India and the Indian Ocean Region: The New Geo-Economics

~ By Sanjaya Baru

In his rare classic India and the Indian Ocean: An Essay on the Influence of Sea Power on Indian History, historian K.M. Pannikar reminded us, “Milleniums before Columbus sailed the Atlantic and Magellan crossed the Pacific, the Indian Ocean had become an active thoroughfare of commercial and cultural traffic.” [1] Thanks in part to its geography, given the annual and seasonal flow of winds, the sociology of the enterprising traders of Gujarat and the Coromandel coast, and the enterprise of Arab traders the Indian Ocean was one of the early theatres of maritime trade and cultural intercourse.

With the rise of Asian economies, their growing dependence on Asian energy, with the emergence of Africa as the new continent of economic growth and the eastward turn of both Africa and West Asia, as they sell more of their resources to Asia rather than the West, the centre of gravity of global commerce has shifted from the Atlantic to what is now described as the ‘Indo-Pacific’. Consequently, the Indian Ocean has again become the crossroads of global commerce.

Placed as it is on the roof of the ocean, India has lent its name to the ocean by its historical role in shaping the flow of commerce and culture. India’s civilizational footprint is all too visible even now across and around the Indian Ocean. Little wonder then that that European cartographers gave names such as ‘Atlantic’ and ‘Pacific’ to the two other oceans but chose to name the waters touching the landmass of Africa, on the east, the Indian sub-continent on the north and Indo-China and Australasia, in the west, as the ‘Indian Ocean’.

History

In his masterly study of civilisation and capitalism through the 15th to the 18th centuries historian Fernand Braudel draws attention to the dominant presence of India in the Indian Ocean region. [2] Braudel refers to the region spanning the Arabian Sea, the Bay of Bengal, the Straits of Malacca and the South China Sea – what is now referred to as the Indo-Pacific- as the “greatest of all the world economies” of the pre-industrial, pre-capitalist era. [3]

The Far East, says Braudel, comprised of “three gigantic world-economies”: “Islam, overlooking the Indian Ocean from the Red Sea and the Persian Gulf, and controlling the endless chain of deserts stretching across Asia from Arabia to China; India, whose influence extended throughout the Indian Ocean, both east and west of Cape Comorin; and China, at once a great territorial power – striking deep into the heart of Asia – and a maritime force, controlling the seas and countries bordering the Pacific. And so it had been for many hundreds of years.”[4]

“The relationship between these huge areas,” says Braudel, “was the result of a series of pendulum movements of greater or lesser strength, either side of the centrally positioned Indian subcontinent. The swing might benefit first the East and then the West, redistributing functions, power and political or economic advance. Through all these vicissitudes however, India maintained her central position: her merchants in Gujarat and on the Malabar and Coromandel coasts prevailed for centuries against their many competitors – the Arab traders of the Red Sea, the Persian merchants of the Gulf, or the Chinese merchants familiar with the Indonesian seas to which their junks were now regular visitors.”[5]

Pannikar notes, from ancient Indian texts as well as records of Asian travellers, including Chinese travellers, of centuries of Indian dominance of the Indian Ocean. From fifth century B.C. to sixth century A.D., says Pannikar, “this naval supremacy rested with the continental powers in India.” [6]  The Sri Vijaya Empire, based in Sumatra, dominated the eastern seaboard of the Indian Ocean well into the 10th century. “The period of Hindu supremacy in the Ocean was one of complete freedom of trade and navigation.” Records Pannikar. [7]

With the decline of Hindu kingdoms in India and South-east Asia, Arab rulers and merchants gained dominance over the Indian Ocean. They were then replaced by the Europeans. Through the era of colonialism the Indian Ocean became a theatre of geo-economic and geopolitical contestation between European powers. It is thanks to their dominance over the Indian Ocean that the British built and sustained a global empire. [8]

Economics

One consequence of the harmful impact of British colonialism on India’s economic development was to turn India inward, and shun trade with the outside world. In 1950, India’s share of world merchandise trade was 2.0 per cent, compared to 1.3 per cent for China. By 1990, India’s share was down to 0.5 per cent, while China had inched up to 1.8 per cent. By 2010, the relevant numbers were 1.4 and 10.4, respectively!

The neglect of foreign trade, thanks to the export-pessimism of Jawaharlal Nehru’s economic planners and policy makers, contributed to this economic disengagement with the world as well as to a strategic neglect of maritime trade and security. After India’s reintegration with the world economy in 1991, the share of trade in India’s national income began rising. External trade in goods and services accounted for 16.2 per cent of India’s national income in 1950, and remained around this level till 1990. By 2010 the number was up at over 50.0 per cent, making India more trade-dependent than many OECD economies, including the United States.

Table 1: India’s External Trade Openness (Percentage Shares of GDP)

1950 1980 1990 2007 2013
Exports (Goods) 6.5 4.9 5.8 14.2 17.1
Exports (Services) 1.9 1.3 1.4 7.7 8.1
Exports (Goods & Services) 8.4 6.2 7.2 21.9 25.2
Imports (Goods) 6.5 9.5 8.8 22.0 24.8
Imports (Services) 1.3 0.2 1.1 4.5 4.2
Imports (Goods & Services) 7.8 9.7 9.9 26.5 29.0
Trade in Goods & Services 16.2 15.9 17.0 48.4 54.2

          Source: Vijay Joshi, India’s Long Road: The Search for Prosperity, Penguin Allen Lane, India, 2016.

                        Table 12.1. Page 263

Table 2: India: Direction of Merchandise Exports (Percentage Share)

Region 2003-04 2013-14
Americas 24.6 17.8
Europe 25.7 19.6
Asia 42.2 50.1
Africa 5.9 9.7
Rest of the World 0.8 2.8

              Source: Ministry of Commerce, Government of India

This shift in India’s dependence on external trade was accompanied by an equally significant shift in the direction of trade. While Western Europe and North America were India’s dominant trade partners in the 1950s and through to the 1990s, there was a directional shift after 1990. Partly as a consequence of the rise of East and South-east Asian economies in the intervening period and partly as a consequence of India’s own ‘Look East’ policy, the share of East Asian and South-east Asian economies in India’s merchandise exports increased sharply. This was matched by an equally impressive rise in the share of West Asian economies – the member countries of the Gulf Cooperation Council (GCC) in particular – in India’s import and export trade. To add to this, India’s trade with Africa, especially Southern African and East African economies as also her trade with Australian and New Zealand grew at a faster pace than her trade with the trans-Atlantic economies.

All of this has meant that more than sixty per cent of India’s external trade is now with countries that are directly linked to the Indian Ocean and the Indo-Pacific region. But, of course, even the trade with Europe and the Americas traverses the Indian Ocean.

The increase in the share of trade in national income is a reflection of the growing importance of export-oriented industries and services. Most of them, both goods and services, are increasingly located in peninsular India – including the coastal states of Gujarat, Maharashtra, Karnataka, Kerala, Tamil Nadu and Andhra Pradesh. The emergence of, for example, a competitive automobile and related industries in Tamil Nadu and Maharashtra has made port development a priority in these states. The growth of a petroleum refining and petro-products industry in Gujarat has had a similar impact on the development of Gujarat’s port infrastructure.

The New Maritime Economy

The most important reason for India’s external trade dependence almost entirely on the Indian Ocean is the fact that its land links with Eurasia have been disrupted by the access denial imposed by Pakistan.  Through history, a large part of India’s trade with the Eurasian landmass – right up to Europe – was by land and passed through what are now Pakistan and Afghanistan. Historian Scott C Levi has recorded the role played by “Hindu traders”, for centuries in financing and facilitating the trade between India and Central Asia and beyond, all the way to Europe. [9]

If land-based trade to India’s west has been disrupted by Pakistan, that to India’s east has been limited by inadequate infrastructure. India is now seeking to bridge this gap by investing in road and rail connectivity with Bangladesh and Myanmar, and securing land access to the markets of South-East Asia. Indeed, even to the west, the new India-Iran port, rail and road development projects are intended to offer India land connectivity to Eurasia through Iran. Inter-regional connectivity with her wider neighbourhood has become the cornerstone of regional cooperation for India.

Indian Foreign Secretary S Jaishankar put it pithily in his address to the Raisina Dialogue in New Delhi in March 2016 when he said, “The Indian Ocean, once regarded as a maritime frontier, is today increasingly seen as a connectivity pathway……….These waters must not only get better connected but remain free from non-traditional and traditional threats that could impede the seamless movement of goods, people and ideas.” [10]

Even as the land-based connectivity infrastructure gets established, the waters around the Indian peninsula will remain her main link to the markets of the world. Pannikar was prescient to observe in 1945: “The commercial interests of India … her vast markets and her great natural resources, can be reached through the Indian Ocean and her recent industrial growth, with consequent expansion of trade, emphasises the necessity of safe sea communications.” [11]

Over a decade ago India launched the ‘Sagaramala’ programme of improved ports and port connectivity to ease the flow of goods and develop globally competitive infrastructure in Indian ports. New port development in almost all coastal states has increased the importance of the maritime economy for the development of these states.

To quote Foreign Secretary Jaishankar again, “Our maritime agenda envisages port development that would harness the capabilities of the private sector. It is also important that the nodes of outward connectivity are linked better to the hinterland. The integrated development of ports and the hinterland, the objective of our SAGARMALA project, would surely have profound consequences over time.” [12]

More recently, India has resumed ship building, after several decades of neglect. In the 1940s India had a globally competitive shipbuilding industry that thrived due to war demand. However, thanks to its inward-oriented industrialisation strategy India neglected its shipbuilding industry and late-comers like South Korea not only overtook India but emerged as globally competitive shipbuilding economies. Today India is teaming up with South Korea to rejuvenate its shipbuilding capabilities. [13]

Energy

Energy security is an important aspect of India’s maritime economy and strategy and a key determinant of its Indian Ocean strategy. Of all the trade links that India has with the Indian Ocean region none is more important than the trade in oil and gas. India’s economic rise has increased its dependence on imported energy. Not only is the import of crude oil increasingly important for the Indian economy, but also the export of refined petroleum and petroleum products. While India seeks to become more self-reliant in energy, by developing nuclear and renewable energy, it will continue to be a major consumer of imported hydrocarbons and exporter of petroleum products.

Here again, given Pakistan’s negative role in promoting land-based pipelines that can give India access to West and Central Asian gas and oil, India has no option but to depend on the Indian Ocean to access its energy needs. Apart from West and Central Asia, India is also sourcing and investing in oil and gas exploration in South-east Asia and East Africa.  All this imparts a strategic dimension to India’s trade dependence on the Indian Ocean.

The importance of the Indian Ocean to global energy security cannot be over-emphasised. More than two-thirds of all oil that is traded is carried over sea by oil tankers, while less than a third is carried through pipelines. Most of the oil carried by ships passes through the Indian Ocean. The Straits of Hormuz and Malacca are key chokepoints. These lie on either side of India.

People

It is not merely merchandise trade and investment flows that make the Indian Ocean region important for India. Over centuries people of Indian origin have set sail over the ocean to inhabit lands all around it. Some of these settlements, like Mauritius, have great strategic and economic value for India. Others, like the Gulf states, offer employment opportunities for millions of Indians and help India earn billions of dollars every year. Over six million persons of Indian origin living in the Gulf region repatriate home annually over US$ 50 billion.

While India has developed the capability to airlift hundreds of thousands of people from the West Asia and North Africa region during times of conflict and distress, it has also demonstrated capability to quickly bring them out by sea and offer sea-based security to these communities. Indian ships were able to rescue thousands stranded in Libya during the conflict there. During the tsunami in December 2004 Indian ships were able to provide rescue and relief to stranded people around the Indian Ocean region.

People of Indian origin living in South-east Asia and Africa also extend India’s cultural footprint. Over the past two decades India has actively pursued a policy of reaching out to the Indian diaspora. The dominant Indian communities in the Indian Ocean region are of Gujarati, Tamil, Telugu, Bihari and Bengali origin. Many continue to retain their original cultural identity even when they have fully integrated into local communities and may well be immigrants going back five generations and more.

Maritime Security

Thanks to India’s pre-occupation with land-based threats from Pakistan and China and the uncertain nature of her land borders in the immediate post-Independence period, Indian national defence strategy was focused on military and air power to the relative neglect of naval capability. This neglect of maritime security was compounded by India’s choice of an inward-oriented economic development strategy, with a consequent decline in India’s share of world trade. Pannikar warning of 1945, that “An exclusively land policy of defence for India will in future be nothing short of blindness…….. The freedom of India will hardly be worth a day’s purchase, if Indian interests in the Indian Ocean are not to be defended from India,” went unheeded for a long time. [14]

During the Cold War Indian strategic policy remained focused primarily on ensuring that the Indian Ocean did not become one more theatre of superpower rivalry. This was the main objective of India’s stated goal of ensuring that the Indian Ocean would be “a zone of peace.” However, with the end of the Cold War and with the rise of China, maritime security in the Indian Ocean has acquired a new relevance for India. [15] The threats of terrorism, sea piracy, failed states, religious radicalism and civil wars afflict several countries around the Indian Ocean region.

India’s security and economic stability has been directly targeted from the ocean. Apart from the high profile incident of sea-based terrorist attack on Mumbai’s financial district in November 2008, there have been incidents of piracy and illegal movement of lethal equipment with serious implications for India’s national security and the safety of the Indian Ocean sea lanes of communications.

To add to these new security concerns, the increasing global and regional integration of the Indian economy and the increase in the share of seaborne foreign trade in India’s national income also brought issues relating to maritime security into national security focus. Consequently, India has had to increase its budget for the navy and has set up a new naval command in the Andaman & Nicobar Islands.

Indian Ocean and the Global Economy

The geo-economic importance of the Indian Ocean derives from the growing importance of Asia in the world economy. More than 60 per cent of all oil and petroleum product exports are shipped through the Indian Ocean waters and over 70 per cent of global container traffic is carried through the waters of this ocean. The share of trans-Atlantic trade in world trade has been declining, that of the trans-Pacific remains static while the share of Indian Ocean trade is growing. [16]

Hence, ensuring freedom of access and movement into and out of the Indian Ocean, through its various entry and exit points – what are called ‘chokepoints’ – is essential not just for the stability and security of India and Asia, but also for the stability and sustainability of global trade and economic growth.

To be sure, the Indian Ocean is not just the crossroads of the world and the centre of gravity of the global economy but it is also a rich depository of marine resources, including minerals, oil and gas, fisheries and marine life. As the region’s biggest country, placed strategically at a vantage point over-looking the ocean, India has a special role in ensuring the security and stability of the Indian Ocean region.

India’s participation in organisations such as the Indian Ocean Rim Association (IORA) and a range of maritime exercises and initiatives, is pursued within a cooperative framework. Pannikar defined India’s long-term policy towards the Indian Ocean thus: “It cannot be less than the development of a balanced regional navy capable of (a) operating as a task force within its own area; and (b) cooperating with the high seas fleets of friendly nations in the strategy of a global naval warfare.” [17]

Pannikar drew attention to the strategic importance of the straits of Hormuz and Malacca as well as the Gulf of Aden in ensuring India’s defences, since these are the entry points into the Arabian Sea and the Bay of Bengal. India has taken a step further in ensuring its strategic presence deeper south, with a base in Mauritius, and has entered into a range of defence relationships with several Indian Ocean rim nations.

These relationships are important both from a defence perspective and a trade and economic perspective. However, the Indian Ocean is more than a thoroughfare or a depository of natural resources. It is today home to a large number of highly successful economies. Hence, India has sought to build mutually beneficial bilateral strategic economic relations with a large number of them including Singapore, Australia, Iran, Oman, United Arab Emirates, Mozambique, Mauritius and South Africa. Pannikar viewed Singapore and Socotra merely as naval bases protecting India. That was in 1945.

Today, Singapore and Dubai have become major financial centres with a rising stake in India’s economic prosperity. Mauritius too is an important economic partner for India. The government of Prime Minister Narendra Modi has taken several important steps in building a long-term strategic partnership with Mauritius, Singapore and the UAE. There are no better examples of the synergy between an economic and a defence partnership than these relationships. By linking together cooperation in the fields of defence, security, economy and finance the Joint Statement on a Strategic Partnership between India and Singapore issued in Singapore by Prime Ministers Narendra Modi and Lee Hsien Loong in November 2015 both countries have underscored the relevance of this synergy to their bilateral relationship. Both countries are bound to play an important role in the security and prosperity of the Indian Ocean region.

Map 1: Trade Routes and Major Ports in Indian Ocean Region

map

Source: Brahma Chellaney, World’s Geopolitical Centre of Gravity Shifts  to Indian Ocean. Accessed at: https://chellaney.net/2015/07/01/worlds-geopolitical-center-of-gravity-shifts-to-indian-ocean/

Notes

[1] K.M. Pannikar, India and the Indian Ocean: An Essay on the Influence of Sea Power on Indian History, George Allen & Unwin, London, 1945. (2nd Edition, 1951, Page 23). I found a copy of the 1951 edition in the library of the National University of Singapore. The book bore the stamp “University of Malaya Library. September 1960”. I read this book during my stint at the Lee Kuan Yew School of Public Policy in 2008-09. The book is out of print. I have urged the National Maritime Foundation in India to reprint this classic.

Other important studies of Indian maritime activity in the Indian Ocean region include: Ashin Das Gupta, The World of the Indian Ocean Merchant, 1500-1800, New Delhi: Oxford University Press, 2001; and Holden Furber, Sinnapah Arasaratnam & Kenneth McPherson, Maritime India, Oxford University Press, New Delhi, 2004. On the idea of the ‘underlying unity’ of the Indian Ocean region see K.N. Chaudhuri, Trade and Civilisation in the Indian Ocean: An Economic History from the Rise of Islam to 1750, Cambridge University Press, UK. 1985.

[2] Fernand Braudel, Civilization and Capitalism, 15th-18th Century: Volume II. The Wheels of Commerce, London: Fontana Press, 1985.

[3] Fernand Braudel, Civilization and Capitalism, 15th-18th Century: Volume III. The Perspective of the World, Chapter 5, London: Fontana Press, 1984, pp. 484.

[4] Ibid., pp. 484-535                                                        .

[5] Ibid., pp. 484.

[6] Pannikar (1951), Page 32

[7] Pannikar (1951), Page 35

[8] For a delightful re-telling of the history of the Indian Ocean civilisations see Sanjeev Sanyal, The Ocean of Churn, How the Indian Ocean Shaped Human History, Penguin Viking, Delhi, 2016.

[9] Scott C Levi, Caravans: Indian Merchants on the Silk Road, Allen Lane by Penguin, India, 2015.

[10] S Jaishankar, Keynote Address to Raisina Dialogue, Observer Research Foundation, New Delhi, 2 March 2016. Accessed on 20 July 2016 at:

http://mea.gov.in/Speeches-Statements.htm?dtl/26433/Speech_by_Foreign_Secretary_at_Raisina_Dialogue_in_New_Delhi_March_2_2015

[11] Pannikar (1951), Page 91

[12] Jaishankar (2016)

[13] Wendy laursen, “India and Korea Boost Shipbuilding Ties”, The Maritime Executive, 19 May 2015. http://www.maritime-executive.com/article/india-and-korea-boost-shipbuilding-ties

[14] Pannikar (1951), Page 90

[15] There is now considerable literature on the strategic importance of the Indian Ocean in the context of China’s rise and India’s economic modernization. See for example: Robert D. Kaplan, Monsoon: The Indian Ocean and the Future of American Power, Random House, New York, 2011. Peter Dombrowski & Andrew C. Winner (Editors), The Indian Ocean and US Grand Strategy: Ensuring Access and Promoting Security, Georgetown University Press, Washington DC, 2014.  David Brewster, India’s Ocean: The Story of India’s Bid for Regional Leadership, Routledge, 2014. C. Raja Mohan, Samudra Manthan, Sino-Indian Rivalry in the Indo-Pacific, Carnegie Endowment for International Peace, Washington DC, 2012.  Vijay Sakhuja, Strategic Dynamics of the Indian Ocean, Emirates Lecture Series, Volume 96. 2012. Krishnappa Venkatshamy, The Indian Ocean Region in India’s Strategic Futures: Looking Out to 2030, in Jivanta Schottli (Edited), Power, Politics and Maritime Governance in the Indian Ocean, Routledge, UK, 2015.

[16] UNCTAD, Review of Maritime Transport 2015, United Nations Conference on Trade and Development, Geneva, 2015.

[17] Pannikar (1945), Page 96.

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