Sanjaya Baru | If not 126, then 220… Modi deals China card

Mahbub-ul-Haq was a distinguished Pakistani economist. A contemporary of Manmohan Singh and Amartya Sen at Cambridge University, he became famous as the architect of the Human Development Report published annually, since 1990, by the United Nations Development Programme. Dr Haq also had a brief stint in the government of Pakistan as finance minister in the Benazir Bhutto government in the 1980s. We became friends over the course of a decade in the 1990s and my only visit to Pakistan in the mid-1990s was as his guest.

Over a meal at a retreat in the hill station of Murree, Dr Haq regaled us with stories from his experience in the government. One such account related to Benazir Bhutto’s desire to go shopping in Paris. “What can we buy from France?” Benazir Bhutto asked Dr Haq. “I want to go to Paris and the French have said they will invite me for a state visit if we agree to buy something from them.”

Ms Bhutto’s finance minister had to cough up enough funds for Pakistan to buy some military hardware that would please the Elysee Palace enough to send out an invitation to Islamabad for a state visit to France. That’s what transactional diplomacy is all about.

During the India-United States civil nuclear deal negotiations, American politicians would not shy away from saying, “126 for 123” -- the reference being to the changes in Section 123 of the US Atomic Energy Act that would be required to enable the US government to sign the civil nuclear deal with India. The US expected that in return India would buy 126 medium multi-role combat aircraft (MMRCA) for the Indian Air Force.

If not the fighter jets, the United States hoped that India would buy at least a couple of nuclear reactors. But the civil nuclear liability law nixed that and the US has complained ever since that despite doing all the “heavy lifting” on the nuclear deal, India was not being grateful enough with a military hardware shopping list. President Donald Trump went to the extent of punishing India, withdrawing trade preferences and demanding increased market access, but none of that altered the basic trade imbalance, with the US being one of the few countries with which India enjoys a trade surplus. On the other hand, India’s trade deficit with China is twice as large as its trade surplus with the United States.

Rankled that India still buys more defence equipment from Russia, the US has been pushing arms sales to India. This has made a difference. In 2015, the US accounted for nine per cent of India’s defence imports while Russia accounted for 63 per cent. By 2019, Russia’s share was down to 35 per cent, while America’s share was up to 24 per cent. The US has been demanding that something more needs to be done to reduce the trade surplus India enjoys. Especially if Prime Minister Narendra Modi had to secure an invitation for a state visit to Washington DC, with all the pomp and regalia it entails.

In his close to nine years in office Prime Minister Modi has not yet been invited by the US for a state visit, though he did address the US Congress. Dr Manmohan Singh managed to get both invitations -- a state visit with an address to the US Congress -- within two years of becoming PM. India-US relations have been a bit testy since the Russian invasion of Ukraine and India’s neutrality on that score. The fact that there has been no US ambassador as yet posted to New Delhi during President Joe Biden’s term has not helped.

As I read news of Air India’s decision to buy 220 Boeing aircraft, along with 250 Airbus aircraft from a friendlier France, and saw the Indian Prime Minister take credit for a private sector deal with the US President hailing the decision, declaring that the deal would create a million jobs in the United States, I was reminded of Dr Haq’s story.

So, we could not buy 126 fighter jets, but we will now buy 220 Boeing aircraft.
Incidentally, the last time when Air India placed a big order for Boeing, during the tenure of civil aviation minister Praful Patel, the BJP had accused him and the Manmohan Singh government of striking a non-transparent deal. This time around the government has the fig leaf of Air India’s privatisation to distance itself from any prospective doubts about the economics of the deal.

While these aircraft will be delivered over a long period of time and the economic spin-offs will also take time to materialise, for now the deal paves the way for a state visit for Prime Minister Modi. It also provides some relief to the ruling establishment in New Delhi from all the talking down that it has been getting for its foreign policy choices, in the aftermath of Russia’s Ukraine invasion, and its human rights record.

Prime Minister Modi deserves full marks for the manner in which he has deployed economic incentives in his foreign policy, especially in the run-up to hosting the Group of Twenty summit in India later this year. The continuing defence purchases from Russia, agreeing to buy aircraft from the US and France, continuing to run up a huge trade deficit with China, while seeking free trade deals with the European Union and United Kingdom. and so on.

What remains to be seen is whether India can sustain this strategy of deploying economic engagement as an instrument of foreign policy if the economy does not grow at a faster pace and the Narendra Modi government does not further liberalise its trade policy. It also remains to be seen if dangling business deals in front of American politicians will help encourage them to go quiet on questions of human rights and religious freedom. It did in the past, and China made the best use of it. As I have recorded in my essay “Henry Kissinger and the Selling of America” (in Sanjaya Baru and Rahul Sharma’s A New Cold War: Henry Kissinger and the Rise of China, HarperCollins 2022), every time US politicians worried about human rights in China, the Chinese would strike a billion-dollar deal. Mr Modi has now dealt the US a China card.