India Battles Back Against China's Silk Road Revival 1
Chabahar, Iran India China

A hundred kilometers from the Pakistani town being transformed by China into the port city of Gwadar stands a humble adversary. Chabahar is the only major Iranian harbor with direct access to the Indian Ocean. Other routes come under the watchful eyes of the US 5th fleet guarding the Straits of Hormuz.

Such strategic significance isn’t lost on the region’s emerging superpowers. India has just signed a ground-breaking deal worth half a billion dollars with Iran to develop Chabahar port, adding new berths and a major increase in docking capacity to cater to the world’s new breed of super-container vessels. Funded by the Indian Export Import (EXIM) bank, the development is being led by India’s Jawaharlal Nehru Port Trust and Kandla Port Trust.

Chabahar represents not only the new economic opportunity being created in post-sanctions Iran – but also the new direction of Indian foreign policy. 

Energy Corridor

In this journey, the refurbished Iranian port is only the beginning. Next is a proposed railway line and road running north to Afghanistan. The route is carefully planned to neatly avoid India’s great neighbor and rival, Pakistan. From there, it leads on into Central Asia and Russia.

What India is building primarily is a north-south economic and energy corridor that will enable it to tap into the ample gas and oil reserves of the region. It also offers the opportunity to send products north without the politically motivated delays from Pakistan’s bureaucracy.

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But on a broader level, Chabahar is India’s way of responding to the ever-expanding Chinese Silk Road Economic Belt program. Unless it acts soon, India soon will be surrounded by countries threaded together by a new cobweb of rail track, pipelines and roads, all leading to and dependent on China’s munificence.

India worries about China building bases in the Indian Ocean – such as the one already underway in Djibouti and, just a few miles from India’s shores, the Hambantota port in Sri Lanka. In its retort, New Delhi is pursuing stronger relations with Asian countries including Myanmar, Vietnam and Japan. This Act East Policy marks a shift away from traditional non-alignment to a more active commercially driven foreign policy.

Chabahar Iran India China

While the Chabahar port might one day be impressive, it pales next to Chinese projects. Gwadar is evolving from a sleepy port into a major logistics hub and city. China’s motivation is the same as India’s – to create a new connection to the Middle East and Europe that can convey energy and goods while avoiding the Straits of Malacca.

With gross domestic product only a fifth of the size of China’s and massive logistical needs, Indian investment in any other nation’s development can only be feasible on a much smaller scale or where there is clear national interest.

Yet for the first time in three decades, India’s economy is growing faster than China’s. Now, India needs to ensure its economic catch-up isn’t smothered by reliance on Chinese trade routes.

Skewed Trade

India’s relationship with China isn’t entirely combative. There are also areas of collaboration – not least in the growth of Chinese investment in India. Wanda Group is reportedly planning a $10 billion industrial park in the northern Indian state of Haryana. The two countries have also worked closely on creating two new multilateral banks: the Asian Infrastructure Investment Bank and New Development Bank.

Bilateral trade is expanding rapidly – but it’s in a way that is skewed to favor China. India, like many other countries, buys Chinese manufactured products en masse while selling much lower premium raw natural resources, such as case iron ore.

On a deeper level, Prime Minister Narendra Modi sees China as a model to emulate. Both in his home state of Gujarat and in India as a whole, Modi has tried to follow where Beijing has led, with pro-market reforms, programs to attract foreign investment and a drive for large-scale industrialization.

China has approached India to be part of its Silk Road dream. So far, Modi has pushed back, unable to decide whether it’s a trap designed to control India or a chance for empowerment through fresh infrastructure development.

Many Indians see their country as a great power that should be developing its own version of the Belt and Road. Rivaling China might be a pipe dream but Chabahar is at least a start on the journey.

Merlin Linehan has worked in development finance within Eastern Europe and Asia, and spends much of his time investigating the risks and opportunities that are created from the ongoing expansion of Chinese businesses that invest overseas in emerging markets.

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