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China Dynamic vs India-Japan presence in Sri Lanka

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With the "Neighbourhood First" and "Act East" policies launched by Prime Minister Narendra Modi during his first tenure as the Prime Minister, India has stepped up its engagement with its South, Southeast, and East Asian neighbours. While in 2014, Modi had invited the SAARC (South Asian Association for Regional Cooperation) leaders for his second swearing-in after winning the 2019 election, he invited the leaders from the BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) countries - thus clearly showcasing the importance of neighbours in his foreign policy priorities.

Foreign policy-making and implementation is a continuous process - there is never a clean break between the policies of an incumbent government and the previous governments. This is particularly true of democratic countries. However, while keeping the essential good elements intact in the Indian foreign policy, Modi has tried to make the country's foreign policy more pro-active. This has brought home some success in the context of the Indian subcontinent.

The first, of course, is the fact that India is strengthening ties with its South Asian neighbours despite a rough phase of relations with Pakistan. With the launch of the Neighbourhood First policy, the Modi government began to pay greater and more focused attention to India's smaller immediate neighbours in the region. The policy, which was launched as a remedial measure to arrest the deterioration in India's engagement with its smaller neighbours, is gathering greater momentum, which is evident in excellent ties with Bangladesh, Nepal, Maldives, Bhutan, Afghanistan, and Sri Lanka. Clearly, India's regional engagement is no longer held hostage by Pakistan, which has become more marginalised in the South Asian regional equations.

Indo-Pacific Continuum

Second is the geographical expansion of the Look East policy, rechristened as the Act East policy by Modi-led NDA government in 2014. Not only the ASEAN (Association of South East Asian Nations) member states comprise the Act East policy, countries from East Asia, Australasia and the Pacific Island countries are also the essential part of the Act East policy.

One of the key achievements of ''India's Eastward Engagement'' has been its growing engagement with Japan which has gained strength particularly under the framework of the Act East Policy. Japan, which was the last amongst the leading Asian powers to engage India in the Post-Cold War world, has emerged today as one of the closest partners of India. This bonhomie acquired a new and unprecedented dimension, when making an exception to its traditional policy framework; India expressed its keenness to work with Japan even in the Indian subcontinent–its own backyard. Under Modi 2.0, there is convergence in Neighbourhood First and the Act East policies. India and Japan have already collaborated in Africa with the decision to jointly construct the Asia-Africa Growth Corridor (AAGC). The two countries are now collaborating to address the infrastructure gap in South Asia as well.

China-India-Japan Equation

China factor looms large in Indian as well as Japanese strategic calculations. Both India and Japan have territorial disputes and several mutual concerns vis-á-vis China. China's growing footprint in South Asia has been a matter of concern for India. The China-Pakistan nexus is already an attempt by China to keep India occupied with a two-front threat. China, which has been keeping an eye on developments in South Asia, has been trying to engage the smaller South Asian countries particularly through its Belt and Road initiative which was launched in 2013. While Pakistan is at a completely different level in that regard, countries such as Sri Lanka, Nepal, and Bangladesh have also tried to gain from Chinese eagerness to engage them. China's Belt and Road Initiative (BRI) has thus emerged as a major challenge to India in terms of its regional engagements.

India is one of the few countries that has openly criticised China's BRI. In fact, it is the only country that did not send any representative to the two Belt and Road Forums held in 2017 and 2019. India's opposition is linked to its sovereignty concerns. BRI's flagship corridor-the CPEC (China­Pakistan Economic Corridor) passes through the PoK (Pakistan-occupied Kashmir), which is a disputed territory between India and Pakistan.

Alongside strategic and economic concerns, India's opposition to China's BRI is also rooted on the normative grounds. Lack of a consultative mechanism, opaqueness in terms of deals inked with the host countries, and non-viable projects have been India's major concerns with regard to Chinese investments in Asia in general and South Asia in particular. China's investments in smaller countries of the South Asian region have begun to raise concerns about the likely debt-trap. The situation in Sri Lanka seems even more precarious as China has been trying to take the Sri Lankan ports on lease for military purposes.

In order to provide more viable, equitable, and transparent alternatives, India is making efforts to implement development partnerships such as  extension of the Line of Credit (LoCs) on concessional terms. According to the Ministry of External Affairs data, "through its LoC programme, India has 94 connectivity projects worth US $6.6 billion in five countries in its immediate neighbourhood". India is also trying to forge a partnership with Japan. The Indo­Japan partnership in Africa and now, in South Asia may be seen as a counterweight to the BRI and a credible alternative to countries in need of infrastructure.

Sri Lankan Prime Minister Ranil Wickremesinghe and Japan's Prime Minister Shinzo Abe in Tokyo Sri Lankan Prime Minister Ranil Wickremesinghe and Japan's Prime Minister Shinzo Abe in Tokyo.

Sri Lanka Opportunity

South Asia is a potential region for development partnership for India and Japan.

In May 2019, India and Japan inked an agreement with Sri Lanka to develop a deep-sea container terminal at the Colombo port. Criticality of the project lies in the fact that it would not only help Sri Lanka upgrade its port facilitates but also step-up Indo­Japanese joint business presence in the island nation. While immensely significant, the agreement is widely lauded as an Indo-Japanese counter to the BRI.

The Colombo project is widely perceived as a counter to the China­managed Hambantota Port, a strategically important port project which has been in controversy causing domestic stir in Sri Lanka. Sri Lanka is supposed to handover the strategically important Hambantota Port if unable to repay the Chinese infrastructure-related loans. The Colombo Port Agreement is indicative of Sri Lanka's aspirations to reduce its dependence on China and involve more countries in its infrastructure and port sector.

As per the agreed terms of reference of the Indo-Japan agreement with Sri Lanka, the ownership of the container terminal port lies exclusively with Sri Lanka, while, for port-related operations-Sri Lanka will own majority stakes (51 per cent), leaving 49 per cent stakes for the Indo-Japanese venture. Japan has agreed to provide soft-loan for 40 years with 0.1 per cent interest rate for this project worth US $500 million.

While China and its BRI play an important role in Indo-Japan development partnership, it is important to analyse the reasons for Sri Lanka's willingness to say yes to such an agreement.  In that context, it is pertinent to look at Sri Lanka's domestic discourse with regard to India as also India's own substantial stakes in Colombo and Japan's long­ standing presence at Colombo port which is as old as China's economic reforms. India and Japan are considered as lucrative countries for partnership for Sri Lanka for several reasons.

Colombo Project

First, albeit at a smaller scale, Japan's entry in the Colombo Port dates back to 1979-1980. Through effective use of international yen loans (ODA), Japan steered the building and upgradation projects at the port. By 1996, four container terminals (Jaya I-IV) were built with its su pp ort. Additionally, Japan helped in developing the Colombo airport, Samanlawewa hydropower and Mahaweli development projects among others. The East Container terminal port should be seen as an extension of ongoing infrastructure facilitation projects, along with the narrative about the BRI. Japan has a robust decades-old Japanese presence in the country, which is likely to grow stronger with building the light railway system at concessional loans worth US $1.85 billion.

Second, bound by common ethnic and socio-cultural umbilical cords, India and Sri Lanka are located just 55 km away from each other. Shared politico-economic  interests and concerns bind  them together. For a variety of reasons, India has been hotly debated in Sri Lanka's domestic politics. Intense debates in Colombo's corridors of power about involving India are an open secret. From that perspective, the decision to invite India as a co-investor showcases Colombo's carefully crafted move.

Trans-shipment Vista

Third, Modi is keenly pursuing Neighbourhood First policy in his second Prime Ministerial innings also. This was manifested in his visits to Maldives and Sri Lanka as first official trip abroad after his re-election in 2019. Evidently , India is paying closer attention to the BIMSTEC as a sub-regional tool to engage the Bay of Bengal littorals . The recent diplomatic footwork marks the beginning of efforts by Modi 2.0 to implement Neighbourhood First policy, and Sri Lanka holds an important place in that scheme. For one, more than two­ third of Colombo's trans-shipment business is India-linked. The new container project would augment maritime connectivity by developing sub-continental transportation network by increasing the Port's container volume. It is imperative for India to take more such initiatives and implement them earnestly.

China's BRI Trap

Fourth, the Colombo project seems to be linked with Sri Lanka's Hambantota investment disaster and highlights two interlinked critical issues - the first being BRI's own pitfalls which is putting China's credibility as a leading player in Asian infrastructure-connectivity under question, and second; Sri Lanka's attempts to learn lessons from its experience and engage traditional investors in the country-India and Japan-at a time when its investment ties with China are forming financial and strategic insecurities. Colombo owes around US $9 billion to China and is losing control over China-run projects. China's BRI is facing pushbacks from countries such as Malaysia and also which are trying to customise BRI projects to suit their needs. Thus, Sri Lanka's decision is motivated by a strong economic rationale.

Fifth, that the project is one of the initial examples of lndo-Japanese joint investments in a third country-particularly in the Indian subcontinent, makes it crucial. This, however, is only the beginning of a long laundry list for India's sub­ continental diplomacy. Japan's support to India in meeting financial capacity-shortfall in implementing neighbourhood diplomacy is a remarkable feat. The project also showcases the success of India's Act East policy spilling over to the Indian subcontinent and the Neighbourhood First policy.

Soft-power Dynamics

India-Japan partnership is one of the most potent regional equations on strategic, economic, developmental, and soft power dimensions. The two like-minded countries are cooperating for realisation of their convergent goals as also to address their mutual concerns. For both Asian giants , enormity of the BRI and the challenges China poses to them cannot be overstated. However, it must be kept in mind that the Indo-Japan partnership in South Asia and elsewhere is not just about China. Such zero-sum perspectives camouflage India's own achievements (and shortfalls) vis-a-vis neighbourhood diplomacy, thereby failing to provide a realistic picture. It is also about India's own rise as a confident major power in Asia.

More importantly, it showcases the dawn of a new era in India-Japan relationship. India and Japan are collaborating in a third country which is based on their own "win-win cooperation" model. In the process, they are also addressing their common concerns i.e. the growing footprint of China in the neighbourhood and beyond. In essence, Indo-Japan partnership in Sri Lanka is a mix of presenting a counterweight to China, aspiration to provide a mutually beneficial alternative to smaller countries and reinforce ties with the neighbours, and their collective objective of keeping the rules-based order in Asia intact.

This article was first published in Defence and Security Alert magazine, November 2019.

Last Updated: 18/11/2019