The Shifting Sands of Geopolitics in India

15 Feb 2024 , 11:40 AM

Mr. Pramit Pal Chaudhari, geopolitics experts, spoke at IIFL Securities annual Enterprising Bharat Global Investor Conference. His views: 

America is vacating the place of global police-man: 

While the western media focusses on Gaza & Ukraine, the bloodiest civil war right now is in Yemen which has over 600k dead, in addition to Ethiopia’s 200k. Then Sudan, Myanmar are all civil wars, but international impact is minimal and hence these don’t get much coverage. Why is this happening? 

The international order in which we were raised was underpinned by the American power. America is now signalling that it is no longer in the business of being a global policeman. Biden administration’s security guidelines made it very clear that America’s focus is on Western Pacific, Indian Ocean, and North Atlantic while everything else is secondary. America is leaving Persian Gulf, Middle East and it has already left Afghanistan. China is the sole focus now. China is the only real threat internally, and Russia, Hamas etc. are all sideshows which the US is forced to do reluctantly. 

What this means for the world? 

Sahel region of Africa can see a rise of a new Islamic state – a fight between ISIS & Al-Qaeda and respective governments for power. Americans & French were involved but have pulled out. A terrorist centre is developing in this region. 

Regional powers look at their neighbourhood and think that the US has left, creating a vacuum. They see an opportunity to fill it. Category I is delusional leaders. Leaders of these powers draw motivation from medieval history and aspire to create a new empire. Two perfect examples are Turkey & Russia. In Turkey, Erdogan had a thriving economy when he took over, but soon had a realization, that he should recreate the Ottoman empire and so, started getting into fights with everyone around (Syria, Eqypt, Greece, Israel, EU countries etc.) and drove Turkey into its current economic condition. Similarly, Putin who is known for his love for history, wanted to resurrect original Slavik empire and invaded the much smaller Ukraine, which it has failed to claim yet. 

In Israel, Netanyahu too almost falls in this category as he wants to leave Gaza as his legacy. He made a strategic mistake of thinking that he had struck peace with Hamas and so, vacated its southern border and transferred forces to West Bank, only to see the Hamas’ attack. 

On the other side are countries like the UAE, Saudi Arabia, Gulf & ASEAN countries, who are building economic & strategic spheres of influence. For example, UAE wants India to become a major player in the Gulf. It is willing to invest in India, develop infra and military, and in return wants the Indian Navy to defend the Arabian Sea area.

 India is playing it very cautiously. Modi has professionalized foreign affairs by appointing a career diplomat (Jaishankar) to head foreign affairs. India’s biggest fear is China. India continues to strike a very fine balance between US & China relations, drifting closer towards the US.

On Saudi’s diversification plans: 

MBS knows that hydrocarbons have limited future because of which he is diversifying. Saudi has huge mineral deposits which builds a solid case for a push in mining activity. It aspires to be a technology power. All these are iffy and MBS hopes something will work if enough money is thrown at it. Saudi’s youth population is not capable enough to work in high-tech environment given poor educational background, no work ethics, etc. 

Gaza end game: 

Israel will succeed in destroying large swathes of Hamas and there will be large civilian casualties also. But America will put pressure and ultimately ask Israel to stop which is more likely given US elections around the corner. As soon as war is over, Netanyahu govt. will come under domestic collapse as everyone is pointing fingers on him for this Hamas situation. Expect more Left sided new govt. to come to power and work towards a peaceful 2-states solution. 

On China+1: 

It doesn’t look much exciting as of now. Apple is slowly replicating its supply chain in India. Currently only 10-15% value addition is done in India majorly by assembling & some manufacturing, but over time, it thinks every part other than chips & chipset can be made in India. So value addition can go up to 50% in 10 years’ time. Same can happen with EVs (Tesla, Japanese car makers like Suzuki). It’s better to see this as ‘Half China +’, considering it seems far-fetched to replicate entire 100% of these highly complex supply chains. For example, it is hard to see companies like Lego (toys industry) and Nike moving out of China as they have no incentive to do so (no subsidies are provided to them). German chemical industry haves instead decided to shift to China. 

On Trump getting re-elected: 

Trump will only exaggerate existing trends instead of making any radical shift as portrayed. The US is already on an isolationist path and it has been on this path since the Obama administration. Trump has built on that – for example, getting out of Afghanistan was originally announced by Obama, repeated by Trump and acted on by Biden, so no change has been made in policy. What Trump says on campaign trail and what he enacts while in office are two completely different things. Europeans are nervous about Trump as he see Europeans as free riders on American security arrangements. Hence, NATO arrangement may come under tremendous pressure. Trump may get harsher against China. Irrespective of what he says, US will continue to fight for strategically important Taiwan. Trump won’t be a problem for India as Modi shared a good relationship with Trump and the only point of disagreement between them has been the climate change issue. 

Russia-Ukraine end game: 

Each side is losing almost 5000 men for capturing one sq.km of land. There is a constant claiming, losing & reclaiming of land that is going on. So the war is practically over and nobody is winning. Neither side has the capacity to keep fighting. The question is when both sides agree for a negotiation. US will most likely squeeze Ukraine to sit on the negotiation table and redraw border lines. It will most likely turn out to be a long-standing border dispute like IndiaPakistan. The starting point can be the New Delhi G20 consensus declaration on Russia-Ukraine. 

On foreign policies:

Govt. is not being honest on foreign policy with its people. There’s a lot of hedging going on and even govt. is not very clear. Current strategy is to join various alliances without any clarity as to which one will work. But, alliances like Quad are very important for the participating nations as it’s against China. 

On China’s downturn:

No one knows for sure what’s happening in China. It seems that their real estate & export model is not working as people are not buying properties anymore and given a protectionist trade environment around the globe. China is changing its approach but it has to be careful in this re-alignment as 60% of Chinese wealth is tied to real estate. Dampening in China-Australia relationship has been a surprise and a mistake, given Australia was an important trade partner and vice versa. China could become inward-looking and cut-off from the world, if the economy weakens too much. Another interesting view was that last time, China invaded India when it was perceived to be weak, so India should avoid provoking China when it is struggling economically. (contrast this with Dr.Jim Walker’s view that RE problem in China is mainly a rich people problem, Xi is very sure of his anti-corruption drive and RE is a targeted casualty of this, and finally that Xi is quite popular in China – we are inclined to lean towards Dr.Jim’s view). 

On Pakistan: 

Pakistan is now a threat to itself. Its economy has become very uncompetitive. There are no exports, fixed capital formation is very low, poverty is increasing & inflation is high. Given all this, we are seeing rise of the likes of Imran Khan, who is an outsider and not a part of existing establishment, as people are angry with the state of affairs. But managing the mess in Pakistan is an uphill task and Pakistan will keep looking for PMs every 6 months. Further, it is getting attacked by Taliban and facing the enemy it created in Afghanistan. Taliban is fighting for border with Pakistan and making inroads.