China's new Silk Road: India's caution on OBOR is well founded

The Belt and Road Forum for International Cooperation will be held in Beijing on May 14 and 15. It will mark the formal launch of China’s ambitious and potentially game-changing initiative to build a network of transport and economic corridors across Asia and Europe with China as the nodal point. At last count, some 28 heads of state and government had confirmed attendance while another 50 countries will send official representatives. India is unlikely to participate, except at a functional level, as it has objected to one major component of the One Belt One Road (OBOR) — the China-Pakistan Economic Corridor (CPEC) — as it runs through Pakistan-occupied Kashmir (PoK). The objection is legitimate. After all, China routinely blocks any international funding of projects in Arunachal Pradesh on the ground that it is disputed territory. Of late, it has even raised objections to the central government undertaking projects in that state. It is hypocritical then for Beijing to justify undertaking projects in PoK. But India should be cautious about participating in other components of the OBOR as well. 

While it is true that notwithstanding Chinese activities in PoK, India saw merit in joining the Asia Infrastructure Investment Bank (AIIB), the BRICS Development Bank and the Shanghai Cooperation Organisation (SCO), all initiatives led by China, the difference is that India was actively involved in shaping the architecture of the AIIB and the Development Bank, their lending policies, and is represented at senior levels in these institutions. The SCO, too, is a multilateral institution and members have an important say in its policies. But the OBOR does not fit into this pattern. India had conveyed to China that a similar consultative process was even more important for such an ambitious undertaking. The Chinese apparently want India to first sign on to the initiative before getting into the specifics of India’s role, the choice of projects and financing. If this, indeed, is the case, then India’s caution is well founded. The OBOR appears to be more a series of bilateral projects among China and various partner countries rather than a truly multilateral cooperative venture. If there are specific projects, such as port development or railway projects, that China is willing to offer for India-China cooperation, let these be posed so that they may be properly evaluated. 

There are other reasons for caution. There is a fairly widespread, but mistaken, impression that China is dispensing enormous sums of money under the OBOR, which India may be missing out on. Projects under the OBOR, even in closely allied countries like Pakistan, are financed through loans that have to be paid back. The economic viability of projects has to be a prime consideration. The experience of Hambantota Port in Sri Lanka, which is included in the OBOR, is not encouraging. The revenue from the port, financed by Chinese credit, is not even able to meet the interest costs and, being in hock, the Sri Lankan government is willing to convert the outstanding loan into equity to be held by a Chinese company. But in return, China wants a 90-year lease on a vast acreage around the port to develop an industrial zone. There are other examples of such debt traps created by Chinese-funded projects, including the CPEC. Cooperating with China where there are convergent interests and confronting it when India’s interests are threatened has been an effective time-tested policy. The same principle should be applied in evaluating the OBOR.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel