India and China move closer as Modi tours ‘Act East’ policy

Much to talk about: Indian Prime Minister Narendra Modi and Chinese Premier Li Keqiang chat during a signing ceremony at the Great Hall of the People in Beijing. EPA/Kenzaburo Fukuhara

This past week, Narendra Modi has visited China (May 14-16), Mongolia (May 17) and South Korea (May 18-19). The Indian prime minister’s tour has demonstrated his nation’s diplomatic approach, which aims to maximise common interests and minimise political differences and potential obstacles.

Focus on ‘Act East’ and ‘Make in India’ policies

“Act East” and “Make in India” are the key words to understand the purpose and achievements of Modi’s tour. “Act East” is an upgraded version of the “Look East” policy. The latter has been pursued since 1991 when the Indian economy experienced liberalisation and started to pay attention to East and South Asian countries for potential economic partnerships.

The India-US Joint Statement in September 2014 introduced “Act East” as a more pro-active extension.

In the same month, Modi launched the “Make in India” campaign. According to India’s Investor Facilitation Cell, this national program aims to facilitate global investment and build manufacturing infrastructure. A total of 25 sectors from automobiles to wellness are open to investors under this slogan.

An example of an investing model under the two significant directions is the Delhi-Mumbai Industrial Corridor. It was implemented by a body in which the Indian government and Japan Bank for International Cooperation are stakeholders (49% and 26% respectively).

Philosophically, as Modi has implied at the Asian Leadership Forum, the two slogans are pursued as a roadmap to realise shared prosperity in Asia and extend the era of Asia’s re-emergence. This explains why Modi has outlined the details of “Make in India” in each of the recently visited states.

What does Modi have to show for his tour?

During his visits, Modi and his counterparts announced joint statements. These are extensive, ranging from political and security issues to culture, education and people-to-people exchanges.

In China, two joint statements have been signed, including the Joint Statement on Climate Change. In addition, 24 agreements and MOUs have been inked between India and China, 13 with Mongolia and seven with South Korea.

In the Joint Statement with 41 articles, the Indian and Chinese leaders agreed on strengthening political dialogue and strategic communication, along with a closer economic partnership. In the India-China Summit last September, China promised to invest US$20 billion in the Indian manufacturing sector in the next five years and to set up industrial parks in Maharashtra and Gujarat.

One area of exemplary co-operation between India and China is the railway sector. China wants to export its express railway technology and India wants to establish a fast-rail system across its territory. India’s efforts to expand the breadth of communication with China were exhibited at the launch of the India-China Forum of State Provincial Leaders.

In Modi’s press statement in Mongolia, that nation is described as “an integral part of India’s Act East Policy” which shares closely linked goals in the Asia-Pacific region. He promised US$1 billion in credit for Mongolia’s economic capability, institutions, infrastructure and human resources.

Further, the relationship between India and Mongolia has been upgraded to the status of a strategic partnership. Co-operation between national security councils is agreed and will provide a strategic framework for joint actions in border security and cyber security.

‘Indispensable partners’: South Korean President Park Geun-hye welcomes Indian Prime Minister Narendra Modi in Seoul. EPA/Yonhap

India has described South Korea as “an indispensable partner” in its “Act East” strategy in the Joint Statement between Modi and President Park Geun-hye. Modi discussed in detail the reciprocal strengths in Indian and South Korean industries at the CEOs Forum.

For example, India’s software and Korea’s hardware industry, India’s iron ore and Korea’s steel-producing capacity, India’s port development plan along with constructing LNG tankers and Korea’s ship-building ability have been mentioned. Modi has promoted India’s national projects on housing, city constructing, renewable energy generation and transportation while reassuring that India would be a very easy place to do business. Modi promised that Korean investors would be supported favourably in India under his government’s “Korea Plus” commitment.

India’s approach to obstacles and solutions

Modi’s visits to three East Asian countries seem to have answered a couple of questions on India’s approaches to security concerns, regional issues and diplomatic platforms.

The border dispute between India and China is a persistent one, which raises issues of territorial integrity for both countries. Troubles in border areas and the boundary question have been dealt with in three articles in the Joint Statement. This stresses the importance of frequent communications.

In his statement in Beijing, Modi describes this as a problem holding them “back from realising the full potential of our (India and China) partnership” while suggesting “intensifying confidence-building measures”. When he met Qinghua University students, he pointed out that the solution for the instability and uncertainty over the border dispute is “clarifying” “where the Line of Actual Control is”.

India’s trade deficit is another obstacle in dealing with China as a stable economic partner. Indian industry’s accessibility to the Chinese market and India’s growing deficit have been discussed between Modi and Chinese President Xi Jinping.

India and South Korea have more common security concerns, ranging from the North Korean nuclear issue to maritime security. However, their relatively modest level of economic engagement is an issue. South Korea ranks only 14th in foreign direct investment in India.

Several diplomatic attempts at closer engagement have been made. Firstly, during Modi’s visit to South Korea, the two countries elevated the bilateral relationship to “Special Strategic Partnership” from the “Strategic Partnership” announced in 2010. Secondly, Korea becomes the second country with which India establishes a 2+2 diplomatic and security dialogue, following the India-Japan dialogue in the same format.

Thirdly, the Korea-India Comprehensive Economic Partnership Agreement will be reviewed in terms of market-access issues. Lastly, the two countries have agreed to form a joint working group on shipbuilding.

Economic needs drive co-operation

Economic motivations are driving the focus on mutual interests in relations between India and respective countries. Meanwhile, security concerns represent possible obstacles that could prevent more tangible developments.

Modi’s Asian tour also sends a significant signal to Australian policy-makers and businesses that India is further positioning itself as the next manufacturing hub.