India builds road north of Ladakh lake, China warns of ‘necessary counter-measures’
TWO ROUNDS of talks between Indian and Chinese local military commanders at Pangong Tso, where troops of the two sides came to blows two weeks ago, remained inconclusive Tuesday and Beijing warned of “necessary counter-measures”. It claimed the Indian Army had “entered Chinese soil on the Baijing and Lujin duan section of the Sino-Indian border, obstructing the normal patrol of Chinese border troops, and was “attempting to unilaterally change the status quo of border territory”.
While the Army and Ministry of External Affairs maintained silence, officials in New Delhi described the situation as “delicately poised” and “very sensitive” at a time when the country is grappling with the Covid-19pandemic and its fallout.
The Indian Express has learnt that there has been movement of troops to eastern Ladakh following the continuing objections of the Chinese to the construction of a road in the Galwan river area, well within Indian territory.
The site of the current construction is near the confluence of Shyok and Galwan rivers, some 200 km north of the Pangong Tso lake.
The Chinese, sources said, have objected to construction of a new road which branches off the Darbuk-Shyok-Daulat Beg Oldie (DSDBO) road along the riverbank towards the LAC.
The Chinese have moved troops to the area, pitched 70-80 tents and parked heavy vehicles and monitoring equipment, not very far from the Indian side. This falls in SSN or sub-sector north under the Army, while areas south to it are in the Hot Springs sector under the ITBP.
“Galwan is not a disputed area between India and China, unlike Pangong Tso. Both sides agree on the LAC and patrol accordingly. There was no transgression by Chinese patrols in the area in the past two years. The issue is the construction of the road, which is well inside our territory, and, therefore, their objection is hard to comprehend,” a source said.
India has relocated additional troops to the area, but they have not been deployed so far at the location.
The DSDBO road connecting Daulat Beg Oldie, at the base of the Karakoram Pass, with Shyok and Darbuk, was completed a year ago and provides India greatly connectivity in the border areas. The 255-km road, which had to be realigned after the initial alignment was found unsuitable, runs along Shyok and Tangtse rivers.
At Pangong Tso, as reported by The Indian Express, the Chinese have deployed additional boats on the lake and stopped the movement of Indian soldiers beyond Finger 2 on the northern banks of the lake – the mountains there jut forward in major spurs, which the Army calls Fingers. India claims the LAC is co-terminus with Finger 8, while the Chinese claim that the LAC passes through Finger 2. The area between the two differing perceptions is the territory which both armies try to dominate through regular patrolling. The Indians physically control the area up to Finger 4.
On the talks between the two sides Tuesday, sources said, “The meeting between the commanders on both sides is part of the established procedure to resolve any misunderstanding. These take place on required basis at various levels, from a platoon commander to the brigade commander. The important thing is that the procedure is being followed,” sources said. They declined comment on the date or location of the next meeting.
In comments in Mandarin Tuesday, the Chinese Foreign Ministry warned of “necessary counter-measures” and said: “Chinese border troops are committed to upholding peace and tranquility in China-India border areas. At the same time, we will resolutely defend the sovereignty and security of our homeland.”
“The Chinese side has asked the Indian personnel to return immediately and restore the control of the relevant areas. Strictly restrict their frontline teams, build on the important consensus reached by the leaders of the two countries and the agreements that have been made between the two sides, meet each other face-to-face, and work together with the Chinese side to safeguard peace and stability in the region,” it said.
Meanwhile, US State Department official Alice Wells, responding to a question during a public webinar, said: “Chinese aggression is not always rhetorical. Whether it is the South China Sea or whether it is along the border with India, we continue to see provocations and disturbing behaviour by China that raises questions about how China seeks to use its growing power. And that is why we are seeing a rallying of like-minded nations. The border disputes are a reminder of the threat posed by China.”
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The China effect? Behind India’s mysterious U-turn at the IMF
A surprising bit of news, which got lost in the Covid news cycle of April, has come to light recently — India aligning with the US to oppose an expansion of International Monetary Fund (IMF) Special Drawing Rights (SDRs). SDRs are a form of international reserve currency, comprising of a mix of US Dollars, Euros, Sterling, Yen and Renminbi, issued by the IMF. Each country holds a quota of SDRs, which also determine its voting rights at the IMF board. Members can exchange their SDRs for a mix of these reserve currencies when required. An expansion of SDRs, therefore, means a larger resource base to draw on in times of crisis. This is generally considered a source of external stability and insurance against financial market volatility, reducing the need for amassing extensive foreign exchange reserves.
India has long pushed for an expansion of the IMF’s resources and reform of the quota system to fairly represent emerging markets. The last time this took place was in 2010, in response to the 2008 financial crisis, though it was implemented only in 2015 due to delayed ratification by the US Congress. The reforms led to some increase in India’s voting rights and removed the ability of the US and EU to unilaterally push through policy changes. The US, however, retains a veto over major decisions. India has demanded further quota reforms every year since 2016. FM Nirmala Sitharaman expressed her disappointment over the status quo as recently as October last year, stating that “this could seriously hamper the effectiveness of the IMF’s role in a crisis, as the only source which IMF could rely upon with certainty is its permanent resources, i.e. quotas.”
India has long pushed for an expansion of the IMF’s resources and reform of the quota system to fairly represent emerging markets
It is, therefore, difficult to understand why, in the throes of the biggest global crisis since the Great Depression, she decided to oppose the IMF’s proposal to issue new SDRs worth $500 billion. While the Finance Ministry press release following the IMF Committee meeting made no mention of this position, a report released in May stated that India did not support the issuance as “in the current context of illiquidity and flights to cash, the efficacy of an SDR allocation was not certain” and that national reserves should be the first line of defence.
On the face of it, this defies logic on multiples counts. First, Government of India (GoI) has been asking for a stronger global financial safety net ever since the Taper Tantrum of 2013, given heightened financial market volatility due to quantitative easing in the US and Europe. Failing to gain traction at the IMF, or swap lines with major central banks, they then set up the BRICS Contingency Reserve Arrangement (CRA). The liquidity unleashed by advanced economy central banks this time around dwarfs that of the 2008 financial crisis. Deteriorating relations with Beijing make drawing on the CRA unlikely. Strengthened insurance against financial market volatility should have been welcome.
The liquidity unleashed by advanced economy central banks this time around dwarfs that of the 2008 financial crisis.
Even if the government considers domestic foreign exchange reserves adequate for managing financial markets, India’s fiscal position is stressed — just as in most emerging and developing economies. It’s worth remembering that when faced with a similar situation in Europe a few years ago, exceptional access to IMF resources was allowed for countries like Ireland, Portugal and Greece. Greece, in particular, had three IMF programmes, allowing it to borrow up to 3,200% of its quota, despite unsustainable debt levels. The exemption to debt sustainability rules which was created to allow this lending was removed one week before the quota reforms were ratified by the US Congress, ensuring that no other country in the world has such access.
As countries emerge from lockdown, citizens need both financial support and improved public health institutions, precisely when developing economies can least afford it. India is no different, fiscal spending from the government has been less than 2% of GDP despite the loss of 100 million jobs and the threat of millions becoming destitute. GoI could have demonstrated its leadership among developing countries by calling on the IMF to develop new instruments to support its members. There can be no better time to provide exceptional access to countries facing huge threats to lives and livelihoods. Instead, despite the magnitude of the crisis, about half of the IMF’s resources remain unused. This is not due to lack of demand, but the stringent qualification criteria and conditionality. The Short Term Liquidity Line (SLL), a quasi-swap line mediated by the IMF, was announced in April. Not one country has used it yet.
Despite the magnitude of the crisis, about half of the IMF’s resources remain unused. This is not due to lack of demand, but the stringent qualification criteria and conditionality.
Finally, crises are an opportunity to accelerate reforms. An expansion in SDRs could have been combined with a reallocation of voting rights as in 2010, thereby increasing the voice of emerging markets in the governance of the IMF. It is obvious why the US, following its ‘America First’ policy would want to avoid this — particularly as it risks losing its veto. It’s less clear why India didn’t seize the moment. Previous attempts at building alternate multilateral institutions like the New Development Bank and Asian Infrastructure Investment Bank have been hijacked by China. This was a useful chance to strengthen the global governance system, and India’s influence in it.
This, however, provides a clue as to GoI’s reasoning. A quota review would certainly mean a large increase in voting rights for China, which is represented far below its economic weight, along with the US losing its veto power. The Chinese government’s track record of subverting international institutions, and the fact that only the US seems currently capable of standing against it, could have led to India making this choice. While the decision then appears reasonable, let’s not forget it comes with a cost. The Reserve Bank of India has around 18% of GDP locked up in forex reserves, a fraction of this would make a huge difference to the economy without putting fiscal stability at risk. Other countries need fiscal support even more than India does. Limiting China’s influence in global governance may be a worthy goal — can the Indian government find a better way to achieve it?
Data suggests significant indirect inflow of Chinese goods and investments through locations with which India has free trade agreements (FTAs), preferential trade agreements (PTAs) or other bilateral commercial arrangements.