Need To Know: June 3

The clash that sparked the standoff

Has China Driven India To America Alliance?

The influential Economic Times of India has called on the Modi government to “to reassess, if not reset, its relationship with China, and not just in parts but in its entirety.”

This after border clashes which have seen Chinese forces set up more than 80 tents, establish temporary defensive positions, and position reinforcements on the Indian side of the Galwan Valley. China’s best fighters and bombers have also been seen flying over the now occupied area.

The editorial goes on to note the benefits of India’s traditional non-aligned stance. But it ends with this:

“Back in the day, Mao Zedong famously told then-US President Richard Nixon while pointing to Henry Kissinger, ‘Seize the hour, seize the day’. This meeting of February 1972 started the decoupling of China from the erstwhile Soviet Union as Pakistan proved to be useful contact bridge with the US.

Now, when that old architecture is under considerable duress, India cannot afford to be a bystander. Especially because it shares an undefined, disputed land boundary with one of the principal actors, China.”

Driving India into even an informal alliance with America is unprecedented strategic disaster for China. Particularly over a few miles of territory in the Himalayas where altitude and supply chain logistics make it a near impossible place to wage ongoing war.

Given India has nuclear weapons, is China conceiving of a land invasion of India?

That’s utter madness. Even if India didn’t use nukes, and the border moves a few miles now, the terrain gives India an almost endless number of places to stop a Chinese invasion, and cut off its supply lines. It has minor impact on everything but India’s view of China.

However, it could have huge impact on China’s One Belt, One Road strategy. (More on China’s ambition in our Mahan and Mackinder primer)

Strategically, if China wants to execute on “One Road,” — its attempt to put in its sphere of influence the seas from the Western Pacific to the Eastern Indian Ocean — the country best poised to thwart it is India.

They don’t call it the Indian Ocean for nothing. The jutting Indian subcontinent is the perfect place to cut off the flow of oil from the Persian Gulf China desperately needs.

India is beginning to invest heavily in its navy, including a new fleet of nuclear submarines and its first indigenously built aircraft carrier, as well as a growing arsenal of anti-ship missiles, maritime surveillance planes, and anti-submarine warfare aircraft. It’s also considered to have inherited ample operational expertise from the British.

Militarily, if India also buys more American equipment that’s a massive win for the U.S.. In February, India agreed to buy $3 billion worth of U.S. military equipment, including 24 SeaHawk helicopters equipped with Hellfire missiles and six Apache helicopters.

This year India will have the third biggest military budget in the world. Every military system India buys lowers the cost of that system for the U.S..

And if India has American equipment, it’s much easier to integrate operations with the U.S., and it’s partners like Japan and Australia.

The four maritime democracies were already tepidly exploring a so-called Quad Alliance to deal with Chinese ambitions; India has been the most reluctant partner. Yet, it’s the critical one because India is best positioned to cut off the vital flow of Chinese oil from the Persian Gulf. If the other three members don’t have to do that, it gives them many more assets to use against China in the Pacific. And forces China to deploy many more of its own to the Indian Ocean.

There potentially hasn’t been a bigger strategic blunder since Germany united the unlikely combination of Britain, France, and Russia against it in the run up to World War I.

As we posited over the weekend, we think China is lashing out in all directions because Xi Jinping is feeling the heat over mismanaging China’s economy, and wants to secure his position with nationalism at home.

But if China gets strategic credit for playing the long game, here Xi’s played the very short game.

India’s Small Business Catastrophe
Meanwhile over the short to medium term, India faces unprecedented economic damage as a result of Covid-19.

Closed for business …

A survey by the All India Manufacturers’ Organization (AIMO) has revealed 35% of micro, small and medium enterprises, and 37% of self-employed individuals have started shutting their businesses, saying they see no chance of a recovery.

India has about 65 million small and medium enterprises employing more than 150 million people, and about 130 million people are self-employed, so if the survey numbers are correct, the impact is devastating.

This despite the Modi government announcing a few weeks ago an economic stimulus package worth 20 trillion rupees (US $266 billion), equivalent to roughly 10 percent of India’s gross domestic product. The plan provides small and medium-sized companies with emergency lines of credit and collateral free loans.

But the AIMO says the financial package has not reached nearly enough businesses, and is also not adequate to make up for the loss of activity during the lockdown.

The survey was based on 46,000 responses from various associations and industry groupings in the country.

Of the companies that took part in the survey, 32% said they would take about six months to recover and 12% estimated three months.