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      The Solution to India’s China Problem: A Free Tibet

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      India has had a wound around its Himalayan neck ever since it suffered a humiliating defeat to China in 1962. The recent clash between Indian and China soldiers in Galwan Valley on June 15 has only rubbed salt into that wound.

      It has come to this because when China invaded neighboring Tibet in 1950, India was in thrall to the newly-established communist regime under Mao Zedong after a bloody revolution. Ignoring its civilizational relationship with Tibet, India hoped to gain from the emerging power of the People’s Republic of China and thus celebrated “Hindi-Chini bhai bhai,” a popular slogan of the time that translates to “Indians and Chinese are brothers.”

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      After 1962, the Chinese military stood on the doorstep of India across thousands of kilometers in the Himalayas. Proverbially, this border was guarded by only 60 Indian policemen before China’s conquest of Tibet. Pertinently, India never had a border with China before 1950.

      Refuge in India

      If Tibet had remained a free and independent country, today it would have been the 10th largest nation with 2.5 million square kilometers of land. The Tibetan Plateau hosts 46,000 glaciers, nearly one-fourth of the world’s total number. It is a source of numerous rivers, including some of the most mighty ones such as the Indus, Brahmaputra, Mekong and Yangtze. It is shocking that such a vast reservoir of water and natural resources in Asia has been occupied by China and it is even more shocking that it barely gets a mention today.

      Ancient Buddhist culture has been preserved in Tibet over many centuries. In the Indian public psyche, Kailash Mansarovar was part of India. Tibetans used to visit Buddhist pilgrimage sites in India at Sarnath, Bodhgaya, Nalanda and Amravati. The India–Tibet border was irrelevant and people used to cross it freely. Today, that border has two armies facing each other and people no longer cross it.

      After the Dalai Lama took refuge in India in 1959, around 100,000 Tibetans have come to India. Most of them live in the Himalayan regions and the state of Karnataka. The Tibetan seat of power is in Dharamshala, Himachal Pradesh, where the Dalai Lama has set up abode. The Tibetan parliament and government are also based there. Although many Tibetans still dream of a free Tibet, India‘s desire for closer ties with China in the past has led New Delhi to shy away from supporting Tibetan independence. As a refugee in India, the Dalai Lama has spoken of autonomy and adhered to India‘s “One-China” policy.

      In 70 years of Chinese occupation, more than 1 million Tibetans have been killed, 6,000 monasteries destroyed and Tibet’s cultural identity attacked. The Chinese have also proceeded to exploit Tibet’s natural resources. They have cleared forests, bombed mountains and practice strip mining for gold, copper, lithium and other rare earth elements.

      Long Ignored

      The international community has ignored the genocide and exploitation Tibet has experienced over the last seven decades. Powerful nations have made their peace with China for geopolitical and economic reasons. In the process, Tibetans have suffered a lot.

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      Globalization has led over 160 countries trading with China. Western “liberal democrats” blindly accept the “One-China” policy and recognize Tibet as a part of China. Freed of any external pressure, China has become more oppressive in Tibet. Even possessing the Dalai Lama’s photo could land a Tibetan in jail on charges of separatism. Although Tibetan youth do not retaliate like their counterparts in Palestine or Kashmir, they have resorted to self-immolation as a form of protest against Chinese occupation.

      Tibetans still believe that freedom is possible. Until six decades ago, Confucianism and Buddhism were the strongest influences on Chinese society. Communism attacked these twin pillars. Capitalism has shaken them further. Today, the only religion consumerist China worships is money. Yet, as the Chinese are discovering, life is more than money. Tibetans are convinced that China will never be able to conquer their spirit and that they are free until their spirit is free.

      During visits of Chinese leaders, Indian police customarily arrest all Tibetan activists to appease China. Yet young Tibetans take their inspiration from India’s struggle for independence from British rule. Few remember that until 1942, most Indians did not believe they would see freedom in their lifetime. Mahatma Gandhi’s Quit India Movement struggled to gain mass support. Within five years, India became independent because the British Empire collapsed under its own weight. Tibetans believe the same will happen to the modern Chinese empire.

      Chinese Domination

      China has not only occupied Tibet but also Uighur East Turkestan, a Muslim-majority region covering 1.8 million square kilometers now known as Xinjiang. It also occupies 1.2 million square kilometers of southern Mongolia and 84,000 square kilometers of Manchuria. By some calculations, 60% of China’s 9.6 million square kilometers is occupied territory. China’s expansionist designs continue. The “Belt and Road Initiative” is China’s plan to dominate world trade.

      The Chinese Communist Party (CCP) controls all aspects of life in the country. The administration, the judiciary, the legislature, the media and the military are all controlled by the CCP. The party fosters a personality cult around Mao despite his responsibility for the death of millions of people. His portrait still adorns Tiananmen Square, a place made immemorable by the brutal slaughter of unarmed students by armed tanks. That 1989 massacre still stands obliterated from history textbooks and even the internet in China.

      Territorial encroachments and China’s support for Pakistan demonstrate that Beijing has no respect for India’s territorial integrity. There is no reason for India to respect China’s territorial integrity. Beijing is facing international isolation because of the COVID-19 outbreak. From Japan to Bhutan, China’s neighbors are nervous about its expansionism. The time has come for India to stand up to China. It must scrap the “One-China” policy and support Tibet’s nonviolent movement for independence.

      *[An earlier version of this article was published by The Indian Express.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      Why Are the Indian and Chinese Economies Decoupling?

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      Many experts argue India is the weaker power unable to take on China. In an article in Foreign Policy, James Crabtree argues that a trade war with China would be a bad idea for India. In his view, India’s “military is inefficient, underequipped, and dogged by procurement corruption scandals.” To develop its military strength, India needs a dynamic economy, and an “inward economic direction” would only benefit China in the long run. Therefore, an India–China decoupling is a terrible idea.

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      These analysts are wrong. Their argument against decoupling is based on three implicit assumptions. First, India is a deeply-divided country unable to act or respond decisively. Second, India is dependent on the Chinese economy for its growth. Third, China’s rise is inexorable and India has no option but to come to terms with it. These assumptions are true, but it is an error of judgment to treat them as unqualified truths.

      A Trip Down Memory Lane

      For Indians with longer historical memories than many of these experts, these arguments sound familiar. Anglo-Saxon publications have long hectored, advised and moralized on Indian issues. On July 5, 2014, the editorial board of The New York Times made a case against India’s membership of the Nuclear Suppliers Group. To be admitted, India needed “to sign the treaty that prohibits nuclear testing, stop producing fissile material, and begin talks with its rivals on nuclear weapons containment.”

      In response, Gurmeet Kanwal, a retired Indian brigadier-turned-defense analyst, called the editorial “partisan and condescending.” Some even saw it as neocolonial. He pointed to “the existential threat posed by two nuclear-armed states on India’s borders” that led India to develop its nuclear weapons capability. Kanwal argued that India had been a “responsible nuclear power” with a “positive record on non-proliferation” and had “consistently supported total nuclear disarmament.” In typical Sikh humor, he advised nuclear ayatollahs to focus on real proliferators and let go of the cap, roll-back and eliminate (CRE) stance they had adopted against India since the 1990s.

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      Just as India stood up to the US on the nuclear issue in the 1990s, it is capable of standing up to China in 2020. An India–China conflict is highly undesirable. Ideally, New Delhi and Beijing should be able to work something out over endless cups of tea. However, sanctimonious advice from foreign experts about dire consequences of an India–China decoupling has to be taken with a bucket, not a pinch, of salt.

      In 1998, India went nuclear despite dire predictions for its economy. Many in Washington assumed that India depended on the West for its economy. Barely seven years prior, India had experienced a serious financial crisis. The Gulf War and slowing exports to the US crippled an economy by rising deficits and increasing debt. The precipitous decline of the Soviet Union meant India no longer had a godfather to bail it out. So severe was India’s 1991 currency crisis that it had to pledge its gold reserves and liberalize its economy to get a bailout from the International Monetary Fund. In 1998, India was better off than in 1991 but certainly not in a strong position. Nuclear tests put it under immense pressure.

      At the UN, the Conference on Disarmament condemned Indian nuclear tests. In the preceding years, India had watched the West ignore the 1989 Tiananmen Square crackdown and fete China for its economic reforms. Condemnation for nuclear tests strengthened, not weakened, India’s response. It stood up to the West, ignored experts and upended nuclear apartheid. Today, India is again in a mood to defy experts and stand up to China.

      Like Love, Trade Is Complicated

      As troops amass on the India–China border, a full-scale economic war has broken out. It is leading to a structural break in the Indian economy. Both public opinion and political leadership is now committed to decoupling from China. In India, there is a ban on 59 Chinese apps by government authorities. Major trade bodies have formally announced boycotts of Chinese products. For instance, the Confederation of All India Traders (CAIT) has listed 3,000 such products. CAIT is a national umbrella organization with 40,000 smaller trade bodies and 70 million traders as members. The government has tightened country of origin rules for e-retailers and other sellers.

      Demand for Chinese products is declining. Xiaomi is no longer India’s top-selling phone. Samsung has replaced it. Increasingly, selling Chinese goods using Southeast Asian free trade agreements is becoming difficult. The existing business model of buying in China and selling in India is under pressure.

      In an additional twist, Indian tax authorities have conducted raids on Chinese companies and individuals for money laundering. It led to the arrest of a Chinese national. Apparently, he was married to a woman from India’s northeast border state of Mizoram, had spuriously obtained an Indian passport and been arrested earlier for espionage. It seems trade is not as simple as experts imagine it to be. Intelligence, influence and geopolitics are inextricably intertwined with trade, business and investment. In the India–China economic relationship, three largely forgotten factors are noteworthy.

      First, India enhanced trade ties with China not only for economic reasons but also geopolitical ones. Becoming a key market and investment destination for China was supposed to reduce the risk of conflict and wean Beijing off Islamabad. Aggressive Chinese actions have made India reconsider this strategy and change tack.

      Second, India’s manufacturing sector is reasonably well developed but has suffered from Chinese competition since China joined the World Trade Organization (WTO) in 2001. A 2018 parliamentary report concluded that Chinese imports were playing “a negative role for [India’s] domestic industry.” The report warned about the loss of jobs, an increase in bad debts for banks, a decline in tax revenues and a worrying dependence on China for critical products. It concluded that China does not play by WTO rules and “the problem of Chinese dumping is a matter of concern across the globe.”

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      India is not alone in having concerns about China’s abuse of WTO rules. A 2018 report to the US Congress expressed concern at “China’s continued embrace of a state-led, mercantilist approach to the economy and trade.” It detailed “substantial costs borne by WTO members as a result of China’s problematic trade regime” and  the challenges presented by its “non-market economic system.” Given China’s track record, there is a case to be made for India taking a more protectionist path.

      There is another tiny little matter. Protectionism has played a key role in industrialization for any latecomer. Furthermore, industrialization has been the key driver of economic growth. In a 2019 article, one of these authors observed that the first major act passed by Congress was the Tariff Act of July 4, 1789. Without protecting its infant industry, the US would not have emerged as an industrial power.

      Since 1978, China has followed the American playbook on steroids. It has powered through the largest and fastest industrialization in history. Its companies enjoy the advantages of infrastructure, cheap financing and political support. Therefore, they have been able to achieve economies of scale. As a result, Indian companies have been blown away. An India-China decoupling might give sectors from aerospace components to advanced pharmaceuticals a second chance.

      Third, Chinese imports into India are nice-to-have, not must-have, goods. Demand for them is elastic unlike the inelastic demand for energy from the Middle East and the US. An India-China trade war that leads to a decoupling of the two economies could lead to short-term pain but has a strong rationale for the longer term.

      The Shape of Things to Come

      In any case, experts forget that India is unlikely to turn entirely inward as it did after independence in 1947. Recently, billions of dollars have poured into India from the US. Reliance Jio, an Indian mobile internet company, raked in $15 billion in 10 weeks. This is indicative of a deeper trend. Given new geopolitical imperatives, India is now looking to boost economic ties with friendly powers. It wants Korean, Japanese, European and American firms to set up shop in the country. Foreign market players who can act nimbly would be in a good position to grab some of the approximately $60 billion China’s trade surplus with India. There are new investment, manufacturing and trading opportunities emerging as the status quo changes and a new order emerges.

      Many economists predict a short-term price shock as Chinese goods stop coming into the country. They forget that India has struggled with jobless growth even during the best of times. Decoupling with China could boost domestic manufacturing not only for large but also for medium and small industries. This would increase employment, tax revenues and even demand thanks to a multiplier effect. Improved job figures further increase political support for decoupling and decrease India’s need to subsidize agriculture so heavily. For decades, agricultural subsidies have put pressure on public finances. If a lower amount is spent on subsidies, pressure on the fiscal deficit would abate.

      To sum up, India has strong reasons to decouple and no longer consider WTO rules sacrosanct. A tectonic shift is underway. After World War II, a new rules-based order emerged. The end of the Cold War strengthened this order and led to visions that Western democracy was the final destination for all societies. With polarization and partisanship at home, Western democracies themselves are in peril. The order that emerged in 1991 is crumbling and a new one is about to emerge. History offers us lessons as to what to expect.

      In the past, India and China focused on their spheres of influence with the Himalayas keeping them apart. Both prospered. In this age of trade, peace and prosperity, a Chola empire based in the modern-day southeastern state of Tamil Nadu ruled Malaysia (Putrajaya), Indonesia (Srivijaya), Sri Lanka and the Maldives. The Middle Kingdom held sway over Mongolia, Korea and Japan. Both India and China could go back to sticking to their historic spheres and to trading with each other.

      At the moment, China has followed salami tactics and encroached on territory India claims as its own. China has also been meddling in Nepal, Myanmar and Sri Lanka, India’s key neighbors. Since  1963, China has been in a close alliance with Pakistan. Yet China has never played a role in the Indian subcontinent and cannot suddenly turn into an overlord here. Therefore, close India-China economic ties no longer make strategic sense.

      Additionally, China disingenuously claims to meet India halfway while insisting that the onus to improve the border situation lies entirely with its neighbor. This is a one-way, not halfway, diplomacy that suggests aggressive intent. The Chinese also seem determined to win the war of narratives and are enlisting the support of free market ayatollahs to do so. It is only natural that the Indian narrative is bound to be different. It is in sync with the new realities of the day, which drive India’s decision to decouple its economy from China. Trade, investment and deep economic ties are a jolly good thing with allies and friends, not with rivals and foes.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      Can the Afghans Work Toward a Lasting Peace Deal?

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      Afghanistan is at a critical stage in its decades-long conflict. A combination of factors has led to a deterioration of the country’s security. These include political corruption, dysfunctional institutions, patron-clientelism and social instability. Violence has intensified in recent years, causing numerous causalities of civilians and troops. 

      Can the Taliban and the Afghan Government Make Peace?

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      Washington has been a key supporter of the Afghan political system ever since the Taliban regime was overthrown in 2001, when NATO invaded Afghanistan after the 9/11 attacks in the US. Since then, the US has sought to strike a deal with the Taliban, who have led an insurgency against NATO and Afghan security forces.

      Making Peace

      The US-Taliban peace deal — which the Afghan government is not a party to — was struck on February 29. If successful, it could help bring an end to the longest war in US history. The deal, which was signed in Doha after mediation by the Qataris, was the result of months of talks between Taliban officials and Zalmay Khalilzad, the US special envoy to Afghanistan. The agreement aims to pave the way for the end of US military involvement in Afghanistan and the withdrawal of foreign forces from the country if the Taliban uphold their side of the deal.

      The accord has been met with opposition due to continued attacks by Taliban militants against Afghan forces and civilians. On March 10, the Taliban and the government in Kabul were due to enter intra-Afghan peace talks for a separate agreement. However, an attack on a hospital maternity ward in May, which caused the death of mothers, midwives and newborns, threw the idea of peace in Afghanistan up in the air. As a result, the government resumed offensive operations against Taliban militants soon after the attacks. Afghan officials have since confirmed that peace talks are set to begin in September.

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      “This is cradle-to-grave terrorism,” says columnist Max Boot in an op-ed for The Washington Post, referring to the attack on the hospital. Nonetheless, US officials, including President Donald Trump, have stressed their desire for Afghans to take charge of their own security rather than relying on US and NATO forces. The US insists on intra-Afghan negotiations and is in a hurry for there to be a political settlement between the government and the Taliban.

      Based on its continued stance, there is no doubt that the Trump administration is committed to the Doha deal and its withdrawal of troops from Afghanistan, whatever the circumstances or consequences. This makes it more unclear what the US-Taliban agreement could lead to and, more importantly, how much influence the Taliban would have on Afghan politics and society as a result.

      Ending Decades of Conflict in Afghanistan

      Ever since the Soviet invasion in 1979, Afghans have witnessed violence. Many young people are fed up with warlords who have destroyed the country and profited from its misery. Yet there is optimism that a political solution will emerge from the Doha agreement. This could have a lasting and positive impact if certain conditions are addressed.

      In this context, a number of local, regional and global factors are crucially significant to bring an end to the longstanding conflict and ensure a durable political settlement in Afghanistan.

      First, Afghans need to work on a local and national consensus. In a divided and diverse country like Afghanistan, the people must build strong social networks that include all factions and ethnic groups. They must work on a general consensus pertaining to a power-sharing structure.

      That said, the power distribution should be based on citizenship, not ethnic and religious lines. In the long term, stability and development are likely to be ensured if power-sharing is based on Afghan citizenship. Aside from this, the government needs to support such community networks, strengthen key institutions, continue to empower Afghan security forces and clamp down on widespread corruption.

      Second, under the auspices of the United Nations, a shura (council) should be created that consists of all sociopolitical elites, including political, tribal and community leaders, to lead the Afghan peace process. This shura needs to negotiate a ceasefire as a first step. Holding direct talks between rival groups is the second step. This would involve the government, the Taliban and former mujahideen commanders.

      To carry out the talks, the shura needs to form an inclusive and consultative negotiating team from all ethnic and political groups to be able to address the deeper grievances in the country. These issues should be aired by the people and addressed under Afghan legal frameworks and the rule of law.

      The shura needs to help all opposition groups resolve their differences and conflicts through dialogue. For a peace agreement to succeed, the Afghan government, the Taliban, all Afghan leaders, ambassadors of regional states, representatives of major Muslim countries and members of NATO must be a party to the deal. These stakeholders would need to guarantee that they would abide by any conditions in the settlement, and regional states would have to agree to end all meddling in Afghan affairs.

      Third, there is a need for economic and political pressure at a regional level. Considerable pressure should be imposed on influential states like Pakistan and Iran. These two countries are considered to be the root of the problem in Afghanistan and have been accused of harboring and supporting insurgents. Hence, it is necessary that Islamabad and Tehran assure the Afghan government that they will not provide safe havens for terrorists and that anyone doing so will be brought to justice.

      It is also vital that Pakistan and Iran own up to their covert interventions in Afghanistan’s internal affairs. Both of these nations should be transparent about such operations with the Afghan government and external stakeholders. Furthermore, regional states must recognize the political independence, territorial integrity and the rights of Afghan people to self-determination in their choice of political system.

      The assurances and regional consensus also need to be based on a commitment by the Afghans. In other words, in order to ensure an end to meddling in Afghan affairs, the government in Kabul must remain impartial when it comes to the political situation of other regional states.

      In addition, Kabul needs to assure regional states — Iran and Pakistan, particular — that their legitimate interests in Afghanistan will not be harmed. The Afghans must pledge to be active partners in trade, transit and energy resources. This would be a gamechanger for the region. There would be a shift away from the destructive intervention of neighboring states toward regional connectivity and an economy-focused approach that would benefit all nearby nations.

      Fourth, once a peace deal is reached, the international community could transform a treaty into a sustainable settlement through political and economic assistance. With this in mind, once a peace agreement is ratified, Kabul should engage with the US, the European Union, the World Bank and other international partners to design and implement nuanced development programs that could lead Afghanistan toward greater physical and economic stability. This would create job opportunities for all civilians and even militants, who would, presumably, put down their guns.

      In the first phase after a peace deal is enforced, a clear future plan needs to be implemented so members of opposition groups can be appointed in official positions. In this regard, the rights and obligations of the political forces of militant groups would be on the same footing as other Afghan citizens in a democratic and fair manner. The aim would be to reintegrate opposition groups and to encourage dialogue to prevent future conflict. Furthermore, the international community, alongside the shura, should persuade all parties — including the Taliban’s political wing — to participate in free and fair elections.

      If Peace Isn’t Possible?

      These measures would strengthen and consolidate the peace process to ensure that weapons are put down and stay down. A failure to address these conditions could lead to an intensified proxy war. As a result, non-state actors like the Taliban would step up with their insurgency, leading to an escalation of violence. This would not only bury any possible political settlement, but it would also derail global security.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      Can the Taliban and the Afghan Government Make Peace?

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      Having harbored al-Qaeda militants, the Taliban regime that ruled Afghanistan from 1996 to 2001 was toppled by the US following the 9/11 attacks in the US. In 2003, the Taliban reorganized and began their insurgency against the Afghan government and NATO forces. Since then, despite national and international efforts to negotiate a peace settlement, the insurgency has continued. As a result, Afghanistan has faced years of instability and violence.

      In late 2018, Zalmay Khalilzad was appointed by Washington as the US special envoy to Afghanistan in a bid to strike a deal with the Taliban, which was signed on February 29, 2020, in Qatar. Under this agreement, peace talks between the Afghan government and the Taliban should have started at the beginning of March.

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      Yet after months of political wrangling, the negotiations will begin in September, according to Afghan officials. The US-Taliban deal states that prisoners on both sides should be released before the intra-Afghan peace talks commence, including 5,000 for the Taliban and 1,000 for the Afghan government. This has proved to be a contentious issue.

      The Afghan peace talks are to start soon, but one thing is clear: The Taliban’s Islamic Emirate of Afghanistan cannot be easily reconciled with the government’s Islamic Republic of Afghanistan. Hence, with a number of sticking points, including a permanent ceasefire or a significant reduction in violence, peace talks will be extremely strenuous.

      Both sides have been at a stalemate. The main reasons for this are conflicting positions between the Taliban and the government. The Afghan government has taken an intransigent view regarding the republic system. It has called it a “red line” that cannot be negotiated, though it has made some concessions since the US-Taliban peace talks began. The Taliban have always focused on reinstating an Islamic emirate, often vaguely calling it an “Islamic system” that should be harmonious with Afghan cultural values.

      In particular, there are three main areas of contention for both parties.

      The Constitution

      First, the negotiations could focus on either the revocation or amendment of the Afghan Constitution, which conflicts with the Taliban’s goal of an Islamic emirate. While the current constitution guarantees equal rights for all Afghan males and females, the Taliban sternly deny gender equality as well as other basic human rights.

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      This is why, in their Moscow statement of February 2019, the Taliban called Afghanistan’s current constitutional law un-Islamic, urging for a new constitution based on “Islamic tenets.” The existing constitution of Afghanistan is believed to be one of the most liberal Islamic constitutions in the region, and the Taliban want to Islamize it based on their extreme interpretation of Islam.

      By Islamization, the Taliban would likely centralize power in the hands of one man — the group’s leader — who would have ultimate control as the head of state. He would handpick members of an Islamic council that would serve as the legislative body. The constitution of the Islamic Emirate of Afghanistan, which was drafted in three days in 1998 by 500 clerics, is a case in point of what governance by the Taliban looks like.

      Elections

      Second, according to Article 61 of the current constitution, the president can only be elected by the people. Afghan President Ashraf Ghani, a staunch supporter of the existing political system, has repeatedly said that the government will decisively defend the constitution based on the “republic system.”

      In this system, the head of state and other elected bodies are elected directly by the people. Article 4 of the constitution explicitly says that national “sovereignty in Afghanistan shall belong to the nation, manifested directly and through its elected representatives.” Afghanistan has held elections as a feature of democracy since the fall of the Taliban, including four presidential and three parliamentary elections. 

      In contrast, in the Taliban system based on sharia law, legitimacy comes from the decision of an exclusive, small group of religious elites. That is why the Taliban have continuously opposed elections in Afghanistan. Taliban militants have repeatedly carried out attacks around election time, including in 2004, 2009, 2014 and 2019. The aims of such assaults were to disrupt the elections, undermine the government and, ultimately, to taint the legitimacy of the outcome of these votes.

      More importantly, democratic decision-making is an alien concept to the Taliban as a movement. For instance, the founder of the Taliban, Mullah Mohammad Omar, declared himself as the leader in 1994. Similarly, Mullah Akhtar Mansoor and Mullah Haibatullah Akhundzada, the successors to Omar, were both appointed by members of the supreme council.

      Many Taliban members have also expressly rejected elections as a means of choosing a government. In 2018, a senior member of Quetta Shura, the Taliban’s leadership council, flatly rejected elections. Referring to the shura, he said that the leadership of a government should be selected by a supreme council because “elections are not according” to sharia law. Likewise, Jalaluddin Shinwari, the former deputy minister of justice under the Taliban regime of the 1990s, said in 2019 that the “Taliban will not accept elections.” The group has asked the US to return power to them and to accept the Taliban’s emirate.

      However, aside from the theological argument of opposing elections, the Taliban’s biggest fear in this process stems from the uncertain outcome of allowing the people to choose. The Taliban’s odds of winning and eventually returning to power are extremely slim. Therefore, the group is likely to make every effort in the Afghan peace talks to win power as long as they do not involve elections.

      Human Rights

      Third, human rights are of the utmost importance when examining the Taliban. Respect and the protection of individual rights supported by the Universal Declaration of Human Rights are fundamental elements of a democratic system. Article 7 of the current Afghan Constitution assures respect for human rights. Likewise, Article 22 guarantees equal rights for all Afghans before the law, irrespective of their gender, ethnicity or religion.

      Conversely, the Taliban are strongly opposed to respecting such universally accepted values and rights. They have never shown flexibility to accept a democratic and republican state, which values human rights. Rather, the Taliban have steadfastly reiterated their intent to reinstall an Islamic emirate that will respect human rights under their model of an “Islamic framework.” As per the Taliban‘s ultra-conservative interpretation of Islam, this would be incompatible with a democratic state’s human rights values.  

      To cite just a few examples, the Taliban have been notorious for their hostility and discriminatory policies toward ethnic and religious minorities and women. When the Taliban ruled Afghanistan, they committed massacres against Hazaras in Mazari Sharif and Bamyan, slaughtering hundreds of civilians, including women and children. This attitude remains unchanged. 

      Similarly, under Taliban rule, Sikh minorities in Afghanistan were required to hang a yellow cloth on their rooftops and, in particular, Sikh women had to wear yellow cloths in public to identify themselves. Likewise, when they captured Kabul in 1996, the Taliban forbade girls and women from attending school and going to work, except in rare cases as medical staff with strict conditions. 

      Finally, the Taliban’s Dastur (draft constitution) stipulates that the amir al-mumineen, an Arabic term that means commander of the faithful, “must be a male Muslim follower of the Hanafi Islamic jurisprudence” — referring to a Sunni Muslim school of thought. The Taliban originally reserved this title for Mullah Omar.

      Though the matter of Dastur seems to be missing from the current discourse of the movement, the patriarchal nature of the Taliban still holds true, not only for the head of the state but also for other key positions. By only allowing a man to hold the role of head of state, the Taliban’s system of governance discriminates against women and members of other faiths — including Muslims of different Islamic sects — both of which are conflict with basic principles of human rights.  

      Despite claims by the Taliban and speculation by some researchers, the group’s general values have not changed. For example, in Taliban-controlled areas of today, women who wish to work or get an education are forced to do so under stringent conditions. In reality, this deprives women of the right to education and work as they are likely to be reluctant to attend a school or get a job.  

      Will the Afghan Peace Talks Work?

      The evidence so far suggests that both the Taliban and the Afghan government have shown some flexibility in agreeing to talks. Yet the Taliban’s Islamic Emirate and the Islamic Republic of Afghanistan remain incompatible. Both forms of governance negate each other. Unless the two sides accept considerable concessions in their positions, the possibility of reconciliation appears slim. This is particularly applicable to the Taliban.

      If the Taliban wish to smoothly reintegrate into society, they will have to adapt their policy about the governance system to a society that is very different from what they saw in the late 1990s. If they do not give in to the will of the new Afghan society of today, the group will face the resistance of Afghans who have sacrificed a lot over the last 19 years. Moreover, the chance of overthrowing the Western-backed Afghan government — if that is still the Taliban’s goal — seems far less than possible. 

      As a nation marred by violent conflict for decades, Afghanistan is highly dependent on international aid and assistance. Therefore, as the intra-Afghan talks begin, the Taliban have no option but to change their restrictive position with regard to holding free and fair elections and upholding human rights and other critical issues protected by the current constitution.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      The Hindu Ethos Is Hurting India’s Republican Spirit

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      The nomination of half-Indian, half-Jamaican California Senator Kamala Harris as the Democratic vice presidential candidate is a historic moment in American politics. The Indian American diaspora is justifiably proud of it. However, back home, it was Prime Minister Narendra Modi’s attending the foundation-laying ceremony to build a temple of Hindu god Ram in Ayodhya at the site of a historic mosque destroyed in 1992 that was treated as a watershed event. Several Hindu secularists and liberals like Ashwin Sanghi have described it as the moment when Hindus finally took a stand against centuries of oppression. The contrast could not be more jarring, and it is worth examining this Hindu ethos.

      Although an atheist, I find several teachings of Hinduism instructive and the author’s arguments troubling. While recounting the history of Islamic and Christian subjugation of Hindus, there is little mention of the role the caste system played in the flight of the downtrodden to other religions, which offered dignity and entry into their places of worship. Without condoning proselytizing in Islam and Christianity, it should be acknowledged that this dark chapter is also glossed over in India’s history textbooks.

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      The selective outrage is further complicated by the recently passed Citizenship Amendment Act (CAA) in which only Muslim refugees from neighboring countries were excluded from seeking fast-track citizenship. Using the author’s logic, either Christians should be left out of the CAA because they have other countries to seek asylum in, or persecuted Muslims from neighboring countries should be included in the CAA.

      While discussing demographic changes, India is compared with Pakistan and Bangladesh. Should a liberal and secular Hindu entertain such comparisons? Or should he have loftier goals of emulating liberal democracies at the forefront of scientific inquiry and technological progress?

      Distorted History

      Since distorted history is the main complaint, when the British colonized India in the 1700s after 1,000 years of Muslim rule, it was still competing with China as the world’s largest economy. Despite more than a millennium of Muslim and Christian proselytizing, 78% of undivided India in 1941 was Hindu. While India’s Muslims grew from 9.9% to 14.2% between 1951 and 2011, Hindus have practically held steady, going from 81% to 79.8%. Religious reorganization among minorities warrants sociological studies, but Islam has not encroached on Hindu territory in independent India. Without condoning the looting and destruction of Hindu temples by Muslims, the origins of this narrative of Hinduism being in danger are worth pondering over.

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      Making common cause with Jewish history by invoking “collective memory” and yearning for an Israel-like muscular Hindu state is another favorite pastime of the “new” India. I admire the tenacity of Israelis in building a developed country in a desert, surrounded by hostile countries, but it is in a constant state of conflict and financially unsustainable without outside support.

      The biggest irony in today’s majoritarian India is that the 150-year British rule, sustained with the help of several Hindu enablers, destroyed the Indian economy. And yet, English is the favored medium of instruction for the majority of children of the right-wing Hindutva brigade, and they would escape India for greener pastures in Britain at the drop of a hat. Hindus searching for pride in Ayodhya are socially trying to emulate regressive Islam while craving a stable, forward-looking, Western-style economy rooted in tolerance.

      Regarding the Supreme Court’s Ayodhya verdict that granted the Hindus sovereignty over the disputed site last year, the author warns us against being selective, but the court has often acknowledged its fallibility. It avoided the question of an earlier existence of a Hindu temple on the disputed land. The court settled a narrower property dispute, ruling that Muslims cannot prove uninterrupted ownership of the land. Given how, since independence, the state allowed Hindus — through acts of omission and commission — to install idols in the disputed structure, the judiciary’s verdict resembles a circular argument. I still believe that a Hindu temple was destroyed to build the Babri Masjid. However, I question the utility of this relitigation of history behind the facade of due process.

      Sanghi’s use of statistics regarding support for suicide bombings in Muslim-majority countries again seems misplaced. Islam was at the forefront of scientific inquiry and cultural supremacy in its heyday, but most of those countries are in decline today. Sympathy for suicide bombings among French, British and American Muslims is worrisome, but deranged non-Muslim gun owners kill more Americans every year than Islamic terrorism does. Should India not align with the US because half of America swears by gun rights? Islam is in dire need of modernization, but the reality is more nuanced than the author’s arguments.

      Equating Modi’s presence at the Ayodhya ceremony with Queen Elizabeth II being the head of the Church of England or with a US president attending the National Prayer Breakfast is equally misleading. I find nothing wrong in Modi attending Diwali or Holi celebrations. The queen of England presiding over the laying of the foundation of a church where a mosque once stood, or an American president breaking ground for a church on land once home to a synagogue, would be a fair comparison.

      No Apology

      Other than the treatment of subjugated castes, I would not expect any apology from Sanghi. While being a proud Hindu, perhaps he also agrees that several other countries broke the shackles of colonization decades before India did.

      If the author believes in individual rights, democracy, free markets, freedom of speech, freedom of religion, gender equality, LGBTQ rights and racial equality, I urge him to defend them. Like other religions, Hinduism’s record on these issues is mixed, and Hindu ethos does not offer any vision resembling a modern republic. He should raise his voice when innocent people are killed by Muslim or Hindu mobs, or when the ruling Bharatiya Janata Party calls anyone questioning the government anti-national. He should denounce Modi when the prime minister decimates institutions like the Election Commission by shunting out his vocal critic Ashok Lavasa.

      Regardless of caste, creed, race or religion, protecting minorities from tyranny of the majority is the ethos of a republic, which is better than the author’s Hindu ethos. We can acknowledge Hinduism’s teachings like vasudhaiva kutumbakam (the whole world is one family) or agree that Hinduism examines the human condition better than most other religions and still fight for the Republic of India. Unfortunately, while the Congress party swung too far in favor of minorities, Modi has now unleashed the majority. In the process, he has destroyed the economy, and the real loser of this ethos is the Indian common man.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      India and China: A Time for Diplomacy, Not Confrontation

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      Chinese and Indian forces have pulled back from their confrontation in the Himalayas, but the tensions that set off the deadly encounter this past June — the first on the China–India border since 1975 — are not going away. Indeed, a poisonous combination of local disputes, regional antagonisms and colonial history could pose a serious danger to peace in Asia.

      In part, the problem is Britain’s colonial legacy. The “border” in dispute is an arbitrary line drawn across terrain that doesn’t lend itself to clear boundaries. The architect, Henry McMahon, drew it to maximize British control of a region that was in play during the 19th-century “Great Game” between England and Russia for control of Central Asia. Local concerns were irrelevant.

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      The treaty was signed between Tibet and Britain in 1914. Although India accepts the 550-mile McMahon Line as the border between India and China, the Chinese have never recognized the boundary. Mortimer Durand, Britain’s lead colonial officer in India, drew a similar “border” in 1893 between Pakistan (India’s “Northern Territories” at the time) and Afghanistan that Kabul has never accepted, and which is still the source of friction between the two countries. Colonialism may be gone, but its effects still linger.

      Although the target for the McMahon Line was Russia, it has always been a sore spot for China, not only because Beijing’s protests were ignored, but also because the Chinese saw it as a potential security risk for its western provinces. England had already humiliated China in the two Opium Wars as well as by seizing Shanghai and Hong Kong. If it could lop off Tibet — which China sees as part of its empire — so might another country… like India.

      A Threat to China?

      Indeed, when Indian Prime Minister Narendra Modi unilaterally revoked Article 370 of the Indian Constitution and absorbed Jammu and Kashmir in 2019, the Chinese saw the grab as a threat to the security of Tibet and its restive western province of Xinjiang. The area in which the recent fighting took place, the Galwan Valley, is close to a road linking Tibet with Xinjiang.

      The nearby Aksai Chin, which China seized from India in the 1962 border war, not only controls the Tibet-Xinjiang highway, but also the area through which China is building an oil pipeline. The Chinese see the pipeline — which will go from the Pakistani port of Gwadar to Kashgar in Xinjiang — as a way to bypass key choke points in the Indian Ocean controlled by the US Navy.

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      The $62-billion project is part of the China-Pakistan Economic Corridor, a piece of the huge Belt and Road Initiative to build infrastructure and increase trade between South Asia, Central Asia, the Middle East, Europe, and China.

      China moves 80% of its oil by sea and is increasingly nervous about a budding naval alliance between the United States and Beijing’s regional rivals, India and Japan. In the yearly Malabar exercises, the three powers’ war-game closes the Malacca Straits through which virtually all of China’s oil passes. The Pakistan-China pipeline oil will be more expensive than tanker supplied oil — one estimate is five times more — but it will be secure from the US.

      In 2019, however, Indian Home Minister Amit Shah pledged to take back Aksai Chin from China, thus exposing the pipeline to potential Indian interdiction.

      From China’s point of view the bleak landscape of rock, ice and very little oxygen is central to its strategy of securing access to energy supplies. The region is also part of what is called the world’s “third pole,” the vast snowfields and glaciers that supply the water for 11 countries in the region, including India and China. Together, these two countries make up a third of the world’s population but have access to only 10% of the globe’s water supplies. By 2030, half of India’s population — 700 million people — will lack adequate drinking water.

      The “pole” is the source of 10 major rivers, most of them fed by the more than 14,000 thousand glaciers that dot the Himalayas and the Hindu Kush. By 2100, two-thirds of those glaciers will be gone, the victims of climate change. China largely controls the “pole.” It may be stony and cold, but it is the lifeblood to 11 countries in the region.

      Back in Time

      The recent standoff has a history. In 2017, Indian and Chinese troops faced-off in Doklam — Dongland to China — the area where Tibet, Bhutan and Sikkim come together. There were fistfights and lots of pushing and shoving, but casualties consisted of black eyes and bloody noses. But the 73-day confrontation apparently shocked the Chinese. “For China, the Doklam stand-off raised fundamental questions regarding the nature of India’s threat,” says Yun Sun, a senior fellow at the Stimson Center in Washington.

      Doklam happened just as relations with the Trump administration were headed south, although tensions between Washington and Beijing date back to the 1998-99 Taiwan crisis. At that time, President Bill Clinton sent two aircraft carrier battle groups to the area, one of which traversed the Taiwan Straits between the island and the mainland. The incident humiliated China, which re-tooled its military and built up its navy in the aftermath.

      In 2003, President George W. Bush wooed India to join Japan, South Korea and Australia in a regional alliance aimed at “containing” China. The initiative was only partly successful, but it alarmed China. Beijing saw the Obama administration’s “Asia pivot” and the current tensions with the Trump administration as part of the same strategy. If one adds to this the US anti-missile systems in South Korea, the deployment of 1,500 Marines to Australia and the buildup of American bases in Guam and Wake, it is easy to see why the Chinese would conclude that Washington had it out for them.

      China has responded aggressively, seizing and fortifying disputed islands and reefs, and claiming virtually all of the South China Sea as home waters. It has rammed and sunk Vietnamese fishing vessels, bullied Malaysian oil rigs and routinely violated Taiwan’s airspace.

      China has also strengthened relations with neighbors that India formally dominated, including Sri Lanka, Bangladesh, Nepal and the Maldives, initiatives which India resents. In short, there are some delicate diplomatic issues in the region, ones whose solutions are ill-served by military posturing or arms races.

      The dust-up in the Galwan Valley was partly an extension of China’s growing assertiveness in Asia. But the Modi government has also been extremely provocative, particularly in its illegal seizure of Jammu and Kashmir. In the Galwan incident, the Indians were building an airfield and a bridge near the Chinese border that would have allowed Indian armor and modern aircraft to potentially threaten Chinese forces.

      Dangerous Thoughts

      There is a current in the Indian military that would like to erase the drubbing India took in its 1962 border war with China. The thinking is that the current Indian military is far stronger and better armed than it was 58 years ago, and it has more experience than the Chinese People’s Liberation Army. The last time the Chinese army went to war was its ill-fated invasion of Vietnam in 1979.

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      But that is dangerous thinking. India’s “experience” consists mainly of terrorizing Kashmiri civilians and an occasional firefight with lightly-armed insurgents. In 1962, India’s and China’s economies were similar in size. Today, China’s economy is five times larger and its military budget four times greater.

      China is clearly concerned that it might face a two-front war: India to its south, the US and its allies to the west. That is not a comfortable position, and one that presents dangers to the entire region. Pushing a nuclear-armed country into a corner is never a good idea.

      The Chinese need to accept some of the blame for the current tensions. Beijing has bullied smaller countries in the region and refused to accept the World Court’s ruling on its illegal occupation of a Philippine reef. Its heavy-handed approach to Hong Kong and Taiwan, and its oppressive treatment of its Uighur Muslim minority in Xinjiang, is winning it no friends, regionally and internationally.

      There is no evidence that the US, India and China want a war, one whose effect on the international economy would make COVID-19 look like a mild head cold. But since all three powers are nuclear-armed, there is always the possibility — even if remote — of things getting out of hand.

      In reality, all three countries desperately need one another if the world is to confront the existential dangers of climate change, nuclear war and pandemics. It is a time for diplomacy and cooperation, not confrontation.

      *[This article was originally published by FPIF.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      What Has COVID-19 Done to Small Businesses?

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      Small and medium-sized enterprises (SMEs) are businesses with revenues, assets or employees below a certain threshold. SMEs are important to the health of any country as they tend to form the backbone of the economy. When compared to large enterprises, SMEs are generally greater in number, employ far more people, are often situated in clusters and typically entrepreneurial in nature. They drive local economic development, propel job creation and foster growth and innovation.

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      According to the World Bank, SMEs represent about 90% of businesses and 50% of employment worldwide. In the United States, 30 million small businesses make up 44% of GDP, 99% of the total businesses and 48% of the workforce, amounting to 57 million jobs. In India, the SME sector consists of about 63 million enterprises, contributing to 45% of manufacturing output and over 28% of GDP while employing 111 million people. SMEs in China form the engine of the economy comprising 30 million entities, constituting 99.6% of enterprises and 80% of national employment. They also hold more than 70% of the country’s patents and account for more than 60% of GDP, contributing more than 50% of tax collections.

      Different Countries Define SMEs Differently

      Though most experts agree on the crucial role SMEs play in any economy, the definition of an SME varies by country. In the US, the Small Business Administration (SBA) defines SMEs broadly as those with fewer than 500 employees and $7 million in annual receipts, although specific definitions exist by business and sector. Annual receipts can range from $1 million for farms to $40 million for hospitals. Services businesses such as retail and construction are generally classified by annual receipts, while manufacturing and utilities are measured by headcount. In June, the Indian government revised its SME definitions, expanding the revenue caps on medium and small enterprises from $7 million and $1.5 million to $35 million and $7 million respectively. In the United Kingdom, a small business is defined as having less than 50 employees and turnover under £10 million ($12.7 million), whereas a medium business has less than 250 employees and turnover under £50 million. 

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      Proper definitions matter. If SMEs are classified well, their access to capital and other resources can improve. They can apply for grants, get tax exemptions, collaborate on research with governments or universities or access other schemes. This gives SMEs better opportunities to survive and thrive.

      Since SMEs tend to be the biggest employers in most economies, a good policy to promote them creates jobs and develops worker skills. Furthermore, proper definitions enable governments to focus their efforts regarding SMEs and level the playing field for them vis-a-vis large corporations.

      Given the scale and nature of their business models, SMEs operate at the mercy of vagaries of the economy, geopolitical events and local policies. They battle competition from multinational giants, volatile cash flows, fickle customers, demanding suppliers and constantly churning employees. But the COVID-19 pandemic has crossed all boundaries. While the 2000 crisis was a dot-com bust and 2008 was a collapse of the financial systems, 2020 is clearly the SME crisis. It is Murphy’s Law at its extreme — anything that can go wrong has indeed gone wrong.

      The coronavirus crisis started off in early 2020 as a supply shock, which has now turned into a demand shock, impacting customers, employees, markets and suppliers alike. The consequences can be potentially catastrophic with the International Monetary Fund estimating that SME shutdowns in G20 countries could surge from 4% pre-COVID to 12% post-COVID, with bankruptcy rates in the services sector increasing by more than 20%.

      SMEs are bearing the brunt of the economic and financial fallout from the COVID-19 pandemic, not least because many were already in duress before the crisis. This could have a domino effect on the economy, given the pivotal role played by SMEs. Therefore, it comes as no surprise that most governments have sought to intercede legislatively with their fiscal might to ameliorate the predicament of SMEs.

      Indian and American Response

      It is instructive to note how different countries have responded to the economic crisis. India is a good country to start with. In early May, the government announced a 20-trillion-rupee ($250 billion) stimulus package called Atmanirbhar, equivalent to 10% of India’s GDP. It was a mixture of fiscal and monetary support, packed as credit guarantees and a slew of other measures. The centerpiece was an ambitious 3-trillion-rupee ($40 billion) initiative for SMEs, including instant collateral-free loans, subordinate debt of 200 billion rupees ($2.5 billion) for stressed micro, small and medium enterprises (MSMEs), and a 500-billion-rupee ($6.5 billion) equity infusion. Perhaps the largest component of the stimulus was the Emergency Credit Line Guarantee Scheme (ECLGS) that provides additional working capital and term loans of up to 20% of outstanding credit. 

      Although the scheme received positive feedback, the initial uptake was slow. On the supply front, bankers fretted about future delinquencies arising out of such accounts as the credit guarantees only covered incremental debt. On the demand side, SMEs were worried about taking on additional leverage when there is uncertainty about economic revival. Moreover, a 20% incremental loan may not suffice to service payrolls and operating expenses and keep business alive.

      Also, while this scheme addressed existing borrowers, the fate of those who are not current borrowers is unclear. While initial traction for the scheme was low, the recent momentum has been encouraging. The finance ministry reports that as of July 15, banks have sanctioned 1.2 trillion rupees ($16 billion), of which 700 billion rupees ($9 billion) have been disbursed largely by public sector banks, although private sector banks have joined in lately.

      Meanwhile, even the largest global economy has struggled with its SME relief program. In mid-March, US President Donald Trump approved a $2.2-trillion package under the Coronavirus Aid, Relief and Economic Security (CARES) Act to help Americans struggling amid the pandemic. One of the signature initiatives under the act was the $660-billion Paycheck Protection Program (PPP) aimed at helping small businesses with their payroll and operating expenses. This program was distinct from its peers in its loan forgiveness part, in which the repayment of the loan portion used to cover the first eight weeks of payroll, rent, utilities and mortgage would be waived. 

      The program, though well-intentioned, has struggled with execution issues exacerbated by labyrinthian rules. Matters came to a head when the initial tranche of $349 billion ran out in April. The program had to be refinanced but, by June, it was closed down with $130 billion of unused funds in its coffers. The program was restarted again and extended to August by Congress.

      Worse, the program saw refunds from borrowers who were unclear about the utilization rules. Loan forgiveness would be valid only if the amount was utilized within eight weeks. This stipulation made SMEs wary because their goal was to use cash judiciously and optimize the use of the borrowed amount to last as long as possible. These rules have since been amended by the Small Business Administration. It now gives SMEs 24 weeks to use the borrowed funds and allows them more flexibility on the use of funds. In any case, questions have been raised about capital not reaching targeted businesses and unintended parties benefiting instead. 

      Despite the changes in SBA rules, the jury is still out on whether more SMEs will take out PPP loans. Some are lobbying for full loan forgiveness. However, dispensing of repayment requirements essentially creates handouts that could lead to the lowering of fiscal discipline and increasing incentive for fraud. A recent proposal by two professors, one from Princeton and the other from Stanford, suggests “evergreening” of existing debt, a practice that involves providing new loans to pay off previous ones. Though innovative, it is not quite clear how such a policy would provide better benefits compared to a loan repayment moratorium, especially when it comes to influencing future credit behavior. 

      In addition to the PPP program, the SBA has announced the Economic Injury Disaster Loans (EIDL) program. This offers SMEs working capital loans up to $2 million to help overcome their loss of revenue. The program was closed down on July 13 after granting $20 billion to 6 million SMEs. Maintaining equitability and efficacy in the distribution process has been a challenge, though.

      European Responses

      Europe’s largest economy, on the other hand, has fared relatively better. In early April, German Chancellor Angela Merkel announced a €1.1-trillion ($1.3 trillion) stimulus termed the “bazooka.” This constituted a €600-billion rescue program, including €500 billion worth of guarantees for loans to companies. The German state-owned bank KfW is taking care of the lending. The program also includes a cash injection of €50 billion for micro-enterprises and €2 billion in venture capital financing for startups, which no major economy has successfully managed to execute. Notably, the centerpiece of the German program is the announcement of unlimited government guarantees covering SME loans up to €800,000. These loans are instantly approved for profitable companies.

      Berlin’s relief measures were specifically targeted at supporting Germany’s pride, the Mittelstand. This term refers to the 440,000 SMEs that form the backbone of the German economy. They employ 13 million people and account for 34% of GDP. Many of these firms manufacture highly-specialized products for niche markets, such as high-tech parts for health care and auto sectors, making them crucial to Germany’s success as an export giant. Not surprisingly, these companies have seen a contraction in revenues, especially the ones that depend on global supply chains. 

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      The swift implementation of these initiatives, coupled with the resilience of the Mittelstand, is demonstrating that SMEs can survive and thrive in this environment. The Germans have also been preaching and practicing fiscal prudence in normal times, which has now worked in their favor. Germany can afford to inject capital and do whatever it takes to save its SMEs.

      Since its first stimulus, Berlin has followed up with an additional €130-billion package consisting of tax, SME loans and spending measures aimed at stimulating demand. This included a €46-billion green stimulus focused on innovation and sustainable projects such as e-mobility and battery technology. In keeping with the German tradition, the SMEs who make the Mittelstand have stayed agile as well. They are diversifying their customer base and pivoting their business models to more recession-proof sectors. 

      The UK, another major world economy, also launched an array of relief measures, including the Coronavirus Business Interruption Loan Scheme (CBILS) worth £330 billion ($420 billion). This was designed to support British SMEs with cash for their payroll and operating expenditure. It also announced the Bounce Back Loan Scheme (BBLS) focused on smaller businesses. This enjoyed a better launch than CBILS because the latter, with its larger loan quantum, required more vetting and paperwork.

      Loans from the CBILS initiative, although interest-free for a year, are only 80% guaranteed by the government. This makes banks less willing to lend during these troubled times because they are afraid of losing 20% of the loan amount. This slows credit outflow and starves SMEs of much-needed capital. As of July 15, less than 10% of the allotted capital had been utilized, which banks blame on an inadequately designed scheme. By mid-July, only £11.9 billion had been disbursed to 54,500 companies through the CBILS and £31.7 billion to 1 million smaller firms through the BBLS.

      Businesses have sought modifications from policymakers to existing schemes. These include hiking government guarantees for loans to 100% and waiving personal guarantees for small loans. The Treasury has agreed to some of these demands. Critics also point to structural deficiencies in the system. They believe the administrative authority for SME loans should be a proper small business bank instead of the British Business Bank, which was not designed for SMEs. Already, the UK government has warned that £36 billion in COVID loans may default. More drastic measures seem to be on the way, including a COVID bad bank to house toxic SME assets.

      Responses Elsewhere

      Economies around the world have been responding to disruption by COVID-19. It is impossible to examine every response in this article, but Japan’s case deserves examination. The world’s third-largest economy had been battling a recession even before the pandemic. Declining consumption, falling tourism and plunging exports were increasing the pressure on an aging society with a spiraling debt of over $12.2 trillion. The pandemic has strained Japan’s fiscal health further.

      In response to the pandemic, the Bank of Japan announced a 75-trillion-yen ($700 billion) package for financing SMEs, which included zero-interest unsecured loans. Additionally, the National Diet, Japan’s parliament, enacted a second supplementary budget, which featured rent payment support and expanded employment maintenance subsidies for SMEs.

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      The execution of these programs has been tardy. The government’s 2015 digitalization drive is still incomplete, impacting the distribution of subsidies and the implementation of other relief measures. Of the more than 400,000 applications for employment adjustment subsidies, only 80,000 companies received aid by mid-June. Application procedures are unnecessarily complex, adding to the woes of SMEs.

      Any discussion on SMEs in the global economy would be incomplete without examining China, which was the first country to deal with the COVID-19 disease. In February,  the government announced a 1.2-trillion-renminbi ($174 billion) monetary stimulus. Large state-owned banks were ordered to increase lending to SMEs by at least 30% in the first half of 2020. Three of these banks alone were supposed to lend 350 billion renminbi ($49.7 million) to small businesses at preferential rates. In addition, Beijing encouraged local policymakers to provide fiscal support to keep SMEs afloat.

      China’s stimulus seems more understated compared to other major economies and their own 2008 bailout package. After controlling the first COVID-19 wave in March, the Chinese have focused on restarting the economy and reopening businesses instead of relief measures and bailouts.

      In February, surveys in China showed that 30% of SMEs had experienced a 50% decline in revenue. Surveys also found that 60% of SMEs had only three months of cash left. At the end of March, almost half a million small businesses across China had closed and new business registrations fell by more than 30% compared to last year. The resumption of work has been an uphill struggle. In April, the production rate of SMEs had crossed 82% of capacity, but the sentiment had remained pessimistic. Notably, the Small and Medium Enterprise Index (SMEI) had risen from 51.7 in May to 53.3 in June, indicating that SMEs are slowly reviving.

      With the easing of lockdown measures, domestic demand in China has picked up, driving SME sales. In turn, greater demand is increasing production activity and accelerating capacity utilization, causing a mild rise in hiring. The green shoots of recovery of Chinese SMEs should encourage authorities worldwide. 

      Policy Lessons for the Future

      Governing nation-states is an arduous task at the best of times and especially so in a nightmarish year of dystopian proportions. No wonder governments worldwide have appeared underprepared to combat the COVID-19 crisis. Whilst predicting a global pandemic of this scale would be next to impossible, there were early warning signs that severe disruptions to global health care, supply chains and business models were imminent. Yet scenario planning and stress testing of economic models has been flawed, impacting the swift rollout of relief measures.

      The crisis has also underlined the importance of fiscal discipline when economies are doing well. Countries that do so can build a robust balance sheet to leverage during troubled times. This crisis also brings home the importance of evaluating and reevaluating the efficacy of the entities that deal with SMEs. Policymaking is an iterative process, especially when it comes to SMEs and bodies that oversee them must be overhauled periodically.

      Importantly, policies pertaining to SMEs must have inputs from those with domain expertise. Structures must take into account execution capabilities and speed of delivery. Instant loan approvals with suboptimal due diligence have to be constantly balanced against longer vetting but slower turnarounds. Similarly, policymakers have to analyze the various types of instruments, fiscal and monetary, that can be used for SMEs. What works in one country may not work for another. 

      It is important to remember the nuances of different policy measures, such as guarantees, forgiveness, monitoring and moratoriums. Guarantees are a sound instrument for relief but are potential claims on the government’s balance sheet and contingent liabilities. They also have little economic value if capital is not promptly delivered to SMEs. Forgiveness provisions have their own issues. They may be important in a crisis but could incentivize subpar credit behavior in the future. Similarly, monitoring is important but is impractical when millions of SMEs are involved. There is no way any authority can keep a tab on the intended usage of funds. Finally, moratoriums have their own problems. Businesses could misuse moratoriums, putting pressure on banks and making accounting difficult. They were cheered at the onset of the crisis but further extensions could be costly to the ecosystem. 

      Going forward, governments need to prepare for the long haul. The consequences of the COVID-19 pandemic will stay with us for the foreseeable future. What began as a liquidity crisis might well become a solvency crisis for SMEs despite the best attempts to avoid that eventuality. If that does happen, governments will need to plan for efficient debt restructuring. They will have to institute insolvency management processes while figuring out how to handle bad asset pools. In simple language, governments will have to make tough decisions as to distributing gains and losses not only among those living but also future generations.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      India Must Abandon Nehru’s Failed Non-Aligned Policy to Confront China

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      Troops from India and China have clashed this year in Ladakh and North Sikkim at the border between the two countries. Although there are immediate reasons for the clash, the deeper causes of India’s border disputes with both China and Pakistan are its post-independence historic blunders. India has catastrophically failed to establish, delineate and demarcate its boundaries when it was in a position to do so.

      Jawaharlal Nehru, the first Indian prime minister after independence in 1947, was a man of the leftist mold and so were many of his confidantes. They ignored reports of Chinese atrocities and progressive occupation of Tibet sent by Sumal Sinha, the Indian consul general in Lhasa, and Apa Pant, the dewan, the de facto prime minister, of the Himalayan kingdom of Sikkim, which at that time was a protectorate and is now a state of India.

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      Two influential Indians emerge with much discredit. One is V.K. Krishna Menon, India’s defense minister from 1957 to 1962, who resolutely maintained that India had nothing to fear from China. The other is K.M. Panikkar, India’s ambassador to China from 1950 to 1952, whose advice “proved to be unwise.” Panikkar persuaded Nehru to recognize China’s sovereignty over Tibet when Mao Zedong’s People’s Liberation Army (PLA) took over this de facto independent buffer state in October 1950. The historian T.R. Ghodbole records that Panikkar “advised Nehru not to raise the border issue” with China as the price for accepting the conquest of Tibet.

      One Indian leader shines in contrast. Sardar Vallabhbhai Patel, India’s first home minister and Nehru’s deputy, was prescient about the Chinese threat. He wrote a now well-known letter, to the prime minister, calling Chinese action “little short of perfidy.” Patel, a Gandhian from the right of the Indian National Congress party, argued that Chinese irredentism and communist imperialism were “ten times more dangerous” than Western expansionism or imperialism because it wore “a cloak of ideology.” The wise home minister died soon after writing this letter. Now, Indian policy was firmly in the hands of leftist ideologues who failed to take any of the steps he advocated to safeguard the country’s security interests.

      Misunderstanding China and Abandoning Tibet

      Nehru soon embarked on his misconceived policy of non-alignment. He wanted to be the moral leader of the Third World who pioneered a policy of peace in contrast to the militaristic policies of imperial powers. As a result, India failed to build up its own capabilities to defend its sovereignty and territorial integrity. Nehru forgot to heed the Roman doctrine that if “you want peace, be prepared for war; therefore, let him who desires peace get ready for war.” He also forgot the ancient Indian strategist Chanakya who postulated that “every neighbor is a potential enemy and an enemy’s enemy is a friend.”

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      It was this complete absence of strategic thinking that led to the debacle in Tibet in 1950. Even as China was building up its strength and repudiating so-called unequal treaties imposed by imperial powers, Nehru was content to swan around on the world stage as a moral, peaceful beacon for the world. It was this naive thinking that led the country to take the issue of Kashmir to the United Nations and fail to press home its military advantage in 1948. Back then, India was in a position to claim the entire state of Jammu and Kashmir, including the parts that China now controls.

      India failed to understand China’s worldview. Henry Kissinger, the former US secretary of state under President Richard Nixon, had his finger on the Chinese pulse in his book, “World Order.” He observes that China has considered itself as “the sole sovereign government of the world’ since its unification in 221 BC. It did not consider other monarchs as equal. They were mere “pupils in the art of governance, striving towards civilization.” The Chinese emperor commanded “all under heaven,” tianxia in Chinese parlance. China forms the central, civilized part, “the Middle Kingdom” of tianxia. It is supposed to inspire and uplift the rest of humanity.

      Chinese President Xi Jinping is the son of an ardent Maoist. Like Mao, he has emerged as a modern-day Chinese emperor. Xi has reintroduced this idea of tianxia. His first act when he became the leader of the Chinese Communist Party (CCP) in 2012 was to visit the Museum of Revolution. There he declared that China was ready to be a world leader “because of its 5,000-year-old history, the CCP’s 95-year historical struggle and the 38-year development miracle of reform.” This is the danger that Patel foresaw but Nehru did not.

      In 1950, India could have prevented the Chinese takeover of Tibet. It could have strengthened its garrison in Lhasa instead of withdrawing its troops, used its air force and supported the poorly equipped Tibetan forces. China was isolated internationally in the 1950s. The Western powers were anti-communist and did not like Chinese interference in Vietnam. China’s relations with the Soviet Union spiraled downward after 1955. India failed to build a coalition against China even when the West had shown interest in supporting the Tibetans. Indeed, as Atul Singh, Glenn Carle and Vikram Sood record in a detailed article on Fair Observer, India inexplicably turned down a permanent seat at the United Nations Security Council.

      Once China conquered Tibet, it was at India’s doorstep. In the 1950s, it stealthily took over 37,244 square kilometers of Aksai Chin and built a road connecting southern Tibet to Xinjiang. It also started claiming large chunks of Indian territory such as Arunachal Pradesh and parts of Ladakh. Indeed, the Chinese claim line extends right up to the plains of Assam.

      Singh, Carle and Sood have examined in some detail the various boundaries the British drew as their boundary with the Qing. China was in turmoil after its revolution of 1911-12 and Tibet was de facto independent. It was a buffer state where the British had many strategic assets, which India inherited but soon gave up to China. Released files of the Central Intelligence Agency reveal the extent of Nehru’s capitulation to Mao. India signed a treaty with China and inexplicably agreed to withdraw troops from Tibetan towns of Yatung and Gyantse, which were mainly trading posts, and also wind up the garrison in Lhasa. It handed over control of postal, telegraph and telephone facilities to the Chinese.

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      None of these concessions satisfied the Chinese. Instead, these missteps whetted the appetite of a resurgent Middle Kingdom. China did not accept any of the lines the British had drawn on the map and kept claiming more and more of Indian territory. Finally, war ensued. In 1962, China handed India a devastating defeat that continues to haunt the country to this day.

      The two countries severed diplomatic relations after the war. They restored them only in 1984. Since then, they have conducted several rounds of negotiations and signed several agreements but never been able to agree to define and demarcate the line of actual control (LAC), the de facto line dividing Indian and Chinese territory, or agree upon an international boundary. Despite India’s repeated efforts to get the LAC demarcated, the Chinese have been intransigent. It is far too convenient for them to have an undefined LAC, which allows them to alter it for strategic advantage whenever they have an opportune moment.

      China’s Expansionist Policy and Indian Response

      Chinese intransigence is the key reason why the two countries have been unable to come to an agreement. In 1960, Zhou Enlai, the Chinese premier, proposed formalizing the status quo. He suggested India keep what is now called Arunachal Pradesh while China would retain Aksai Chin. Later, Deng Xiaoping reiterated Zhou’s position. In 1962, Chinese troops largely withdrew from Indian territory and even vacated the strategic town of Tawang, a great center of Buddhist learning and pilgrimage.

      As per these actions, one could infer the Chinese took what they want. Sadly, this is not true. The Chinese have been consistently and persistently moving the goalposts. China now refuses to accept the McMahon Line in Arunachal Pradesh as the international boundary and is claiming Tawang again on the ground that the sixth Dalai Lama was born here. It is important to remember that the border alignment agreed by China with Myanmar follows roughly this very line.

      China has been constantly upgrading its military and building up its border infrastructure. It has also been breaching all the agreements that it signed with India. The only exception is the exchange of maps relating to the middle sector bordering the Indian state of Uttarakhand in 2005.

      This year, China has displayed unusual belligerence far exceeding past practices. It has exerted pressure in both North Sikkim and Ladakh. The proximate reason lies in India belatedly boosting its border infrastructure. It has built the world’s highest airfield at Daulat Beg Oldi (DBO). An all-weather road now goes east from Leh, the capital of Ladakh, to Durbuk and then further east to the Shyok river, from where it turns north and runs all along the LAC right up to DBO. This airfield sits at the base of a historic pass through the Karakoram and gives India access to Central Asia. It is also close to the strategic Siachen Glacier where India controls the commanding heights and dominates Pakistan.

      For decades, India neglected its border infrastructure. Defeat to China in 1962 scarred the country. Its policymakers went into a defeatist mindset. They thought good roads would be used by the Chinese to speed into Indian territory while rugged undeveloped terrain would slow down Chinese advance. Domestic organizations and foreign private companies have now dramatically altered the ground situation, especially in the western sector. This has made China nervous. It feels the China-Pakistan Economic Corridor (CPEC) — a trade route that is important for Beijing’s Belt and Road Initiative and its geopolitical strategy in South Asia — might be under threat. Indian troops could block off its access to Gilgit-Baltistan.

      Possibly as a reaction, Chinese troops have been pressing at strategic points on the Ladakh border such as Gogra Hot Springs, Depsang Bulge, Galwan Valley and Pangong Tso Lake. They want to make sure that the road India has built to its airfield at DBO comes within range of Chinese gunsights. Nibbling Indian territory has been the general strategy for a long time. The Chinese are infamous for following “salami tactics” not only with India but also with other neighbors like Vietnam or Japan.

      Increasingly, China appears to be unnerved by India’s strategic direction. In 2017, New Delhi was firm in defending Bhutan’s territory in Doklam Plateau, which China lays claim to. India has strengthened ties with Australia, the European Union and the US. The specter of the Quad, an alliance of India, Japan, Australia and the US, blocking the Straits of Malacca — an international waterway — haunts China. In particular, China fears that the US is backing India to be a counterweight to China in Asia.

      Under President Xi, China has been increasingly aggressive on its borders. It has also been repressive internally. China has tightened the screws on Hong Kong, Tibet and Xinjiang. The Belt and Road Initiative is another example of Chinese expansionism.

      China’s recent belligerence might come from a deep sense of insecurity due to several recent developments. The US has unleashed a trade war that has hit China’s export-oriented economy hard. Furthermore, capital and manufacturing have been moving to Indonesia and Vietnam. India has now made a play for that capital as well. In addition, Western countries have criticized China for its domestic as well as external actions. The COVID-19 pandemic has blotted its record and lowered its global image. India has supported the US in calling out China on its suppression of information about the pandemic and in instituting an inquiry into the origins of the COVID-19 disease.

      India has long borne the brunt of Chinese aggression. It has never raised the issue of an independent Tibet in the international arena. It was the first non-socialist country to recognize China. Yet China has consistently acted against India’s interests. It has used Pakistan as a proxy against India. Beijing has even provided nuclear technology and fissile material to Islamabad. It blocks India’s membership of the Nuclear Suppliers Group, an organization of nuclear-supplier countries. It has built a port in Sri Lanka and instigated the communist government in Nepal to act against India’s interests.

      The time has come for India to stand up to China’s bullying. The nation cannot allow China to keep gobbling up Indian territory. India has to keep modernizing its military, building up its border infrastructure and developing closer ties with other nations threatened by China. Most importantly, India has to recognize that China is its principal strategic enemy, both in the short and the long term. Therefore, India has no option but to cast off its failed non-aligned policy and ally with the US against China. Only a full-fledged military alliance between the world’s two largest democracies will deter the world’s biggest tyrannical regime.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More