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Minhaz Merchant

Minhaz Merchant is the biographer of Rajiv Gandhi and Aditya Birla and author of The New Clash of Civilizations (Rupa, 2014). He is founder of Sterling Newspapers Pvt. Ltd. which was acquired by the Indian Express group

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West’s Discovery Of India

As India’s economy grew, the West reassessed its geopolitical priorities

Photo Credit : Stock

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Since its Independence in 1947, the West has had a transactional relationship with India. The old colonial power, Britain, both covertly and overtly backed Pakistan for decades. The United States, locked in a Cold War with the Soviet Union, regarded India as a geopolitical aggravation.

US President Richard Nixon, later disgraced by the Watergate scandal, reflected influential views of the day in Washington when he made disparaging remarks about Prime Minister Indira Gandhi (many of them unprintable). He sent the US Seventh Fleet to the Bay of Bengal in December 1971 to intimidate India during the Bangladesh war.

India was a tiny economy. Food shortages had plagued it through the 1960s. But transactional relationships can change abruptly. As India’s economy grew, the West reassessed its geopolitical priorities. President Bill Clinton imposed harsh sanctions on India following the Pokhran II nuclear test in May 1998. Within two years, on a visit to India, Clinton changed his tune. He saw first-hand how India, then a nascent software power, had used the Y2K dot com crisis to emerge as a potential global technology leader.

The West’s discovery of India had begun. The India-US civil nuclear deal in 2008 followed. China was meanwhile quietly stealing US technology and intellectual property rights to propel itself into the world’s second-largest economy. In 2000, China’s GDP was a mere $1.21 trillion. In 2006, it was $2.76 trillion, less than India’s GDP today. But within another eight years, by 2014, the Chinese GDP had quadrupled to $10.48 trillion.

Washington, following the Nixon-Kissinger visit to China in 1972, facilitated by Pakistan, had moved decisively against India. It has taken half a century for the US to reverse and rewrite its Indo-Pacific doctrine. While the India-US nuclear deal set the direction of future ties, China’s toxic threat dawned only gradually on Washington. It realised belatedly that during former leader Deng Xiaoping’s hide-and-bide strategy, China had converted itself into an economic powerhouse by reverse engineering patented US technology.

By 2020, when the Covid-19 pandemic struck, the US-led West’s disenchantment with Beijing was complete. China’s steely, unapologetic support of Russia’s invasion of Ukraine has widened the Sino-US chasm. China’s network of Confucius Institutes across the US has, however, subverted American academia, media, think tanks and politicians across the aisle. As a result, despite the Taiwan crisis, several influential US media outlets continue to be apologists for China. 

Independent think tanks have long warned the White House and the Pentagon that India is the only alternative to countering China’s regional and global ambitions. In an important paper published on April 12, 2021, the Information Technology and Innovation Foundation (ITIF), an influential US think tank, noted: “As America seeks to counter a rising China, no nation is more important than India, with its vast size, abundance of highly skilled technical professionals, and strong political and cultural ties with the United States. But the parallels between America’s dependency on China for manufacturing and its dependency on India for IT services are striking.

“While America and India are both rightly keen to move more manufacturing operations from China to India, significant shifts will take time, as China still has many advantages. Most large US companies now rely heavily on India-based IT services ‒ whether from India-headquartered IT service providers, US-headquartered IT services companies with large India-based operations or their own India-based capability centres.”

The discovery by the US-led West of India as a useful transactional partner in the 2000-2020 period has now been replaced by a recognition of New Delhi’s potential as part of a future G3 comprising the US, China and India. China plus one is the strategy foreign firms, spooked by Xi’s zero-Covid policy and frequent lockdowns, are falling back on. Many are hedging their bets as China’s economy slows to a likely three per cent growth rate in 2022-23.

The most favoured alternatives to shift some (not all) production out of China are Vietnam and Indonesia. But US companies are also taking a long hard look at India. It is the only country with a market size in the range of China’s though with roughly half the purchasing power. It is also a global software service and pharma behemoth. Many Western software companies are locating up to 75 per cent of their employees in Indian R&D centres. 

The move out of China was confirmed by a Reuters report on 29 August 2022: “Strict Covid-19 control measures in China is the top concern of US companies in the country, a business lobby said. More than half of its firms reported the issue as a reason to cancel or delay investments in the world’s second-largest economy. ‘The looming possibility that companies will again be forced to partially halt operations due to lockdowns and the impact of local controls on consumer demand have undermined confidence in the business environment,’ the US-China Business Council (USCBC)  said based on an annual survey of 117 member companies. In the past year, 24 per cent of the companies have moved parts of their supply chains out of China, compared to 14 per cent in the 2021 survey. Optimism in the five-year business outlook for China has dropped from 88 per cent in 2013 to 51 per cent in 2022.” 

Apple will meanwhile begin manufacturing the new iPhone 14, to be launched shortly, in India. All three of Apple’s global iPhone manufacturers – Foxconn, Pegatron and Wistron – now have large factories to produce iPhones in India. India has two key advantages over China as a manufacturing hub but two overwhelming weaknesses as well. The advantages are lower wage costs and an established Anglo-Saxon legal system. The weaknesses are low productivity and poor logical infrastructure – roads, rail and ports.

For the West though, India’s importance lies in the role it will play as a counterweight to China in the Indo-Pacific. The West regards China as its single biggest threat, more so than the Soviet Union during the Cold War. The Soviet Union was not an economic rival, only a military threat. China poses both an economic and military challenge to the West’s 200-year-old global hegemony.

It is an irony, not yet fully discovered in Washington and London, that a former European colony they exploited for 200 years could be their 21st-century saviour.


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