Q&A with Dr. Samir Saran, President, Observer Research Foundation, about the SCO, Eurasia’s future, balancing Iran-US & Pakistan-Russia ties & BIMSTEC

Q. The larger economies of the Eurasian region like China and Russia are driven by investment & export. What are the main economic-drivers in other Eurasian countries? Where do you think the future of this region is headed?

A. Most Eurasian countries, especially the Central Asian ones, are heavily dependent on commodities exports, including minerals, hydrocarbon, oil and gas. Small businesses, agriculture and migrant remittances make up the rest of their economic output.

These states are now keen to diversify their economies and see Beijing’s infrastructure investment thrust through the Belt and Road Initiative as a means to integrate with regional and global supply chains, thereby creating new sources of capital, technology and trade.

Having said that, other actors, including the EU, Russia and India will similarly expand their investments in Eurasia, given the region’s rising geopolitical profile, hopefully bringing about positive external stimulus for economic reform.   

Ultimately, Eurasia’s economic future will be heavily dependent on the ability of the countries in the region to ensure that external engagement creates sustainable growth and benefits the local communities, rather than only secure foreign interests in energy supplies and natural resources.

Q.  The SCO has seen some momentum, now that Pakistan and India have joined as members and Iran and Afghanistan might become members in the future. What can the SCO achieve in the future in terms of trade and commerce linkages, especially for the new member states?

A. Connectivity, trade and commerce are important themes in the SCO’s agenda — and the addition of India adds a certain economic and normative heft to the group.

While India’s addition into the group can help facilitate greater economic integration between South Asia and Central Asia, the fact remains that the introduction of India and Pakistan might create new geopolitical tensions over the terms of trade and commerce and the SCO’s security initiatives in the short term.

Already, at the recent SCO meet in Qingdao, India refused to endorse China’s flagship Belt and Road Initiative — a move that may possibly become a major sour point in the near future. At the same time, it is not inconceivable that India-Pakistan bilateral disputes, especially over terrorism, might spill over into this forum.

Having said that, the SCO has the potential to emerge as an important voice in global economic governance. At Qingdao, the member states underscored the importance of safeguarding the WTO system, preventing protectionist pressures, and avoiding the “fragmentation of trade relations”— a welcome stance given the protectionist attitude prevailing in the West.

Further, the SCO might also emerge as an important platform which can incubate new propositions on Afghanistan’s security dilemma. Iran, for its part, will remain keen on joining the organization as a counterweight against Western pressure. However it remains to be seen what the impact of America’s policy choices will be on its SCO membership.

Q. The SCO has long been synonymous with the China-Russia equation, especially in the energy sector. Do you envisage the activities for the newer members will also revolve primarily around energy, or do you see other sectors of commerce also coming into forte?

A. As members of the SCO benefit from the global redistribution of wealth towards Asia, they will find new opportunities for trade and investment. However, much of this new finance, especially China’s investments under the Belt and Road Initiative, may well tap only into the energy markets and supporting the infrastructure needed to support its own commodities requirement. 

This might take place even as most Central Asian states are keen to diversify their economies and expand their manufacturing and information technology services sectors. And while the SCO is well positioned to aid this ambition, considering the groupings emphasis on greater economic integration, it remains to be seen how the SCO will expand on its traditional focus on energy supply and regional security.

Once again, if states in the region are to benefit from integration and create new economic opportunities, they must set the terms of engagement when it comes to foreign investments — especially large scale infrastructure projects. They must set economic and political priorities, ensure sustainable project finance, and reject investments that collateralize strategic assets.

Q.  The Eurasian Economic Union, a grouping of Russia with some CIS countries, is still in nascent stage. What is your view on this? Can it be advantageous to India’s trade and commerce if it does join the EEU in future? Or will the SCO overshadow the EEU?

Free trade between the members of the EEU and India will allow Delhi to further diversify its energy supply, while finding new markets for its pharmaceuticals, agricultural and information technology services. India will not join the EEU, but it will benefit from infrastructure connectivity and regional security cooperation between the SCO and the EEU.

The EEU itself suffers from ambivalence amongst member states, while Russia will be unable to anchor a single market despite being the largest economic actor in this group. And while EEU and the Belt and Road Initiative integration is ostensibly welcomed by Moscow and Beijing, the fact remains that the primary purpose of both initiatives remain different: the EEU seeks to create a single market, while the BRI seeks to reorient multiple markets to place Beijing at the center of trade relationships.

It remains to be seen if and how these countries reconcile their differences.

While Delhi may seek new partnerships with countries in the EEU, the SCO is likely to remain India’s primary platform of engagement with Eurasia for now, with the engagement at the EEU allowing it some room to maneuver.

Q.  The future commercial prospects from the Chabahar link and North-South Transport linkage is still in partial uncertainty, as the US pressure of sanctions on Iran remains a Damocles’ sword. What is your view on how India can best balance its interests between Iran and the US over the near-term and long-term?

A. US sanctions are only part of the troubles the Chabahar port deal will face considering that India-Iran relations are also mired in complex regional geopolitics. Despite considerable energy in the India-Iran relationship, Iran remains wary about isolating Pakistan. Moreover, China is the single largest investor in the country, giving it greater leverage than India.

In the long term, however, structural factors will require the US to allow India to take a stronger leadership role in the region. In other words, as China’s growing influence in Eurasia begins to elicit a US response, India will necessarily emerge as a key partner. And this might allow India to advance its regional preferences, including on Iran and Eurasian connectivity in general.

Already, former US Secretary of State Rex Tillerson has suggested that the US would not interfere in India’s “legitimate business concerns;” and American officials have proposed to exempt Indian defense deals from sanctions on Russia.

These statements signal the growing weight of India’s foreign policy choices in America’s calculus. Still, a transactional and often unpredictable Trump Administration might frustrate India’s regional ambitions in the short term — especial in Iran.

In the long term, both countries must utilize their burgeoning engagement to identify and resolve competing priorities in the Eurasian region.

Q.  What is your view on the Pakistan-Russia military relationship? Can India exert pressure on the Russian defense industry to reduce its trade with Pakistan? India already has a high defense budget eating up its budget for soft and hard infrastructure. Where do you think Russia-Pak arms trade can take India’s defense budget from current levels?

A. The nascent Russia-Pakistan outreach is driven less by Indian choices, and more by the realignment of global balance of power arrangements.

Just as India is diversifying its partnerships especially with the United States, Russia is keen to find new markets for its products — especially for gas and defense goods. At the same time, Pakistan remains an important partner for Russia in Afghanistan.

It is likely that both Russia and India will remain invested in their defense and energy relationship in the short to medium term. India is dependent on Russia for parts, supplies and a few high technology projects, while India’s security demands and energy requirements form a key component of Moscow’s economy.

As for India’s defense budget; it is more dependent on factors like India’s domestic manufacturing ability, tax to GDP ratio and long term modernization goals. The choices of India’s defense partners will have little influence over conversation. India’s growing defense spending appetite will outstrip Moscow’s capacity to cater to it in the medium term.

Q.  The BIMSTEC grouping was touted as an alternative to SAARC, but progress on both trade and development agenda remains slow. How can this be expedited?

Apart from general Indian inertia on completing infrastructure projects in its neighbourhood, BIMSTEC also remains hostage to regional political developments. India’s role in Nepal’s constitutional debates and the subsequent economic blockade; the Rohingya crisis which has impacted Bangladesh and Myanmar; and China’s influence in South Asia have all proved to be political impediments.

However, long term trends favour a revitalized BIMSTEC outreach. For one thing, as India and China engage in a geopolitical competition over the rules of connectivity, platforms like BIMSTEC will form a key part of India’s diplomatic and commercial initiatives.

At the same time, renewed interest from other powers, especially Japan, in cooperating with India in South Asian economic integration will benefit these efforts. Countries like Japan can bring in high quality finance, technology and expertise into regional initiatives like BIMSTEC.

On its part, India must also be prepared to focus on smaller groupings and partners within the BIMSTEC, such as the BBIN, in order to translate sub-regional projects into more invigorated regional integration efforts.  

Observer Research Foundation ranked best Indian think tank in Asian region

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