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Testing the frontiers of a new friendship

Testing the frontiers of a new friendship
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First Published: Sun, Nov 22 2009. 10 22 PM IST

Updated: Sun, Nov 22 2009. 10 22 PM IST
On 22 September, the World Bank put out a press release on the decision by its governing board to approve four loans for India worth $4.345 billion (around Rs20,250 crore)—the second largest volume of lending to a single country in a single year. This included a $2 billion loan for the capital restructuring of public sector banks. However, it is what the release left unsaid that is significant and probably holds a lesson. What it didn’t state is that the US had opposed the loan and threatened to vote against it before eventually succumbing to diplomatic pressure and deciding to abstain, allowing the loan to go through.
Along with the unexpected India-related sermons included in the US-China joint communiqué, it should serve as a timely reminder to our upright and astute Prime Minister, Manmohan Singh, as he prepares for the honour of being the first state guest of the Obama White House.
In the world of realpolitik, all friendships are relative, a matter of convenience and every country has to look after its own interests. The US clearly knows that, but does India?
The US move is baffling for a host of reasons. India is considered a “strategic” partner of the US. Further, unlike Pakistan, India does not have a track record of diverting aid towards dubious activities.
Three people I spoke to independently confirmed that the US did surprise India at the World Bank’s board meeting, forcing a lengthy debate. One person said the US challenge to the loan was broadly twofold: Why should the World Bank lend for capitalization of banks, and why was it being restricted only to public sector banks?
The argument is inherently flawed, considering that the US has only recently engaged in one of the biggest bank nationalization efforts to bail out erstwhile blue-chip financial companies that had fallen into trouble precisely for not showing the prudence that its representatives were seeking during the loan discussions.
Also, India is probably the best customer of the World Bank, with a flawless record of loan repayment and an ability to deliver results—albeit well below the potential. Further, a key to modernizing the public sector banks is to top up their capital; since the Union government is strapped for budgetary resources, it makes eminent sense if the funding comes from the World Bank so that the process is not held up and fiscal pressures do not worsen.
Disaster was averted by some astute diplomacy undertaken over the weekend preceding the World Bank’s board meeting by Planning Commission deputy chairman Montek Singh Ahluwalia and finance secretary Ashok Chawla. It also helped that the Europeans were ranged behind India. It was conveyed to the US that a “negative vote” would not be acceptable to India. The US acceded, but left its mark of protest by abstaining. My sense is that the US backed off realizing that it would lose the vote.
This was nearly two months before a joint statement by the US and China—which make up an emerging bipolar world—explicitly encouraged the latter to act as the sheriff of South Asia. India’s spin doctors can claim till they are blue in the face that we are being oversensitive. Sorry, the facts suggest otherwise.
It is evident that self-interest dictated US actions. China is important—for a host of reasons, which are well known—to the US at this point in time. More importantly, the US is a shadow of the power it used to be. It has overextended itself in prolonged wars in Afghanistan and Iraq, and has a highly vulnerable economy. Making friends with the Chinese is the smartest thing the US could have done at this point in time. If it means sacrificing something or someone else, so be it.
The lesson for India: be unabashed about maximizing its self-interest. Don’t react in pique, like, say, coming up with a joint communiqué with Japan suggesting that the latter get involved in resolving differences between China and Taiwan. It will only give a false notion of moral superiority and signal to the world that India is a sore loser.
The moral of the story, if any, is that if US President Barack Obama is extending India a special honour, then be sure that the bill will follow—in this case, I would say that part of it preceded the banquet. It is for India to remind the US, too, that its moment in the sun will come, sooner than later. The path to this emergence is littered with business opportunities for US companies—money talks.
This is not to suggest that the US is not and cannot be a friend. Instead, this friendship should be defined by mutual interests and not based on some personal relationship. Viewed this way, the US will be more tolerant the next time India maximizes its gains by economically engaging Iran, just as India will be less sensitive about the growing bonhomie between the US and a China that is so openly hostile to its interests.
Albert Camus may hold the key to such a relationship:
“Don’t walk in front of me, I may not follow.
Don’t walk behind me, I may not lead.
Just walk beside me and be my friend.”
Anil Padmanabhan is a deputy managing editor of Mint and writes every week on the intersection of politics and economics. Comments are welcome at capitalcalculus@livemint.com
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First Published: Sun, Nov 22 2009. 10 22 PM IST