7 April 2016
Partners in Development
Given the size and the scope of the Belt and Road Initiative, India is certain to play an important role in the project, particularly as the proposed sea-going 21st Century Maritime Silk Road route traverses the Indian Ocean. While sharing a long border with the Chinese mainland, trading ties between these two major Asian nations have been relatively small, due to historical and geographical factors, with the mighty Himalayas lying between the two. The Indian economy, long seen as lagging behind the mainland’s, is finally showing strong growth, making enhanced trade a more appealing prospect for both parties.
India is considered a "sweet spot" at a time when many economies – including the mainland's – are slowing down. "India is one of the Silk Road's largest economies and so must play a significant role in the Initiative," said Ben Simpfendorfer, head of Silk Road Associates, a Hong Kong-based consulting firm.
Among the key aims of the Belt and Road Initiative is to help the mainland export its excess capacity in several sectors, notably steel and cement. Inevitably, this will lead to massive investment in a wide variety of infrastructure projects, including roads, railway lines and seaports.
“While the Initiative is aimed at addressing these excess capacities, it will also bring a tremendous supply of Chinese capital to the neighbouring regions in Asia and beyond," said Dr Srikanth Kondapalli, who is Professor of Chinese Studies at New Delhi's Jawaharlal Nehru University.
At the heart of the Initiative is a complex matrix of infrastructure projects, with many likely to have a huge impact on India. Two of the most notable projects are the Bangladesh-China-India-Myanmar Economic Corridor and the China-Pakistan Economic Corridor.
India is fully aware of the Initiative’s strategic element, which some say explains why it has yet to take an official position on the Belt and Road. There are also a number of sensitivities that will need to be addressed. The Initiative is likely to extend into Pakistan, with a number of projects set to be built in Pakistan-controlled Kashmir. India and Pakistan's problematic relationship is likely to cast a long shadow over any project involving the two countries.
India, however, has proved a willing participant in some aspects of the Belt and Road Initiative. The country has already signed to join two of the pan-regional financial institutions likely to be key to the success of the project: the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank. These banks are likely to serve as key funding conduits for many of the proposed infrastructure projects, said to total some US$8 trillion.
Many analysts, however, remain divided on how the Belt and Road Initiative will affect India and its relations with its neighbours. The optimists contend that, far from exacerbating regional tensions, the Initiative could lead to stronger economic ties between India and Pakistan.
According to ICRIER, a Delhi-based think-tank, the potential value of two-way trade between India and Pakistan – if all tariff and non-tariff barriers are removed – is US$30 billion, 15 times the current level of trade. Should the Belt and Road Initiative and its associated infrastructure developments pave the way for such an expansion, it would clearly benefit all parties concerned.
For individual companies, many large Indian businesses will likely benefit from their country’s involvement in the Initiative. India’s participation would entitle major Indian companies to bid for several Belt and Road-related projects, although they will face tough competition from companies in South Korea, Taiwan and China. Dr Kondapalli, though, is philosophical about the prospects for Indian companies, saying: "Anyone could walk away with a billion dollars' worth of projects."
India is highly competitive in the software and automotive sectors, for instance. But in the area of infrastructure, mainland firms are already involved in many of the relevant construction projects.
While mainland companies are working on projects in the Hyderabad area, future developments may involve more joint ventures between mainland and Indian companies. This would see domestic firms focusing on government relations, as well as sourcing local labour and materials.
Mr Simpfendorfer believes that such partnerships will characterise many future developments. "Indian corporations will inevitably play a critical role when it comes to leading consortiums or partnering with Chinese firms as part of large-scale construction projects."
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