India: One State, Many Countries

May 19, 2016 As the rest of Eurasia slides further into crisis, the only thing getting in India’s way is India.

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By Jacob L. Shapiro

India deployed four ships, including two stealth frigates and one guided missile corvette, into the South China Sea and the western Pacific Ocean, where they will remain for two and a half months, according to a statement released yesterday by the Press Information Bureau of India. The statement said that the Indian ships will participate in the annual Malabar exercises with the Japanese and U.S. navies and will make port calls in Vietnam, the Philippines, Japan, South Korea, Russia and Malaysia. Meanwhile, Apple Inc.’s CEO Tim Cook arrived in Mumbai today. At the end of his five-day trip, Cook is scheduled to meet with Prime Minister Narendra Modi.

On the surface, these seem like impressive developments. From a military perspective, the ship deployments suggest India is feeling confident enough in its abilities to send warships into one of the most contested seascapes in the world. From an economic perspective, Apple, fresh off its first drop in quarterly sales in 13 years, may be looking at India as a possible solution for a 26 percent decline year over year in revenue in China. This seems to indicate that India may be well placed to take advantage of the exporter’s crisis. India is in a good strategic position today, but that doesn’t mean we should indulge in delusions of grandeur. The fundamental issues that have always held India back are still there – and they won’t be dissipating in the near future.

The activities of the Indian navy have been on our radar for a few months now. In March, the U.S. military announced that this year’s Malabar exercises would be held in part in the Philippine Sea – not technically within the South China Sea, but certainly close enough to attract Beijing’s attention. India, however, did not want to antagonize China too much. Just over a week after the U.S. military announcement, Indian Defense Minister Manohar Parrikar publicly denied that India had any intention to take part in joint patrols of the South China Sea with the navies of Japan, Australia and the U.S. India also sent a warship to participate in joint exercises of the Association for Southeast Asian Nations in the South China Sea, which China participated in as well.

The fact that India has announced that it is deploying four ships into the South China Sea is then a rather striking move, made all the more noticeable by China’s conspicuous absence from the port call schedule. The last time India sent ships into the South China Sea was in 2012, but there was a scheduled port call in Shanghai in that deployment. (China also dispatched People’s Liberation Army navy ships to escort India’s ships out of the South China Sea after they left the Philippines for South Korea during that deployment). China has not yet officially responded to the Indian announcement. In fact, yesterday a Chinese Foreign Ministry spokesperson said that Beijing was looking forward to hosting Indian President Pranab Mukherjee on an upcoming visit from May 24 to May 27.

India is not interested in making an enemy out of China, and besides, the Himalayas stand as an impassable barrier that precludes the potential for real war between the two countries. However, India also doesn’t want to be a pushover, and has other interests that require it to show some strength in the Indo-Pacific. For one thing, with Russia weakening, India may be interested in aligning more closely with the United States. Military gestures such as these, which carry relatively miniscule levels of risk but sound impressive, can help signal cooperation with the U.S. without any real cost. On the flip side, hamstrung as India is by domestic issues, if it is to expand its regional influence, it can only do so by sea. On all other sides, India is hemmed in either by geographic barriers or mortal enemies. So this naval deployment is a low-risk gesture that makes India look good without changing the fundamental power balance.

Economically, India is doing by far the best of the once-up-and-coming BRICS countries, which also include Brazil, Russia, China and South Africa. The World Bank projects that India’s GDP will grow at a rate of 7.5 percent in the current year, while the International Monetary Fund estimates a rate of 7.4 percent. These are impressive figures, and with the world acutely feeling the decline of China’s growth rates, India’s 1.2 billion people are an attractive potential market and labor force. But two fundamental issues must be kept in mind that temper India’s true potential.

The first is a fact that is as stark in its simplicity as in its effect. Even more so than China, India is an incredibly poor country. According to the World Bank, over a quarter of a million people in India earn less than $1.90 a day. Over 700 million Indians live on less than $3.10 a day. Even decades of preternatural GDP growth are not going to bring regular Indians the disposable income they would need to afford a new iPhone. Companies like Apple are seeing large percentage growth in revenues for products sold in India, but those increases are from relatively small customer bases that do not look poised to expand greatly in the near future.

The second is that despite Modi’s attempts, India’s regulatory environment is complex and convoluted. Apple has been active in India for almost 10 years and is only just breaking through some of the regulatory barriers. The Times of India reported on April 22 that the Indian government is planning to waive a rule that requires 30 percent of goods sold by foreign companies in India be sourced within India. Apple has been trying to get around this rule for years because it keeps Apple from opening its own stores in India, instead forcing the company to rely on local distributors.

But whether Apple is finally able to cut through some of the red tape is unimportant. There will always be more bureaucracy. (Apple’s request to import and sell refurbished iPhones in India is currently stalled.) India is such a diverse place that the regulations will differ from place to place. Apple is not alone in this challenge. India has always been a difficult place for foreign companies to operate. The central government in New Delhi is attempting to change that, but change takes time. Even so, the central government’s control over the entire country is suspect at best.

In the end, it comes down to this. India is not one country. It is a hodgepodge of many different countries. India is often touted as the world’s largest democracy. But India is actually an unwieldy collection of semi-autonomous states and union territories. India’s constitution designates Hindi and English as the country’s official languages, but India has no true national language. States within India can specify their own official languages, and there are 22 such languages spread throughout the entire country. India has no fewer than five active separatist movements, some peaceful and some violent. That is without counting the ongoing Maoist insurgency in eastern India being carried out by the Naxalites.

Readers familiar with our writing know that when we look at the world, we see Eurasia in a state of systemic crisis. India is the exception – but that does not mean India is stable. India is in a state of perpetual crisis. It is no more or less chaotic than it always has been. Strategically, India is in a rather nice position. It is stronger than its only regional competitor, Pakistan. Russia and China are both absorbed with internal challenges, which potentially gives India room to maneuver in the Indo-Pacific. Because of a global economic destabilization and a dearth of other options, foreign capital is flowing into the country. Wealthy companies are braving India’s regulatory systems to enter its markets in the hope of cracking a secret code to profitability in the country. Meanwhile, the U.S. wants India to be its friend, and India can enjoy the attention and the perks that come with U.S. solicitations while maintaining a level of relative neutrality with China and other claimants in the South China Sea.

But that still leaves one insurmountable problem. India’s greatest challenger is India. In our forecast for 2040, India does not play a very big role, because it’s not a challenge we expect New Delhi to overcome in the next 25 years.

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