India's Political, Socioeconomic And Strategic Status In The Light Of It having Opted To Go Overtly Nuclear And The Impact Of The Asian economic Crisis

Vijai K Nair, Executive Director, Forum for Strategic & Security Studies
New Delhi

Introduction

To start with I must confess that I am a fish out of water in this gathering of exceptionally qualified economic experts, therefore, my approach to the subject shall be based on a strategic rather than economic analysis. My talk, therefore, will not be based on the traditional instruments and mechanisms of economy as has been done by the distinguished speakers who preceded me in the last day plus. In keeping with the limited impact of the Asian economic crisis on the Indian being, my Paper is oriented to the major developments in the past year that have had a direct bearing on the country and its relationship to external players.

Interestingly this Conference comes hard on the heels of the G-8 Task Force meeting at Tokyo where, amongst other issues, they reviewed their strategy vis-à-vis the nuclear status on the Sub-continent and made plans for future initiatives. And the G-15 Conference at Montego Bay which discussed the global financial crisis now running its third year. In keeping with these themes the thrust of my presentation is to examine the socioeconomic impact of the East Asian economic crisis on India and touch upon its unfolding nuclear strategy and scope of US engagement through the Talbot-Jaswant dialogue.

My talk is divided into three major segments:

• Sociopolitical situation in India
• Impact of the East Asian economic crisis on India
• Strategic ramifications of the economic crisis and India’s nuclear tests

Nature of the Problem

Before getting down to the subject in particular, it would be useful to touch on two issues that need to be assimilated by those who are involved with India related policy formulation or studies.

The ethnic, linguistic, religious, economic and cultural diversity that comprises the fabric of India has singular dimensions. In short, every conceivable divide that could generate fault lines in the Indian polity exists. To knit this "mother of diversity" comprising a billion people is a challenge of awesome proportions.

Unlike the European and North American experience where they evolved through the socioeconomic turbulence of the agricultural, industrial and the current electronic/ information revolutions one at a time, the Indian scene is beset by concurrently occurring three dimensional socioeconomic revolutions in all these fields.

This has resulted in three different types of socioeconomic eruptions that span the spatial and vertical being of one billion people that constitute the Indian society. There are serious contradictions in the nature of the socioeconomic upheaval and the means and methods of governance to cope with the accelerated rate of societal metamorphosis in India.

The very nature of the upheaval in rural India requires a different set of tools for its political management than those required for industrialised urban groupings. Add to this the phenomenon of real time information that precludes governance through role models applied by the developed countries centuries back and the government has a managerial nightmare on its hands.

No role model or historical precedence exists that fits the bill of governance under these circumstances – be it in time, nature or direction – which affords a measure of assessment of achievement or failure in the current Indian political scene. Those unaccustomed to the socioeconomic and political ramifications of this phenomenon tend to apply domestically acquired yardsticks in their strategy to engage India in any meaningful relationship. This is essentially the biggest obstacle in our inability to interact with the international community.

For example the current, deep and violent class struggle in Bihar resulting in massacres of the land-less by the landowners, and vice a versa. It can be considered a positive step in the movement towards the democratic polity goal of the country wherein, for lack of better political mechanisms, violence is destroying the feudalistic hold by a few on the majority or it can be construed as a failure because it inculcates violence within society.

Political Evolution

This churning of the Indian polity has resulted in erosion of the overarching and dominant position of the Congress Party, which provided a stable but increasingly stagnant and corrupt government for the country. History has exposed the complacency that led to its downfall.

Recent elections have resulted in the proliferation of regional political parties and groupings, which have made the task of forming a stable central government increasingly difficult. The emergence of two or three "interest group" parties is yet not clearly in the offing. The Congress and the BJP, the two primary national parties, have 320 seats in parliament out of 543 seats.¹ The enigma is that these parties occupy the same political space, and by extension platform, with the result that in the foreseeable future, the gains of one will be at the expense of the other, with their total share being curtailed to less than sixty percent, resulting in a persistent stalemate and a weak government at the Delhi.

Because both parties are vying for the favour of the same electorate, neither can be seen to unseat the other by radically affecting basic national policy thereby resulting in a greater degree of political stability and policy continuity than the external manifestations of the political scene suggests.

The flip side is that being left with limited manoeuvre space there is a propensity to draw public support through different mechanisms that the diverse nature of the Indian polity provides. This will continue till such time a new socioeconomic plateau emerges once the turbulence accompanying the agricultural and industrial revolutions is played through.

In this scenario the States – and there are 27 of them besides 5 Union Territories – are regaining their political powers that had been gradually usurped by the Centre. This is a healthy sign in a democratic polity, therefore, this phenomenon of a weak Centre, may in the long run, be a blessing in disguise – for India can only exist as a strong federated democratic State.

However, this means that for the foreseeable future India will be governed through delicately balanced coalitions that will be constrained to walk a carefully crafted middle path. Other than those issues where enduring national consensus has been demonstrated and on matters concerning national security we can expect subdued actions and reactions at the Centre.

There is, however, an alternative to this prognosis. A badly shaken Congress (I) has made serious efforts to shake off the detrimental baggage it acquired over five decades. It is the only national political party with sound grass roots amongst the minorities and the disadvantaged – a massive vote bank – the BJP has alienated. While the Congress may not acquire absolute majority in the next elections, it could garner well over 200 seats, resulting in a far more stable government at the Centre than the previous or present coalition experiments.

Finally one must point out that India’s economic liberalisation policy is of prime concern to all political parties and opportunistic statements notwithstanding, has a strong national consensus behind it. No government can risk reversing this policy – and in the same vein, the evolution to a total free market economy cannot emerge in any dramatic manner. The evolution would be cautious and steady. Especially after the highly visible collapse of currencies in what were the "tiger economies" and the dismal breakdown of systems caused by reforms in Russia outpacing socioeconomic stability.

Let me then say that the Jeremiah’s who see visions of political chaos in India whenever there is news of turbulence and violence in the country, are actually seeing the closing stages of the rigorous political struggle which is transforming one fifth of humanity from a colonial and feudalistic polity into a vibrant and mature democratic society.

It is my firm view that a few hundred years down the line when historians review this century – this peculiar Indian development may well be among the top sociopolitical events of our time.

Foreign Policy Imperatives

India is essentially a conservative status quo power except in one major aspect and that is it seeks a change in the global governance area in that it aspires for a permanent seat at the United Nations Security Council. For it is convinced that there can be no stable international governance mechanisms which exclude – at the high table – a representative of a billion people. Sidelining one fifth of humanity is a sure recipe for instability, which would undermine efforts to bring about a global order as illustrated by the ongoing arms control initiatives at the UN. A national consensus has existed on these lines since independence and political consensus bridges all India’s fault lines making this an enduring issue.

Similarly it is essential that this aspect of the Indian policy posture be borne in mind when attempting to get to grips with India’s position on matters nuclear. No amount of caviling or pressuring by the P-5 States, individually or collectively is going to make India budge from its insistence that the alternate to a non-nuclear weapons world – if that has to be – is one in which it can protect its national interests from threat of nuclear attack or nuclear coercion.² In this it is important to note the responses of the Indian leadership to both, UN Resolution 1172 and the G-8 Statement in reaction to the May 11 and 13 events. More on this later.

IMPACT OF THE EAST-ASIAN ECONOMIC CRISIS ON INDIA

The seventh largest and second most populous country in the world, India instituted a series of ambitious economic reforms aimed at deregulating the country and stimulating its participation in the global economy. This has unleashed a wide range of latent strengths and infirmities in this complex and rapidly changing nation.

India's economic reforms are firmly rooted in a political consensus across its entire polity. India's democracy is a known and stable factor and there is no fundamental conflict between its political and economic systems.

The strengths of India's institutions are demonstrated by its free and vibrant press, a judiciary, which can and does overrule the government, and a sophisticated legal and accounting system.

A number of broader fundamental issues have been thrown up by the East Asian economic crisis that require urgent deliberation by the Indian Government even though it is evident that the "contagion" effect of this crisis only marginally touched on the Indian economy. The performance of a number of macro-variables provides ample proof to that effect.

As Dr. Y. V. Reddy, Deputy Governor of the Reserve Bank of India [RBI] pointed out, "apart from the GDP growth of 5 percent and containment of inflation at 5 percent during 1997-98, the performance in the external sector was also satisfactory. The RBI reference rate which was US $ 1 = Rs 35.82 on July 1, 1998 moved down to Rs 40.36 on January 16, 1998 before appreciating to Rs 39.50 on March 31, 1998. Foreign currency assets also increased by US $ 3.6 billion from US $ 22.4 billion on March 31, 1997 to US $ 26 billion on March 31, 1998."³

The annual growth rate of the GDP for FY 94-95, 95-96 and 96-97 ranged between 7 and 7.5 percent. A drop to 5.5 percent in FY 97-98 with the current year estimates of a healthy 5.8 percent shows a reasonable degree of stability despite the crash in the financial markets in East Asia.⁴

Insulating Mechanisms

It is pertinent to note that the issues that came into play to shield India from the fallout of the East Asian crisis were instituted prior to its happening:

1. Management of the external sector was rigorously governed by the ‘High Level Committee on Balance of Payments,’ as early as 1993, assured a flexible exchange rate, sustainable current account deficit, preference to non-debit creating flows, limits on quantum, use and costs of external debt, and a highly restrictive approach to short-term debt.⁵
2. The RBI’s recognition of the need to monitor external debt had led to stringent measures to ensure a system for transparency and disclosures that ensured a balanced posture.
3. The threat of a speculative attack, conditions for which prevailed in India, was pre-empted by measures instituted by the RBI. These succeeded because they were unexpected and appropriately timed to counter the political uncertainty and speculative trends that could have resulted from the pending General Elections 1996 and again in 1998.
4. The sharp devaluation of East Asian currencies did not have a significant impact on India’s exports as only 7 percent of the total exports were directed to the affected countries. Even in some areas where exports from East Asian countries could be expected to displace Indian exports to third countries, this was unlikely to manifest itself till such time that the disruptive effects on banking and trading in these countries are overcome.
5. Strong fundamentals and prudent macro-economic management ensured continuity of capital flows at reasonable terms to finance anticipated current account deficits.
6. The Indian real estate and stock markets remained well insulated from the effects of depression in real estate and equity prices in affected East Asian economies because channels of transmission were weak.

Post Crisis Medium Term Outlook for India

The RBI has identified five major areas of concern that Indian policy makers must factor into the nation’s economic policy. These are:

1. Macro-economy.
2. Management of the external sector.
3. Regulation and financial sector.
4. State of the corporate sector.
5. And Transparency in the System

To ensure continued stability in the GDP growth rate the Governor of the RBI has recommended that India must ensure a sustainable current account deficit, restrict reliance on short-term debt, limit access to external debt and create mechanisms to ensure productive utilisation of these debts.

There is sufficient evidence to believe that the situation in India is no where near the crisis proportions it has acquired in East Asia. All the same India now:

1. Encourages Foreign Direct Investment [FDI] as a primary source of non-debt creating capital inflows;
2. Ensures that the exchange rate is market determined, closely monitored by the RBI to facilitate intervention to avoid volatility.
3. Has undertaken financial sector reforms concentrating on the banking sector by strengthening regulatory framework, imposing prudential norms, reducing non-performing assets, and discouraging investments in real estate and stock markets by banks.
4. Non-banking financial companies continue to be subject to regulation.
5. The growing propensity for corporate exposure to debt, especially external debt, is being closely monitored along with recognised transparency in RBI operations.

Through the instruments of the Monetary and Credit Policy Statement issued for the first half of FY 1998-99, by RBI Governor, Jalan,⁶ the following measures were taken to ensure India does not suffer the same fate as the East Asian countries:

1. To encourage banks to mobilise long-term deposits and dissuade short-term deposits, the interest ceiling on FCNR B deposits of one year and above was increased by 50 basis points and for deposits under a year lowered by 25 basis points.
2. Banks were encouraged to institute efficient risk management procedures through monitoring un-hedged exposures of clients by appropriate risk evaluation mechanisms in credit appraisal systems.
3. Instituting a stringent and responsive monitoring regime that would help government formulate policies based on:

1. Early warning of developments that may have an adverse effect on exchange markets.
2. Strengthening prudential regulations to cover all risks.
3. Developing policies for greater clarity in cross border operations, respective roles and harmonisation of obligations of banks and financial institutions.

1. A close watch, by the RBI, on liquidity conditions so as to ensure that sufficient credit is available to realise growth potential in keeping with productivity index.
2. Harmonise the contradictions in short and long term monetary policies to avoid unmanageable imbalances in transition.
3. And, in order to monitor channels of transmission of effects of monetary policy the necessity to adopt a multiple indicator approach wherein interest rates/ rates of return in different markets along with such data on currency, credit extended by banks and financial institutions, fiscal position, trade, capital flows, inflation rate, exchange rate and transactions in foreign exchange are juxtaposed with output data drawing policy perspectives.⁷

Paucity of time and space preclude my delving into the broader issues that the Indian Government is looking into with a considerable degree of interest. I shall however, delve on one area that is under serious examination that would have a direct bearing on India’s responses to engagement by the international community.

The Government is sensitive to the need for India to merge into the global economic order. However, though "globalisation has immense advantages, but there are accompanying risks. If there are no credible international systems to minimise unbearable risks the relationships between national policies and international obligations need to be reviewed. … The nature and extent of capital account liberalisation will be dictated by this outcome. More specifically, the relationship between national regulations and international obligations need to be reviewed in the light of this outcome, especially on the issue of lender of last resort."⁸

This last factor has begun to manifest its presence on the Indian strategic horizon – an aspect with which I shall deal with next.

STRATEGIC RAMIFICATIONS OF THE ECONOMIC CRISIS AND INDIA’S NUCLEAR TESTS

India’s May 11 and 13 events brought with it condemnation, recrimination and distress from different players in the international arena, each for reasons of their own leading to economic sanctions being slapped on India by its biggest trading associate – the US and some of its allies. This was followed by Resolution 1172 being passed by the UN Security Council backed up by a more stringent de marche by the G-8 Summit in Birmingham.

You will note that I have not mentioned what is called the P-5 Joint Communiqué of June 4, 1998 because India does not recognise this attempt by the five original nuclear weapon states to create yet another ‘exclusive club’ in the international hierarchy of governance that has no legitimacy of any kind.

Sanctions

If anything leaks more than the press in Washington it is economic sanctions. History is replete with case studies demonstrating that sanctions have, more often than not, failed and are not suitable tools to achieve foreign policy goals. Especially so where the target country perceives its national security interests being challenged. A current example is that of sanctions applied on Iran.

Domestic imperatives, international competitiveness, target state’s capacities and competencies to generate indigenous wherewithal, reciprocity born of globalisation, etc. are but some of the major factors that lead to an ‘osmosis effect’.

In so far as India is concerned it has lived with a technology sanctions regime for a quarter of a century⁹ and economic sanctions imposed by the US for the last 9 months. In a worst case scenario the effect of these economic sanctions could amount to one half percent reduction in the national GDP growth. But with the FY year 1998-99 figures the GDP growth rate has remained unaffected.

Economic sanctions notwithstanding, the flow of foreign funds has continued unabated and has actually shown an increase from the previous year. Most striking is the case of the Government of India’s Resurgent Bonds [IRB] floated two month after the nuclear tests. The government had to prematurely close the issue because its objective to raise $US 2 billion as the subscription to the IRB exceeded $US 4 billion.

A point that appears to have been obscured in the fallout of the nuclear blasts of May 1998 is that while the US justifiably imposed sanctions on India under the law promulgated by the Glen Amendment, it went beyond existing laws and instituted additional sanctions in the form of blocking multilateral loans from the IMF, World Bank, etc. This was an inimical initiative that the Indian Government had no option but to perceive as a direct transgression of India’s sovereign right to fend for its own national security interests. Thereafter the US Administration allowed the vote on IMF funds to the economically beleaguered Pakistan in November 1998 but continued to block those applied for by India.

To vote against is one thing, but to block the application for resources from even being considered is another and is indicative of politicisation of the World Bank to suit national interests of specific countries.

The February 18 announcement by the US that it "does not support the loan but will allow a vote¹⁰ on it" is not a bargaining chip in the Indo-US dialogue but merely the rectification of an anomaly that was causing sufficient avoidable hi-cups in the dialogue.

UN Security Council Resolution 1172

The UN Security Council, amongst a host of demands in Resolution 1172, requires India to ‘immediately stop their nuclear weapon development’, ‘refrain from weaponisation or from deployment’, ‘cease development of ballistic missiles capable of delivering nuclear weapons’, cease ‘any further production of fissile material’, and ‘confirm policies not to export equipment, materials or technology that could contribute to weapons of mass destruction’ or their delivery systems.¹¹

Ironically the Resolution has a number of unsustainable anomalies.

1. Five of the signatories of the Resolution have themselves deployed nuclear weapons, which are constantly being modernised and are not only developing new and more sophisticated missilery, but some are currently violating the norms of the ABM Treaty to which they are Party.
2. Article 2 ‘endorses the Joint Communiqué of the P-5’ suggesting legitimacy, which that group does not have in the UN.
3. Article 10 invokes ‘its full commitment to’ the NPT and CTBT, neither of which India is party to. Four of the five permanent representatives appear to have forgotten their own recourse to not being ‘opino juris’ to a number of international agreements when their position at the International Court of Justice [ICJ] was threatened when the Court was recording evidence before giving its opinion on the legality of nuclear weapons.¹²

The Indian Government has reason to believe that this Resolution is malafide for a number of reasons. Ambassador Kamalesh Sharma, India’s Permanent Representative to the UN communicated this to the President of the Security Council, even before the Resolution was adopted.¹³ He drew the President’s attention to Article 31 of the Charter, "any Member of the United Nations which is not a member of the Security Council may participate, without vote, in the discussion of any question brought before the Security Council whenever the latter considers that the interests of the Member are specially affected."¹⁴ Ambassador Sharma wrote, "We deeply regret that the Council has disregarded this Charter provision by not giving India an opportunity to participate in the discussions on this draft" As this document challenged the UN Security Council on a number of issues it is Appended to this Paper.

Regrettably, the arbitrariness of the Security Council was further highlighted when it adopted Resolution 1172 without even answering India’s protest or recording it as an annexure.

Consequently Prime Minister Vajpayee laid out India’s response to Resolution 1172 in a Statement to the Upper House of Parliament which subsequently is recorded with the UN. I quote relevant excerpts, which unambiguously lay out India’s policy in this regard:

"The call made in the Resolution that we should stop our nuclear programmes or missile programmes is unacceptable. Decisions in this regard will be taken by the Government on the basis of our own assessments and national security requirements, in a reasonable and responsible manner. This right, which we claim for ourselves is not something new; it is the right of every sovereign country, and a right that every Government in this country has strongly upheld for the last 50 years." ¹⁶

Nuclear Disarmament

Strangely, the very same States, self appointed guardians of the world's nuclear conscience, are using all means at their disposal to induce India to reverse its national security policy, choose to forget that India has consistently spearheaded the concept for elimination of nuclear weapons as so aptly put by Prime Minister Vajpayee in Parliament. "India's commitment to global nuclear disarmament remains undiluted. As Hon'ble Members are no doubt aware, India has consistently maintained that a nuclear-weapon-free-world would enhance not only our security but the security of all nations."¹⁷

He went on to point out that, "Regrettably, the international community, particularly countries that have based their security on nuclear weapons or a nuclear umbrella, have been reluctant to embrace this objective."

If India’s interlocutors are serious about rolling back India’s nuclear weapons programme I suggest that there is only one approach, now that all other routes have been cut-off. And that is for these very same States to demonstrate their intent to fulfil their own obligations to the international community that they would ‘eliminate nuclear weapons’ as embodied in Article VI of the NPT, by making a commitment to commence negotiations at the CD or any other non-negotiating forum.

The prospects of a world without nuclear weapons would ameliorate India’s security concerns thereby giving it the confidence to freeze its nuclear weapons programme and roll it back in keeping with global nuclear disarmament. The argument that India must first eliminate its nuclear weapons to create grounds for further reductions in nuclear arsenals with the NWS holds no water. After all who started the ball rolling? What gave India cause to exercise its nuclear option? Answers to these questions will define the disarmament agenda in its right perspective and the tools for engagement that are being sought. These States should have paid heed to this issue before India was driven to exercise the nuclear option and not as a consequence of it.

Minimum Credible Deterrence

Minimum credible deterrence though obviously not reflected in UN Resolution 1172, and having it genesis in the Strobe Talbot-Jaswant Singh dialogue also merits mention.

The US has created considerable confusion on this score. On the one hand US Deputy Secretary of State, Mr. Strobe Talbot insists that India qualitatively and quantitatively define the concept of ‘minimum credible deterrence.’ On the other hand, back in Washington, while addressing the Overseas Writer’s Group on February 10, 1999, he says, "The US position of how much is enough is very simple: zero. We are not going to be in the position of implying that any number higher than zero is perfectly fine with us."

Contradictions in what is being communicated to the Indian Government in Delhi and what is being projected as the US position in Washington only add to the already suspect credibility of the US Administration on matters nuclear. How can one expect the Indian side to move forward on matters concerning national security when they are assailed by these contradictions?

Deterrence, as I see it, is a function of identifying the adversary from where a threat emanates to what the leadership of that adversary would consider unacceptable punishment for initiating a nuclear exchange and communicating a credible capacity to inflict such penalties accompanied by the political will to do so.

Minimum Credible Deterrence therefore refers to:

A finite capability to achieve deterrence precluding an open ended strategy that would generate ‘over kill’ vis-à-vis the concerned adversary(s) or additional capacities to cause threat to others. As strategic planners in the NWS all fully understand this is a psychological equation balanced by two variables i.e. target value and desired weapons capability. The dynamics of deterrence are based on perceived values, which vary with time and State capacities. Therefore target value and weapons capability must change in keeping with values of the adversary. To make the logic of these deductions public would not only jeopardise the strategy but would commit India to force levels [quality and quantity] that could render its nuclear strategy redundant with time.

To meet the imperatives of a minimum credible deterrence the nuclear strategy would generate:

1. A weapons capability to meet that bill. This boils down to numbers, throw weight, delivery systems and support systems that would comprise the strategic forces.
2. An employment policy which lays out the political and operational parameters to include command and control and mechanics of initiating a retaliatory strike.
3. A deployment policy which besides ensuring that pre-selected targets are within range of the means intended for the task must also cater for security and survivability of the strategic forces.
4. And an arms control strategy that would cater for the continued viability of the nuclear strategy in evolving nuclear weapons environment.

For the US or any other State to expect India to provide them with the details of the nuclear strategy is unrealistic. After all would the US [or for that matter any other country] share information about the weapons load, likely targets and deployment policy of their nuclear armed submarines with India? If not, on what basis is India expected to conform to the US demand?

Fissile Material Cut-off Treaty (FMCT)

In a Statement made by Ambassador Savitri Kunadi, Permanent Representative of India to the Conference on Disarmament at Geneva on August 11, 1998 the Indian approach to the Fissile Material Cut-off Treaty [FMCT] has been unambiguously laid out. "India will participate constructively in negotiations for a non-discriminatory, multilateral and internationally and effectively verifiable treaty banning future production of fissile materials for nuclear weapons or other nuclear explosive devices." It would be pertinent to note that India would not be able to support a Treaty, which does not comply with these conditions.

Besides this I would like to point out yet another hurdle that India would be faced by during the negotiations is that of an intrusive and all pervasive safeguard regime that may undermine its position vis-à-vis other arms control agreements such as the NPT and the CTBT.

Costs of Strategic Force Structures

Over the past nine Financial Years [FY] India has pegged its Defence budget to under 2.65 to 2.31 percent of its GDP with the FY 1998-99 share amounting to 2.56 percent – which is the lowest in the world.¹⁸ In the last four years the economic growth rate has been maintained well over 5 percent and at times touching near 7 percent of the GDP.¹⁹ In FY 1998-99 when the heightened effects of the Asian economic crisis and the sanctions India attracted from the US and some of its allies as a consequence of its nuclear tests in May 1998, the growth rate has been steady at 5.8 percent of the GDP. I think there is a strong message in this, which we need to take note of.

What is more, the disparity in percentage national growth rate and allocations to the Defence Sector need to be noted. Even if the Indian economy were to slow down there is ample scope to increase the share of the Defence Budget by 1 to 1.5 percent of the GDP without generating any serious socioeconomic imbalances. This needs no explanation for those who come from economies where Defence Expenditure is traditionally pegged between 4.5 to 7.2 percent of the GDP of those economies and in the case of Asian countries between 7.86 to 27 percent of the GDP.²⁰

This increase of over 1 percent in the Defence expenditure in the nuclear weapon states of the NPT era would have been insufficient for them to create and sustain their nuclear weapons programmes. However, with the limited nuclear doctrine, I have no doubt that the Indian nuclear weapons programme can be created and sustained efficiently if the programme is amortised over a ten year period.

Balance of Power

When we view this picture in the larger context of the Asian mosaic its ramifications on India, Japan, South Korea and the ASEAN States, are of a more serious long-term nature. India is in the process of building relationships in the Asia-Pacific region as an important part of its strategy to balance the China factor. As a consequence of the economic crisis there has been an erosion of the national power coefficient in Japan, South Korea and nearly all the ASEAN countries leading to a relative shift in balance in China’s favour.

On the other hand, China has acquired a new form of power with which to extend its shadow over the region - an exceptional leverage by implying a threat to devalue the Yuan in an already beleaguered economic environment. Conversely it is demonstrating its power potential as a saviour by maintaining the exchange rate of the Yuan thereby underwriting the losses of the affected States. Whichever way you look at it China emerges the sole beneficiary.

This has a direct bearing on India’s long-term national interests. It portends a major shift in the external environment in which some of India’s friends and economic associates, such as South Korea are likely to be affected.

About the author:   Brigadier Nair is currently the Executive Director (and Life Trustee on the Governing Body) of the Forum for Strategic and Security Studies, Editor of the Forum’s Journal AGNI and Consulting Editor for Defence and Security Affairs for the Observer Group of Publications (Delhi). He specializes in Nuclear Strategy formulation and nuclear arms control negotiations, and has considerable experience on issues related to NPT, CTBT and FMCT. Brigadier Nair retired from the Indian Army in 1991 after 30 years service, having been awarded the VSM for distinguished service. Besides three tenures of combat duty, in service experience includes: instructor - Defence Services Staff College, command of an Independent Armored Brigade; and, Deputy Director General Strategic Planning at the Directorate of Perspective Planning at Army Headquarters. He was also a Member Army Experts Committee (1989-1990); Staff Officer to the Committee on Defence Expenditure (1990); and, headed numerous trial teams for evaluation of tactical, strategic, logistic and equipment management suitability of a wide range of tanks, anti-tank missiles. He earned a M.Sc. in Defence Studies and a Ph.D. in Political Science (India’s Nuclear Option). He is currently revising the nuclear strategy for India (in keeping with nuclear transience) suggested in his book "Nuclear India". Among his published works are two books and a monograph: War In The Gulf: Lessons For The Third World, 1991; Nuclear India, 1992; and, NPT Extension Conference: Validity & Efficacy of NWS Initiatives, 1994. A number of articles and research papers have been published in a wide range of Journals and Dailies in India and abroad.

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