,954,571 16,377,278 human resource in the country through the promotion of labour- 2010 132,885,248 105,247,731 11,573,203 16,064,314 intensive industries and later capital-intensive manufacturing 2011 145,046,177 111,090,302 14,952,033 19,003,841 industries. However, the changing global political economy and new 2012 163,865,277 124,823,752 19,951,760 19,089,764 innovations in the manufacturing technology such as increased use Source: Korea Statistical Information Service (2015), http://kosis.kr/ (Accessed on 2 June 2015). of automation in the production have created problems for the Korean export-dependent economy. Korea's competitive edge has An Analysis come under constrain with the emergence of several cheaper and The Korean economic development was indeed remarkable. But low-wage manufacturing hubs in Asia and other parts of the world. unlike Western capitalist countries Korea had a weak welfare system The chaebol groups are also investing in the overseas locations as the as the priority of the state was economic growth. In the Korean wages in Korea has gone up. As a result, the opportunities for context the dominant ideological paradigm was “welfare through employment have been shrinking in the country. In the recent years work” and “self-help.” The family and the business groups were the the Korean exports have also been declining. Therefore, the “growth- major institutions for welfare in the country. In its “growth first- first” strategy is a compulsion for a resource poor country like Korea distribution later” strategy the state in Korea neglected the welfare but the increasing challenges regarding the welfare cannot be measures. However, with the democratic consolidation and ignored. economic globalisation there were several changes in the Korean Korea is an ageing society which means an increase in the dependent political economy. The democratic regime in Korea dismantled the population in the coming years which would require more welfare institutions of developmental state such as the EPB and financial spending from the state. On the other hand, the rising socio- control and pursued neoliberal policies. But with the neoliberal economic problems in the country which are reflected in high suicide restructuring of the economy there was an increase in the socio- rate and declining birth rate need urgent attention from the Korean economic problems in the country which also reflected the weakness

16 Area Studies Area Studies 17 Ranjit Kumar Dhawan An Analysis of the South Korean Welfare State

16 Area Studies Area Studies 17 Ranjit Kumar Dhawan An Analysis of the South Korean Welfare State state. In the absence of natural resource the human resource had been Notes Korea's comparative advantage which has created the economic 1. The term “developmental state” was coined by Chalmers Johnson. The miracle in the country. A decline in the human resource would be “plan-rational capitalist developmental state” played a major role in the detrimental to Korea's economic progress. Being an export- economic rise of Japan and other East Asian countries in the post World dependent economy Korea also needs to promote new engines of War II period. See Chalmers Johnson (1982), MITI and Japanese Miracle: economic growth to increase employment opportunities for the vast The Growth of Industrial Policy 1925-1975, Stanford University Press: number of unemployed youths. A robust welfare state in Korea is Stanford. necessary to maintain a balance between the economic growth and 2. The other Asian tiger economies were Taiwan, Hong Kong and economic redistribution. Singapore. Following the Japanese model of export-oriented economic development the Asian tigers could achieve rapid economic Conclusion transformation. The developmental state in Korea played a crucial role in the 3. Chaebol are the family controlled big business groups in Korea such as economic transformation of the country. The economic development LG, Hyundai, Samsung, etc. in Korea was also egalitarian in nature as there was almost full 4. OECD (June 2011), “A frame work for growth and social cohesion in employment and economic stability was ensured through various Korea,” p.3, http://www.oecd.org/korea/48225033.pdf (Accessed on policies of the developmental state. As a result, Korea became a role 12 June 2013). model for several developing countries in the world. But the 5. Hankyoreh (2012), “Top ten chaebol now almost 80% of Korean emphasis on the economic growth in Korea marginalised the welfare economy,” August 28, http://english.hani.co.kr/arti/english_ issues. The democratic leaders in the country followed neoliberal edition/e_business/549028.html (Accessed on 28 August 2012). policies and dismantled the structures of developmental state which 6. Korea after independence from the Japanese colonial rule (1910-45) was beneficial for the big business groups but increased the socio- conducted land reforms which decimated the earlier feudal structures in economic problems of the masses. This mismatch between the the country. Korea did not have a strong industrial capitalist class and economic growth and welfare was evident during the 1997 Asian the labour class was also weak. financial crisis. Since then Korea has been taking welfare measures to 7. Ho Keun Song (2003), “The Birth of a Welfare State in Korea: The check rising socio-economic problems in the country. The forces of Unfinished Symphony of Democratization and Globalization,” Journal of globalisation and neoliberalism have led to the curtailment of East Asian Studies, 3(3): 405-432, p. 408. welfare policies in several countries across the world, particularly in 8. Ahn, Byung Young (2009), “Globalization and welfare reform in South the developing countries. In contrast, the Korean state started to Korea under the Kim Dae Jung government” in Chang Yun-Shik, Hyun- formulate welfare policies along with neoliberal restructuring of the Ho Seok and Donald L. Baker (eds.), Korea Confronts Globalization, economy. However, the Korean welfare state still remains weak as Routlege: London and New York, p.233. the focus of the state is on the economic growth. But the challenges 9. The Korean politicians are largely divided on the conservative (posu) and thrown by the forces of economic globalisation suggest that Korea progressive (chinbo) ideologies. The conservatives support economic needs to build a stronger welfare state to control rising economic growth and are pro-United States. On the other hand, progressives disparities and social problems. support welfare measures and have conciliatory approach towards North Korea. See Chaibong Hahm (2005), “The Two South Koreas: A House Divided,” The Washington Quarterly, 28(3): 57-72. 10. Jungho Roh (2013), “Concern about the rise of lazy welfare queens? An empirical explanation of the underdevelopment of the redistributive welfare system in South Korea,” The Social Science Journal, 1-10, p. 9.

18 Area Studies Area Studies 19 Ranjit Kumar Dhawan An Analysis of the South Korean Welfare State state. In the absence of natural resource the human resource had been Notes Korea's comparative advantage which has created the economic 1. The term “developmental state” was coined by Chalmers Johnson. The miracle in the country. A decline in the human resource would be “plan-rational capitalist developmental state” played a major role in the detrimental to Korea's economic progress. Being an export- economic rise of Japan and other East Asian countries in the post World dependent economy Korea also needs to promote new engines of War II period. See Chalmers Johnson (1982), MITI and Japanese Miracle: economic growth to increase employment opportunities for the vast The Growth of Industrial Policy 1925-1975, Stanford University Press: number of unemployed youths. A robust welfare state in Korea is Stanford. necessary to maintain a balance between the economic growth and 2. The other Asian tiger economies were Taiwan, Hong Kong and economic redistribution. Singapore. Following the Japanese model of export-oriented economic development the Asian tigers could achieve rapid economic Conclusion transformation. The developmental state in Korea played a crucial role in the 3. Chaebol are the family controlled big business groups in Korea such as economic transformation of the country. The economic development LG, Hyundai, Samsung, etc. in Korea was also egalitarian in nature as there was almost full 4. OECD (June 2011), “A frame work for growth and social cohesion in employment and economic stability was ensured through various Korea,” p.3, http://www.oecd.org/korea/48225033.pdf (Accessed on policies of the developmental state. As a result, Korea became a role 12 June 2013). model for several developing countries in the world. But the 5. Hankyoreh (2012), “Top ten chaebol now almost 80% of Korean emphasis on the economic growth in Korea marginalised the welfare economy,” August 28, http://english.hani.co.kr/arti/english_ issues. The democratic leaders in the country followed neoliberal edition/e_business/549028.html (Accessed on 28 August 2012). policies and dismantled the structures of developmental state which 6. Korea after independence from the Japanese colonial rule (1910-45) was beneficial for the big business groups but increased the socio- conducted land reforms which decimated the earlier feudal structures in economic problems of the masses. This mismatch between the the country. Korea did not have a strong industrial capitalist class and economic growth and welfare was evident during the 1997 Asian the labour class was also weak. financial crisis. Since then Korea has been taking welfare measures to 7. Ho Keun Song (2003), “The Birth of a Welfare State in Korea: The check rising socio-economic problems in the country. The forces of Unfinished Symphony of Democratization and Globalization,” Journal of globalisation and neoliberalism have led to the curtailment of East Asian Studies, 3(3): 405-432, p. 408. welfare policies in several countries across the world, particularly in 8. Ahn, Byung Young (2009), “Globalization and welfare reform in South the developing countries. In contrast, the Korean state started to Korea under the Kim Dae Jung government” in Chang Yun-Shik, Hyun- formulate welfare policies along with neoliberal restructuring of the Ho Seok and Donald L. Baker (eds.), Korea Confronts Globalization, economy. However, the Korean welfare state still remains weak as Routlege: London and New York, p.233. the focus of the state is on the economic growth. But the challenges 9. The Korean politicians are largely divided on the conservative (posu) and thrown by the forces of economic globalisation suggest that Korea progressive (chinbo) ideologies. The conservatives support economic needs to build a stronger welfare state to control rising economic growth and are pro-United States. On the other hand, progressives disparities and social problems. support welfare measures and have conciliatory approach towards North Korea. See Chaibong Hahm (2005), “The Two South Koreas: A House Divided,” The Washington Quarterly, 28(3): 57-72. 10. Jungho Roh (2013), “Concern about the rise of lazy welfare queens? An empirical explanation of the underdevelopment of the redistributive welfare system in South Korea,” The Social Science Journal, 1-10, p. 9.

18 Area Studies Area Studies 19 Ranjit Kumar Dhawan A Comparative Analysis of Best Practices of 11. Saemaul Undong or the New Village Community Movement is the rural Mobile Banking in ASEAN Countries and India development programme in Korea which was initiated by the Park Chung-hee regime (1961-79) in the 1970s. The villages were provided A.V. Ajay Babu with material support by the state such as cement, steel, etc. for the Ph.D. Research Scholar development projects. On the other hand, villagers contributed labour Dept. of MBA, S.V. University, Tirupati. and volunteered for the rural development. 12. Sang-Young Park (2010), “Crafting and dismantling the egalitarian Abstract social contract: the changing state-society relations in globalizing Digital transformation is being envisioned as the next frontier for banks in emerging Asia Korea,” The Pacific Review, 23(5): 579-601. to conquer. The endeavor has been to transform banks from one with a multi-channel presence to an omni-channel presence with seamless integration different technology 13. Antonio Fiori and Sunhyuk Kim (2011), “The Dynamics of Welfare platforms such as mobile, desktops and notebooks. And Mobile banking has seen steady Policy-Making in South Korea: Social Movements as Policy growth between 2010 and 2015 in India and ASEAN countries such as Thailand, the Entrepreneurs,” Asian Social Work Policy Review, 5(2001): 61-78, p. 65. Philippines and Indonesia as banks in these countries have recognized the opportunities it 14. The first wave of democracy happened with the democratisation of the offers in terms of innovative and location-sensitive banking services on anytime, countries of Western Europe and North America. The second wave anywhere basis to not only existing customers but also attract both high value customers began with the democratisation of the post-colonial states in the post- on one side and under-banked and unbanked customers at the other. Banks in these World War II period. The third wave refers to the democratisation in the countries have invested substantially on building technology and infrastructure for erstwhile authoritarian and communist countries in the late twentieth delivery of mobile banking services over the last decade but are faced with low customer adoption undermining the huge potential it offers in terms of reduced transaction costs century. The democratic uprising in the Arab countries in the recent and increased penetration of banking services resulting in higher profitability. To years is referred to as the fourth wave of democracy. See Samuel P. improve customer adoption of mobile banking and overcome the barriers faced, there is Huntington (1991), The Third Wave: Democratization in the Late Twentieth need for country-specific comprehensive market development strategies, collaboration Century, (University of Oklahoma Press: Norman and London). between regulators, policy makers and industry players and comprehensive digital 15. Ho Keun Song, n.7, p. 406. financial services awareness campaigns to be adopted. The objective of this paper is to carry out a comparative analysis of mobile banking strategies adopted by various banks in 16. Ser Myo-ja (2012), “Park Geun-hye announces presidential bid,” Korea India and ASEAN countries of Thailand, the Philippines and Indonesia and Benchmark Joongang Daily, July 11, http://koreajoongangdaily.joinsmsn.com the Best Practices from each of these countries for mutual adoption and implementation. /news/article/article.aspx?aid=2955980&cloc=joongangdaily|home|t By looking at the four country cases, this study aims to identify which policies work, and op (Accessed on 4 September 2014). which do not, and to highlight best practices that each country can offer taking into account special circumstances and constraints. Furthermore, there are useful lessons that the countries under study can learn from each other to design and implement effective, relevant, and successful mobile banking strategies.

Introduction With more than 7 billion mobile subscribers worldwide today and 1.8 billion unique subscribers and nearly 3.8 billion connections as of June, 2015 in the Asia-Pacific and India, use of mobile phones provide a promising way of accessing majority of their interactions such as shopping, entertainment, commerce and banking. Though there are variances in mobile phone penetration in these countries from more than 100% penetration in Thailand to about 60% in India, all these countries can be classified under emerging markets having similar banking and financial needs. The number of mobile banking

20 Area Studies Area Studies 21 Ranjit Kumar Dhawan A Comparative Analysis of Best Practices of 11. Saemaul Undong or the New Village Community Movement is the rural Mobile Banking in ASEAN Countries and India development programme in Korea which was initiated by the Park Chung-hee regime (1961-79) in the 1970s. The villages were provided A.V. Ajay Babu with material support by the state such as cement, steel, etc. for the Ph.D. Research Scholar development projects. On the other hand, villagers contributed labour Dept. of MBA, S.V. University, Tirupati. and volunteered for the rural development. 12. Sang-Young Park (2010), “Crafting and dismantling the egalitarian Abstract social contract: the changing state-society relations in globalizing Digital transformation is being envisioned as the next frontier for banks in emerging Asia Korea,” The Pacific Review, 23(5): 579-601. to conquer. The endeavor has been to transform banks from one with a multi-channel presence to an omni-channel presence with seamless integration different technology 13. Antonio Fiori and Sunhyuk Kim (2011), “The Dynamics of Welfare platforms such as mobile, desktops and notebooks. And Mobile banking has seen steady Policy-Making in South Korea: Social Movements as Policy growth between 2010 and 2015 in India and ASEAN countries such as Thailand, the Entrepreneurs,” Asian Social Work Policy Review, 5(2001): 61-78, p. 65. Philippines and Indonesia as banks in these countries have recognized the opportunities it 14. The first wave of democracy happened with the democratisation of the offers in terms of innovative and location-sensitive banking services on anytime, countries of Western Europe and North America. The second wave anywhere basis to not only existing customers but also attract both high value customers began with the democratisation of the post-colonial states in the post- on one side and under-banked and unbanked customers at the other. Banks in these World War II period. The third wave refers to the democratisation in the countries have invested substantially on building technology and infrastructure for erstwhile authoritarian and communist countries in the late twentieth delivery of mobile banking services over the last decade but are faced with low customer adoption undermining the huge potential it offers in terms of reduced transaction costs century. The democratic uprising in the Arab countries in the recent and increased penetration of banking services resulting in higher profitability. To years is referred to as the fourth wave of democracy. See Samuel P. improve customer adoption of mobile banking and overcome the barriers faced, there is Huntington (1991), The Third Wave: Democratization in the Late Twentieth need for country-specific comprehensive market development strategies, collaboration Century, (University of Oklahoma Press: Norman and London). between regulators, policy makers and industry players and comprehensive digital 15. Ho Keun Song, n.7, p. 406. financial services awareness campaigns to be adopted. The objective of this paper is to carry out a comparative analysis of mobile banking strategies adopted by various banks in 16. Ser Myo-ja (2012), “Park Geun-hye announces presidential bid,” Korea India and ASEAN countries of Thailand, the Philippines and Indonesia and Benchmark Joongang Daily, July 11, http://koreajoongangdaily.joinsmsn.com the Best Practices from each of these countries for mutual adoption and implementation. /news/article/article.aspx?aid=2955980&cloc=joongangdaily|home|t By looking at the four country cases, this study aims to identify which policies work, and op (Accessed on 4 September 2014). which do not, and to highlight best practices that each country can offer taking into account special circumstances and constraints. Furthermore, there are useful lessons that the countries under study can learn from each other to design and implement effective, relevant, and successful mobile banking strategies.

20 Area Studies Area Studies 21 A.V. Ajay Babu A Comparative Analysis of Best Practices of Mobile Banking in ASEAN Countries and India users is forecast to double to 1.8 billion by 2019, accounting for more non-availability of standardized and easy to use services, lack of trust than 25 percent of the world's population, says a KPMG report on in digital money, lack of interoperability across service providers global mobile banking trends. The report finds that while mobile is and non-availability of easy cash-in and cash-out facilities already the largest banking channel by volume of transactions, its particularly in the rural markets. Other barriers include preference adoption by new customers is entering an exceptionally rapid phase. for cash, security concerns and consumer behavior. New-generation Over the next five to 10 years, mobile banking will see dramatic consumers in ASEAN countries and India are more open than ever growth and this exponential increase will also be seen across before to considering non-traditional alternatives for their financial Southeast Asia. Currently, the 10 Southeast Asian countries which services. They are less loyal, eager to try new things, demand together formed the Association of Southeast Asian Nations personalized services and expect a broad range of products suited to (ASEAN), have a combined population of 625 million with several their lifestyle. countries experiencing rapid economic growth. Many ASEAN The wide gap between high mobile penetration and low access to member nations have young populations. In Thailand for example, financial services across emerging economies has opened more than 60 percent of its 67 million citizens are under 35 years old. opportunities for banks, telecommunication companies and e-wallet Add this to the rapid economic growth of the region, and the fact that companies in the region to provide money transfer services in the mobile phone penetration approaches 100 percent of adults in most unbanked and under-banked population. The key advantage of of ASEAN countries, the opportunities for mobile banking products mobile is that it is both affordable and accessible. Within a short span and services are enormous. India has a population of 1.2 billion of of 2 years, mobile banking transactions across emerging Asian which 60 percent are below the age of 30 years with mobile phone economies such as India, Indonesia and Thailand have caught up penetration of 65% and 52% are unbanked. This corresponds to a with internet banking transactions. Mobile banking transactions huge untapped market of 620 million people without access to formal have surged manifold in India within a short period. Furthermore, financial services. India has a high and growing demand for financial the youth adopts mobile payments faster compared to their older services and five key factors affecting the demand for financial counterparts. However, the youth are also the most under-banked services are demographics, migration, urbanrural divide, age group, in turn opening opportunities for mobile banking to offer technology, and gender. Most commercial banks in India are offering a wide array of financial services. Mobile banking leverages on the mobile banking services. Apart from offering mobile banking deep mobile penetration in emerging economies and existing retail services directly to the customers, banks also avail services of non- infrastructure to operate a high volume low margin business. Bullk banking entities such as Business Correspondents (BCs) to reach out of mobile banking transactions across the globe are related to airtime to wider sections of the customers, particularly in the remote areas top-ups followed by (Peer-to-Peer) P2P transfers. making India one of the fastest growing Mobile banking markets in the World. With the countries under study having overall unbanked population of over 900 million and mobile phone penetration in the range of 85%, The explosive growth of mobile phones, improved network use of mobile phones provide a promising way to access to financial connectivity and proactive role of governments and regulators in services to the unbanked particularly in the poor and rural areas. The promoting mobile banking creating a supportive environment for is high cost of formal banking significantly limits the delivery of a major breakthrough. The other key drivers of mobile banking affordable financial services to the underserved. Mobile technology include broad based smartphone adoption, established financial is eliminating that cost and is currently used in over 100 countries infrastructure and consumer experience in payment innovations across the globe to deliver convenient financial services to people although the progress varies from country to country. Some of the and is being encouraged as a safe and secure way by Governments, key barriers to adoption of mobile banking in both India and the Regulators and industry. Financial inclusion in Asia remains listed ASEAN countries are lack of awareness about mobile banking,

22 Area Studies Area Studies 23 A.V. Ajay Babu A Comparative Analysis of Best Practices of Mobile Banking in ASEAN Countries and India users is forecast to double to 1.8 billion by 2019, accounting for more non-availability of standardized and easy to use services, lack of trust than 25 percent of the world's population, says a KPMG report on in digital money, lack of interoperability across service providers global mobile banking trends. The report finds that while mobile is and non-availability of easy cash-in and cash-out facilities already the largest banking channel by volume of transactions, its particularly in the rural markets. Other barriers include preference adoption by new customers is entering an exceptionally rapid phase. for cash, security concerns and consumer behavior. New-generation Over the next five to 10 years, mobile banking will see dramatic consumers in ASEAN countries and India are more open than ever growth and this exponential increase will also be seen across before to considering non-traditional alternatives for their financial Southeast Asia. Currently, the 10 Southeast Asian countries which services. They are less loyal, eager to try new things, demand together formed the Association of Southeast Asian Nations personalized services and expect a broad range of products suited to (ASEAN), have a combined population of 625 million with several their lifestyle. countries experiencing rapid economic growth. Many ASEAN The wide gap between high mobile penetration and low access to member nations have young populations. In Thailand for example, financial services across emerging economies has opened more than 60 percent of its 67 million citizens are under 35 years old. opportunities for banks, telecommunication companies and e-wallet Add this to the rapid economic growth of the region, and the fact that companies in the region to provide money transfer services in the mobile phone penetration approaches 100 percent of adults in most unbanked and under-banked population. The key advantage of of ASEAN countries, the opportunities for mobile banking products mobile is that it is both affordable and accessible. Within a short span and services are enormous. India has a population of 1.2 billion of of 2 years, mobile banking transactions across emerging Asian which 60 percent are below the age of 30 years with mobile phone economies such as India, Indonesia and Thailand have caught up penetration of 65% and 52% are unbanked. This corresponds to a with internet banking transactions. Mobile banking transactions huge untapped market of 620 million people without access to formal have surged manifold in India within a short period. Furthermore, financial services. India has a high and growing demand for financial the youth adopts mobile payments faster compared to their older services and five key factors affecting the demand for financial counterparts. However, the youth are also the most under-banked services are demographics, migration, urbanrural divide, age group, in turn opening opportunities for mobile banking to offer technology, and gender. Most commercial banks in India are offering a wide array of financial services. Mobile banking leverages on the mobile banking services. Apart from offering mobile banking deep mobile penetration in emerging economies and existing retail services directly to the customers, banks also avail services of non- infrastructure to operate a high volume low margin business. Bullk banking entities such as Business Correspondents (BCs) to reach out of mobile banking transactions across the globe are related to airtime to wider sections of the customers, particularly in the remote areas top-ups followed by (Peer-to-Peer) P2P transfers. making India one of the fastest growing Mobile banking markets in the World. With the countries under study having overall unbanked population of over 900 million and mobile phone penetration in the range of 85%, The explosive growth of mobile phones, improved network use of mobile phones provide a promising way to access to financial connectivity and proactive role of governments and regulators in services to the unbanked particularly in the poor and rural areas. The promoting mobile banking creating a supportive environment for is high cost of formal banking significantly limits the delivery of a major breakthrough. The other key drivers of mobile banking affordable financial services to the underserved. Mobile technology include broad based smartphone adoption, established financial is eliminating that cost and is currently used in over 100 countries infrastructure and consumer experience in payment innovations across the globe to deliver convenient financial services to people although the progress varies from country to country. Some of the and is being encouraged as a safe and secure way by Governments, key barriers to adoption of mobile banking in both India and the Regulators and industry. Financial inclusion in Asia remains listed ASEAN countries are lack of awareness about mobile banking,

22 Area Studies Area Studies 23 A.V. Ajay Babu A Comparative Analysis of Best Practices of Mobile Banking in ASEAN Countries and India challenge due to large disparities in the use of financial services. The population of 1.20 billion of which 52% are unbanked. This proportion of households with access to formal bank accounts varies corresponds to a huge untapped market of 620 million people widely across countries. In-country disparities can even be larger without access to formal financial services. According to a World when access to financial services is examined within population Bank study, it is anticipated that a 20% increase in financial inclusion segments and across income levels. For example, in Thailand, where base could lead to employment growth of 1.4% creating 6.8 million formal account penetration is high, the poorest 40% of households jobs over five years period. are much less likely to have an account than the richest 60%. Results from the World Bank's Global Findex Database indicate that Similarly, in India, only 21% of adults from the poorest quintile have only 35% of adults in India have an account at a formal financial a formal account compared to 56% from the richest quintile. institutiona bank, credit union, cooperative, post office, or Evidence suggests that higher exclusion is associated with higher microfinance institution (Table 4.1). Account penetration varies by income inequality and with vulnerable groups such as young, age, income level, and education. Only 21% of adults from the uneducated, unemployed and the poor in rural areas. poorest quintile have a formal account, while 56% of those in the Hence, in countries where rising population and income inequality richest quintile have an account. A total of 31% of adults with a are still concerns, like in India and Indonesia, providing an primary education or less have a formal account, rising to 76% of environment that better enables access to financial services can be those with a tertiary education. Just 4% of adults used a mobile phone challenging. This means that because financial inclusion has many to pay bills or to send or receive money. Five key factors affecting the aspects, identifying the right policies to target may not result in demand for financial services are demographics, migration, optimal results for all countries since conditions differ in each urbanrural divide, technology, and gender. country. Thus, it is important that country-specific strategies are The RBI has noted that while the vast majority of mobile subscribers taken into account in cross-country comparisons of financial do not yet use smartphones, the proportion is rising fast. Ironically, inclusion programs. By looking at the four country cases, this study the bank-led model initiallyignored the bottom-up approach of aims to identify which policies work, and which do not, and to mobile services for financial inclusion that occurred in Kenya and highlight best practices that each country can offer taking into elsewhere. The greater emphasis on mobile technology will allow account special circumstances and constraints. Furthermore, there India to switch to mobile financial inclusion and move up the are useful lessons that countries can learn from each other to design financial inclusion ladder.The RBI led the development of mobile and implement effective, relevant, and successful mobile financial banking and financial inclusion by lowering barriers, simplifying inclusion programs with mobile banking playing a pivotal role. Know Your Customer (KYC) norms, and diversifying the providers India and available products on offer. Access is one of the RBI four pillars Rapid strides in technological advancement in the telecom industry of financial inclusion and relaxing KYC norms for small basic savings has resulted in high growth in the mobile business not just in urban accounts was one of the innovative steps taken. These accounts can areas but also in rural India where mobile penetration rate is at over be opened with self-certification and the RBI has allowed the UID as 50% while in urban areas it is more than 85%. Both financial an eligible document for meeting the KYC requirement. Banks can institutions and regulators have recognized this opportunity of also provide e-KYC services through the UID platform. Products is extending mobile banking wherein customers interact with banks another pillar: the RBI has recommended that a boutique of financial using mobile phones and tablet PCs. With over 950 million mobile services be provided. This boutique comprises (i) a savings and phones in use, mobile banking offers tremendous opportunities for overdraft account; (ii) a pure savings account, ideally a recurring or banks in India to offer innovative, easy to use and 24x7 accessibility variable recurring deposit account; (iii) a remittance product to to banking services in both urban and rural areas. India has a facilitate direct benefit transfers and other remittances; and, (iv)

24 Area Studies Area Studies 25 A.V. Ajay Babu A Comparative Analysis of Best Practices of Mobile Banking in ASEAN Countries and India challenge due to large disparities in the use of financial services. The population of 1.20 billion of which 52% are unbanked. This proportion of households with access to formal bank accounts varies corresponds to a huge untapped market of 620 million people widely across countries. In-country disparities can even be larger without access to formal financial services. According to a World when access to financial services is examined within population Bank study, it is anticipated that a 20% increase in financial inclusion segments and across income levels. For example, in Thailand, where base could lead to employment growth of 1.4% creating 6.8 million formal account penetration is high, the poorest 40% of households jobs over five years period. are much less likely to have an account than the richest 60%. Results from the World Bank's Global Findex Database indicate that Similarly, in India, only 21% of adults from the poorest quintile have only 35% of adults in India have an account at a formal financial a formal account compared to 56% from the richest quintile. institutiona bank, credit union, cooperative, post office, or Evidence suggests that higher exclusion is associated with higher microfinance institution (Table 4.1). Account penetration varies by income inequality and with vulnerable groups such as young, age, income level, and education. Only 21% of adults from the uneducated, unemployed and the poor in rural areas. poorest quintile have a formal account, while 56% of those in the Hence, in countries where rising population and income inequality richest quintile have an account. A total of 31% of adults with a are still concerns, like in India and Indonesia, providing an primary education or less have a formal account, rising to 76% of environment that better enables access to financial services can be those with a tertiary education. Just 4% of adults used a mobile phone challenging. This means that because financial inclusion has many to pay bills or to send or receive money. Five key factors affecting the aspects, identifying the right policies to target may not result in demand for financial services are demographics, migration, optimal results for all countries since conditions differ in each urbanrural divide, technology, and gender. country. Thus, it is important that country-specific strategies are The RBI has noted that while the vast majority of mobile subscribers taken into account in cross-country comparisons of financial do not yet use smartphones, the proportion is rising fast. Ironically, inclusion programs. By looking at the four country cases, this study the bank-led model initiallyignored the bottom-up approach of aims to identify which policies work, and which do not, and to mobile services for financial inclusion that occurred in Kenya and highlight best practices that each country can offer taking into elsewhere. The greater emphasis on mobile technology will allow account special circumstances and constraints. Furthermore, there India to switch to mobile financial inclusion and move up the are useful lessons that countries can learn from each other to design financial inclusion ladder.The RBI led the development of mobile and implement effective, relevant, and successful mobile financial banking and financial inclusion by lowering barriers, simplifying inclusion programs with mobile banking playing a pivotal role. Know Your Customer (KYC) norms, and diversifying the providers India and available products on offer. Access is one of the RBI four pillars Rapid strides in technological advancement in the telecom industry of financial inclusion and relaxing KYC norms for small basic savings has resulted in high growth in the mobile business not just in urban accounts was one of the innovative steps taken. These accounts can areas but also in rural India where mobile penetration rate is at over be opened with self-certification and the RBI has allowed the UID as 50% while in urban areas it is more than 85%. Both financial an eligible document for meeting the KYC requirement. Banks can institutions and regulators have recognized this opportunity of also provide e-KYC services through the UID platform. Products is extending mobile banking wherein customers interact with banks another pillar: the RBI has recommended that a boutique of financial using mobile phones and tablet PCs. With over 950 million mobile services be provided. This boutique comprises (i) a savings and phones in use, mobile banking offers tremendous opportunities for overdraft account; (ii) a pure savings account, ideally a recurring or banks in India to offer innovative, easy to use and 24x7 accessibility variable recurring deposit account; (iii) a remittance product to to banking services in both urban and rural areas. India has a facilitate direct benefit transfers and other remittances; and, (iv)

24 Area Studies Area Studies 25 A.V. Ajay Babu A Comparative Analysis of Best Practices of Mobile Banking in ASEAN Countries and India entrepreneurial credit products, like credit cards. providers such as Uber and Ola, who encourage use of such wallets. The proactive role of RBI and the Government of India coupled with Uber, in India, is integrated with Paytm while Ola uses Ola money. the changing consumer behavior towards technology in banking, Sensing the opportunity in standalone mobile-based payment along with a combination of factors such as convenience, awareness services, even banks have started offering payment services to non- and growing penetration of smart phones, are driving the growth of banking, non-credit card customers. YES Bank, which launched a mobile banking in India. According to latest data available from virtual prepaid card in January 2016, in association with Freecharge, Reserve Bank of India, mobile banking has grown four-fold in 2015- has already seen more than 1.2 million users in the first four months. 16 to reach INR 4017.8 billionup from INR 1035.3 billion in 2014-15. With that, YES Bank has become the largest issuer of such virtual The uptake has been rapid, considering the total value of mobile cards, based on MasterCard platform, according to a company banking transaction was just INR 60 billion in 2012-13. In the three announcement. Going by RBI data, m-wallet transactions have years, it has grown 67 times. What is positive is that this growth of grown by a CAGR of 164% in the last three years and have reached mobile banking is not just a reflection of penetration growth but is more than 600 million transactions in 2015-16, up from just 32.7 also accomplished by maturity of usage. In the period between 2012- million in 2012-13. However, because of the restriction on transaction 13 to 2015-16, while the number of transactions have grown by an size, value growth has not been in proportion to volume growth. The average annual growth rate (CAGR) of 94%, the value of transactions aggregate m-wallet transactions value in 2015-16 was INR 205.8 has grown by a CAGR of 306%--or at three times faster. The average billion, putting the average transaction at around INR 340. India is a per transaction value has grown from INR 1123.83 in 2012-13 to INR young country and the new generation is quite comfortable with 10394.10 in 2015-16. That shows the confidence customers have in the mobile banking. With more of today's teenager joining the banking medium as people are doing fairly large value retail transactions and financial services system, the numbers are just going to explode with mobile banking. Mobile banking is becoming mainstream. From the above analysis and also taking into account the developments that have taken place in Mobile banking in the last few years, we can identify some of the best practices adopted by banks Regulators, banks and other institutions which have resulted in tremendous growth of mobile banking and which can be emulated by other countries in the Emerging markets in Asia. The best practices include: Though RBI initially issued guidelines for Mobile Banking as a bank-led model, it has subsequently allowed non-banking entities such as Pre-paid Payment Instruments (PPI) entities such as Paytm, Itzcash which resulted in explosion of mobile With large unbanked population and even lesser penetration of other banking and payment services. financial services, RBI has been proactive in promoting mobile-based transactions. Beyond mobile banking, which can only be offered by NPCI, a RBI sponsored payment institution, has launched banks, RBI has allowed non-banking payment service providers to innovative inter-bank retail payment systems IMPS and UPI offer mobile based payments. Though it is today in a restricted mode, which can be used on smartphones and USSD Banking on with ceiling on transaction value and restriction on cash-out feature phones. These have increased the number of mobile facilities, the services are becoming popular, especially for e- banking transactions exponentially over the last few years and commerce payment and payments to app-based cab service would act as the fulcrum on which the future of mobile banking in India grows.

26 Area Studies Area Studies 27 A.V. Ajay Babu A Comparative Analysis of Best Practices of Mobile Banking in ASEAN Countries and India entrepreneurial credit products, like credit cards. providers such as Uber and Ola, who encourage use of such wallets. The proactive role of RBI and the Government of India coupled with Uber, in India, is integrated with Paytm while Ola uses Ola money. the changing consumer behavior towards technology in banking, Sensing the opportunity in standalone mobile-based payment along with a combination of factors such as convenience, awareness services, even banks have started offering payment services to non- and growing penetration of smart phones, are driving the growth of banking, non-credit card customers. YES Bank, which launched a mobile banking in India. According to latest data available from virtual prepaid card in January 2016, in association with Freecharge, Reserve Bank of India, mobile banking has grown four-fold in 2015- has already seen more than 1.2 million users in the first four months. 16 to reach INR 4017.8 billionup from INR 1035.3 billion in 2014-15. With that, YES Bank has become the largest issuer of such virtual The uptake has been rapid, considering the total value of mobile cards, based on MasterCard platform, according to a company banking transaction was just INR 60 billion in 2012-13. In the three announcement. Going by RBI data, m-wallet transactions have years, it has grown 67 times. What is positive is that this growth of grown by a CAGR of 164% in the last three years and have reached mobile banking is not just a reflection of penetration growth but is more than 600 million transactions in 2015-16, up from just 32.7 also accomplished by maturity of usage. In the period between 2012- million in 2012-13. However, because of the restriction on transaction 13 to 2015-16, while the number of transactions have grown by an size, value growth has not been in proportion to volume growth. The average annual growth rate (CAGR) of 94%, the value of transactions aggregate m-wallet transactions value in 2015-16 was INR 205.8 has grown by a CAGR of 306%--or at three times faster. The average billion, putting the average transaction at around INR 340. India is a per transaction value has grown from INR 1123.83 in 2012-13 to INR young country and the new generation is quite comfortable with 10394.10 in 2015-16. That shows the confidence customers have in the mobile banking. With more of today's teenager joining the banking medium as people are doing fairly large value retail transactions and financial services system, the numbers are just going to explode with mobile banking. Mobile banking is becoming mainstream. From the above analysis and also taking into account the developments that have taken place in Mobile banking in the last few years, we can identify some of the best practices adopted by banks Regulators, banks and other institutions which have resulted in tremendous growth of mobile banking and which can be emulated by other countries in the Emerging markets in Asia. The best practices include: Though RBI initially issued guidelines for Mobile Banking as a bank-led model, it has subsequently allowed non-banking entities such as Pre-paid Payment Instruments (PPI) entities such as Paytm, Itzcash which resulted in explosion of mobile With large unbanked population and even lesser penetration of other banking and payment services. financial services, RBI has been proactive in promoting mobile-based transactions. Beyond mobile banking, which can only be offered by NPCI, a RBI sponsored payment institution, has launched banks, RBI has allowed non-banking payment service providers to innovative inter-bank retail payment systems IMPS and UPI offer mobile based payments. Though it is today in a restricted mode, which can be used on smartphones and USSD Banking on with ceiling on transaction value and restriction on cash-out feature phones. These have increased the number of mobile facilities, the services are becoming popular, especially for e- banking transactions exponentially over the last few years and commerce payment and payments to app-based cab service would act as the fulcrum on which the future of mobile banking in India grows.

26 Area Studies Area Studies 27 A.V. Ajay Babu A Comparative Analysis of Best Practices of Mobile Banking in ASEAN Countries and India

The RBI has allowed banks to use business correspondents since infrastructure, and consumer experience in payment innovation. 2006 as part of an effort to broaden financial access. In 2010, Thai consumers are interested in mobile commerce and are trying banks were permitted to use nonbank finance companies as new technologies such as digital wallets and contactless mobile correspondents and as of 2015 more than 4 lakh correspondents payments using Near Field Communication (NFC). According to were deployed by banks to offer basic banking services using Visa's 2014 Consumer Payment Attitudes Study, 66% of Thai mobile phones and other innovative channels to the unbanked consumers are aware of and 61% 'Preferred' to use contactless in the rural and lower income urban areas. payments indicating a strong consumer desire to use new payment technologies. However, less than one percent of credit and debit Mobile Banking Success Story cards are contactless and only two percent of POS terminals are NFC Eko Financial Services enabled, limiting consumer opportunities to make NFC payments in Launched in 2007, Eko was the first company dedicated to a mobile Thailand. phone-based basic savings account and payment service for the Banks in Thailand are overhauling their IT infrastructure and unbanked in India. Eko's mobile payment (Simplibank) is a increasingly using data analytics to enhance customer service, partnership between financial services start-up company Eko and become more competitive and boost operational potential. The the State Bank of India (SBI). SBI is the largest bank in India with over quantum of mobile banking transactions in Thailand has seen rapid 250 million accounts. This mobile money service, which initially growth over the past five years, which have surpassed internet begun as a pilot project in major cities, has since expanded banking transactions in the first half of 2015. The Thai government throughout India. has been in the forefront in driving both mobile banking and Best Practices: financial inclusion in that country and is developing a national e- payment system comprising five modules which are expected to be Instead of having to visit a bank branch, customers can visit any of operationalized by 2016-17. The first module is a collaboration the designated agent outlets set up by Eko. between the Ministry of Finance and the Bank of Thailand and will Limited product selection in deposits and payments. Ease of enable anyone to transfer money and make financial transactions transaction as customers only need to provide the account number using their ID card, mobile number or email address. The second and mobile phone number to conduct transactions. module will require all companies to register with the Commerce Ministry to be equipped with the EDC system. It will be an expansion Eko's service ties into the core banking system of SBI on a real-time of the Electronic Data Capture (EDC) software that collects and stores basis, which allows the customers to send and receive transactions customer data. EDC uses Point-of-Sale terminals or specialized instantly. software for online transactions to submit and validate transactions Thailand to a merchant account provider or some other transaction processor. As of June 2015, there are 93 million mobile subscriptions in Thailand E-payment is aimed at allowing people to access money transfer with mobile services penetration of 139% of the population. The services even if they do not have a bank account, serving e- number of smartphones is about 30 million against 15 million feature commerce, stemming loopholes in the tax system and directing phones which is transforming the payment environment as more subsidies to the underprivileged. The e-payment system will create a people adopt smartphones, use online transactions and mobile foundation for the future and enable local financial institutions to banking, and the Thai government becomes more supportive of compete with other. The third module will link e-payments and the electronic payments, including mobile. Key drivers of mobile Revenue department's taxation system making tax collection more banking include broad smartphone adoption, developed financial efficient, as the e-payment system will allow the government to

28 Area Studies Area Studies 29 A.V. Ajay Babu A Comparative Analysis of Best Practices of Mobile Banking in ASEAN Countries and India

28 Area Studies Area Studies 29 A.V. Ajay Babu A Comparative Analysis of Best Practices of Mobile Banking in ASEAN Countries and India receive transaction data. The fourth module will help the would help rural and remote dwellers to make more frequent use of government to subsidize all low-income earners directly by using banking services. Thailand has brought about an increase in financial only their ID cards. Finally, the fifth module will be a campaign access through the use of public financial institutions like the Village offering incentives to make e-payments. Funds and the eight State Financial Institutions. Nonetheless, the At the forefront of digital banking transformation in Thailand is state-led approach can be a model for other countries but only in Kasikornbank (Kbank), which embarked on its K-transformation cases where the system can be effectively managed and services can project in 2006. Under the project, Kbank has acquired and built be provided on a scale sufficient to meet fully the needs of the unique IT capabilities and created thoroughly integrated sales and population. service IT platforms across channels. Supporting solution for the k- The Philippines transformation project comprises four foundation capabilities, The geographic and demographic challenges of the Philippines namely 1) Know Your Customer (KYC) Capabilities, 2) Information demand creative mobile money solutions from all stakeholders. The Technology and Capital, 3) Multi-channel Sales and Service and 4) Philippine Development Plan 20112016, for example, has envisioned Financial Information System (FIS). Kbank's new IT business the establishment of a “resilient and inclusive financial sector” as capabilities have enhanced its product innovation capabilities, part of its strategy to sustain growth and development. To achieve strengthened financial controls and budgeting capabilities, that goal, the Philippines is committed to:(i) implementing a good enhanced sales and service capabilities, single view of customer regulatory policy that balances financial inclusion with financial multichannel execution, shortened product development time, stability, (ii) using alternative products and delivery channels to reduced maintenance cost, and helped deploy a revamped deposit reach the underserved segments of the markets such as the poor, core banking system. women, and persons with disability, and (iii) adopting a holistic The IT transformation has helped Kbank reduce its cost to income approach to financial literacy and education. The Philippines is now ratio from 45% in 2007 to 42.4% in 1H15 and increase average product recognized as one of the global leaders in mobile banking and one of holdings per customer from 1.7 to 2.9 during the corresponding the top countries in the world in the development of microfinance period. New IT business capabilities have aided Kbank's sector. Another area where the Philippines has made significant profitability, with ROE improving from 15.9% in 2007 to 18.0 in 1H15. headway in promoting inclusion is in mobile banking and mobile Kbank's electronic banking services offerings, known as K-Lobby, payments. As one of the pioneers in mobile banking, the Philippine include multiple products such as K-ATM, K-CDM (Cash Deposit experience is not unique. It highlights how technological Machine), and K-PUM (Passbook Update Machine). K-Mobile innovations, when combined with good policy and a market oriented Banking, KCyber Services (trade and investments), K-payment business model, can serve as a powerful instrument for accessing gateway and K-PowerP@y (mPOS). financial services. Thailand has taken great strides over the last 15 years to expand Three important reasons explain the emergence of the Philippines as financial services through the length and breadth of the country with an early leader in mobile banking (GSMA 2010). One is wider access 88% of the population having access to some type of financial service to mobile phone technology. Mobile phone subscriptions per 100 and only 4% want but are not able to obtain access. The chief form of inhabitants have been increasing rapidly in the Philippines, from access is holding a deposit account at a financial institution. Still, 8.3% in 2000 to 106% in 2013 (Figure 6.4). This translates to a mobile barriers to financial inclusion persist and affect mainly low-income penetration ratio of 110% in the country compared to the bank households. The range of financial services available could also be penetration rate of only 27%. Filipino mobile phone users are also expanded. An increase in the use of mobile banking, to include not found to be highly literate in using mobile phones, which makes the just account information but also allow payments and transfers, idea of using mobile money more appealing to them. According to a

30 Area Studies Area Studies 31 A.V. Ajay Babu A Comparative Analysis of Best Practices of Mobile Banking in ASEAN Countries and India receive transaction data. The fourth module will help the would help rural and remote dwellers to make more frequent use of government to subsidize all low-income earners directly by using banking services. Thailand has brought about an increase in financial only their ID cards. Finally, the fifth module will be a campaign access through the use of public financial institutions like the Village offering incentives to make e-payments. Funds and the eight State Financial Institutions. Nonetheless, the At the forefront of digital banking transformation in Thailand is state-led approach can be a model for other countries but only in Kasikornbank (Kbank), which embarked on its K-transformation cases where the system can be effectively managed and services can project in 2006. Under the project, Kbank has acquired and built be provided on a scale sufficient to meet fully the needs of the unique IT capabilities and created thoroughly integrated sales and population. service IT platforms across channels. Supporting solution for the k- The Philippines transformation project comprises four foundation capabilities, The geographic and demographic challenges of the Philippines namely 1) Know Your Customer (KYC) Capabilities, 2) Information demand creative mobile money solutions from all stakeholders. The Technology and Capital, 3) Multi-channel Sales and Service and 4) Philippine Development Plan 20112016, for example, has envisioned Financial Information System (FIS). Kbank's new IT business the establishment of a “resilient and inclusive financial sector” as capabilities have enhanced its product innovation capabilities, part of its strategy to sustain growth and development. To achieve strengthened financial controls and budgeting capabilities, that goal, the Philippines is committed to:(i) implementing a good enhanced sales and service capabilities, single view of customer regulatory policy that balances financial inclusion with financial multichannel execution, shortened product development time, stability, (ii) using alternative products and delivery channels to reduced maintenance cost, and helped deploy a revamped deposit reach the underserved segments of the markets such as the poor, core banking system. women, and persons with disability, and (iii) adopting a holistic The IT transformation has helped Kbank reduce its cost to income approach to financial literacy and education. The Philippines is now ratio from 45% in 2007 to 42.4% in 1H15 and increase average product recognized as one of the global leaders in mobile banking and one of holdings per customer from 1.7 to 2.9 during the corresponding the top countries in the world in the development of microfinance period. New IT business capabilities have aided Kbank's sector. Another area where the Philippines has made significant profitability, with ROE improving from 15.9% in 2007 to 18.0 in 1H15. headway in promoting inclusion is in mobile banking and mobile Kbank's electronic banking services offerings, known as K-Lobby, payments. As one of the pioneers in mobile banking, the Philippine include multiple products such as K-ATM, K-CDM (Cash Deposit experience is not unique. It highlights how technological Machine), and K-PUM (Passbook Update Machine). K-Mobile innovations, when combined with good policy and a market oriented Banking, KCyber Services (trade and investments), K-payment business model, can serve as a powerful instrument for accessing gateway and K-PowerP@y (mPOS). financial services. Thailand has taken great strides over the last 15 years to expand Three important reasons explain the emergence of the Philippines as financial services through the length and breadth of the country with an early leader in mobile banking (GSMA 2010). One is wider access 88% of the population having access to some type of financial service to mobile phone technology. Mobile phone subscriptions per 100 and only 4% want but are not able to obtain access. The chief form of inhabitants have been increasing rapidly in the Philippines, from access is holding a deposit account at a financial institution. Still, 8.3% in 2000 to 106% in 2013 (Figure 6.4). This translates to a mobile barriers to financial inclusion persist and affect mainly low-income penetration ratio of 110% in the country compared to the bank households. The range of financial services available could also be penetration rate of only 27%. Filipino mobile phone users are also expanded. An increase in the use of mobile banking, to include not found to be highly literate in using mobile phones, which makes the just account information but also allow payments and transfers, idea of using mobile money more appealing to them. According to a

30 Area Studies Area Studies 31 A.V. Ajay Babu A Comparative Analysis of Best Practices of Mobile Banking in ASEAN Countries and India

2014 survey conducted by McKinsey, around 50% of active mobile of the service. These are: users in the Philippines are unbanked. Most of them live outside Unique geographical layout, and limited geographical coverage cities and use mobile money to send and receive domestic by formal financial institutions: The Philippines is a collection of remittances. These findings tend to validate why mobile payments 7500 Islands. Bank branches cover roughly 50% of the islands and banking have gained supportin the Philippines given that the whereas 36% of municipalities do not have any bank branch “latent demand for financial services clearly existed”.Second is the role of the private sector mobile operators. The demand for financial Large population: The population is in excess of 100 millions, services has enabled mobile operators to design new business making it the 13th largest country in the world by population size models and product offerings in line with the financial needs of their High mobile penetration: There are 120 million mobile customers. For example, mobile operators first tapped on remittance connections and 72.18%unique subscribers. The Philippines and payment services as a basis for their initial business experiments. compares favorably in mobile penetration to the strongest mobile Finally, mobile banking would not be successful without the strong money markets in world Tanzania 46.64% and Kenya 56.22%. regulatory support by the central bank authorities. The Bangko Low banking penetration: The banked penetration rate stands at Sentral ng Pilipinas (BSP) took the challenge of balancing the need to 31%38 percentage points lower than the rate of Asia-Pacific. innovate with financial stability and ensuring that the right Diverse non-bank financial institutions: There are a number of regulations conducive to mobile banking are created. Through a non-bank financial institutions with different primary business series of regulations, the BSP allowed mobile operators “to offer e- interests, from international remittances companies such as money” and nonbanks “to perform cash in/out financial services”. Western Union and MoneyGram, to informal money changers The BSP also formalized rules to guide their operations and allowed different business models of financial services to be tested and Domestic remittance needs: Two-thirds of the Philippines' become more competitive. The results of these efforts are a successful population lives in a handful of urbanized areas and regularly mobile banking system in the country. About 56 rural banks with send money back to family in another province. This has created a electronic banking operations were also reported in 2012 from none huge domestic remittance market. in 2005. These results further confirm that mobile banking has As there are a number of favorable conditions for mobile money to successfully expanded the financial services network to those flourish in the market, other players have also entered the market. As traditionally unserved and underserved. a means of addressing this competition and ensuring continued The BSP played a positive role and created an enabling regulatory sustainability, the mobile money providers have tried different environment that provides an open and level playing field, allowing models, products and services over the years and have found a niche both bank and non-bank financial institutionsincluding mobile for themselves: operatorsto offer mobile money services. Leading Mobile operators Smart Money is a leader in domestic remittance and a great deal is in the Philippines are also playing an important role in driving delivered via its over-the-counter service, called Smart Padala mobile payments. The world's first mobile money deployment, Smart Money, was launched in 2001 by Smart Communications in GCash through its GCash Remit service leads in the international partnership with Banco de Oro (BDO) to fill a gap left by the limited remittance market as it has established a significant number of reach of banking infrastructure in the country. Following this, Globe international remittance partners, and processes international Telecom launched GCash in 2004 and formed a separate entity called remittances from an estimated 8 million Overseas Filipino G-Xchange. There are number of conditions that have contributed to Workers. the development of mobile banking and mobile money in the Philippines since then and which still continue to demand evolution

32 Area Studies Area Studies 33 A.V. Ajay Babu A Comparative Analysis of Best Practices of Mobile Banking in ASEAN Countries and India

Today, factors such as a large percentage of the population under 25, through the networks of financial institutions. Remittances a positive annual GDP growth, fast growing internet penetration, companies such as Western Union have gained a strong foothold high mobile engagement, and a highly competitive market in serving the remittances market, especially for transactions contribute to making the Philippines ideal for developing innovative across neighboring countries such as Singapore and Malaysia. digital and financial products and services. Both Smart Money and Airtime top-up: With 99% of the 282 million mobile subscriptions GCash are approaching this new market demand in different ways. in Indonesia being prepaid customers, there is immense potential Indonesia in capturing the voluminous transactions of airtime top-up via Indonesia is a country with a population of 270 million living in more DFS. At the moment, traditional top-up counters, minimarkets than 17,000 islands. The geographic diversity and mass population and mom-pop grocery stores are amongst the first choices used by pose natural obstacles to reach of banking services and financial the unbanked Indonesians for airtime top-up. inclusion. The remote location of small islands and the limited Even though traditional non-bank players have a greater presence in banking potential of their inhabitants discourage banks from remote and rural areas with large populations of bankable reaching out and providing financial services. Hence, improved unbanked, significant distance to the nearest outlet, high fees and financial inclusion through increased banking infrastructure such as lack of trust remain key disadvantages. The rapid ascent of mobile new bank branches and ATMs are less successful than expected as phone usage, especially among the unbanked, is threatening to these branches are mainly located in urban areas and not reaching replace these traditional channels with mobile-centric banking. unbanked citizens in rural areas in Indonesia's many small islands. Mobile banking promises to be a game changer in combining existing The recent Household Balance Sheet Survey revealed that 52.4% of mobile phone usage and the country's increasing appetite for Indonesians do not have any savings or savings accounts with banks financial services in Indonesia. It has the potential to extend banking or nonbank financial institutions (Bank Indonesia, 2014). Four major services, which are currently concentrated in the urban areas into the factors that affect the demand for financial services are: geographic provincial hinterland where the bulk of the unbanked people reside. location, migration, low marginal propensity to save, and education Large banks in Indonesia are leveraging their existing branch level. The mobile banking initiative has been constrained by strict network and micro-banking units to offer mobile banking services financial regulations that impose high transaction costs for using USSD and SMS technologies focusing on the unbanked people individuals to open bank accounts. particularly in the rural and remote areas. In the urban areas, as Without any access to financial services, the unbanked use the customer behavior evolves to embrace new technologies, mobile following alternative financial services and products to fulfil their banking will migrate from ancillary part of bank's product suite to a needs: central driver of bank revenue. A World Bank study found that a 1% increase in financial inclusion facilitates an annual GDP growth per Deposits and loans: The majority of the bankable unbanked capita of 0.03%. Indonesians fulfil their savings needs via Arisan, an interest-free financing provided during social gatherings, or the traditional High levels of mobile penetration (95% cell phone ownership) and way of self-saving at home. Others resort to borrowing from widespread use of social media opens opportunities for banks to friends and relatives or cooperatives when there is a need for loan. leverage on technology for business expansion and in turn The banks are slowly encroaching into this product segment. enhancing financial inclusion. Indonesian banks are actively exploring mobile banking channel to enhance market share and Bill payment and remittances: Indonesians have traditionally create a platform for basic banking services viz. deposit and lending. preferred to pay their bills at Perusahaan Listrik Negara (PLN) At the forefront of the digital transformation are top Indonesian and Perusahaan Daerah Air Minum (PDAM) branches rather than banks such as Bank Mandiri, BRI, BCA and BTPN which are taking

34 Area Studies Area Studies 35 A.V. Ajay Babu A Comparative Analysis of Best Practices of Mobile Banking in ASEAN Countries and India

34 Area Studies Area Studies 35 A.V. Ajay Babu A Comparative Analysis of Best Practices of Mobile Banking in ASEAN Countries and India quick quality steps to enhance customer reach through mobile only are the infrastructure costs low compared to building additional banking, e-money segments, E-cash, and ATMs. Leveraging high branches, the benefits of expanding mobile technology throughout ownership of mobile phones among the poor and vulnerable is the Indonesia will yield additional benefits beyond financial inclusion. way forward to enhance financial inclusion in Indonesia. Indonesia Conclusion currently has a two-pronged regulation on branchless banking which can be considered as the best practices as they demonstrate The growing importance of mobile banking throughout emerging huge potential for taking banking services to both banked and Asian countries opens opportunities for incumbents and new unbanked segments in the country: entrants alike. Along with improving customer service and product sales generally, mobile banking is a promising platform for increased Agent based branchless banking model known as 'Laku Pandai', penetration of banking services to the unbanked remote areas. The regulated by OJK (Otoritas Jasa Keungan) challenge is to address the challenges that are often driven by country Under Laku Pandai, selected agents assist the public in setting up conditions. This means that because mobile banking and financial basic banking services account with one of the six selected banks and inclusion has many aspects, identifying the right policies to target subject to regulations placed by the OJK. Key positives of Indonesia's may not result in optimal results for all countries since conditions branchless banking model include a one stop shop for all clients' differ in each country. Thus, it is important that country-specific financial needs such as savings, micro insurance, and transfers. strategies are taken into account in cross-country comparisons of these strategies. By looking at the four country cases, this study aims E-Commerce Payments known as 'Layanan Keuangan Digital' to identify which policies work, and which do not, and to highlight which is regulated by Bank Indonesia. best practices that each country can offer (for example, mobile Alliances between banks and industries such as large toll operators banking in the Philippines and the Village Fund program in have helped banks provide e-money payment services and cashless Thailand), taking into account special circumstances and constraints. payment method. Bank Mandiri dominates the e-money card Furthermore, there are useful lessons that countries can learn from segment with a 65% market share (2014). Key tie ups by Bank each other to design and implement effective, relevant, and Mandiri include, 1) PT Jasa Marga (large toll operator), 2) Indomaret successful mobile banking strategies. For Mobile banking to be (largest minimart company in Indonesia) and 3) Pertamina (Largest successful, more effort is needed to address gaps in the Oil and Gas company and gas station operator). Bank Mandiri has understanding of its adoption and implementation, particularly thus issued the gaz card and the Indomaret. their results. Three areas that are worth examining are given below. Indonesia has made significant progress toward branchless banking First is the quality of regulatory policies. While it is true that the and financial inclusion. Based on a vision to provide all Indonesians countries surveyed in this study have been able to put in place key with access to financial services, Indonesia has adopted many policies, the effects of those policies on mobile banking have not programs to reach unbanked people who had previously been become fully clear. Evidence is limited on which policies work best. denied access due to their isolation from financial institutions. Due to Ineffective policy measures, too much regulation, or the lack of Indonesia's large rural population spread over many islands, internal synergies to implement mobile banking are a common financial inclusion through physical infrastructure alone would be refrain in all countries. These need to be verified to ensure that financially prohibitive. Banks are unwilling to build branches to policies are indeed addressing the right problems of financial access reach marginalized customers due to the limited financial gain they in the country. Second, it is also important to have a positive enabling would generate. Thus, branchless banking through mobile banking environment for promoting Mobile banking. It is also important that is essential to promote anywhere and anytime banking services to the countries continue to address the impediments that hamper access to next-generation but also cater to the unbanked rural population. Not financial services, including

36 Area Studies Area Studies 37 A.V. Ajay Babu A Comparative Analysis of Best Practices of Mobile Banking in ASEAN Countries and India quick quality steps to enhance customer reach through mobile only are the infrastructure costs low compared to building additional banking, e-money segments, E-cash, and ATMs. Leveraging high branches, the benefits of expanding mobile technology throughout ownership of mobile phones among the poor and vulnerable is the Indonesia will yield additional benefits beyond financial inclusion. way forward to enhance financial inclusion in Indonesia. Indonesia Conclusion currently has a two-pronged regulation on branchless banking which can be considered as the best practices as they demonstrate The growing importance of mobile banking throughout emerging huge potential for taking banking services to both banked and Asian countries opens opportunities for incumbents and new unbanked segments in the country: entrants alike. Along with improving customer service and product sales generally, mobile banking is a promising platform for increased Agent based branchless banking model known as 'Laku Pandai', penetration of banking services to the unbanked remote areas. The regulated by OJK (Otoritas Jasa Keungan) challenge is to address the challenges that are often driven by country Under Laku Pandai, selected agents assist the public in setting up conditions. This means that because mobile banking and financial basic banking services account with one of the six selected banks and inclusion has many aspects, identifying the right policies to target subject to regulations placed by the OJK. Key positives of Indonesia's may not result in optimal results for all countries since conditions branchless banking model include a one stop shop for all clients' differ in each country. Thus, it is important that country-specific financial needs such as savings, micro insurance, and transfers. strategies are taken into account in cross-country comparisons of these strategies. By looking at the four country cases, this study aims E-Commerce Payments known as 'Layanan Keuangan Digital' to identify which policies work, and which do not, and to highlight which is regulated by Bank Indonesia. best practices that each country can offer (for example, mobile Alliances between banks and industries such as large toll operators banking in the Philippines and the Village Fund program in have helped banks provide e-money payment services and cashless Thailand), taking into account special circumstances and constraints. payment method. Bank Mandiri dominates the e-money card Furthermore, there are useful lessons that countries can learn from segment with a 65% market share (2014). Key tie ups by Bank each other to design and implement effective, relevant, and Mandiri include, 1) PT Jasa Marga (large toll operator), 2) Indomaret successful mobile banking strategies. For Mobile banking to be (largest minimart company in Indonesia) and 3) Pertamina (Largest successful, more effort is needed to address gaps in the Oil and Gas company and gas station operator). Bank Mandiri has understanding of its adoption and implementation, particularly thus issued the gaz card and the Indomaret. their results. Three areas that are worth examining are given below. Indonesia has made significant progress toward branchless banking First is the quality of regulatory policies. While it is true that the and financial inclusion. Based on a vision to provide all Indonesians countries surveyed in this study have been able to put in place key with access to financial services, Indonesia has adopted many policies, the effects of those policies on mobile banking have not programs to reach unbanked people who had previously been become fully clear. Evidence is limited on which policies work best. denied access due to their isolation from financial institutions. Due to Ineffective policy measures, too much regulation, or the lack of Indonesia's large rural population spread over many islands, internal synergies to implement mobile banking are a common financial inclusion through physical infrastructure alone would be refrain in all countries. These need to be verified to ensure that financially prohibitive. Banks are unwilling to build branches to policies are indeed addressing the right problems of financial access reach marginalized customers due to the limited financial gain they in the country. Second, it is also important to have a positive enabling would generate. Thus, branchless banking through mobile banking environment for promoting Mobile banking. It is also important that is essential to promote anywhere and anytime banking services to the countries continue to address the impediments that hamper access to next-generation but also cater to the unbanked rural population. Not financial services, including

36 Area Studies Area Studies 37 A.V. Ajay Babu India-Vietnam Defence Cooperation and the legal, regulatory, and market barriers. Finally, as Mobile banking is a China Factor: From 1991 to 2016 channel for increasing the capability to use financial services, it is crucial that those who are directly affected are financially literate and Tilottama Mukherjee capable. Assistant Professor, Department of Political Science (Syamaprasad College, Kolkata) Doctoral Candidate, Department of International Relations (Jadavpur University, Kolkata) Innovative digital banking solutions such as mobile banking, mobile payments, and biometric identification holds promise for expediting Abstract the financial inclusion process across EM Asia by reducing costs and This paper tries to analyze the evolution of India's defence ties with Vietnam over the enhancing the convenience of accessing financial services without years since the end of Cold War. It also studies the various factors that have conditioned compromising on security issues. For banks, the digital their bilateral defence ties and the China factor that has been a huge reason for their transformation promises to bring in efficiency gains, improve growing bonhomie. It explains how the United States and to some extent, Pakistan have competitiveness and enhance customer contact points. Digital become important players in Indo-Vietnam defence ties. banking cuts across all verticals in the bank and focuses on simplifying complexities through technology process rework, thereby transforming complex processes that require lengthy Introduction documentation and manual intervention. Mobile banking in India's relations with Vietnam have always been genial and friendly. emerging Asia markets is a nascent market with considerable room During the days of Cold War, their relations were greatly for growth. Established players and new entrants have an conditioned by the larger cold war dynamics that were being played opportunity to reach out to those without any banking relationship out in the international arena. However, with the disintegration of and others with relatively small portfolios of banking products. their staunch ally, the erstwhile Soviet Union, the cold war abruptly Mckinsey & Co's survey shows that the region's personal financial came to an end and both India and Vietnam had to learn to withstand services consumers are becoming more sophisticated and are ready and adapt to the fast changing situations all by itself. This led them to to take advantage of mobile banking, especially the young and adopt not only new economic policies but also forge newer ties in affluent. Financial institutions that can cater to their needs will seize a defence cooperation and foreign policies. This is where the adoption significant share of this growing market. of India's Look East Policy brought it closer to Vietnam than ever before and India soon found that Vietnam has developed into 'an References important pillar of India's Look East policy'. 1. Settapong Malisuwan and others, “Development of Mobile Financial 1990 To 1999- Reaffirming Ties after the Cold War Services in Thailand,”, International Journal of Management, February After the end of Cold War, with the disintegration of their staunch 2016. ally the erstwhile Soviet Union, New Delhi's defence relations with 2. Aurelie Hostis and Peter Wannamacher, Forrester report The State of Hanoi developed slowly, in a limited manner, as part of exchange of Mobile Banking 2015. high level military delegations, the former chief of General Staff of 3. Deloitte report, “The Future is Now,” Digital Financial Services in the Indian Army Gen K.V Krishna Rao visited Hanoi in May 1983 Indonesia, September, 2014. after Sino- Vietnam war of 1979. Lt. Gen. Nguyen Huy Van led a four 4. Sumedh Deorukhkar and Le Xia, “Digital Banking in Emerging Asia - member senior military delegation to India in July 1992, where they Progress and Prospects,” October 2015. met Chief of the Indian Army Staff Gen. Rodriguez as well as others.1 5. ADB Institutes, Financial Inclusion in Asia - Country Surveys, 2014. The main purpose behind Rao's visit to Hanoi in 1979 was 'to study how Vietnamese border troops defeated attacks by China's regular 6. Mckinsey@Company report on “Digital Banking in ASEAN - Increasing 2 Consumer Sophistication and Openness,” March 2015. army formations'. Cooperation in the field of defence between India

38 Area Studies Area Studies 39 A.V. Ajay Babu India-Vietnam Defence Cooperation and the legal, regulatory, and market barriers. Finally, as Mobile banking is a China Factor: From 1991 to 2016 channel for increasing the capability to use financial services, it is crucial that those who are directly affected are financially literate and Tilottama Mukherjee capable. Assistant Professor, Department of Political Science (Syamaprasad College, Kolkata) Doctoral Candidate, Department of International Relations (Jadavpur University, Kolkata) Innovative digital banking solutions such as mobile banking, mobile payments, and biometric identification holds promise for expediting Abstract the financial inclusion process across EM Asia by reducing costs and This paper tries to analyze the evolution of India's defence ties with Vietnam over the enhancing the convenience of accessing financial services without years since the end of Cold War. It also studies the various factors that have conditioned compromising on security issues. For banks, the digital their bilateral defence ties and the China factor that has been a huge reason for their transformation promises to bring in efficiency gains, improve growing bonhomie. It explains how the United States and to some extent, Pakistan have competitiveness and enhance customer contact points. Digital become important players in Indo-Vietnam defence ties. banking cuts across all verticals in the bank and focuses on simplifying complexities through technology process rework, thereby transforming complex processes that require lengthy Introduction documentation and manual intervention. Mobile banking in India's relations with Vietnam have always been genial and friendly. emerging Asia markets is a nascent market with considerable room During the days of Cold War, their relations were greatly for growth. Established players and new entrants have an conditioned by the larger cold war dynamics that were being played opportunity to reach out to those without any banking relationship out in the international arena. However, with the disintegration of and others with relatively small portfolios of banking products. their staunch ally, the erstwhile Soviet Union, the cold war abruptly Mckinsey & Co's survey shows that the region's personal financial came to an end and both India and Vietnam had to learn to withstand services consumers are becoming more sophisticated and are ready and adapt to the fast changing situations all by itself. This led them to to take advantage of mobile banking, especially the young and adopt not only new economic policies but also forge newer ties in affluent. Financial institutions that can cater to their needs will seize a defence cooperation and foreign policies. This is where the adoption significant share of this growing market. of India's Look East Policy brought it closer to Vietnam than ever before and India soon found that Vietnam has developed into 'an References important pillar of India's Look East policy'. 1. Settapong Malisuwan and others, “Development of Mobile Financial 1990 To 1999- Reaffirming Ties after the Cold War Services in Thailand,”, International Journal of Management, February After the end of Cold War, with the disintegration of their staunch 2016. ally the erstwhile Soviet Union, New Delhi's defence relations with 2. Aurelie Hostis and Peter Wannamacher, Forrester report The State of Hanoi developed slowly, in a limited manner, as part of exchange of Mobile Banking 2015. high level military delegations, the former chief of General Staff of 3. Deloitte report, “The Future is Now,” Digital Financial Services in the Indian Army Gen K.V Krishna Rao visited Hanoi in May 1983 Indonesia, September, 2014. after Sino- Vietnam war of 1979. Lt. Gen. Nguyen Huy Van led a four 4. Sumedh Deorukhkar and Le Xia, “Digital Banking in Emerging Asia - member senior military delegation to India in July 1992, where they Progress and Prospects,” October 2015. met Chief of the Indian Army Staff Gen. Rodriguez as well as others.1 5. ADB Institutes, Financial Inclusion in Asia - Country Surveys, 2014. The main purpose behind Rao's visit to Hanoi in 1979 was 'to study how Vietnamese border troops defeated attacks by China's regular 6. Mckinsey@Company report on “Digital Banking in ASEAN - Increasing 2 Consumer Sophistication and Openness,” March 2015. army formations'. Cooperation in the field of defence between India

38 Area Studies Area Studies 39 Tilottama Mukherjee India-Vietnam Defence Cooperation and the China Factor: From 1991 to 2016 and Vietnam have been commendable in the period between 1991 eighth India- Vietnam Joint Commission meeting at Hanoi in August and 2016. Even during the Cold War era, their relations were 1997 was another important step where India again offered to supply extremely affable but this has been particularly so after the military spare parts and servicing of the Soviet origin defence commencement of India's Look East policy in 1991, which has led to equipment on a commercial basis. India's rendezvous with the countries of Southeast Asia in general The Director General of Military Intelligence of the Indian Army, and with Vietnam in particular. Vietnam has been termed as 'one of 3 New Delhi, Lt. Gen R L Sawhney visted Vietnam from November 10- the pillars of India's Look East policy' and thus has remained an 13, 1998. The Chief of the Army Staff of India visited Vietnam from active partner of India in the post- Cold War period. India has keen February 23-28, 1999. As part of exchange of high level military interest in ensuring the important sea lanes of communications and delegations, the Vice Chief of the Indian Army Staff, Lt. Gen the strategically important straits such as the Malacca straits, which Surendranath, visited Vietnam in 1994. A high level delegation are in the region, are safe from aggression from other countries. This headed by the Vietnamese Vice Minister of Defence and Chief of the region is also important for India's energy security and India has General Staff, Gen. Dai Din Luyen visited India from 3-11, 1995. The definite proposals to build oil and gas supplies from countries like 4 Director, Military Intelligence of Vietnam also visited India in Myanmar, Vietnam and Indonesia to meet her energy needs. In the September 1997. 8 At a time when India came under strong criticism post- cold war period, momentum gathered to consolidate their from most countries, Vietnam staunchly stood by India's nuclear bilateral defence cooperation in the form of a defence cooperation tests. This further bolstered their bonhomie. agreement that was concluded in 1994.5 It included provision for training of the Vietnamese defence personnel and supplying of 2000 To 2009 - Elevation of Bilateral Ties to Strategic military hardware spare parts. The defence agreement was signed by Partnership both these countries when Prime Minister of India, Narasimha Rao In March 2000, Defence Minister George Fernandes visited Hanoi visited Vietnam in September 1994. 'The main focus of this incidentally it was the first ever visit by an Indian Defence Minister to agreement was to promote cooperation between the defence Vietnam. A Defence Protocol was signed during this visit and India establishments of the two countries, centred on the safeguarding and pledged her assistance to bolster India's naval capacity- building. As preservation of military equipments mostly supplied to Vietnam by per the Defence Cooperation Agreement, India further promised sale the erstwhile Soviet Union, and the agreement was not intended 6 of advanced military light helicopters, assistance in repairs and against any third country.' overhaul of Vietnam's MiG-21 aircraft and training assistance for India's maritime objectives in the Asia- Pacific region were pilots and technicians. 'The most remarkable facet of this visit, a underlined by Defence Minister George Fernandez's assertion that fifteen- point agreement was signed between the two countries and his country's naval interests stretched from the Arabian Sea to the among them, the two Navies, the Indian Coast Guard and the South China Sea, and that Japan and Vietnam were emerging as Vietnamese sea- police agreed to cooperate with each other in 7 Delhi's strategic maritime partners. During the visit of Prime combating piracy. At the end of this agreement, the Indian Defence Minister Narasimha Rao to Hanoi in September 1994, a Protocol on Minister hailed Vietnam as India's “most trusted friend and ally”, Defence Cooperation was signed by both these countries which and clearly mentioned that Hanoi “stood by us after the nuclear tests would focus on military exchanges, visits and training and agreed because they understand that if (India) went nuclear there were good that there would be more frequent exchange of visits of defence reasons for it”, and thereby implied the China threat was personnel, and exchange of important information and transfer of unmistakable and agreed to assist Vietnam in the process of setting relevant technologies and equipments as and when required. In up its DRDO (Defence Research and Development Organization)... September 1994, it was agreed that the Hindustan Aeronautics apart from paving the way for visit of the Indian ships to Vietnamese Limited (HAL) will overhaul Vietnam's MiG-21 fighter aircraft. The

40 Area Studies Area Studies 41 Tilottama Mukherjee India-Vietnam Defence Cooperation and the China Factor: From 1991 to 2016 and Vietnam have been commendable in the period between 1991 eighth India- Vietnam Joint Commission meeting at Hanoi in August and 2016. Even during the Cold War era, their relations were 1997 was another important step where India again offered to supply extremely affable but this has been particularly so after the military spare parts and servicing of the Soviet origin defence commencement of India's Look East policy in 1991, which has led to equipment on a commercial basis. India's rendezvous with the countries of Southeast Asia in general The Director General of Military Intelligence of the Indian Army, and with Vietnam in particular. Vietnam has been termed as 'one of 3 New Delhi, Lt. Gen R L Sawhney visted Vietnam from November 10- the pillars of India's Look East policy' and thus has remained an 13, 1998. The Chief of the Army Staff of India visited Vietnam from active partner of India in the post- Cold War period. India has keen February 23-28, 1999. As part of exchange of high level military interest in ensuring the important sea lanes of communications and delegations, the Vice Chief of the Indian Army Staff, Lt. Gen the strategically important straits such as the Malacca straits, which Surendranath, visited Vietnam in 1994. A high level delegation are in the region, are safe from aggression from other countries. This headed by the Vietnamese Vice Minister of Defence and Chief of the region is also important for India's energy security and India has General Staff, Gen. Dai Din Luyen visited India from 3-11, 1995. The definite proposals to build oil and gas supplies from countries like 4 Director, Military Intelligence of Vietnam also visited India in Myanmar, Vietnam and Indonesia to meet her energy needs. In the September 1997. 8 At a time when India came under strong criticism post- cold war period, momentum gathered to consolidate their from most countries, Vietnam staunchly stood by India's nuclear bilateral defence cooperation in the form of a defence cooperation tests. This further bolstered their bonhomie. agreement that was concluded in 1994.5 It included provision for training of the Vietnamese defence personnel and supplying of 2000 To 2009 - Elevation of Bilateral Ties to Strategic military hardware spare parts. The defence agreement was signed by Partnership both these countries when Prime Minister of India, Narasimha Rao In March 2000, Defence Minister George Fernandes visited Hanoi visited Vietnam in September 1994. 'The main focus of this incidentally it was the first ever visit by an Indian Defence Minister to agreement was to promote cooperation between the defence Vietnam. A Defence Protocol was signed during this visit and India establishments of the two countries, centred on the safeguarding and pledged her assistance to bolster India's naval capacity- building. As preservation of military equipments mostly supplied to Vietnam by per the Defence Cooperation Agreement, India further promised sale the erstwhile Soviet Union, and the agreement was not intended 6 of advanced military light helicopters, assistance in repairs and against any third country.' overhaul of Vietnam's MiG-21 aircraft and training assistance for India's maritime objectives in the Asia- Pacific region were pilots and technicians. 'The most remarkable facet of this visit, a underlined by Defence Minister George Fernandez's assertion that fifteen- point agreement was signed between the two countries and his country's naval interests stretched from the Arabian Sea to the among them, the two Navies, the Indian Coast Guard and the South China Sea, and that Japan and Vietnam were emerging as Vietnamese sea- police agreed to cooperate with each other in 7 Delhi's strategic maritime partners. During the visit of Prime combating piracy. At the end of this agreement, the Indian Defence Minister Narasimha Rao to Hanoi in September 1994, a Protocol on Minister hailed Vietnam as India's “most trusted friend and ally”, Defence Cooperation was signed by both these countries which and clearly mentioned that Hanoi “stood by us after the nuclear tests would focus on military exchanges, visits and training and agreed because they understand that if (India) went nuclear there were good that there would be more frequent exchange of visits of defence reasons for it”, and thereby implied the China threat was personnel, and exchange of important information and transfer of unmistakable and agreed to assist Vietnam in the process of setting relevant technologies and equipments as and when required. In up its DRDO (Defence Research and Development Organization)... September 1994, it was agreed that the Hindustan Aeronautics apart from paving the way for visit of the Indian ships to Vietnamese Limited (HAL) will overhaul Vietnam's MiG-21 fighter aircraft. The

40 Area Studies Area Studies 41 Tilottama Mukherjee India-Vietnam Defence Cooperation and the China Factor: From 1991 to 2016 and more collaborations in naval exercises.” 9 providing training to their armed forces officers in various areas and said, “They are bringing back valuable knowledge and skills to their The next high point of their defence relations was the Strategic 11 Partnership Agreement of 2007. This agreement was important as it work areas.” took place amidst reports of growing assertiveness of China in not General Thanh sought Indian support in training of defence only the South China Sea region but also in its relations with personnel , enhancing the exchanges of delegations, expanding neighbours such as India. For instance, in her relations with India, training cooperation, an increase in the frequency of goodwill visits China became increasingly forceful and denied a visa to an Indian by naval ships, application of information technology and ...technical government official from Arunachal Pradesh, arguing that since the support for the Vietnamese navy. India and Vietnam, as an state is in fact a part of China he would not require a visa to visit his important part of their institutionalized mechanisms for bilateral own country. The Prime Minister of the Socialist Republic of Vietnam exchanges, have an annual Security Dialogue at Defence Secretary H.E. Mr. Nguyen Tan Dung paid a state visit to India from July 4-6, Level. At the third India- Vietnam Security Dialogue meeting, which 2007.The two leaders resolved to strengthen India- Vietnam relations was held in November 2007, “both the countries converged upon a through the establishment of a New Strategic Partnership. The two number of important decisions, like the exchange of visits for better leaders highly valued the important contributions made to bilateral appreciation of requirements and problems, greater cooperation in cooperation by various existing mechanisms such as the India- the field of training of Service personnel- particularly involving Vietnam Joint Commission and the India- Vietnam Foreign Office junior level officers, security dialogue at least once a year, sharing of Consultations. In order to further enhance cooperation and expertise on issues of common concerns such as maritime security, understanding in the context of the New Strategic Partnership border management and counter- insurgency, conduct of training for established between the two countries, they agreed to establish a Vietnamese officers in the field of UN Peacekeeping operations, Strategic Dialogue at the level of Vice- Ministers in the Foreign Office. invitation to Vietnamese officers to Indian military exercises as The two leaders agreed that contracts and exchanges of visits observers, etc which were aimed at providing greater impetus to between the Defence and Security establishments of the two their growing relationship.” 12 countries should be further enhanced. Recognising that both In 2001, an Indian Coastguard vessel 'Sangram' made goodwill visit countries have extensive maritime interests, the two sides agreed to 10 to Ho Chi Minh City from 7-9 June. This was the first ever stop over work closely to enhance cooperation by an Indian Coast Guard ship in Vietnam. In the same year, two The next important milestone in defence collaboration between the Indian naval ships 'INS Mumbai' and 'INS Jyoti' paid a three- day two countries was the visit of the Defence Minister of India A.K goodwill visit to Ho Chi Minh City from 29-31 October.13 In Antony to Hanoi in December 2007. Antony announced at the November 2004, three Indian naval ships namely, 'INS Ranvijay', meeting with his counterpart General Phung Quang Thanh in Hanoi 'INS Sukanya' and 'INS Kirch' paid goodwill visits to Ho Chi Minh that India will transfer 5000 naval spares belonging to Petya class of City and this trip was commanded by Rear Admiral S.K Damle, Flag ship to Vietnam to make many of the ageing ships operational. The Officer Commanding-in-Chief (FOC) of the Eastern Naval Fleet.14 two sides agreed to set up a Joint Working Group to facilitate the From 9-13 June 2005, the Indian naval vessel 'INS Magar' again paid a signing of Memorandum of Understanding (MoU) on defence goodwill visit to Vietnam.15 From 8-11 June 2006, three Indian naval cooperation. Antony congratulated Vietnam on being elected as non- ships, 'INS Rajput', 'INS Kulish' and 'INS Kirpan', led by Rear permanent member of the United Nations Security Council (UNSC) Admiral D.K Joshi, FOC, Eastern Fleet visited Tien Sea Port at Da for a period of two years and said “New Delhi attaches tremendous Nang City of Vietnam.16 Two Indian Navy ships, namely, 'INS importance to the Strategic Partnership forged between the two Mysore' and 'INS Ranjit' and a Coast Guard ship 'ICGS Sagar' docked Prime Ministers in July this year”. General Thanh thanked India for at a port in Ho Chi Minh City from 7-11 May and 12-14 May 2007

42 Area Studies Area Studies 43 Tilottama Mukherjee India-Vietnam Defence Cooperation and the China Factor: From 1991 to 2016 and more collaborations in naval exercises.” 9 providing training to their armed forces officers in various areas and said, “They are bringing back valuable knowledge and skills to their The next high point of their defence relations was the Strategic 11 Partnership Agreement of 2007. This agreement was important as it work areas.” took place amidst reports of growing assertiveness of China in not General Thanh sought Indian support in training of defence only the South China Sea region but also in its relations with personnel , enhancing the exchanges of delegations, expanding neighbours such as India. For instance, in her relations with India, training cooperation, an increase in the frequency of goodwill visits China became increasingly forceful and denied a visa to an Indian by naval ships, application of information technology and ...technical government official from Arunachal Pradesh, arguing that since the support for the Vietnamese navy. India and Vietnam, as an state is in fact a part of China he would not require a visa to visit his important part of their institutionalized mechanisms for bilateral own country. The Prime Minister of the Socialist Republic of Vietnam exchanges, have an annual Security Dialogue at Defence Secretary H.E. Mr. Nguyen Tan Dung paid a state visit to India from July 4-6, Level. At the third India- Vietnam Security Dialogue meeting, which 2007.The two leaders resolved to strengthen India- Vietnam relations was held in November 2007, “both the countries converged upon a through the establishment of a New Strategic Partnership. The two number of important decisions, like the exchange of visits for better leaders highly valued the important contributions made to bilateral appreciation of requirements and problems, greater cooperation in cooperation by various existing mechanisms such as the India- the field of training of Service personnel- particularly involving Vietnam Joint Commission and the India- Vietnam Foreign Office junior level officers, security dialogue at least once a year, sharing of Consultations. In order to further enhance cooperation and expertise on issues of common concerns such as maritime security, understanding in the context of the New Strategic Partnership border management and counter- insurgency, conduct of training for established between the two countries, they agreed to establish a Vietnamese officers in the field of UN Peacekeeping operations, Strategic Dialogue at the level of Vice- Ministers in the Foreign Office. invitation to Vietnamese officers to Indian military exercises as The two leaders agreed that contracts and exchanges of visits observers, etc which were aimed at providing greater impetus to between the Defence and Security establishments of the two their growing relationship.” 12 countries should be further enhanced. Recognising that both In 2001, an Indian Coastguard vessel 'Sangram' made goodwill visit countries have extensive maritime interests, the two sides agreed to 10 to Ho Chi Minh City from 7-9 June. This was the first ever stop over work closely to enhance cooperation by an Indian Coast Guard ship in Vietnam. In the same year, two The next important milestone in defence collaboration between the Indian naval ships 'INS Mumbai' and 'INS Jyoti' paid a three- day two countries was the visit of the Defence Minister of India A.K goodwill visit to Ho Chi Minh City from 29-31 October.13 In Antony to Hanoi in December 2007. Antony announced at the November 2004, three Indian naval ships namely, 'INS Ranvijay', meeting with his counterpart General Phung Quang Thanh in Hanoi 'INS Sukanya' and 'INS Kirch' paid goodwill visits to Ho Chi Minh that India will transfer 5000 naval spares belonging to Petya class of City and this trip was commanded by Rear Admiral S.K Damle, Flag ship to Vietnam to make many of the ageing ships operational. The Officer Commanding-in-Chief (FOC) of the Eastern Naval Fleet.14 two sides agreed to set up a Joint Working Group to facilitate the From 9-13 June 2005, the Indian naval vessel 'INS Magar' again paid a signing of Memorandum of Understanding (MoU) on defence goodwill visit to Vietnam.15 From 8-11 June 2006, three Indian naval cooperation. Antony congratulated Vietnam on being elected as non- ships, 'INS Rajput', 'INS Kulish' and 'INS Kirpan', led by Rear permanent member of the United Nations Security Council (UNSC) Admiral D.K Joshi, FOC, Eastern Fleet visited Tien Sea Port at Da for a period of two years and said “New Delhi attaches tremendous Nang City of Vietnam.16 Two Indian Navy ships, namely, 'INS importance to the Strategic Partnership forged between the two Mysore' and 'INS Ranjit' and a Coast Guard ship 'ICGS Sagar' docked Prime Ministers in July this year”. General Thanh thanked India for at a port in Ho Chi Minh City from 7-11 May and 12-14 May 2007

42 Area Studies Area Studies 43 Tilottama Mukherjee India-Vietnam Defence Cooperation and the China Factor: From 1991 to 2016 respectively and India supplied free equipment to the Vietnamese and security cooperation in the regional and international Navy to repair its facilities. 17 community to reinforce the friendship, mutual understanding, confidence building and conflict prevention. This is why Vietnam Apart from the forums provided by the ASEAN, ASEAN Regional has been trying to expand its defence and security cooperation with Forum, Mekong Ganga Cooperation and Asia Europe Meeting, more and more countries and has been thus regularly engaging in another important 'track one' inter- governmental defence talk joint naval exercises with India, China, United States, Australia, podium which materialized in this decade is the Shangri- La 21 Dialogue. The Dialogue of Asia- Pacific states, is an initiative of an Japan, etc. Coincidentally, in the same year, that is in 2009, India autonomous think- tank, namely, the International Institute for modified its maritime doctrine, which was originally formulated in Strategic Studies. This Dialogue is of immense significance as it is 2004. According to the doctrine, areas of maritime interest to India conducted every year and is attended by defence ministers, military not only included India's coastal areas and maritime zones, including chiefs, legislators, journalists and the like. This Dialogue has been coastline, islands, internal sea waters, territorial waters, contiguous consistently held since 2002 and it is a forum where both India and zone, Exclusive Economic Zone, continental shelf, and the Arabian Vietnam, along with China can participate and contribute in their Sea, Bay of Bengal, Andaman Sea and their littoral regions, but also own way to discussions on important security issues in the region. the choke points leading to, from and across the Indian Ocean including the Malacca and Singapore Straits, South and East China The fifth Shangri La Dialogue of 2006 was very significant where Mr. 22 Pranab Mukherjee, emphasized the critical importance of the Strait of Seas and their littoral regions. Malacca to Indian security, noting that more than 50 percent of 2010 To 2016 - Strategic Partnership to Comprehensive India's trade passed through its waters. On India's relations with Strategic Partnership China, Mukherjee remarked that India was engaged in a constructive dialogue with China to resolve outstanding border issues and that In July 2010, General V K Singh paid a visit to Vietnam and met his through several confidence building agreements of 1993, 1996 and counterpart, Deputy Chief of General Staff Pham Hong Loi. This was 2005, tension had been reduced in border areas along the line of the first visit to Vietnam by an Indian Army Chief in over a decade. actual control.18 Another important Memorandum of Understanding Two areas were spotted by them for immediate cooperation. These (MoU) was signed between the two ministries of defence in 2009 were, firstly, training of military personnel and secondly, dialogue providing a concessional $100 million Line of Credit for procurement between experts on strategic affairs on both sides. Vietnam, which of defence equipment from India.19 was then, chairing the ASEAN invited India to the ASEAN Plus Eight Defence Ministers meeting.23 India did participate in the ASEAN plus Significantly enough, Vietnam released a Defence White Paper in Eight Defence Ministers Meeting which was held in October, 2010 at 2009. The White Paper made only an indirect reference to China on Hanoi. Apart from the ten member states of the ASEAN, eight other the issue of military strategy, galloping defence expenditure, countries such as, Australia, People's Republic of China, Republic of advanced weapon systems and technologies. It also laid emphasis on India, Japan, Republic of Korea, New Zealand, Russia and the United the increasing gap in defence capabilities between the major powers States of America participated as dialogue partners to discuss and developing countries. The white paper listed Vietnam's major measures for improving the security architecture of the region. India achievements in terms of demarcating the land borders and the and Vietnam have also started participating in joint naval exercises. settlement of maritime borders with China in the Gulf of Tonkin. The For example, in the 'Milan' of 2010, Vietnam participated with India. paper unambiguously once again reiterated Vietnam's sovereign This event is held every two years, where navies of diverse countries rights over the South China Sea (East Sea) including the Spratlys and 20 from the Indian Ocean region carry out joint naval exercises in the the Paracels. According to the White Paper, Vietnam advocates waters off the Andaman and Nicobar islands. expanding defence diplomacy and actively participating in defence

44 Area Studies Area Studies 45 Tilottama Mukherjee India-Vietnam Defence Cooperation and the China Factor: From 1991 to 2016 respectively and India supplied free equipment to the Vietnamese and security cooperation in the regional and international Navy to repair its facilities. 17 community to reinforce the friendship, mutual understanding, confidence building and conflict prevention. This is why Vietnam Apart from the forums provided by the ASEAN, ASEAN Regional has been trying to expand its defence and security cooperation with Forum, Mekong Ganga Cooperation and Asia Europe Meeting, more and more countries and has been thus regularly engaging in another important 'track one' inter- governmental defence talk joint naval exercises with India, China, United States, Australia, podium which materialized in this decade is the Shangri- La 21 Dialogue. The Dialogue of Asia- Pacific states, is an initiative of an Japan, etc. Coincidentally, in the same year, that is in 2009, India autonomous think- tank, namely, the International Institute for modified its maritime doctrine, which was originally formulated in Strategic Studies. This Dialogue is of immense significance as it is 2004. According to the doctrine, areas of maritime interest to India conducted every year and is attended by defence ministers, military not only included India's coastal areas and maritime zones, including chiefs, legislators, journalists and the like. This Dialogue has been coastline, islands, internal sea waters, territorial waters, contiguous consistently held since 2002 and it is a forum where both India and zone, Exclusive Economic Zone, continental shelf, and the Arabian Vietnam, along with China can participate and contribute in their Sea, Bay of Bengal, Andaman Sea and their littoral regions, but also own way to discussions on important security issues in the region. the choke points leading to, from and across the Indian Ocean including the Malacca and Singapore Straits, South and East China The fifth Shangri La Dialogue of 2006 was very significant where Mr. 22 Pranab Mukherjee, emphasized the critical importance of the Strait of Seas and their littoral regions. Malacca to Indian security, noting that more than 50 percent of 2010 To 2016 - Strategic Partnership to Comprehensive India's trade passed through its waters. On India's relations with Strategic Partnership China, Mukherjee remarked that India was engaged in a constructive dialogue with China to resolve outstanding border issues and that In July 2010, General V K Singh paid a visit to Vietnam and met his through several confidence building agreements of 1993, 1996 and counterpart, Deputy Chief of General Staff Pham Hong Loi. This was 2005, tension had been reduced in border areas along the line of the first visit to Vietnam by an Indian Army Chief in over a decade. actual control.18 Another important Memorandum of Understanding Two areas were spotted by them for immediate cooperation. These (MoU) was signed between the two ministries of defence in 2009 were, firstly, training of military personnel and secondly, dialogue providing a concessional $100 million Line of Credit for procurement between experts on strategic affairs on both sides. Vietnam, which of defence equipment from India.19 was then, chairing the ASEAN invited India to the ASEAN Plus Eight Defence Ministers meeting.23 India did participate in the ASEAN plus Significantly enough, Vietnam released a Defence White Paper in Eight Defence Ministers Meeting which was held in October, 2010 at 2009. The White Paper made only an indirect reference to China on Hanoi. Apart from the ten member states of the ASEAN, eight other the issue of military strategy, galloping defence expenditure, countries such as, Australia, People's Republic of China, Republic of advanced weapon systems and technologies. It also laid emphasis on India, Japan, Republic of Korea, New Zealand, Russia and the United the increasing gap in defence capabilities between the major powers States of America participated as dialogue partners to discuss and developing countries. The white paper listed Vietnam's major measures for improving the security architecture of the region. India achievements in terms of demarcating the land borders and the and Vietnam have also started participating in joint naval exercises. settlement of maritime borders with China in the Gulf of Tonkin. The For example, in the 'Milan' of 2010, Vietnam participated with India. paper unambiguously once again reiterated Vietnam's sovereign This event is held every two years, where navies of diverse countries rights over the South China Sea (East Sea) including the Spratlys and 20 from the Indian Ocean region carry out joint naval exercises in the the Paracels. According to the White Paper, Vietnam advocates waters off the Andaman and Nicobar islands. expanding defence diplomacy and actively participating in defence

44 Area Studies Area Studies 45 Tilottama Mukherjee India-Vietnam Defence Cooperation and the China Factor: From 1991 to 2016

However, the major hiccup in India- Vietnam relations during this its warships could dock there and exert its presence in the region. period was India's apparent hesitations in delivering the BrahMos Vietnam and the USA, keeping ideological differences and war missile systems to Hanoi as was promised to the latter, during the experiences aside, have come a long way since the establishment of tenure of the BJP government. This dithering led Vietnam to come formal diplomatic relations on July 12, 1995 exchange of their closer to India's arch- rival Pakistan, and Vietnam procured 100 Ambassadors in July 1997 and opening the U.S Consulate General in SMG-PK 9mm submachine guns and 50 sniper rifles in 2007. But Ho Chi Minh City and Vietnam Consulate General in San Francisco India was quick to respond and in 2011, India entered into in November 1997. U.S Secretary of Defence W. Cohen paid a visit to negotiations with Vietnam to sell its first BrahMos cruise missiles, Vietnam in March 2000 and Minister of Defence Pham Van Tra paid a which are capable of being launched from submarines, aircraft or visit to the U.S in November 2003. In June 2006, U.S Secretary of land. This was for the first time that India was entering into such a Defence D. Rumsfeld visited Vietnam. . Since 2003, U.S naval ships negotiation with any outside country, and this will bolster Vietnam's have visited Vietnam's ports annually under bilateral military defence abilities, particularly in the wake of re-ignition of the South cooperation framework. On 29 December 2006, together with the China Sea issue and to combat China's assertiveness in the region. announcement of granting PNTR for Vietnam, US President G. Bush Another first was recorded in their bilateral relations when the lifted the embargo on selling some non-lethal military items to Indian naval warships were granted permission to anchor at the Na Vietnam.26 Even during President Obama's tenure, positive Trang port in southern Vietnam. This permission was granted to developments have taken place for fostering greater camaraderie India by Vietnam, chiefly because Vietnam wanted a significant between the two countries. On 20 September 2011, deputy assistant presence of the Indian navy in the South China Sea region, to counter secretary of defence for south and Southeast Asia and Vietnam's the Chinese dominance in the Sea.24 On 21 April 2008, Flag Officer defence minister signed a MoU for advancing bilateral defence Commanding-in-Chief of the Indian eastern naval command visited cooperation. Hanoi with 2 naval ships INS Kora and INS Kirpan. Vietnam welcomes the support of India and the United States on the The First Strategic Dialogue between the two countries was held on South China Sea issue. In fact, the fear of Chinese belligerence in the 15 October 2009 at New Delhi. Since then regular security dialogue region has drawn them closer to each other. The United States has has been held and institutionalized. Visit of the President of Vietnam, released quite a few press statements condemning Chinese moves in Truong Tan Sang to India from 11-13 Oct 2011 was significant as far the region. For instance, one such press statement was released by as bilateral defence cooperation was concerned. New initiatives were Patrick Ventrell, Acting Deputy Spokesperson, Office of Press undertaken in defence industry, Research and Development, and Relations, Washington D.C on August 3, 2012. According to the 'think-tanks' in related areas.25 statement, “We are concerned by the increase in tensions in the South China Sea and are monitoring the situation closely...China's Vietnam is likewise trying to come closer to the United States, upgrading of the administrative level of Sansha City and particularly to thwart Chinese aggressiveness in the Southeast Asian establishment of a new military garrison there covering disputed and South China Sea regions. Strategic cooperation between areas of the South China Sea run counter to collaborative diplomatic Vietnam and the United States started since 2003. The perceived efforts to resolve differences and risk further escalating tensions in Chinese threat has drawn these two countries closer to each other. 27 Vietnam wants the United States to engage with it more than ever the region.” before and contribute to its modernization, both in its economic China's hard-line military modernization and strategic proximity sphere and security cooperation. Vietnam has vital interests and and support to Pakistan have drawn India, Vietnam and the United desires that the United States should remove restrictions on arms States nearer to each other. While India stepped up its own military sale. The United States desires greater access to Vietnamese ports, so modernization plan, Vietnam did the same almost exclusively driven

46 Area Studies Area Studies 47 Tilottama Mukherjee India-Vietnam Defence Cooperation and the China Factor: From 1991 to 2016

46 Area Studies Area Studies 47 Tilottama Mukherjee India-Vietnam Defence Cooperation and the China Factor: From 1991 to 2016 by the threat of China. This is why, unlike any other country, Minister Gen Chang Wanquan. During the visit of Prime Minister of Vietnam's publicly released defence budget has grown from $1.3 India to China from October 22-24, 2013, an Agreement on Border billion in 2006 to $4.6 billion in 2015, a 258 per cent increase. Defence Cooperation between India and China was signed at Beijing Vietnam's percentage of arms imports as a percentage of total on October 23, 2013. The agreement sought to strengthen measures ASEAN arms imports in 2015 is thirty four percent, the largest share for maintenance of peace and stability in the border areas. The 3rd among all other ASEAN countries.28 Russia remains the largest ally of joint exercise 'Hand in Hand' was held between the Indian Army and Vietnam as far as procuring arms is concerned, despite the entry of the PLA from November4-14, 2013 in China. The 6th Annual Defence the United States in this area. and Security Dialogue (ADSD) which was held in New Delhi on January 24, 2014, was attended by Indian Defence Secretary and Lt. On 18 April 2012, India launched Agni V missile to boost the Gen Wang Guanzhong, Deputy Chief of General Staff of the People's country's rocket hitting capability of over 5000kms. This two- stage 31 missile, equipped with an advanced high- accuracy navigation Liberation Army (PLA). Although the unresolved boundary system and guided by a novel state-of-the-art command and control dispute between India and China remained factor in India's security system, is powered by a solid rocket propellant structure. The calculus, India has engaged with China on the principle of mutual Chinese reaction was not favourable. The Global Times on 19 April respect and sensitivity for each other's interest, concerns and 2012 wrote “India should not overestimate its strength. Even if it has aspiration and mutual and equal security. Steps were initiated to missiles that could reach most parts of China that does not mean it promote interaction and confidence building measures between the will gain anything from being arrogant during disputes with China. Armed Forces of both sides. Both countries have agreed on the need India should be clear that China's nuclear power is stronger and more to maintain peace and tranquillity on the border which is an reliable. For the foreseeable future, India would stand no chance in important guarantor for the development and continued growth of 29 bilateral relations. India remains conscious and watchful of the an overall arms race with China”. implication of China's increasing military profile in its immediate While General Dalbir Singh Suhag, Chief of Army Staff of India and extended neighbourhood as well as the development of strategic visited Vietnam from 17-20 December 2014, as part of the high- level infrastructure by China in the border areas. India also took necessary defence engagement, Vietnam's Vice Defence Minister Lt. General measures to develop the requisite capabilities to counter any adverse Nguyen Chi Binh visited Delhi for the Security Dialogue with impact on its own security.32 Defence Secretary on 16 January 2015. India offered $100 million Line of Credit to strengthen Vietnam's navy. Port calls by Indian Since 1980, Vietnam and India have exchanged Defence Attaché. The Naval Warship 'INS Shivalik' (August 2014) and coast guard ship two nations have signed various agreements such as protocol on 'Samudra Paheredar' (October 2014) to Vietnam took place. Smt. defence in April 1994, Memorandum of Understanding (MoU) on Smita Nagaraj, Joint Secretary, Ministry of Defence, led the Indian defence cooperation in November 2009, and a MoU on naval delegation to the first meeting of the Experts' Working Group (EWG) cooperation in June 2011. Vietnam and India signed Mutual Legal on Humanitarian Mine Action held in Hanoi on 18 June 2014, under Assistance Treaty in Criminal Matters in 2007, Memorandum on 30 Crime Prevention Cooperation in 2008, MoU on Cooperation the cooperative programme of ADMM+. Col Gen Do Ba Ty, Vice between Vietnam's Ministry of Public Security and India's Ministry Minister of National Defence, Chief of the General Staff of Vietnam 33 visited India and called on Raksha Mantri on September 24, 2013. of Home Affairs in September 2011. In January 2015, Vietnam's Deputy Defence Minister Nguyen Chi Vinh visited India and While devlopming defence ties with Vietnam, India has been together with Indian counterpart, Defence Secretary Shri R. K. engaging with China to bolster greater confidence in their ties. Mathur convened the ninth Vietnam- India defence dialogue in New Raksha Mantri who led a high level delegation to China from July 4-7, Delhi on January 16, 2015. Both sides agreed that they will continue 2013, had meetings with the Premier Li Keqiang and Defence sharing defence strategies and policies via visits and training courses

48 Area Studies Area Studies 49 Tilottama Mukherjee India-Vietnam Defence Cooperation and the China Factor: From 1991 to 2016 by the threat of China. This is why, unlike any other country, Minister Gen Chang Wanquan. During the visit of Prime Minister of Vietnam's publicly released defence budget has grown from $1.3 India to China from October 22-24, 2013, an Agreement on Border billion in 2006 to $4.6 billion in 2015, a 258 per cent increase. Defence Cooperation between India and China was signed at Beijing Vietnam's percentage of arms imports as a percentage of total on October 23, 2013. The agreement sought to strengthen measures ASEAN arms imports in 2015 is thirty four percent, the largest share for maintenance of peace and stability in the border areas. The 3rd among all other ASEAN countries.28 Russia remains the largest ally of joint exercise 'Hand in Hand' was held between the Indian Army and Vietnam as far as procuring arms is concerned, despite the entry of the PLA from November4-14, 2013 in China. The 6th Annual Defence the United States in this area. and Security Dialogue (ADSD) which was held in New Delhi on January 24, 2014, was attended by Indian Defence Secretary and Lt. On 18 April 2012, India launched Agni V missile to boost the Gen Wang Guanzhong, Deputy Chief of General Staff of the People's country's rocket hitting capability of over 5000kms. This two- stage 31 missile, equipped with an advanced high- accuracy navigation Liberation Army (PLA). Although the unresolved boundary system and guided by a novel state-of-the-art command and control dispute between India and China remained factor in India's security system, is powered by a solid rocket propellant structure. The calculus, India has engaged with China on the principle of mutual Chinese reaction was not favourable. The Global Times on 19 April respect and sensitivity for each other's interest, concerns and 2012 wrote “India should not overestimate its strength. Even if it has aspiration and mutual and equal security. Steps were initiated to missiles that could reach most parts of China that does not mean it promote interaction and confidence building measures between the will gain anything from being arrogant during disputes with China. Armed Forces of both sides. Both countries have agreed on the need India should be clear that China's nuclear power is stronger and more to maintain peace and tranquillity on the border which is an reliable. For the foreseeable future, India would stand no chance in important guarantor for the development and continued growth of 29 bilateral relations. India remains conscious and watchful of the an overall arms race with China”. implication of China's increasing military profile in its immediate While General Dalbir Singh Suhag, Chief of Army Staff of India and extended neighbourhood as well as the development of strategic visited Vietnam from 17-20 December 2014, as part of the high- level infrastructure by China in the border areas. India also took necessary defence engagement, Vietnam's Vice Defence Minister Lt. General measures to develop the requisite capabilities to counter any adverse Nguyen Chi Binh visited Delhi for the Security Dialogue with impact on its own security.32 Defence Secretary on 16 January 2015. India offered $100 million Line of Credit to strengthen Vietnam's navy. Port calls by Indian Since 1980, Vietnam and India have exchanged Defence Attaché. The Naval Warship 'INS Shivalik' (August 2014) and coast guard ship two nations have signed various agreements such as protocol on 'Samudra Paheredar' (October 2014) to Vietnam took place. Smt. defence in April 1994, Memorandum of Understanding (MoU) on Smita Nagaraj, Joint Secretary, Ministry of Defence, led the Indian defence cooperation in November 2009, and a MoU on naval delegation to the first meeting of the Experts' Working Group (EWG) cooperation in June 2011. Vietnam and India signed Mutual Legal on Humanitarian Mine Action held in Hanoi on 18 June 2014, under Assistance Treaty in Criminal Matters in 2007, Memorandum on 30 Crime Prevention Cooperation in 2008, MoU on Cooperation the cooperative programme of ADMM+. Col Gen Do Ba Ty, Vice between Vietnam's Ministry of Public Security and India's Ministry Minister of National Defence, Chief of the General Staff of Vietnam 33 visited India and called on Raksha Mantri on September 24, 2013. of Home Affairs in September 2011. In January 2015, Vietnam's Deputy Defence Minister Nguyen Chi Vinh visited India and While devlopming defence ties with Vietnam, India has been together with Indian counterpart, Defence Secretary Shri R. K. engaging with China to bolster greater confidence in their ties. Mathur convened the ninth Vietnam- India defence dialogue in New Raksha Mantri who led a high level delegation to China from July 4-7, Delhi on January 16, 2015. Both sides agreed that they will continue 2013, had meetings with the Premier Li Keqiang and Defence sharing defence strategies and policies via visits and training courses

48 Area Studies Area Studies 49 Tilottama Mukherjee India-Vietnam Defence Cooperation and the China Factor: From 1991 to 2016 for armies, especially naval forces. Early April 2015, Indian national and marker planting, agreement on land boundary management and security advisor A.Doval paid a visit to Vietnam to boost defence and agreement on land port/border gates and their management... The security cooperation between the two countries. 34 joint working group on the Gulf of Tonkin first met in March 1994 and held seventeen meetings before concluding. So, as a result, in While India was developing its relations with Vietnam, China has December 2000, Vietnam and China signed the agreement on the been increasingly engaging with India's arch- rival, Pakistan, in the demarcation of waters, exclusive economic zones and continental South Asian region. For instance, in July 2015, it was reported that, shelves in the Gulf of Tonkin and the agreement on fishing “China has built the world's largest single solar photovoltaic power cooperation in the Gulf of Tonkin. This set the stage for the adoption plant in Bhawalpur in Pakistan's Punjab province. The 100 MW of the Vietnam- China Joint Statement for Comprehensive Quaid-e- Azam Solar Park has come up over 229 hectare land in the 36 Cholistan desert and cost $215 million in three months. The project, Cooperation in the New Century.” The eighth annual security named after Pakistan's founder Md. Ali Jinnah, is a big boost to Prime dialogue at the secretary level was held in Ho Chi Minh City on 8 Minister Nawaz Sharif, who was elected on the promise of solving November 2013. the country's energy crisis. The Chinese media has linked the project The Indian Armed Forces have been engaged with the capacity with its Silk Road programme...Chinese President Xi Jinping had building of the Vietnamese Armed Forces, particularly the Navy. allocated $46 billion for a China- Pakistan economic corridor as a Four Indian naval ships which included the indigenously built model project for Beijing's growing clout. Chinese officials say the stealth frigate 'INS Satpura' and fleet tanker 'INS Shakti' with a corridor showcases efficacy of the Silk Road Programme, which they compliment of around 1200 officers and sailors visited Da Nang from describe as 'One belt, One Road' programme.” 35 6-10 June 2013. From Vietnamese side, Lt. Gen. Do Ba Ty, Chief of the General Staff-cum- Vice Minister of Defence Senior visited India The perennial border dispute between India and China on the one from 23-27 September 2013. Mr. Pham Quang Vinh, Vice Foreign hand and China and Vietnam on the other hand, has constantly 37 plagued their relations. In fact, formal diplomatic normalization of Minister participated in Delhi Dialogue VI on 6-7 March 2014. In relations between Vietnam and China did not occur till November fact, shared perception of threat of China has bonded these two 1991. The bitterness in their relations was attributed to certain countries, namely India and Vietnam in friendly and intense defence successive incidents during the Cold War era, such as, Vietnam's cooperation. That is why, “India- Vietnam...signed a five- year joint treatment of ethnic Chinese, Vietnam's alignment with the Soviet vision statement on defence cooperation to build closer strategic ties Union, the Kampuchea issue and Vietnam's invasion of Cambodia in in the backdrop of an increasingly assertive China flexing its muscles late 1978. It took eleven years for Vietnam to withdraw its military in the South China Sea. Vietnam Defence Minister Gen. Phung forces from Cambodia in September 1989. After the normalization of Quang Thanh visited New Delhi in May 2015 amid growing concerns over China's land reclamation project in the South China Sea, aimed their ties in 1991, both these began discussions at the expert level for 38 peaceful resolution of their disputes on land border and Gulf of at bolstering its territorial claims in the disputed area.” Tonkin. The first expert- level discussions on dispute management India and Vietnam reached a landmark in their relations in were held in October 1992. On 30 December 1999, China and Vietnam September 2016. At the invitation of Nguyen Xuan Phuc, Prime signed a land border agreement during the visit to Hanoi by Premier Minister of Vietnam, the Prime Minister of the Republic of India, Zhu Rongji. Both sides ratified the treaty in 2000 and the process of Narendra Modi paid an official visit to the SRV from 02-03 September placing stone markers along the border was completed at the end of 2016. The Vietnamese side reaffirmed Vietnam's support for India's 2008. In August 2009, Deputy Foreign Ministers of Vietnam and Act East Policy and welcomed a greater role for India in the regional China, Ho Xuan Son and Wu Dawei, met in Hanoi. Two sides signed and international arenas. Vietnam and India agreed to elevate the three agreements a protocol on demarcation of the land boundary current Strategic Partnership to Comprehensive Strategic Partnership and the two Prime Ministers agreed to assign the two

50 Area Studies Area Studies 51 Tilottama Mukherjee India-Vietnam Defence Cooperation and the China Factor: From 1991 to 2016 for armies, especially naval forces. Early April 2015, Indian national and marker planting, agreement on land boundary management and security advisor A.Doval paid a visit to Vietnam to boost defence and agreement on land port/border gates and their management... The security cooperation between the two countries. 34 joint working group on the Gulf of Tonkin first met in March 1994 and held seventeen meetings before concluding. So, as a result, in While India was developing its relations with Vietnam, China has December 2000, Vietnam and China signed the agreement on the been increasingly engaging with India's arch- rival, Pakistan, in the demarcation of waters, exclusive economic zones and continental South Asian region. For instance, in July 2015, it was reported that, shelves in the Gulf of Tonkin and the agreement on fishing “China has built the world's largest single solar photovoltaic power cooperation in the Gulf of Tonkin. This set the stage for the adoption plant in Bhawalpur in Pakistan's Punjab province. The 100 MW of the Vietnam- China Joint Statement for Comprehensive Quaid-e- Azam Solar Park has come up over 229 hectare land in the 36 Cholistan desert and cost $215 million in three months. The project, Cooperation in the New Century.” The eighth annual security named after Pakistan's founder Md. Ali Jinnah, is a big boost to Prime dialogue at the secretary level was held in Ho Chi Minh City on 8 Minister Nawaz Sharif, who was elected on the promise of solving November 2013. the country's energy crisis. The Chinese media has linked the project The Indian Armed Forces have been engaged with the capacity with its Silk Road programme...Chinese President Xi Jinping had building of the Vietnamese Armed Forces, particularly the Navy. allocated $46 billion for a China- Pakistan economic corridor as a Four Indian naval ships which included the indigenously built model project for Beijing's growing clout. Chinese officials say the stealth frigate 'INS Satpura' and fleet tanker 'INS Shakti' with a corridor showcases efficacy of the Silk Road Programme, which they compliment of around 1200 officers and sailors visited Da Nang from describe as 'One belt, One Road' programme.” 35 6-10 June 2013. From Vietnamese side, Lt. Gen. Do Ba Ty, Chief of the General Staff-cum- Vice Minister of Defence Senior visited India The perennial border dispute between India and China on the one from 23-27 September 2013. Mr. Pham Quang Vinh, Vice Foreign hand and China and Vietnam on the other hand, has constantly 37 plagued their relations. In fact, formal diplomatic normalization of Minister participated in Delhi Dialogue VI on 6-7 March 2014. In relations between Vietnam and China did not occur till November fact, shared perception of threat of China has bonded these two 1991. The bitterness in their relations was attributed to certain countries, namely India and Vietnam in friendly and intense defence successive incidents during the Cold War era, such as, Vietnam's cooperation. That is why, “India- Vietnam...signed a five- year joint treatment of ethnic Chinese, Vietnam's alignment with the Soviet vision statement on defence cooperation to build closer strategic ties Union, the Kampuchea issue and Vietnam's invasion of Cambodia in in the backdrop of an increasingly assertive China flexing its muscles late 1978. It took eleven years for Vietnam to withdraw its military in the South China Sea. Vietnam Defence Minister Gen. Phung forces from Cambodia in September 1989. After the normalization of Quang Thanh visited New Delhi in May 2015 amid growing concerns over China's land reclamation project in the South China Sea, aimed their ties in 1991, both these began discussions at the expert level for 38 peaceful resolution of their disputes on land border and Gulf of at bolstering its territorial claims in the disputed area.” Tonkin. The first expert- level discussions on dispute management India and Vietnam reached a landmark in their relations in were held in October 1992. On 30 December 1999, China and Vietnam September 2016. At the invitation of Nguyen Xuan Phuc, Prime signed a land border agreement during the visit to Hanoi by Premier Minister of Vietnam, the Prime Minister of the Republic of India, Zhu Rongji. Both sides ratified the treaty in 2000 and the process of Narendra Modi paid an official visit to the SRV from 02-03 September placing stone markers along the border was completed at the end of 2016. The Vietnamese side reaffirmed Vietnam's support for India's 2008. In August 2009, Deputy Foreign Ministers of Vietnam and Act East Policy and welcomed a greater role for India in the regional China, Ho Xuan Son and Wu Dawei, met in Hanoi. Two sides signed and international arenas. Vietnam and India agreed to elevate the three agreements a protocol on demarcation of the land boundary current Strategic Partnership to Comprehensive Strategic Partnership and the two Prime Ministers agreed to assign the two

50 Area Studies Area Studies 51 Tilottama Mukherjee India-Vietnam Defence Cooperation and the China Factor: From 1991 to 2016

Ministries of Foreign Affairs to be the focal points, in collaboration Without any doubt it can be safely argued that this increasing with other ministries and agencies of both sides, to build the Plan of bonhomie in their bilateral defence cooperation is influenced Action to bring the Comprehensive Strategic Partnership to reality in significantly by their understanding of the 'China threat' in the all areas of cooperation. As far as defence is concerned, the two Prime region. 'The Chinese assertion of its “peaceful rise” and its “charm Ministers expressed satisfaction at the significant progress made, offensive” has an ambitious and aggressive intent that has serious including exchange of high level visits, annual high- level dialogue, implications for the Asia- Pacific region. It is well known that China naval ship visits, extensive training and capacity building, defence has been in the throes of an impressive military modernization and equipment procurement and related transfer of technology, and has sent discomforting signals among the regional countries. These cooperation at regional fora such as ADMM Plus. Both sides agreed countries including Vietnam are now propelled into building to effectively implement the Joint Vision Statement on India- capability to protect their national interests which are reflected in a Vietnam Defence Relations of May 2015. Prime Minister Modi strong penchant to acquire modern military hardware such as reaffirmed India's significant interest in promoting defence industry aircraft, ships, expeditionary platforms and cruise missiles.41 cooperation between the two sides and committed to provide a new To sum up, defence collaboration between India and Vietnam has Line of Credit for Vietnam in this area. Both sides welcomed the witnessed proactive developments in recent years, with the signing of the contract for Offshore High- Speed Patrol Boats establishment of a deputy defence ministerial level strategic between M/S Larsen and Toubro and Vietnam Border Guards dialogue and acceleration of joint naval exercises. The two sides have utilizing the US$100 million Line of Credit for defence procurement agreed to maintain regular delegation exchange, information extended by India to Vietnam. Prime Minister Modi further sharing, and support each other at relevant multilateral forums, announced a grant of US$5 million for the construction of an Army 39 including the ASEAN Defence Ministers' Meeting- Plus and ASEAN Software Park at the Telecommunications University in Nha Trang. 42 Regional Forum. This new defence understanding between India Conclusion and Vietnam cannot be termed as a natural understanding. This Having analyzed India- Vietnam defence cooperation and the China understanding has gained momentum on account of the changing factor, it is amply clear that India's defence cooperation mainly since power equation in the Asia- Pacific region as well as the China factor. 2007, took a different direction against the backdrop of newly emerging strategic understanding. Since 1993 India has provided References training to Vietnamese Army (twenty-thirty trainees each year) and 1. C. Ravindranatha Reddy, India and Vietnam during Post Cold War Era, since 2009, India has deputed English teachers to teach Vietnamese (Centre for Southeast Asian and Pacific Studies, Sri Venkateswara trainees. On the other hand, Vietnam admits one Indian officer to University, Tirupati,2012). Vietnam's Academy of Defence since 2008 and 1-2 Indian officers to 2. Tridib Chakraborti, “From National Reconstruction To Market Vietnamese language course at Vietnam's Academy of Military Economy: Space And Time Analysis of India's Look East Policy”, in P.V Science each year. The Indian Navy has been offering training in Rao (ed.), India and ASEAN: Partners at Summit, K W Publishers Pvt. Ltd, command and control, logistics and engineering, ship repair, New Delhi, 2008). military science and technologies, hydrography, foreign languages 3. en.vietnamplus.vn/tags/pillar/page13.vnp and computer skills to the Vietnamese Navy. Two Indian naval vessels visited Hai Phong city from 19-23 May 2012 and conducted 4. Tridib Chakraborti, 'India and Vietnam: Sprouting Strategic Partnership', World Focus, October, 2011. military exercises in maritime search and rescue together with the Vietnamese Navy. Vietnam welcomed India's military cooperation 5. Shantanu Chakrabarti, “Evolving India- Vietnam Relations”, in Rajiv K. and contribution to the ADMM+, ARF, etc for the peace, stability and Bhatia, Vijay Sakhuja and Vikash Ranjan(eds.), India- Vietnam Agenda for 40 Strengthening Partnership, (Shipra Publications, New Delhi, 2013). development in the region.

52 Area Studies Area Studies 53 Tilottama Mukherjee India-Vietnam Defence Cooperation and the China Factor: From 1991 to 2016

6. Rajiv Sikri, Indian Foreign Policy Priorities in the Coming Decade, ISAS October 2016) Working Paper, No. 25, 25 September 2007. 28. thediplomat.com/2016/10/Vietnams-military-modernization/ 7. Ibid. (accessed on 18 October 2016) 8. Ravindranatha Reddy, n.1. 29. http://www.globaltimes.cn/NEWS/tabid/99/ID/705627/India- 9. Tridib Chakraborti, n.4. being-swept-up-by-missile-delusion.aspx (accessed on 18 October 2016) 10. h t t p s : / / m e a . g o v . i n / P o r t a l / F o r e i g n R e l a t i o n / I n d i a - 30. Ministry of External Affairs Annual Report, Government of India, 2014-15 Vietnam_Relations.pdf (accessed on 12 September 2016) 31. Ibid., Government of India, 2013-14 11. www.andhranews.net/India/2007/December/17-India-vietnam- 32. Ibid., Government of India, 2014-15 26425.asp (accessed on 10 October 2016) 33. Tran Viet Phung, “Milestones in Vietnam- India Strategic Partnership, 12. Tridib Chakraborti, n. 4 1972-2012”, in Rajiv K. Bhatia, Vijay Sakhuja and Vikash Ranjan(eds.), 13. Ministry of External Affairs Annual Report, Government of India, 2001-02 n.5. 14. Ibid., Government of India, 2004-05 34. Vietnam Embassy Publication, New Delhi, 2015. 15. Ibid., Government of India, 2005-06 35. The Times of India, 30 July, 2015. 16. Ibid., Government of India, 2006-07 36. Carlyle A. Thayer, 'Vietnam and Rising China: The Structural Dynamics of Mature Asymmetry, Southeast Asian Affairs, 2010. 17. Ibid., Government of India, 2007-08. (https://www.jstor.org/stable/41418576 accessed on 17 October 2016) 18. https://www.iiss.org/en/publications/conference.proceedings/ 37. Ministry of External Affairs Annual Report, Government of India, 2013-14. sections/shangri-la-aa36/the-shangri-la-dialogue-2006-9f22. (accessed on 12 October 2016) 38. www.livemint.com/Politics/bUWn/vNDTwKT513o51Todp/India- Vietnam-ink-5year-defence-pact-amid-chinese-naval-ex.html (accessed 19. www.mea.gov.in/bilateral-ocuments.htm?dtl/23996/Agreements on 19 October 2016) MoUs_signed_ during_the_State_Visit_of_Honble_President_to_ Vietnam_15_September_2014 (accessed on 3 November 2016) 39. (www.mea.gov.in/bilateral- documents.htm?dtl/27362/Joint+ Statement+between+India+and+Vietnam+during+the+visit+of+ 20. www.idsa.in/idsacomments/VietnameseDefenceWhitePaper Prime+Minister+to+Vietnam ) (accessed on 119 October 2016) 2009_pkjha_311209 (accessed on 3 November 2016) 40. Nguyen Hong Quan, “Evaluation of Vietnam- India Defence 21. Tridib Chakraborti, “Rising India- Vietnam Ties in the Emerging Cooperation”, in Rajiv K. Bhatia, Vijay Sakhuja and Vikash Ranjan(eds.), Security Architecture of the Asia- Pacific Region”, in Rajiv K. Bhatia, n.5. Vijay Sakhuja and Vikash Ranjan (eds.), n.5. 41. Vijay Sakhuja, “India- Vietnam Strategic Partnership: Political and 22. www.indiannavy.nic.in/sites/default/files/Indian-Maritime- Security Cooperation,” in Rajiv K. Bhatia, Vijay Sakhuja and Vikash Doctrine-2009-Updated-12Feb16.pdf (accessed on 10 November 2016) Ranjan (eds.), n.5. 23. The Hindu, July 28, 2010 ( http://www.thehindu.com 42. Vietnam Embassy, n.34. /news/article536828.ece accessed on 15 October 2016) 24. Tridib Chakraborti, n. 4 25. Ministry of External Affairs Annual Report, Government of India, 2011-12 26. www.vietnamembassybrunei.org/vnemb.vn/cnvakv/america/ nr040819114015/ns07101516175 (accessed on 15 October 2016) 27. www.state.gov/r/pa/prs/ps/2012/08/196022.htm (accessed on 16

54 Area Studies Area Studies 55 Tilottama Mukherjee India-Vietnam Defence Cooperation and the China Factor: From 1991 to 2016

54 Area Studies Area Studies 55 Evaluation of structural Changes in the Tea Plantation Sector: A Study on the Growth of Small Tea Growers in India and Sri Lanka Evaluation of structural Changes in the Tea Plantation Sector: A Study on the Growth of Small hospitality worldwide. There is a huge culture of tea that is laden Tea Growers in India and Sri Lanka with history. The British are still one of the largest per capita tea consumers (2.74 kg/per person/per annum) in the world. A.S. Chandrabose Senior Lecturer in Social Studies, The Open University of Sri Lanka Area and Production of Tea Nawala, Nugegoda, Sri Lanka Email: [email protected]/[email protected] India India has the total extent of around 564,000 hectares of area for tea Abstract production which is around fifty percent of the total tea area that The original formation of a large scale system for tea plantation was introduced by the British in India and Sri Lanka. The estates now are experiencing structural changes. The China has as of 2013. The extent of tea is largely concentrated in changes in terms of large scale tea industry into small scale tea holdings is a common North India particularly in the states of Assam (304.000 hectares) and phenomenon in both countries. Comparably, Sri Lanka has been a forefront to the changes West Bengal (140,000 hectares) which accounts for around 56 percent and has transformed most of its large scale tea plantation system into small scale tea of the total tea land in the country. The rest of the 44 percent of the tea holdings in the country. The changes are almost the same in the Indian tea industry as land is mainly in Tamil Nadu (69,000 hectares) and Kerala (35,000 well. Despite the changes, the industry is still playing a major role in the economy through hectares). The tea land is distributed amongst 1,686 large scale tea export earning and provision of employment in these countries. The main objective of the study is to compare the recent changes in the plantation system and examine the estate and an average size of large scale tea estate in India is 250 effectiveness of small tea gardens in terms of production and provision of employment in hectares. As far as Small Tea Gardens (STG) are concerned they are India and Sri Lanka. The study is based on secondary data published in various issues of distributed into 157,504 STGs in India and the extent of average size tea statistics and relevant published reports. of STG is 1.25 hectares. As a whole the tea industry employs over 3.5 million people across Introduction the country. All varieties of tea are produced in India while the The tea plantations are undergoing a phenomenal change in the variety of Cut Tear and Curl (CTC) accounts for around 90 per cent of Asian Region. Tea plantation is one of the oldest and is generally the production and the orthodox instant tea accounts for the considered as an efficient organizational enterprise which was remaining 10 percent. Production of tea reached 1197 million kg in introduced as a revolutionary enterprise by the British during the 2014-15 of which around 955 million kg of tea was produced in North early part of the 19th century in India and in Sri Lanka (1823). The India and 241.36 million kg was produced in South India. (Tea policy introduced by the respective governments after independence Statistics India: 2014) India is also the world's largest consumer of have influenced changes in the plantation sector. The original system black tea with the domestic market consuming around 80 percent of 'large gardens' are progressively being replaced by the new (910 million kg) of tea during 2013-14 and exporting only 20 percent structure of 'small holdings' in leading tea producing areas of India (198 million kg). India ranked fourth in terms of total world tea and Sri Lanka. exports during 2013-14 and was valued at US$ 620 million. Tea is the most sought out beverage second only to water. It is served Sri Lanka as a morning drink for nearly 2/3rd of world population on a daily Total area under tea in Sri Lanka is 194,500 hectares in 2012. The area basis and has been gaining popularity as an important 'health drink' under tea has been clustered under three geographical regions such in view of its purported medicinal value. The drink is the most as High Grown, Medium Grown and Low Grown. There is a distinct quintessential of English drinks, perhaps surprisingly, a relatively variation of aroma and colour of tea that is produced in the different new tradition that originated amongst the British nobility in 1660s. geographical regions of the country. As far as the district-wise Basically, tea works in almost any situation and as a beverage it has distribution is concerned, it is spread mainly among nine got strong social and cultural connotations, and is a sign of administrative districts in the central and the southern part of the

56 Area Studies Area Studies 57 Evaluation of structural Changes in the Tea Plantation Sector: A Study on the Growth of Small Tea Growers in India and Sri Lanka Evaluation of structural Changes in the Tea Plantation Sector: A Study on the Growth of Small hospitality worldwide. There is a huge culture of tea that is laden Tea Growers in India and Sri Lanka with history. The British are still one of the largest per capita tea consumers (2.74 kg/per person/per annum) in the world. A.S. Chandrabose Senior Lecturer in Social Studies, The Open University of Sri Lanka Area and Production of Tea Nawala, Nugegoda, Sri Lanka Email: [email protected]/[email protected] India India has the total extent of around 564,000 hectares of area for tea Abstract production which is around fifty percent of the total tea area that The original formation of a large scale system for tea plantation was introduced by the British in India and Sri Lanka. The estates now are experiencing structural changes. The China has as of 2013. The extent of tea is largely concentrated in changes in terms of large scale tea industry into small scale tea holdings is a common North India particularly in the states of Assam (304.000 hectares) and phenomenon in both countries. Comparably, Sri Lanka has been a forefront to the changes West Bengal (140,000 hectares) which accounts for around 56 percent and has transformed most of its large scale tea plantation system into small scale tea of the total tea land in the country. The rest of the 44 percent of the tea holdings in the country. The changes are almost the same in the Indian tea industry as land is mainly in Tamil Nadu (69,000 hectares) and Kerala (35,000 well. Despite the changes, the industry is still playing a major role in the economy through hectares). The tea land is distributed amongst 1,686 large scale tea export earning and provision of employment in these countries. The main objective of the study is to compare the recent changes in the plantation system and examine the estate and an average size of large scale tea estate in India is 250 effectiveness of small tea gardens in terms of production and provision of employment in hectares. As far as Small Tea Gardens (STG) are concerned they are India and Sri Lanka. The study is based on secondary data published in various issues of distributed into 157,504 STGs in India and the extent of average size tea statistics and relevant published reports. of STG is 1.25 hectares. As a whole the tea industry employs over 3.5 million people across Introduction the country. All varieties of tea are produced in India while the The tea plantations are undergoing a phenomenal change in the variety of Cut Tear and Curl (CTC) accounts for around 90 per cent of Asian Region. Tea plantation is one of the oldest and is generally the production and the orthodox instant tea accounts for the considered as an efficient organizational enterprise which was remaining 10 percent. Production of tea reached 1197 million kg in introduced as a revolutionary enterprise by the British during the 2014-15 of which around 955 million kg of tea was produced in North early part of the 19th century in India and in Sri Lanka (1823). The India and 241.36 million kg was produced in South India. (Tea policy introduced by the respective governments after independence Statistics India: 2014) India is also the world's largest consumer of have influenced changes in the plantation sector. The original system black tea with the domestic market consuming around 80 percent of 'large gardens' are progressively being replaced by the new (910 million kg) of tea during 2013-14 and exporting only 20 percent structure of 'small holdings' in leading tea producing areas of India (198 million kg). India ranked fourth in terms of total world tea and Sri Lanka. exports during 2013-14 and was valued at US$ 620 million. Tea is the most sought out beverage second only to water. It is served Sri Lanka as a morning drink for nearly 2/3rd of world population on a daily Total area under tea in Sri Lanka is 194,500 hectares in 2012. The area basis and has been gaining popularity as an important 'health drink' under tea has been clustered under three geographical regions such in view of its purported medicinal value. The drink is the most as High Grown, Medium Grown and Low Grown. There is a distinct quintessential of English drinks, perhaps surprisingly, a relatively variation of aroma and colour of tea that is produced in the different new tradition that originated amongst the British nobility in 1660s. geographical regions of the country. As far as the district-wise Basically, tea works in almost any situation and as a beverage it has distribution is concerned, it is spread mainly among nine got strong social and cultural connotations, and is a sign of administrative districts in the central and the southern part of the

56 Area Studies Area Studies 57 A.S. Chandrabose Evaluation of structural Changes in the Tea Plantation Sector: A Study on the Growth of Small Tea Growers in India and Sri Lanka country. Amongst the districts, about 26 percent of tea land is in the institutional support. Hence, the tea production is now not only in district of Nuwara Eliya followed by Ratnapura (16 percent), Badulla the hands of Large Scale Tea plantation (LST) plantation, but also a (15 percent), Kandy (14 percent) Galle (11 percent) and Matara (11 considerable amount is contributed by the Small Tea Gardens (STG) percent). The 'High Grown' tea is largely in the hills of the districts of in these two countries. Indeed, the notion of STG is derived from the Nuwara Eliya and Badulla, whereas the greater part of Medium and successful conduct of the Kenya Tea Development Authority Low Grown regions is concentrated in the district of Kandy, (KTDA) which is recognized internationally as one doing the most Ratnapura and Galle. successful tea small holder operation among the tea producing Out of the total extent of tea (194,500 hectares), nearly 40 percent or countries. The Table 1 illustrates the pattern of tea production of LST 78,000 hectare of tea land is distributed amongst 502 large scale tea and STG in India and Sri Lanka. estates which are currently administrated by 23 Regional Plantation Table-1: Tea Production in the LST and STG in India and Sri Lanka 1998 - 2011 (Million Kg.) Companies (RPC) in the country. The RPC was established in 1992 in order to manage the large scale tea and rubber plantations which North India Sri Lanka Year were nationalized by implementing the Land reform Act in 1975 and LST STG Total LS STG Total the ownership transferred to government corporations such as 1998 782.64 91.36 874.00 168.8 111.3 280.1 Janatha Estate Development Board (JEDB) and Sri Lanka State 2007 726.06 260.36 986.42 98.9 205.7 304.6 Plantation Corporation (SLSPC) and subsequently in 1992 the management contract JEDB and SLSPC plantation were leased for 53 -7.71% 65.00% 11.35% -71.42% 45.85% 8.57% years to the Regional plantation Companies to manage the large scale Source: Compiled from the publication of Hannan, A (2013) and Statistical Information estates. Apart from the existence of 502 large scale estates with the on Plantation Crops (2000 and 2011), Ministry of Plantation Industry, Sri Lanka. land areas of 40 percent of the total tea land, the rest is distributed The data presented in the Table-1 illustrates the pattern of changes in amongst the tea small holdings in the country. The total area the LS and STG of the respective countries. The total production of extended to it is 116,000 hectares which accounted for 60 percent of tea has increased from 874.00 Million Kgs in the year 1998 to 986.42 the tea land of Sri Lanka. As far as total production of tea is Million Kgs in 2007 respectively, which is a 11.35 percent increase in concerned, it has reached a record level of 328 million kgs in 2014 and India. Hence, the contribution of LSE has declined and the share of roughly 70 percent of what was contributed by the tea small holding STG has remarkably increased to 65.00 percent and the contribution sector in the country. Of the production of tea, 95 percent is exported of tea production of the STG has significantly increased during 1998- to the international markets. 2007. The same can be said about Sri Lanka. The production of STG Changing Pattern increased by 45.85 percent that is due to the increase from 111.3 to The term plantation is subject to various definitions, one of the most 205.7 million Kgs. It should also be noted that the tea production accepted interpretations being 'an economic unit producing contributed by the LST has declined by 71 percent from 168.8 to 98.9 agricultural commodities for sale and employing a relatively large million Kgs during the same period like in India. Thus, it is clear from number of unskilled labourers whose activities are closely Table 1 that the STG in these two countries are at the forefront in supervised (B. Sivaram: 2000). Hence, early policy makers and terms of production of tea. researchers assumed that tea could be grown economically and Statement of the Problem efficiently only in large scale plantations; whereas later studies tend The LST plantation had an integral part on the economic to suggest that no obvious economic scale exists to give superiority to development of India and Sri Lanka, the cultivation of tea had large estates over smaller ones. According to Ben Crow and Mary immensely contributed for both employment and high extent of Thorpe (1988), the small estates can be more efficient if given proper export earnings to these countries. The successive governments after

58 Area Studies Area Studies 59 A.S. Chandrabose Evaluation of structural Changes in the Tea Plantation Sector: A Study on the Growth of Small Tea Growers in India and Sri Lanka country. Amongst the districts, about 26 percent of tea land is in the institutional support. Hence, the tea production is now not only in district of Nuwara Eliya followed by Ratnapura (16 percent), Badulla the hands of Large Scale Tea plantation (LST) plantation, but also a (15 percent), Kandy (14 percent) Galle (11 percent) and Matara (11 considerable amount is contributed by the Small Tea Gardens (STG) percent). The 'High Grown' tea is largely in the hills of the districts of in these two countries. Indeed, the notion of STG is derived from the Nuwara Eliya and Badulla, whereas the greater part of Medium and successful conduct of the Kenya Tea Development Authority Low Grown regions is concentrated in the district of Kandy, (KTDA) which is recognized internationally as one doing the most Ratnapura and Galle. successful tea small holder operation among the tea producing Out of the total extent of tea (194,500 hectares), nearly 40 percent or countries. The Table 1 illustrates the pattern of tea production of LST 78,000 hectare of tea land is distributed amongst 502 large scale tea and STG in India and Sri Lanka. estates which are currently administrated by 23 Regional Plantation Table-1: Tea Production in the LST and STG in India and Sri Lanka 1998 - 2011 (Million Kg.) Companies (RPC) in the country. The RPC was established in 1992 in order to manage the large scale tea and rubber plantations which North India Sri Lanka Year were nationalized by implementing the Land reform Act in 1975 and LST STG Total LS STG Total the ownership transferred to government corporations such as 1998 782.64 91.36 874.00 168.8 111.3 280.1 Janatha Estate Development Board (JEDB) and Sri Lanka State 2007 726.06 260.36 986.42 98.9 205.7 304.6 Plantation Corporation (SLSPC) and subsequently in 1992 the management contract JEDB and SLSPC plantation were leased for 53 -7.71% 65.00% 11.35% -71.42% 45.85% 8.57% years to the Regional plantation Companies to manage the large scale Source: Compiled from the publication of Hannan, A (2013) and Statistical Information estates. Apart from the existence of 502 large scale estates with the on Plantation Crops (2000 and 2011), Ministry of Plantation Industry, Sri Lanka. land areas of 40 percent of the total tea land, the rest is distributed The data presented in the Table-1 illustrates the pattern of changes in amongst the tea small holdings in the country. The total area the LS and STG of the respective countries. The total production of extended to it is 116,000 hectares which accounted for 60 percent of tea has increased from 874.00 Million Kgs in the year 1998 to 986.42 the tea land of Sri Lanka. As far as total production of tea is Million Kgs in 2007 respectively, which is a 11.35 percent increase in concerned, it has reached a record level of 328 million kgs in 2014 and India. Hence, the contribution of LSE has declined and the share of roughly 70 percent of what was contributed by the tea small holding STG has remarkably increased to 65.00 percent and the contribution sector in the country. Of the production of tea, 95 percent is exported of tea production of the STG has significantly increased during 1998- to the international markets. 2007. The same can be said about Sri Lanka. The production of STG Changing Pattern increased by 45.85 percent that is due to the increase from 111.3 to The term plantation is subject to various definitions, one of the most 205.7 million Kgs. It should also be noted that the tea production accepted interpretations being 'an economic unit producing contributed by the LST has declined by 71 percent from 168.8 to 98.9 agricultural commodities for sale and employing a relatively large million Kgs during the same period like in India. Thus, it is clear from number of unskilled labourers whose activities are closely Table 1 that the STG in these two countries are at the forefront in supervised (B. Sivaram: 2000). Hence, early policy makers and terms of production of tea. researchers assumed that tea could be grown economically and Statement of the Problem efficiently only in large scale plantations; whereas later studies tend The LST plantation had an integral part on the economic to suggest that no obvious economic scale exists to give superiority to development of India and Sri Lanka, the cultivation of tea had large estates over smaller ones. According to Ben Crow and Mary immensely contributed for both employment and high extent of Thorpe (1988), the small estates can be more efficient if given proper export earnings to these countries. The successive governments after

58 Area Studies Area Studies 59 A.S. Chandrabose Evaluation of structural Changes in the Tea Plantation Sector: A Study on the Growth of Small Tea Growers in India and Sri Lanka independence from the British rule, have introduced several changes India is only 56.77 percent of the total STG in India. The method of in the plantation sector in terms of ownership and provision of registration has several components. There is regional variation in employment to rural community in the respective countries. terms of STG registration in India. The STG in Nilgiri in Tamil Nadu However, the changes also led to expansion of the STGs in India and gives only temporary registration under the price subsidy scheme. Sri Lanka. The problem is the question of how the STGs are going to The status of registration is depressing in the case of West Bengal and retain the same momentum held by these old structured LSTs in most of the STG in North Eastern parts of India are under-reported India and Sri Lanka. Hence, considering the above aspects the due to land related issues. Indeed, the expansion of STG in the North following objectives will be addressed in this analysis. and North Eastern states are higher compared to south Indian states. The Table-2 gives the distribution of STG in India. Objectives of the study 1. To study the changing structure of tea plantations across time in Table-2: Distribution of STG in the Sates/Region in India - 2004 India and Sri Lanka States/Region No. of STGs Area (Hectares) Production '000 Kg. 2. To examine the effectiveness of STG in terms of production and North India 59,368 61,999 112,161 provision of employment in India and Sri Lanka Tamil Nadu 61,985 43,774 86,009 Methodology Kerala 5,999 4,950 3,628 The study is based on secondary data and uses the data published in Karnataka 14 64 162 various issues of Statistical Information on Plantation Crops by the Ministry of Plantation Industries, in Sri Lanka and the various issues All India 127,366 110,787 201,960 of Annual Report of Central Bank of Sri Lanka. Ideally, the Tea Source: Hannan Abdul, (2013), “Organizational Innovations and Small Tea Growers in India,” NRPPD Discussion Paper, Center for Development Studies, Thiruvananthapuram. p11. Statistics published by the Tea Board of India gives a comprehensive data on tea. However, the soft copy of the reports is not easily The average size of the STG in India is 0.87 hectares and it varies available. Thus the study used the recent research work conducted across the states and it is linked with the registration status of STG by the several authors whose papers are published in the internet and with the Tea Board of India. The productivity is also relatively high as are considered as major sources of data for use in the analysis. The compared to LST. The productivity of STG is 1822.96 kg/per hectare latest data used for the respective analysis was published in 2007. and it is 1752 kg/per hectare in the case of LST. The extent of tea land However, the study used as much latest comparable data as possible for STG had increased substantially in all the states with the highest for the analysis. It should be noted that the study is using the percentage of share found in Tamil Nadu, Assam, and West Bengal abbreviations of LST (Large Scale Tea Plantation or Estates) and STG with 48.67 percent, 33.36 percent and 6.59 percent respectively (Small Tea Gardens or Estates) to explain the big growers and tea (Hannan:2013). Even though, Assam which was confined to small growers respectively in India and Sri Lanka. traditional tea growing areas before the emergence of STG, as of today the state is doing remarkably well with the large extent of the Results and discussions STG. STG are defined as a person or a group having a plantation area up to The STG in South India is largely concentrated in the district of 10.12 hectares (Tea Board of India:2009). Accordingly, the total Nilgiri. Originally the district was covered with LSTs and the STGs number of STG in India is 127,366 and they are spread over 15 states came only during the early 1950s. The Tamil Nadu Tea Growers with area under tea production of 110,787 hectares which is 35 Industrial Co-operative Factories Federation Ltd (INDCOSERVE) percent of the total tea production of the country. The consolidated has estimated that there are around 63,000 STGs in the state with an information on the STG in India is not easily available approximate total area of 30,000 hectares. However, according to the (Hannan:2013). The number of registered STG's in the Tea Board of

60 Area Studies Area Studies 61 A.S. Chandrabose Evaluation of structural Changes in the Tea Plantation Sector: A Study on the Growth of Small Tea Growers in India and Sri Lanka independence from the British rule, have introduced several changes India is only 56.77 percent of the total STG in India. The method of in the plantation sector in terms of ownership and provision of registration has several components. There is regional variation in employment to rural community in the respective countries. terms of STG registration in India. The STG in Nilgiri in Tamil Nadu However, the changes also led to expansion of the STGs in India and gives only temporary registration under the price subsidy scheme. Sri Lanka. The problem is the question of how the STGs are going to The status of registration is depressing in the case of West Bengal and retain the same momentum held by these old structured LSTs in most of the STG in North Eastern parts of India are under-reported India and Sri Lanka. Hence, considering the above aspects the due to land related issues. Indeed, the expansion of STG in the North following objectives will be addressed in this analysis. and North Eastern states are higher compared to south Indian states. The Table-2 gives the distribution of STG in India. Objectives of the study 1. To study the changing structure of tea plantations across time in Table-2: Distribution of STG in the Sates/Region in India - 2004 India and Sri Lanka States/Region No. of STGs Area (Hectares) Production '000 Kg. 2. To examine the effectiveness of STG in terms of production and North India 59,368 61,999 112,161 provision of employment in India and Sri Lanka Tamil Nadu 61,985 43,774 86,009 Methodology Kerala 5,999 4,950 3,628 The study is based on secondary data and uses the data published in Karnataka 14 64 162 various issues of Statistical Information on Plantation Crops by the Ministry of Plantation Industries, in Sri Lanka and the various issues All India 127,366 110,787 201,960 of Annual Report of Central Bank of Sri Lanka. Ideally, the Tea Source: Hannan Abdul, (2013), “Organizational Innovations and Small Tea Growers in India,” NRPPD Discussion Paper, Center for Development Studies, Thiruvananthapuram. p11. Statistics published by the Tea Board of India gives a comprehensive data on tea. However, the soft copy of the reports is not easily The average size of the STG in India is 0.87 hectares and it varies available. Thus the study used the recent research work conducted across the states and it is linked with the registration status of STG by the several authors whose papers are published in the internet and with the Tea Board of India. The productivity is also relatively high as are considered as major sources of data for use in the analysis. The compared to LST. The productivity of STG is 1822.96 kg/per hectare latest data used for the respective analysis was published in 2007. and it is 1752 kg/per hectare in the case of LST. The extent of tea land However, the study used as much latest comparable data as possible for STG had increased substantially in all the states with the highest for the analysis. It should be noted that the study is using the percentage of share found in Tamil Nadu, Assam, and West Bengal abbreviations of LST (Large Scale Tea Plantation or Estates) and STG with 48.67 percent, 33.36 percent and 6.59 percent respectively (Small Tea Gardens or Estates) to explain the big growers and tea (Hannan:2013). Even though, Assam which was confined to small growers respectively in India and Sri Lanka. traditional tea growing areas before the emergence of STG, as of today the state is doing remarkably well with the large extent of the Results and discussions STG. STG are defined as a person or a group having a plantation area up to The STG in South India is largely concentrated in the district of 10.12 hectares (Tea Board of India:2009). Accordingly, the total Nilgiri. Originally the district was covered with LSTs and the STGs number of STG in India is 127,366 and they are spread over 15 states came only during the early 1950s. The Tamil Nadu Tea Growers with area under tea production of 110,787 hectares which is 35 Industrial Co-operative Factories Federation Ltd (INDCOSERVE) percent of the total tea production of the country. The consolidated has estimated that there are around 63,000 STGs in the state with an information on the STG in India is not easily available approximate total area of 30,000 hectares. However, according to the (Hannan:2013). The number of registered STG's in the Tea Board of

60 Area Studies Area Studies 61 A.S. Chandrabose Evaluation of structural Changes in the Tea Plantation Sector: A Study on the Growth of Small Tea Growers in India and Sri Lanka

Tea Board of India there were 61.985 STG in Tamil Nadu with a Lanka constitutes to a large portion of STG not only in terms of holding of 43,774 hectares and producing 86 million kgs as of 2004. number but also by extension of area under STG (See Table-3). The extent of area under STG now constitutes 1/3 of the total area The TSHDA continues to assist the tea industry by providing subsidy under tea production in India which is quite a remarkable for replanting and planting of new bushes of tea, they also provide development by the STG which represents a eleven fold increase of advisory and extension services. One of its major activities is the Tea extent of STG from roughly 10,000 hectares in 1990 to 110,787 Shakthi scheme, which covers insurance, savings and investment, as hectares in 2004. Since the tea industry is labour intensive sector and well as pension benefits for the small tea holders. The 1998 budgetary it requires 2.5 labourers per hectare, it could be assumed that little allocation of Rs.200 million for the scheme was completely utilised more than 200,000 workers could be absorbed in to the newly setup for upgrading the transport network and for purchasing machines STGs in India. for the factories. The target was to establish 21 tea factories in selected According to the Tea Control Act of Sri Lanka is concerned, the tea locations for the benefit of the tea growers in STG in Sri Lanka. The land area under 4 hectares in size are considered as STG (Tea small tea growers were also provided with credit facilities to Smallholding). The limitation was, however, expanded by the Tea purchase necessary inputs under the 'Development Fund'. As a Smallholding Development Authority (TSHDA). According to result, the STG record yield level reached 3,000 kilograms in Sri TSHDA, privately owned tea lands under the provisions of the land Lanka. The Table 3 gives the distribution STG in Sri Lanka. reform Act are also treated as STG in Sri Lanka (Annual Report:2009). Table-3; District wise Distribution of STG in Sri Lanka - 2007 The Tea Smallholding Development Authority (TSHDA) was < ½ hectares ½ - 2 hectares 2 -5 hectares Total established in 1977. The TSHDA is modelled on the Kenya Tea Districts No. No. No. No. Development Authority (KTDA) which was established in Kenya Holdings Ex. Ha Holdings Ex. Ha Holdings Ex. Ha Holdings Ex. Ha under the Kenyan Tea Development Order in 1964 (Patrick Kalutara 35,793 5,441 2,323 1,765 147 617 38,263 7,823 Mendis:1991). The role of KTDA is to provide farm husbandry skills, educate the farmers about the best tea farming practices, co-ordinate Kandy 25,457 5,329 4,439 3,665 851 7,064 30,747 16,058 the plucking and collection of tea, establish tea processing factories, Nuwara Eliya 15,270 1,965 1,469 212 2,800 17,547 7,205 and take full charge of the marketing and export of manufactured tea. Galle 79,432 15,361 10,136 28,013 956 4,054 90,524 27,427 The KTDA has now transformed into a private company managing Matara 58,470 12,140 8,131 6,301 7,812 6,976 67,613 25,417 around 500,000 farmers and 65 tea factories in Kenya. The TSHDA has been boosted after the implementation of land reforms during Badulla 26,989 4,953 2,321 1,928 369 2,139 29,679 9,020 1972-75 in Sri Lanka. A considerable number of privately owned tea Ratnapura 87,070 17,674 9,790 7,736 1,124 5,031 97,984 30,441 estates were brought under the purview of TSHDA The tea land was Kegalla 17,333 3,264 2,080 1.650 224 1,179 19,637 6,093 doubled in size for STG from around 39,000 hectares in 1970s to 78,000 hectares in 1980s in Sri Lanka. According to the census Other 4,478 884 573 1080 178 880 5,229 2,845 conducted of the STG in 1994/95 it has further extended from 82,919 Total 350,292 67,982 41,758 33,005 5,173 31,342 397,223 132,329 to 116,449 hectares which is a 40 percent increase. According to the Percentages 88.16 50.75 10.32 25.00 1.52 24.25 100.00 100.00 Table 3 at present the total extent of STG is around 132,329 hectares Source: Compiled from Statistical Information on Plantation Crops-2011 and it is roughly 61 percent of the total tea land and it is distributed Ministry of Plantation Industry, Colomo2, p. 9 amongst 397,223 STG in the country. It should be noted that there is a wide range of disparity observed in terms of distribution of land and Indeed, the STG overwhelmingly contributes to 70 percent of the number of small tea holdings in these countries. Comparatively Sri total tea production and pushes back the century's old LST that was

62 Area Studies Area Studies 63 A.S. Chandrabose Evaluation of structural Changes in the Tea Plantation Sector: A Study on the Growth of Small Tea Growers in India and Sri Lanka

62 Area Studies Area Studies 63 A.S. Chandrabose Evaluation of structural Changes in the Tea Plantation Sector: A Study on the Growth of Small Tea Growers in India and Sri Lanka introduced during the British rule in the country. The contribution of begin the tea cultivation, housing projects etc. Indeed, the land the STG is also remarkable economic activities in the southern low distribution programme coupled with the establishment of TSHDA country districts of Matara, Galle and Ratnapura in Sri Lanka. The have enriched the expansion of STG in the country. Paradoxically, Table-4 illustrates the extent of LST and STG in Sri Lanka. none of the government benefits have reached the tea workers living in STG and LST in Sri Lanka. The STG is mainly distributed amongst Table-4 : Extent of by Ownership of Tea Land in Sri Lanka, 1995 2011 (in Hectares) the majority Sinhalese in the country. The migrant Indian Tamils, who are third or the fourth generation living in these estates, are a Year LST STG Total major supply of workforce to both the LST and the STG. These people 1996 104,737 (55.31) 83,369 (44.69) 188,914 (100.00) were not considered by the successive governments to be provided 2000 99,564 (53.22) 84,703 (46.78) 186,707 (100.00) with facilities which were given to the majority in the country. 2005 95,288 (45.02) 116,492 (54.98) 211,750 (100.00) Therefore, they are compelled to continue as a workforce both in the LST and STG or are pushed away from both the sectors into new 2011 85,440 (40.09) 124,664 (59.91) 212,104 (100.00) areas like suburban and other non-plantation sectors in the country. Source: Compiled from Statistical Information on Plantation Crops-2011, Ministry of Plantation Industry, Colombo, p. 6 Thus, it is clear that the 150 years old LST is now declining and the tea industry is now in the hands of STGs in Sri Lanka. The trend also The Table-4 shows the changes of the extent of the tea lands of both considerably predicts the future of STG in India. The adoption of the LST and STG in Sri Lanka from 1996 to 2011. Accordingly, the LST economic liberalization in these countries has also exposed them to has the ownership of little above 55 percent of tea land in 1996 and various structural adjustments. The process of structural since then it was drastically reduced to 40 percent whereas the STG adjustments leads to changes in the pattern of production of the has increased from 44 percent of the total extent of tea land to 59 traditional LST model and it is gradually transforming into the percent in 2011. If the data is extrapolated the STGs will fully control expansion of STGs. the tea industry under the current rate of change and this could take Conclusions and Suggestions place by the year 2030 in Sri Lanka. Tea is a leading plantation crop and it continues to play a key role in The LST is also gradually transforming a large number of permanent the economy through export earnings and provision of employment labour force into a temporary labour force in the industry. The in both India and Sri Lanka. The contribution of LSE has declined permanent labour force which was around 500,000 in 1996 was significantly and the share of STG has remarkably increased reduced by 60 percent to 232,000 in 2011(Ministry of Plantation particularly in Sri Lanka and in India like in the states of Assam and Industry:2014). The reduced labour force is facing various challenges Tamil Nadu. The adoption of economic liberalization in these in the LST. Initially they were recruited as temporary labour in the countries has exposed them to various structural adjustments. The same LST and subsequently were identified as unemployed workers process of structural adjustment is leading to change the traditional and finally they were compelled to leave the LST. Recent studies structure of the LSE models and the expansion of STGs. The however, show that these families that are leaving the LST are institutional patronage provided particularly by the government of settling down in the suburbs mainly in the Colombo city. They are Sri Lanka has boosted the STG in Sri Lanka. However, it is in the identified as the new inclusion to the existing vulnerable community early stage as far as Indian context is concerned. A deep analysis on living in the suburbs of the country (Chandrabose:2015). The these issues is needed immediately to protect the production and successive governments, after independence have implemented employment opportunities and the safe movement of LSE workers several development programmes for tea cultivation, which includes either to STG or to opt for appropriate employment opportunities the redistribution of nationalized tea land for land less community to elsewhere in these countries.

64 Area Studies Area Studies 65 A.S. Chandrabose Evaluation of structural Changes in the Tea Plantation Sector: A Study on the Growth of Small Tea Growers in India and Sri Lanka introduced during the British rule in the country. The contribution of begin the tea cultivation, housing projects etc. Indeed, the land the STG is also remarkable economic activities in the southern low distribution programme coupled with the establishment of TSHDA country districts of Matara, Galle and Ratnapura in Sri Lanka. The have enriched the expansion of STG in the country. Paradoxically, Table-4 illustrates the extent of LST and STG in Sri Lanka. none of the government benefits have reached the tea workers living in STG and LST in Sri Lanka. The STG is mainly distributed amongst Table-4 : Extent of by Ownership of Tea Land in Sri Lanka, 1995 2011 (in Hectares) the majority Sinhalese in the country. The migrant Indian Tamils, who are third or the fourth generation living in these estates, are a Year LST STG Total major supply of workforce to both the LST and the STG. These people 1996 104,737 (55.31) 83,369 (44.69) 188,914 (100.00) were not considered by the successive governments to be provided 2000 99,564 (53.22) 84,703 (46.78) 186,707 (100.00) with facilities which were given to the majority in the country. 2005 95,288 (45.02) 116,492 (54.98) 211,750 (100.00) Therefore, they are compelled to continue as a workforce both in the LST and STG or are pushed away from both the sectors into new 2011 85,440 (40.09) 124,664 (59.91) 212,104 (100.00) areas like suburban and other non-plantation sectors in the country. Source: Compiled from Statistical Information on Plantation Crops-2011, Ministry of Plantation Industry, Colombo, p. 6 Thus, it is clear that the 150 years old LST is now declining and the tea industry is now in the hands of STGs in Sri Lanka. The trend also The Table-4 shows the changes of the extent of the tea lands of both considerably predicts the future of STG in India. The adoption of the LST and STG in Sri Lanka from 1996 to 2011. Accordingly, the LST economic liberalization in these countries has also exposed them to has the ownership of little above 55 percent of tea land in 1996 and various structural adjustments. The process of structural since then it was drastically reduced to 40 percent whereas the STG adjustments leads to changes in the pattern of production of the has increased from 44 percent of the total extent of tea land to 59 traditional LST model and it is gradually transforming into the percent in 2011. If the data is extrapolated the STGs will fully control expansion of STGs. the tea industry under the current rate of change and this could take Conclusions and Suggestions place by the year 2030 in Sri Lanka. Tea is a leading plantation crop and it continues to play a key role in The LST is also gradually transforming a large number of permanent the economy through export earnings and provision of employment labour force into a temporary labour force in the industry. The in both India and Sri Lanka. The contribution of LSE has declined permanent labour force which was around 500,000 in 1996 was significantly and the share of STG has remarkably increased reduced by 60 percent to 232,000 in 2011(Ministry of Plantation particularly in Sri Lanka and in India like in the states of Assam and Industry:2014). The reduced labour force is facing various challenges Tamil Nadu. The adoption of economic liberalization in these in the LST. Initially they were recruited as temporary labour in the countries has exposed them to various structural adjustments. The same LST and subsequently were identified as unemployed workers process of structural adjustment is leading to change the traditional and finally they were compelled to leave the LST. Recent studies structure of the LSE models and the expansion of STGs. The however, show that these families that are leaving the LST are institutional patronage provided particularly by the government of settling down in the suburbs mainly in the Colombo city. They are Sri Lanka has boosted the STG in Sri Lanka. However, it is in the identified as the new inclusion to the existing vulnerable community early stage as far as Indian context is concerned. A deep analysis on living in the suburbs of the country (Chandrabose:2015). The these issues is needed immediately to protect the production and successive governments, after independence have implemented employment opportunities and the safe movement of LSE workers several development programmes for tea cultivation, which includes either to STG or to opt for appropriate employment opportunities the redistribution of nationalized tea land for land less community to elsewhere in these countries.

64 Area Studies Area Studies 65 A.S. Chandrabose

References Annual Report (various years), Tea Small Holding Authority, (Parliament Road, Pelawatte, Batharamulla, Sri Lanka). Ben Crow and Mary Thorpe (1998), Survival and Change in the Third World, ( New York, Oxford University Press). Chandrabose, A.S (September/December 2006), “Labour Turnout In Small Tea Holdings: A Comparative Study Of Nilgiri Tea Gardens in South India and Tea Region of Low Elevation In Sri Lanka” in Economic Review. Chandrabose, A.S. (2015), “Hired Labour in the Tea Smallholding in Kotapola in the District of Matara in Sri Lanka,” Paper presented at the Annual Academic Session held on 19th and 20th of November 2015 at the Open University of Sri Lanka. Gooneratne, W, and Wesumperuma, D. (1984), Plantation Agriculture in Sri Lanka, Issues in Employment and Development, (ARTEP, Bankok). Hannnan Abdul (2013), “Organizational Innovations and Small Tea Growers (STGs) in India,” (Center for Development Studies, Thiruvannanthapuram), Hazarika Kakali, Borah Kaberi (2013), “Small Tea Cultivation in the Process of Self Employment: A study on the Indigenous People of Assam (India),” International journal of Latest Trends in Finance & Economic Sciences, pp 502 -07. Ministry of Plantation Industries, (various years), Statistical Information on Plantation Crops, Colombo. Sivaram. B, (2000), Plantation Management in the New Millenium, (NIPM, Athrugiriya, Sri Lanka). Patrick Mendis (1991), “A Survey of Estate Size and Tea Productivity Debate in India Sri Lanka and Kenya,” Marga, Vol.11,No.4, Colombo. http://www.teacoffeespiceofindia.com/tea/tea-statistics (12.01.2015) http://www.plantationindustries.gov.lk. (12.01.2015) http://www.historic-uk.com/CultureUK/afternoon-tea (13.01.2015)

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66 Area Studies