Quad: Rising stakes in Indo-Pacific

   There is a new addition to the alphabetic soup of coalitions in the Indo-Pacific region. After ASEAN, RCEP, TPP, APEC, SCO, EAS and many more, India, Japan, Australia & USA have agreed to come together for a "quadrilateral" meet. In the current scenario, it is inevitably seen as a coalition to counter the resurgent China. The 4 democracies have reiterated their commitment to "rule based order" in the Indo-Pacific region. The importance of the region lies in the fact that more oil passes through it than through Suez canal. 

    The US president has pushed for this alliance & US sees India as playing a key role in the cause. India has also shown its willingness to lead from front in the recently concluded ASEAN summit. Hon'ble PM made India's stand clear on issues ranging from nuclearisation of Korean Peninsula to South China sea conflict. India has demostrated its capability to counter China in recently concluded Doklam crisis & it has increased India's credibility in the eyes of smaller players in the region who see China as a threat to their territorial sovereignity.

    Overall, two visions have emerged for the region. The Chinese are ready to accept the multi lateral global order but they consider Indo-Pacific as their backyard. The recently concluded twice in a decade communist party conference in China has spelt the vision for a China as a key global player. They will be more & more unwilling to share power in the region in coming future. The other vision is that of multilateralism with the preservation of status quo that US & Soviet Russia had designed for the region. Only time will tell which vision will succed but odd seem to be in favour of former at present. 

    Diplomatically, China is quickly occupying the space receded by US in global forum. It has championed the cause of climate change at UN, free trade at WTO. Indian interests in these areas align more with China then with the developed world. 

    Militarily , China has developed key defense infrastructure across the region outside its boundaries. The string of pearls in Indian ocean is almost complete with military base at Djibouti, Gwadar port in Arabian sea, Friendship bridge in Male, stakes of Hambantota & other key projects in Kyuapkyu, Chittagong & more recently in Kathmandu. At South China Sea it has developed many military bases in the artificial islands. It is using North Korea as proxy to target Japan & US protectorate islands in Pacific ocean. All this it could achieve without a single bullet being fired. 

    Economically it is six times as big as India in terms of GDP & holds 10 times more foreign reserves which it is deploying to its strategic advantage. It is a bigger trade partner of US, Japan, India & Australia than these countries are of each other. None of them will want Chinese economy to falter.                     

    Strategically, it has widened its sphere of influence beyond its geographical limits with Belt & Road Inititaive. Many experts see it akin to the Marshall aid that US gave to Europe post world war.  With the eastern sector extending upto Eastern Europe, it is fishing in Baltic waters to break European unity. Hence, it is clear that there is no domain of superior power relation that its has left untouched. 

    On the other hand, the "quad" is a weak coalition with strong centrifugal tendencies at best. All members of quad are member of other groupings with China & they will need to balance their priorities. India is a part of BRICS & SCO whereas Japan, China & Aus will be coming together for TPP. Despite the challenges, the countries of quad will be betting on India to lead. 

    India on its part has started late but has slowly come to terms with the elephant in its neighbourhood. India's geography with its location at the centre of Indian ocean provides it an upper hand on all cargo movements between Aden & Malacca. It has started mobilising its own infrastructure projects with littoral states. It has welcomed US investment in Nepal & invited Japan to invest in Arunachal Pradesh which China claims as South Tibet. It has also completed Malabar naval exercise with Japan & US despite Chinese reservations. 

    Yet, in the end all boils to one thing i.e. financial resources. Whats difference between China of today & 20 years ago? The answer is its economy. India has limited financial resources to counter Chinese economic imperialism. US Secretary of state Rex Tillerson has called for alternative to Chinese loan model & financial mobilisation needs to be the highest priority for the quad. The biggest success for quad will be to help smaller states reeling under the burden of Chinese loans. ASEAN has welcomed the quad and they will be looking for the kind of help quad could provide. Despite all this President Trump has given mixed signals during his 12 day long trip to the region. He has asked India & Japan to contribute more citing the trade surplus they enjoy with US.

    Thus, there seem to be different motives for each member state to join quad with common adversary in China as the binding glue. While India will look to develop an alternative to China's economic model by mobilising finance, Japan seeks assurance of its security by devloping a collective leadership, U.S looks at it as an effective alternative to power vaccum created by US withdrawl from the region. 

    The fact that 4 countries have come together to contain China is proof in itself of its growing influence. While the seasonal meetings serve as a great theatre of political aspirations, the benefits of quad will be little without nations willing to make sacrifices on financial side. There is no denying the fact that the region will be governed by "rule based order", the fight is for who gets to make the rules. 

Role of technology in NPAs

      Hon'ble finance minister has recently announced the recapitalization of PSBs. Among the many discussions it has ignited has been the question of what has led us to this situation? Depending on which side of line you are the explanations vary. Of the many reasons that has come to fore are: 1. Aggressive bank financed capacity expansion by the private sector during the "boom" period followed by financial crisis. 2. Judgement of hon'ble SC on spectrum allocation that led to reallocation through auction increasing input costs. 3. Priority sector lending to infrastructure projects etc. which later proved to be nonviable. 4. Political interference in the management of PSBs & reckless lending to wilful defaulters 5. The fear of 4Cs under which the PSB management operates and the resultant delay in NPA resolution through writing off the bad loans. Hence, the government has announced that "reforms" will precede the "recapitalization" to make sure that such situation is not repeated. However one of the important issue that has received little attention is the role of "disruptive technology" which has revolutionized many of the sectors in which the lending took place.        
 

      Various commentators have highlighted that huge share of NPAs  pertain to the power & telecomm sector. During the boom period it was realized that too fuel the engine of growth, a garangutan leap in India's power generation capacity is required. Thus, huge investment in setting up coal based powerplants & auctioning of mines took place in which private sector was more than happy to participate. The govt. made sure that finance for setting up these power plants is available through PSB loans. 

      So far so good. With all this investment, India soon became a power surplus country from a power deficient one. Yet, this surplus presents a false picture. Whats the use of all this surplus if a huge part of country still has no access to affordable and reliable power supply! To address the issue of accessibility the govt. launched SAUBHAGYA scheme & to address the issue to affordability the govt. tried to clean up the finances of DISCOMS via UDAY scheme. Yet 3 years down the line the power plants are running at plant load factor of 56% down from above 80% in 2000s. The DISCOMS are unable to buy more electricity as they have no extra money. Hence, the "recapitalisation" of DISCOMS via UDAY has not worked the way govt. wanted.

      Of the many reasons ailing the DISCOMs is the new challenge from renewables. With "climate change" attaining centre stage at COP21, research on renewables has received much attention worldwide. With many countries opting for renewables and economies of scales kicking in, the cost renewables have precipated. It has gone down to a level where the tarriff has become even cheaper than the coal based power. Hence, DISCOMs have deserted the coal for renewables and many have announced that they will renegotiate the Power Purchase Agreement with the coal power generators to get better deals. On the other hand hon'ble SC has called the agreement sacrosant with no scope for renegotiation. Still, will load factor as low as 56% the generators are unable to pay the interests they have taken from NPAs. At the other hand DISCOMs which are state owned are still making losses, thanks to cross subsidies, competiton from captive power generation and transmission inefficiencies. Both the DISCOMS and power plants have a high risk of defaulting on their loans. 

      The other sector disrupted by technology is telecomm. With the coming of 4G, the business  of 2G providers have become unviable. The Reliance communication has losses running in thousands of crores and is unable to pay back the its loans. The other major issue of unemployment is as much a result of diruptive technology as it is of inequitable growth.    

      So the question that affronts us is that if there was no development of renewables or 4G or AI, would we have been in the same situation as we are today? The question is for anyone to answer. Fortunately, these changes are an exception rather than the norm. Many experts have called this the "fourth industrial revolution" and a revolution by its nature is disruptive. And while we are here the revolution is still taking place & will encompass more sectors sooner than later.