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The Hindu Editorial Analysis | PDF Download

Date: 22 February 2019

 

Picking sides in West Asia

  • India could find it difficult to maintain a ‘balancing’ approach between different West Asian powers
  • Over the past few years, the course of India’s relations with Israel, Saudi Arabia, and the United Arab Emirates (UAE) suggests that under Prime Minister Narendra Modi, India finally appears to be moving away from its traditional “balancing” approach to West Asia. The Modi government has in practice demonstrated a preference for working with the three regional powers rather than Iran, a trend likely to be reinforced after the visit of Saudi Crown Prince Mohammed bin Salman (MBS) and the proposed trip by Israeli Prime Minister Benjamin Netanyahu to New Delhi.

 REGIONAL REALITIES

  • Since the 1990-91 Gulf War, India has officially adopted a “balancing” approach to West Asia, which some view as a legacy of non-alignment. Although this approach has allowed India to eschew involvement in regional disputes and de-hyphenate relations with regional rivals including Iran, Israel and Saudi Arabia, the policy has also constrained India’s ability to press its geopolitical interests in the region.
  • Geopolitically, MBS and Abu Dhabi’s Crown Prince Mohammed bin Zayed (MBZ) have over the past few years escalated their battle against political Islamist groups, including the Muslim Brotherhood. Most notably, this materialized in their support for Egyptian President Abdel Fattah el-Sisi’s takeover of power in Egypt from the Muslim Brotherhood in 2013, and in their dispute with Qatar, a key regional backer of the group. Naturally, this brings them closer to Israel, which faces a growing threat from Islamist militant groups, including Hamas, Hezbollah, and Iranian-backed forces in Syria.
  • The campaign by Saudi Arabia and the UAE to curtail the influence of political Islamist groups also draws them closer to India. During his visit to New Delhi, the Saudi Crown Prince hinted at the attack by vowing to “cooperate in every way, including intelligence sharing”. In recent months, the UAE has also ramped up its security cooperation with India, extraditing at least three suspects wanted in relation to the AgustaWestland case.

Defence and energy needs

  • Meanwhile, India’s defence and security partnership with Israel has already proven useful to its security and military modernization drive. In 1998, Israel provided India with valuable intelligence on Pakistani positions during the Kargil war. More recently, India and Israel have collaborated on a $777 million project to develop a maritime version of the Barak-8, a surface-to-air missile that India successfully tested in January. India has also reportedly agreed to purchase 54 HAROP attack drones for the Indian Air Force and two airborne warning and control systems (AWACS) worth over $800 million from Israel. Due to its technological sophistication and warm relations, Israel has become one of India’s top suppliers of military technology.
  • Economically, the ability of Saudi Arabia and the UAE to mobilise investments despite low oil prices is a huge asset in their relations with India. Investments have included a $44 billion oil refinery in India by Saudi Aramco and the Abu Dhabi National Oil Company in partnership with an Indian consortium. During his visit to New Delhi, MBS said he foresaw up to $100 billion worth of Saudi investments in India over the next few years, including a plan by the Saudi Basic Industries Corp. to acquire two LNG plants.

Iran’s stake

  • In contrast, Iran’s support for Islamist militancy, not least by transferring advanced missile technology to Islamist groups and militias in Lebanon and Syria, has led to an increase in tensions with Israel, which responded by conducting air strikes against Iranian targets on Syrian soil in January. Although the simultaneous attacks that claimed the lives of 27 members of Iran’s Revolutionary Guard Corps and 40 members of India’s Central Reserve Police Force (CRPF) are likely to bring India and Iran closer together against Pakistan, it is doubtful that the occasion would generate much momentum in bilateral relations.
  • From an economic perspective, U.S. sanctions have turned Iran into an unreliable economic partner. Despite obtaining a six-month waiver from the U.S. in November on energy imports from Iran, India is shoring up plans to find alternative sources as the waiver reaches its term. Meanwhile, Indian investments in Iran, including the Shahid Beheshti complex at Chabahar and the Farzad B gas field, have languished for years, reflecting the severe constraints on doing business with Iran.
  • However, India’s tilt towards Israel, Saudi Arabia, and the UAE is not a risk-free move. Iran continues to exercise much influence in West Asia and can help shape events in Afghanistan by shoring up the Taliban against the U.S. Moreover, Iran’s Chabahar port represents a strategic investment for India which hopes to use the facility to connect with the International North-South Transit Corridor (INSTC) that extends to Central Asia and to bypass Pakistan en route to Afghanistan.
  • Yet, as tensions rise in West Asia, Israel, Saudi Arabia and the UAE have coalesced more closely against Iran under the U.S.-sponsored Middle East Security Alliance (MESA). Concurrently, recent escalation between Iran and Israel on the Syrian front suggests that tensions are unlikely to drop soon. Amid competing demands from West Asian powers for India to take sides, India might find it difficult to maintain a “balancing” approach even if it wanted to.
  • For now, the Modi government seems to have taken its pick. Having practically abandoned a “balancing” approach, the Modi government has, in effect, placed its bets on Israel and the Gulf monarchies, relegating relations with Iran to the side. Moscow is the northern terminus the NSTC.

 

  • The following are member states in the NSTC project: India, Iran, Russia, Turkey, Azerbaijan, Kazakhstan, Ar menia, Belarus, Tajikistan, Kyrgyzstan, Oman, Ukraine, Syria. Observer member - Bulgaria.
  • The International North–South Transport Corridor (INSTC) is a 7,200-kmlong multi-mode network of ship, rail, and road route for moving freight between India, Iran, Afghanistan, Armenia, Azerbaijan, Russia, Central Asia and Europe.
  • The route primarily involves moving freight from India, Iran, Azerbaijan and Russia via ship, rail and road. The objective of the corridor is to increase trade connectivity between major cities such as Mumbai, Moscow, Tehran, Baku, Bandar Abbas, Astrakhan, Bandar Anzali, etc.
  • Dry runs of two routes were conducted in 2014, the first was Mumbai to Baku via Bandar Abbas and the second was Mumbai to Astrakhan via Bandar Abbas, Tehran and Bandar Anzali. The objective of the study was to identify and address key bottlenecks. The results showed transport costs were reduced by "$2,500 per 15 tons of cargo".Other routes under consideration include via Kazakhstan and Turkmenistan.
  • This will also synchronize with the Ashgabat agreement, a Multimodal transport agreement signed by India (2018) , Oman (2011) , Iran(2011) ,Turkmenistan(2011), Uzbekistan(2011) and Kazakhstan(2015) (figure in the bracket indicates the year of joining the agreement), for creating an international transport and transit corridor facilitating transportation of goods between Central Asia and the Persian Gulf. This route will be operationalized by mid-January 2018 The following are member states in the NSTC project: India, Iran, Russia, Turkey, Azerbaijan, Kazakhstan, Ar menia, Belarus, Tajikistan, Kyrgyzstan, Oman, Ukraine, Syria. Observer member - Bulgaria.

 Half-measures

  •  It is good the ‘angel tax’ has been moderated, but its arbitrary nature remains intact After the uproar among start-up investors in the last few weeks, the Centre on Tuesday decided to ease the conditions under which investments in start-ups will be taxed by the government. According to the new rules, investments up to ₹25 crore in companies that are less than 10 years old and with a total turnover of less than ₹100 crore will be exempted from the new angel tax. Further, investments made by listed companies with a net worth of at least ₹100 crore or a total turnover of at least ₹250 crore will be fully exempt from the tax; so will investments made by non-resident Indians. When it was first proposed by the Centre in 2012, the angel tax was justified as an emergency measure to prevent the laundering of illegal wealth by means of investments in the shares of unlisted private companies at extraordinary valuations. But the adverse effect that it has had on investor confidence has forced the government to ease the stringent rules. The easing of the outdated angel tax rules will definitely make life easier for start-ups, which are in desperate need for capital to fund their growth and other business requirements. Further, since the new rules are set to be applied retrospectively, many young companies that have received notices from the Income Tax Department in the last few years will be relieved by the latest tweak in the rules.
  • There are, however, a few other issues with the new rules that could still cause unnecessary headaches to young start-ups. Companies wishing to make use of the latest exemption, for instance, will first need to be registered with the government as start-ups. To be classified as one, a company needs to attest to conditions such as that it has not invested in any land unrelated to the business, vehicles worth over ₹10 lakh, or jewellery. These requirements, while probably aimed to prevent money- laundering, can lead to considerable bureaucratic delays and rentseeking. Also, the new rules for the angel tax, though less stringent than before, can cause the same old problem of arbitrary tax demands for companies that do not fall under the defined category of start-ups. The taxes to be paid are still supposed to be calculated by the authorities based on how much the sale price of a company’s unlisted share exceeds its fair market value. It is impossible to know the market value, let alone the fair market value, of shares that are not openly traded in the marketplace. So tax authorities with ulterior motives will still possess enough leeway to harass start-ups with unreasonable tax demands. Unless the government can address the arbitrary nature of the angel tax, the damage to investor confidence may remain