The Big Story: Tri-corner

Even as Prime Minister Narendra Modi was returning from a successful trip abroad, including a warm meeting with US President Donald Trump, a crisis was brewing at home. Or more specifically, next door. China had prevented Indian pilgrims from making their way through the Nathu La pass between Sikkim and Tibet to Mount Kailash, a Tibetan mountain that is sacred to Hindus and Buddhists. Initially it seemed as if this had been another case of border tensions between India and China, which are still arguing over the demarcation, but it soon became clear that the actual source of the tension was in Bhutan.

The Doklam plateau, known in India as Doka La and in China as Donglang, sits at the tri-junction of India, China and Bhutan. The plateau overlooks the strategically important Chumbi Valley. Doklam is nominally under Bhutanese control, but of late the Chinese have been active in the region, with the People’s Liberation Army starting to build a motorable road over the territory.

People familar with the situation told several media outlets that China had privately complained that Indian troops had attacked a road-construction unit on the night of June 4-5, leading to a brawl. The next day, Chinese troops destroyed old Indian-built bunkers on the Bhutanese side of the de-facto border as a show of strength. China claimed that Indian troops had illegally crossed over into Chinese territory, but Bhutan issued a demarche to the Chinese ambassador in India saying Beijing was trying to upend the status quo by building a motorable road towards a Royal Bhutanese Army camp.

“Bhutan has conveyed to China that road construction is not keeping with the agreements between two countries,” the ambassador of Bhutan to India told the Hindustan Times. “We have asked China to stop road constructions and refrain from changing the status quo.”

The matter is very delicate because it involves complex calculations among all the players involved. Beijing has not named Bhutan in the matter, instead trying to lay blame only on Indian troops crossing into territory it claims is its own. India has not publicly made any statement about the alleged scuffle, in part because its troops are in the area to support the Bhutanese Army, not Indian territory claims. The Indian Sikkim-China border is not disputed. Bhutan, which does not have diplomatic relations with China, has chosen not to mention India’s actions, and instead simply complained about Beijing’s attempt to upend the status quo by building a road.

The crux, however, appears to be India’s willingness to use force in defence of Bhutan. The Chinese are unhappy that Indian troops acted to prevent activity that would affect the Bhutanese position (and, as a result, India’s influence) over the region. Beijing wants to assert its strength, and is even willing to obstruct the Kailash pilgrimage to do so.

This is tricky for Modi, who has spent the last year moving further away from China. Once a good friend of Beijing’s as Gujarat chief minister, Modi has constantly come up against China’s refusal to allow India to expand its influence in the region, and New Delhi has accordingly change its stance as well. Though China remains a major trading partner, India this year publicly refused to come on board with Beijing’s massive One Belt One Road initiative seeking to reshape trade routes worldwide. India has also constantly complained about China’s refusal to let New Delhi into the Nuclear Suppliers Group as well as Beijing preventing Lashkar-e-Taiba’s Hafiz Saeed from being declared a global terrorist.

But land battles are not the same as rhetorical ones. India’s decision to show force in favour of Bhutan is useful, but it must be carefully calculated. The Indian Army Chief is traveling to Sikkim to take stock of the situation, which endangers India’s access to its North Eastern states. Even if India decides to stand firm in the face of Chinese intransigence, it is crucial that it has a broader plan in mind that can combat other provocations from Beijing that will inevitably come.

Punditry

  1. “The most important outcome of the summit may be the sense of relief on the Indian side that the new boss in White House did not spring unpleasant surprises on his anxious guest as he is often wont to do,” writes Shyam Saran in the Indian Express.
  2. Michael Danino argues in the Hindu that it is too soon to use genetic studies to settle the Aryan debate.
  3. A bumper crop thanks to good rains this year might again lead to more unrest than happiness if price realisations continue to fail farmers, writes N Chandra Mohan in the Hindustan Times.
  4. “The inability to manage the jobs challenge will in effect mean that governments will be forced to use fiscal tools to buy social peace – be it consumption subsidies or unemployment dole or loan waivers,” says a leader in Mint. “That could be the most profound political economy paradox in the coming decades.”
  5. According to Swapan Dasgupta, “despite their pious veneer, today’s protests personify the anger of those who have lost power and access to it”.

Giggle

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M Rajshekhar explains why panic is setting into small businesses with the advent of the Goods and Services Tax, while big companies are sitting pretty.

“This deserves a larger explanation. The garment-making process is much the same. The tax rate is the same. How does it matter whether the tax is collected at the end of each production stage or at completion? Larger companies will partly benefit from their scale – they have more efficient equipment, they get raw material at lower rates, and they spread their administrative and manufacturing costs over a larger volume of production. The disaggregated value chain would lose out partly because traders are covered under the GST as well. As Saraogi had said, they are the ‘centrepoint’ of the disaggregated value chain. They buy yarn and send it to weavers. Then collect the grey fabric and send it to mills for processing. And then take the finished fabric and sell it to wholesalers. GST will be levied on each of these intermediary transactions as well.

Put both factors together and it is no surprise that the disggregated chain ends up paying more tax than its formal economy equivalent. The result? Once GST comes into play, with its 18% tax for yarn and 5% for subsequent value addition, its cost structure will be heavier than that of vertically-integrated units. Agreed Saraogi, ‘Composite units will get more support. Disaggregated units will get more costly.’”