INDIA'S B.O.P DILEMMA

by

SUSHANT SAREEN

    If, as an economist, Prime Minister Manmohan Singh takes BOP to mean balance of payments, he would be right, albeit partially. Balance of Payments support is after all an important component of a "Bail Out Pakistan" plan that India needs to consider supporting, and do this not by merely voting in favour of an IMF program for Pakistan. India has long maintained that a stable, prosperous and friendly Pakistan is in its vital interest. Quite aside the fact that this policy position has been, more than anything else, only a statement of desire, if India really believes that a stable Pakistan is better than no Pakistan, or a Talibanised Pakistan, then perhaps the time has come for India to put its money – say, a billion dollars – where its mouth is.

To not put too fine a point on it, if the Pakistani economy tanks, the already precarious political and security situation in the country can easily spiral out of control, destabilising the entire region. India will therefore not be helping Pakistan because it has suddenly fallen in love with its old adversary, but because it serves India's vital strategic interests. Any assistance to Pakistan must be shorn of sentimentalism and should be based on cold-hearted diplomatic calculations of deriving the maximum bang, or if you will, benefit – economic, political, and strategic – for the buck.

As a country that aspires to join the high table of great powers, India needs to set its backyard in order. Nepal is a mess. Bangladesh is no better, exporting not only millions of economic refugees to India but also radical Islamists. Sri Lanka is wracked by civil war, the reverberations of which are being felt in New Delhi and Chennai. And then there is Pakistan, which is trouble when stable, but even bigger trouble if destabilised.

Unless India can first emerge as the paramount regional power, looked up to not in fear but awe by all its smaller neighbours, India will find itself hobbled on the world stage. In any case what's the sense in wanting to strut on the global stage when your own neighbourhood is in an utter mess and there's precious little that you can or want to do about it.

This is where a BOP plan can serve as an instrument in India's diplomatic arsenal, not just in relation to Pakistan but also for rest of the region. At a time when Pakistan has been forsaken by all its friends, India has got a tremendous opportunity to take a calculated risk and make a grand reconciliation gesture that will not only reassure Pakistanis that India does not pose a threat to Pakistan's security, but also create some breathing space for an economy that has all but collapsed. The political impact of such a gesture will be far greater than Atal Bihari Vajpayee's visit to Minar-e-Pakistan in Lahore to signal to Pakistanis that India does not question the existence of their state. Not only will it be a shot in the arm for the growing lobby inside Pakistan which is advocating normalisation of relations with India, it will also be a slap in the face of anti-India forces working overtime to sabotage any possibility of good relations.

There is a very good chance that Pakistan might even reject India's offer, in which case India will have gained diplomatic tremendous mileage without spending a dime. But if Pakistan accepts the offer, the potential economic benefits of a BOP plan will have a multiplier effect on India's efforts to open up trade, commerce and travel in the region and to use this as a lever for achieving diplomatic ends. A billion dollar balance of payments support to Pakistan can be used by India to pump prime the Pakistani economy by seeking repayment of this money in the form of exports to India. Alternatively, the money can be used as investment capital inside Pakistan to either purchase units being privatised or to set up green-field projects. In either case, the end result will be the demolition of artificial trade barriers and the creation of economic inter-linkages that will develop vested interests in Pakistan for normal relations with India.

Concerns in India that any financial assistance to Pakistan will be used to procure weapon systems which will ultimately be aimed at India are somewhat misplaced. While there is no fail-safe measure of ensuring that the funds are not misused, a billion dollars from India will in no way obviate Pakistan's need for an IMF program which will almost certainly come with stiff riders on reducing expenditure. And, despite Pakistan army being embroiled in combating Islamist insurgents, defence expenditure will almost certainly be affected. There is of course a real possibility that some of these cuts will be made up by military assistance from countries like the US. But this will be nowhere close to bridging the ever growing gap between the resources India devotes to defence and what Pakistan is able to muster up.

The problem in a BOP plan is therefore not so much economic or strategic; rather it is India's domestic politics that hinders such a plan, especially since general elections are just around the corner. The last thing the ruling coalition will want is to go to the hustings by giving the opposition an issue that it can use to devastating effect against the incumbent government. Adding to the government's difficulty is the economic downturn in the Indian economy. Clearly, a BOP plan is not going to win votes if the government to be seen to bail out a hostile neighbour when the same money could be used to improve the lot of people back home. There is also the problem of the fiscal profligacy of this government which has robbed it of the fiscal space that could have been used to promote diplomatic objectives.

The biggest stumbling block however is the continued violations of ceasefire in Kashmir, the involvement of the ISI in the bombing of the Indian embassy in Kabul and the lingering suspicions of its continued patronage of terrorist groups in India has meant that there aren't too many people in the policy making establishment who are willing to think out of the box and unveil a plan to bail out Pakistan. The question is whether these actions are the result of Pakistan's inability to get over its ingrained hostility towards India, or is there something else at work?

There is a belief among some people in India that the economic meltdown coupled with the deteriorating security situation on its Western border, Pakistan is desperate for a settlement with India which will more or less be on India's terms. In support of this argument they point to the discernible change in perception of India among many Pakistanis. Perhaps it is to disabuse India of the notion that it can treat Pakistan like a pushover that a strong message is being sent from across the border. But even if this is the case, it makes it politically impossible for any Indian government to make a gesture towards Pakistan.

The dilemma and indeed difficulties in coming up with a BOP plan are obvious enough. But given India's economic strength and its soft power, it is ideally placed to try a bold initiative aimed at breaking the mould of hostility. If the initiative fails, India will still gain diplomatically. But if it works, it can bring about a paradigm change in the relations between the two countries.

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    <1250 Words>                    6^th November, 2008

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