Wednesday 14 December 2016

Shall we throw caution to the wind?


There is reason to feel pessimistic, if 'pessimism' is the word we prefer to use instead of  'cautious' , for no other country of India’s size has such a huge informal sector. The share of the informal sector employment in India at 83.6% is the highest in the world. Quite possibly, almost all of the enterprises in the informal sector operate on a cash basis. The disruption to their business model could be both severe and permanent. Their livelihoods threatened, they could fall below the poverty line. Of course, we the urban elites and middle classes, won't understand that as long as we continue to the clientele class.


Its been a month since 8 November 2016, and counting..

It is little over a month since our  Prime Minister made his announcement on the withdrawal of specified banknotes (SBN) -  this is, by the way, the terminology that the Reserve Bank of India adopts on the exercise that has been underway since 9 November 2016 - the costs appear disruptively high and are nealry impossible to estimate given the size and scale of the cash-dependent economy and geographical breadth of the country. So, even the experts who, almost a month back, had thought that the disruption would be transient and scant and that the government decision had a significant upside to the economy with little downside are changing their minds. Now, even they feel that the wealth effect (loss to the hoarders of the SBNs) could be transient and scant while the costs of disruption are significant and enduring.

According to latest data released by the RBI, Rs.14.2 trillion worth currency notes of Rs 500 and Rs 1,000 denominations were in circulation as on 31 March 2016. The amount of old currency notes deposited at bank branches has risen over the last month. According to RBI data, banks had collected Rs 11.55 trillion as on 6 December 2016. In comparison, the central bank had released currency notes worth Rs 4 trillion back into the system as on 5 December 2016.

The Asian Development Bank (ADB), yesterday, became the first  of the multilateral agencies to reduce India’s growth forecast for the current fiscal 2016-17 to 7% from 7.4% estimated earlier in the backdrop of government’s decision on the SBN. In its Asian Development Outlook 2016 update, ADB said its lower growth projection for India is due to weak investments, a slowdown in the country’s agriculture sector, and the lack of available cash due to the government’s decision to ban high-denomination banknotes. Fitch Ratings has already downgraded India’s growth forecast to 6.9% in 2016-17 from earlier estimate of 7.4% while Morgan Stanley has reduced its projection to 7.3% from 7.6% for the same period.

Not surprisingly, our lawmakers last week cleared around  Rs.60,000 crore in additional spending for the fiscal through March 2016, which includes a 10% increase in a rural jobs program, which PM Modi once mocked!


A month of demonetization and the collateral damages!

The traditional trade has been hit hard, especially wholesalers and kirana stores where transactions are largely in cash. Still, things are recovering; sales are now down only 20-25% on a year-on-year basis compared to 50% in the first week after the note ban. Rural sales have been hit more.

The market for white/brown goods still operates 80% on cash, thereby affecting volumes. Makers of durable goods are launching new schemes to tempt consumers to go cashless. Some of them are also extending discount offers and promotions such as waiver of processing fees and installment schemes with delayed start of payments.


There has been a significant impact on inbound travel. Some airlines have seen bookings go down by about 16% in the week after demonetization compared to the one before that. Discretionary travel has been the worst hit. Poor sales have forced all airlines to bring forward their airfare sales—usually reserved for the low season starting January. International traffic to West Asia and South-East Asia, especially by traders and low-wage workers, has been hit. Business jet operators say several charter flights have been cancelled as payments are often made in cash.

Sales of two-wheeler vehicles fell 5.9% in November, the first decline since December 2015, according to the Society of Indian Automobile Manufacturers’ figures released last week. In two-wheelers, where transactions are through cash, sales have taken a massive hit. Hero MotoCorp Ltd, for instance, sold 480,000 units in November, down from a monthly average of 600,000 units.

Cement demand, especially in the trade segment, contracted significantly in certain regions of the country given the prevailing liquidity crunch. Channel checks suggest that dealer counter sales, which are 50-70% cash-based, were hit up to a similar quantum in the first week post November 8 2016, as has been pointed out in a report by Antique Stock Broking Ltd. On a month-on-month basis, sales volume in the trade segment slipped 20-50% in November, according to a Reliance Securities Ltd report. Not only cement demand, supply of building construction material like sand, steel and gravel has also taken a beating since a large part of such transactions is done on a cash basis. In a bid to keep the business running, companies are extending credit periods by 5-10 days across regions. Dealers, however, don’t foresee a major recovery in cement demand or in prices as yet in December 2016.

Pharmaceutical product sales likely fell 8-10% month-on-month in November with sales of medicines for acute diseases feeling the adverse impact of demonetisation due to lower patient turnout, although retail sales of medicines for chronic diseases rose in the first fortnight, as patients stocked up medicines by using old notes at pharmacies, which were among the few outlets accepting old banknotes. Offtake from wholesalers and stockists was sluggish and companies have extended the credit period by 7-21 days.

Even the country's retail inflation has now dipped to a two-year-low in November as demand plummeted because of the government's decision to scrap the Rs 500 and Rs 1,000 notes, which accounted for 86 per cent of the value of currency in circulation. Indians, who typically conduct 80 % of their transaction in cash, bought less, restricting retail inflation to 3.63 per cent - a two-year low and well below the RBI's target of containing inflation at 5 %. According to CPI data, the fall in retail inflation was mainly because of lower food inflation, which stood at 2.11 per cent in November 2016 against 3.32 per cent in October 2016. The data showed that discretionary spending in goods and services in the retail inflation index, excluding food and fuel, which constitute 16 per cent of the CPI basket, appear to have been affected by the restricted access to cash.

However, some have emerged as winners as well

Organized retail is a clear beneficiary of demonetization as consumers flock to large stores 
which accept non-cash payments. The nature of purchases at modern retail stores has changed. Consumers are stocking and purchasing more of daily needs and essentials such as fruits, vegetables and staples such as sugar and flour. Sales were up by 15% on a week-on-week basis in the first week after demonetization was announced at retail stores of Future Group and 25% compared to a year ago. This is true even a month later; sales continue to be higher by 25% compared to the year-ago period. 

Paytm, a mobile payment and commerce platform, backed by Ant Financials (Alipay), Alibaba Group, SAIF Partners, among other, One97 Communications Ltd has emerged as the largest mobile payment company, with more than 164 million users. In fact, Paytm raked in over Rs.220 crore in retail sales at offline stores during its cashfree festival, which was held between 9 and 12 December 2016. 


Are their concerns that are technical with going cashless?

However, in a recent reveling talk Qualcomm Senior Director Product Management Sayeed Choudhury said, “You will be surprised because most of the banking or wallet apps around the world don’t use hardware security. They actually run completely in Android mode and users password can be stolen. Users use fingerprint which might be captured ... in India that is the case for most of all digital wallets and mobile banking apps,” According to Choudhury even the most famous digital payment application in India is not using hardware level security.

So, I guess, we don't have too many reasons to throw caution to the wind.


Disclaimer / Caveat: Whatever I have stated is publicly available information and does not represent the view of the firm I work for.

(This post is not copyrighted and may be reproduced freely with appropriate attribution of source)

Tuesday 6 December 2016

Bold Ideas come with Big Collateral Damages

In the recently concluded US Presidential elections, millions of Americans voted against Hillary Clinton because, among other reasons, they believed she would increase taxes or otherwise ‘take their money’. While the whole world sat glued to the developments unfolding in the US, most didn’t notice what transpired on the other side of the world that very same day. The Indian Prime Minister Narendra Modi literally did take everyone’s money.













Indians learned, with only a few hours’ notice, that their 500 and 1,000-rupee notes were no longer legal tender. Those are—or were—India’s largest-denomination bills and the underpinning of a huge underground economy. Prime Minister, Narendra Modi, in his November 8 2016 televised address, announced demonetization of India's 500 and 1,000-rupee notes, which made up 86 percent of the country's currency.

It has been given to understand that the change was undertaken to confront the problem of black money, terrorism and the informal economy that escapes taxation by bringing the cash holdings of citizens into the banking system, where it couldn’t easily avoid detection, and by making the cash that didn’t enter the system essentially useless. The plan indeed seemed so simple and bold and brilliant, and the Indians just lapped up the idea.

One Hell of a Moment

In a flash, billions of currency notes suddenly became unusable. They, of course, shall retain their value until the end of 2016, but the only way to use them is by going to the bank and exchanging them for smaller notes, up to a limit of 4,000 rupees! People may also deposit them in bank accounts and then use a debit card or electronic transfers for purchases. While the idea sounded pretty simple, it quickly turned into a monumental mess. Queues formed at banks, with people waiting for days, only to find the bank ran out of smaller bills. Those without bank accounts had no way to make routine transactions. The underprivileged had to spend their work time waiting to exchange their money. New bills intended to replace the old ones were scarce. The results spread through the economy like wildfire. Merchants lost sales because customers couldn’t pay. Some resorted to barter. Media reports suggest restoring normal commerce could take months. A few people reportedly died, most of them elderly citizens waiting outside banks for days, but also some overworked bank employees.

The demonetization plan has laudable aims. Its initial popularity was based on the idea that the greedy rich, with their ill-gotten “black money” stored in stacks of banknotes, will get their comeuppance. Those who cannot justify the sources of their wealth will face punitive taxes. It also accords with Mr Modi’s manifesto pledge to normalise India’s black economy, estimated by the World Bank in 2010 to be worth about one-fifth of official GDP. The idea is that India will become more efficient, as more people and more money enter the banking system; counterfeit currency will become worthless; India’s woefully low tax base will expand; and government coffers will enjoy a windfall of cash expropriated from the corrupt. The government's sudden decision to withdraw large-denomination currency from circulation, has however caused enormous hardship to millions of people in the country's predominantly cash-based economy. While, holders have until the end of the year to deposit them in banks or swap them, either for smaller-denomination notes or for new 500- and 2,000-rupee ones, shops across the country have stopped accepting the old notes at once.

Past Experiences and the Present

India is not the first or only country to introduce abrupt, drastic reform of its currency. But the precedents—including Burma in 1987, the former Soviet Union in 1991 and North Korea in 2009—are not encouraging. Burma erupted in revolt, the Soviet Union disintegrated and North Koreans went hungry. The November 8 ban on high-value currency notes has sent India's economy into a tailspin, as citizens struggle to get their hands on new bills, hindered by a limited stock of freshly-printed notes, daily account withdrawal restrictions, long queues at banks and empty ATM machines. Cash is used for 98% by volume of all consumer transactions in India. With factories idle, small shops struggling and a shortage of cash to pay farmers for their produce, the economy is stuttering. There are reports that sales of farm staples have fallen by half and those of consumer durables by 70%. Guesses at the effect on national output vary wildly, but the rupee withdrawal could shave two percentage points off annual GDP growth (running at 7.1% in the three months to September).

With farmers unable to buy seeds and roadside shopkeepers unable to sell produce, the low-income population has emerged as the biggest losers from the milestone policy designed to stamp out so-called "black money." Low-income earners are among the nation's most cash-reliant because many lack bank accounts or the required identity cards, so they are ineligible to swap notes for smaller denominations. They're also particularly vulnerable to the overall drop in consumer spending because their livelihoods tend to be more dependent on cash transactions.

Likely Fallout

Cash is the primary mode of transaction in agriculture sector which contributes 15% to India’s total output. Formal financing in many parts, especially Punjab, Uttar Pradesh, Odisha, Maharashtra, Gujarat and Kerala is significantly from cooperative banks, which are barred from exchange-deposit of demonetized currency. Notably, this is a time of kharif harvest and start of rabi sowing, partly explaining why this period is dubbed the ‘busy season’ from a standpoint of credit demand, the other being bunching of festivals and weddings.

Winter crops such as wheat, mustard, chickpeas are due for sowing in a fortnight. Wheat prices were already up due to low stocks and anticipated shortfall in 2015-16 output and have firmed up further as demonetization fallout pushes traders to build more inventories. Production in 2016-17 could drop if sowed acreage (rabi) reduces for want of enough seeds on time to exploit the adequate soil moisture. Yields could fall from late sowing and subsequent exposure to rough spring weather, the lack of sufficient or timely application of fertilizers, pesticides, etc. Farm labour, vital for this period, is reported to be unpaid as farmers have no cash. Many of them are reported to be returning from some northern parts to homes in UP and Bihar. Labour shortages and wage-spikes may follow with a lag.
Plantation crops such as rubber, tea, jute, cardamom are seeing no wages paid to workers. Small-medium tea growers have few buyers now (a third of the tea was unsold in recent auction in the south). Raw jute trade is halted as paucity of funds affects procurement-delivery by traders. Cotton is witnessing havoc: daily arrivals have plunged to 30,000-40,000 bales against the usual 1.5-2 lakh bales at this time (harvest) as per reports and prices have soared 9% in a week, pushing up global prices in turn.

What do the Experts Say

While proponents of demonetization recognize that demonetization could yield higher government revenues and produce greater public goods, such as improved infrastructure, but famous economists like Larry Summers, have warned of a greater negative impact from poor execution. Summers is former U.S. Treasury Secretary. "The costs (of demonetization) exceed its benefits," he said. Economists at Ambit Capital cut their 2017 GDP growth estimate almost in half, from 6.8% to 3.5%. They think the effects will last into 2018, too.

Is it Right to Punish an Entire Village to catch a Few Thieves

Prime Minister Modi however says that restricting cash (he calls it “demonetization”) will help boost the economy. Maybe it will. Estimates show anywhere from 25–40% of India’s economic activity happens off the books. Bringing it out of the shadows and into the banking system, even by force, may help in the long run. It will certainly raise tax revenue initially. But it also carries a big cost.
While plenty of Indians do use cash transactions to hide their wealth and avoid taxes — less than 3 percent of the population pays income taxes — and the authorities occasionally arrest businesspeople or corrupt officials with currency hoards. But plenty more people use cash because of habit, poverty or a lack of easy access to banks. This explains the disproportionate impact of demonetization on the middle and lower wage classes. It is the derailment of the latter’s lives caused by the demonetization that has caused many to write that the policy is a failure — and others to go so far as to call it a criminal injustice.

The informal economy in India is estimated to employ 94 percent of India’s labor force and covers large parts of the country. The informal economy does contain the black market and can lead to trade of illegal or questionable goods, but it sometimes simply involves farmers or low-wage workers and local rural economies. In those situations, cash transactions are not a method of circumventing the government but rather the only practical means of exchange among those without access to banking, whose livelihoods are small, irregular and/or best suited for an informal setting without regulations. Taxing the informal economy is one of the government’s aims.

While around 85% of all currency in circulation has been turned into coupons that can only be exchanged in specific places; these notes can be converted into currency again only with identity proofs (which hundreds of millions do not have) notwithstanding the additional hardship of standing in queues for many hours. Over half of India’s population doesn’t have any sort of bank account at the moment and about 300 million don’t have basic ID such as Aadhaar either and hence, cannot access the banking system at all. About 130 million Indians have mobile wallets, about 25 million have credit cards and there are about 550-600 million debit cards in circulation. So access to cash is very, very important for those Indians who are unbanked, and limited by their access to mobile wallets. As India's poor pay the heaviest price for Prime Minister Modi's bold demonetization move, many warn the current pain could eclipse long-term benefits. Meanwhile, the Supreme Court of India has asked Modi's administration to file an affidavit detailing the steps being taken to ease the inconvenience to the general public.

How legal is this move?

Another question that has surfaced of late in the legal corridors is to what extent was the demonetization consistent with the statutory provisions in Chapter III of the Reserve Bank of India (RBI) Act 1934, which assigns to the RBI the sole right to issue currency notes under Section 22? The right to determine the denominations in which currency notes are to be issued, and the rights of non-issue or discontinuance of particular denominations, are assigned in Section 24 of that chapter to the government, subject to the recommendations of the central board of the RBI. The recommendatory authority of the central board is paramount, as stated in the Act. Discontinuance is not equivalent to cessation as legal tender, and usually carries a long phase-out period. Cessation as legal tender is dealt with in Section 26, reproduced below. It (Section 26) also accords primacy to the central board of RBI.
“On recommendation of the Central Board the Central Government may, by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notification, any series of bank notes of any denomination shall cease to be legal tender.”

Note the wording, which speaks of the cessation of particular series of bank notes as legal tender. Neither the provision for discontinuance, nor that for cessation, visualizes the withdrawal of all series of an entire denomination without full replacement against other valid denominations. Every currency note carries a formal promise to redeem (pay) in full its face value, signed by the RBI governor. The authority of the RBI governor to give such a guarantee is backed by powers vested in him by the central board of the RBI. The statutory responsibility for upholding the guarantee underpinning paper currency is vested with RBI’s central board. That responsibility would have been fulfilled only if replacement currency was stocked and fully available at any of the several surrender nodes for demonetized currency in this vast country. An emergency meeting of the RBI central board is reported to have been held on the evening of 8 November. Even if the board was trying to be a team player by going along with what the government wanted to do, why would they recommend turning Rs500 and Rs1,000 notes into pumpkins at midnight, without checking if replacement currency was in stock?
It was the absence of preparation with replacement currency, well-stocked banks and functional ATMs that turned this into an unmitigated disaster, rather than the suddenness of the change. A forward effective date known only to the RBI governor and the government could in principle have been kept secret. Even the board did not need to be informed in advance, while currency stocks were being prepared. After the announcement, currency printing went into overdrive in a manner that clearly shows the RBI was a follower, not in the know, of what happened.

What if the central board had refused to go along until replacement currency was fully in place? Section 30 of the RBI Act does give the Union government the power to supersede the board. But in such an exigency, the government has to place before Parliament an explanation of the circumstances under which the suppression was done, within three months. All the expected gains of this action, such as the additional income tax revenue from stocks of currency deposited in banks, would have accrued even with a 50-day preparation period for demonetization. The advantages of going without preparation of replacement stocks are therefore altogether unclear.

How Short Term are the Collateral Damages

The costs of demonetization are not merely short-term. Much of the un-taxed wealth in this country is not held as cash or jewelry. It is turned into income-earning financial assets through loans to small businesses. Some of the largest commercial construction companies borrow from holders of big stocks of cash on the thriving informal market. If not converted into a financial asset, cash is typically spent on housing and house renovation, weddings or tourism. Construction, weddings and (domestic) tourism are the most employment generating activities in India. The impact of demonetization will therefore be not merely to reduce growth but to pull down the employment elasticity of growth, until activity in these sectors picks up again. Finance minister Arun Jaitley, responding to a question at a press conference recently, has however ruled out any short-term impact of demonetization on growth, holding that it will rather benefit growth in the long run because “all this will impact the size of the GDP itself because more transaction that were happening outside the (formal) economy will get into the economy itself”.

Over the past month, since November 8 2016, however, there have been several accusations that the policy’s intentions weren’t those that were sold to the public — that it was a move to cripple political opponents, to make Prime Minister Modi appear stronger, to inconvenience the middle class while the rich stashed their black money in Swiss accounts.

While building a country, the long run does matter — and that is why people chose Narendra Damodardas Modi in his landslide victory in 2014. We do need big ideas, bold moves and the audacity to hope. But that doesn’t justify this kind of policy initiative, which writes off the suffering of millions as collateral damage when that suffering could so easily be avoided.

References:

http://marginalrevolution.com/marginalrevolution/2016/11/indias-demonetization-next.html

http://www.technavio.com/report/mobile-wallet-market-in-india-2014-2018?utm_source=B3&utm_medium=TNSite&utm_campaign=Blog

http://www.stanforddaily.com/2016/12/02/indias-demonetization-and-the-future-2/

http://www.livemint.com/Opinion/B1vFTOgwqHjdM5nkmg2CxJ/Demonetization-The-impact-on-agriculture.html

http://www.economist.com/news/leaders/21711040-narendra-modi-needs-take-measures-mitigate-damage-his-rupee-reform-has-done-indias

http://www.cnbc.com/2016/11/22/indias-demonetization-drive-to-help-dictate-bjp-modis-fortunes.html

http://www.forbes.com/sites/patrickwwatson/2016/12/01/indias-demonetization-could-be-the-first-cash-domino-to-fall/#54d0783113bb

http://www.livemint.com/Opinion/3iRsq50jHEJI684SMYJ2PI/Demonetisation-without-replacement.html

http://www.stanforddaily.com/2016/12/02/indias-demonetization-and-the-future-2/



Disclaimer / Caveat: Whatever I have stated is publicly available information and does not represent the view of the firm I work for.
(This post is not copyrighted and may be reproduced freely with appropriate attribution of source)

Tuesday 29 November 2016

Do rich need the poor to remain rich?

37.9 per cent of the global top (richest) 1 per cent are from the US. Japan comes next, with a 9.7 per cent share of the global richest 1 per cent list,shows Credit Suisse’s global wealth report.

The US, Japan and the UK account for more than half of the people in the global top 1%. And this top 1 per cent own half the world’s wealth.

As we can all see, the wealthiest are still getting wealthier, and definitely at the cost of the poorest of the poor.


So, while the numbers from Credit Suisse show that the top 1% of the global population own half the world’s wealth, and more than half of this top 1% are from the US, UK and Japan; what about the fate of the poorest in the world?

One-fourth of the bottom 20% of the global population are Indians. Please note that the bottom 20% of the global population own -0.4% of the world’s assets—the figure is negative because these people have more debt than assets and so their net worth is negative.

Do rich need the poor to remain rich?

Logically yes... as in order for someone to be 'rich' there must be a person who is understood as 'less rich' or 'poor'.  

We all should know that wealth is generated through a combination of labor (manual, symbolic, creative) and capital (money, factories, technology, materials).  However, once wealth is generated, that wealth is not shared  so evenly.  Say for instance, the people who make cars have a smaller share of the wealth generated (in the form of wages) than the people who own the factory (in the form of profits). Thus, people who supply the capital (money, factories, technology, materials) is rich, and the worker (who provides the labour) is poor. 

Now, in order for someone to remain rich, the process of unequal wealth distribution has to continue. Profits typically increase when wages are lowered or workers are laid off without a loss of productivity (i.e. the workers are worked harder).

However, one may wonder, how can there be so much misery and insecurity in the midst of such abundance? If we look at the question sociologically, one of the first things we see is that poverty doesn’t exist all by itself. It is simply one end of an overall distribution of income and wealth in society as a whole. As such, poverty is both a structural aspect of the system and an ongoing consequence of how the system is organized and the paths of least resistance that shape how people participate in it.

The system we have for producing and distributing wealth is capitalist. It is organized in ways that allow a small elite to control most of the capital – factories, machinery, tools – used to produce wealth. This encourages the accumulation of wealth and income by the elite and regularly makes heroes of those who are most successful at it – such as Dhirubhai Ambani.

The capitalist system also leaves a relatively small portion of the total of income and wealth to be divided among the rest of the population - which incidentally is a majority of the people.

In any case, we live on a planet that has limited resources and a fragile ecosystem. If everyone could be rich and have access to as much resources as they want they would waste a lot. If everyone on the planet was allowed to consume as much as rich north Americans currently do, the strain on the planet would make it unlivable in terms of greenhouse gas effect, pollution, smog. 


The other way, it seems, therefore to distribute wealth in a fair and safe way would be a form of socialism where the state would own everything and give everyone their fair share while making sure to use renewable resources in a safe and ecological way. 

But would socialism work - given that it tends to have a negative impact on individual freedom, and also because humans are greedy?



Disclaimer / Caveat: Whatever I have stated is publicly available information and does not represent the view of the firm I work for.

Wednesday 28 September 2016

Kashmir...A Riparian Dispute

It is just a Territorial Dispute…Really??

The traditional narrative

Kashmir, which has boundaries with Tibet, China, Russia and Afghanistan, has been placed in a pronounced strategic position. The Kashmir region has gone through a tumultuous history through its existence as it has passed from ruler to ruler and empire to empire.

The history of Kashmir is entwined with the history of the broader Indian subcontinent and the adjoining regions - comprising the areas of Central Asia, South Asia and East Asia. It denotes a larger area that includes the Indian-administered state of Jammu and Kashmir (which consists of Jammu, the Kashmir Valley, and Ladakh), the Pakistan-administered territories of Azad Kashmir and Gilgit–Baltistan, and the Chinese-administered regions of Aksai Chin and the Trans-Karakoram Tract.

Islamization in Kashmir took place during 13th to 15th century and led to the eventual decline of the Kashmir Shaivism in Kashmir. In 1339, Shah Mir became the first Islamic ruler of Kashmir. For the next five centuries, Islamic rulers governed Kashmir, including the Mughals, who ruled from 1586 until 1751, and the Afghan Durrani Empire, which ruled Kashmir until 1819. In 1819, the Sikhs, under Ranjit Singh, took over Kashmir. In 1846, after the Sikh defeat in the First Anglo-Sikh War, and upon the purchase of the region from the British, the Raja of Jammu, Gulab Singh, became the new ruler of Kashmir. The rule of his descendants, under the protection of the British Crown, lasted until 1947, when the former princely state became a disputed territory. Kashmir is now administered by three countries: India, Pakistan, and the People's Republic of China.

The Kashmiris are, anthropologically, an Indo-Aryan Dardic ethnic group living in or originating from the Kashmir Valley, located in the Indian state of Jammu and Kashmir (J&K). The bulk of Kashmiri people predominantly live in the Kashmir Valley and also form a majority of the population in the Chenab region's Doda, Ramban and Kishtwar districts. Smaller populations of Kashmiris also continue to live in the remaining districts of the state of J&K.

Kashmiri (or Koshur) is spoken primarily in the Kashmir Valley and Chenab regions of  Indian state of Jammu and Kashmir. As per the 2001 census of India there were over 5.5 million speakers of Kashmiri in India.Interestingly, people from the Azad Kashmir (or Pakistan occupied Kashmir) are neither Kashmiris nor do they speak the Kashmiri language. People from Azad Kashmir are typically related to the people of northern Punjab in Pakistan, and they mostly speak Punjabi, Pahari, Gujjari languages. There are very few Kashmiris (the Indo-Aryan Dardic ethnic group who originally hail from the Kashmir Valley) in Azad Kashmir and while they still speak Kashmiri but many of their younger generation have adopted Pahari or Urdu and do not anymore speak Kashmiri. This essentially means that there remains a linguistic divide between the present day inhabitants of Pakistan-administered territories of Azad Kashmir and the inhabitants of the Indian state of Jammu and Kashmir (J&K).

Islam is practically the singular religion throughout the northern areas of the Indian-administered state of J&K and Azad Kashmir on the Pakistani side of the 1972 Line of Control, accounting for more than 99.5% of the population in every single district of those two areas. On the Indian side of the LOC, Hinduism is the second most numerous faith and accounts for a majority of the population in the three southernmost districts of Jammu and in that region as a whole. Followers of the Tibetan form of Buddhism are a definite majority in the large, but sparsely populated district of Leh and in Zanskar tahsil in the southern part of Kargil district. In the state of J&K as a whole, Islam is by far the leading faith and accounted for close to 75% of the total population by 1981[1].

The overwhelming majority of Kashmiris being Muslims, Islamic identity does plays a very important role in the daily lives of the majority of the Kashmiri people. However, Kashmiris across the religious divide have for centuries shared cordial and friendly ties.
As on date, however, the prickly issue remains the status of the Kashmir Valley, whose inhabitants are divided between demanding independence or allegiance to Pakistan, with a proportion opting to remain within India. The key issues that stems from the traditional narrative on the Kashmir dispute include[2]
  •   Demands of the Islamic majority of the inhabitants of the state of J&K living in the valley are not universally shared by the minorities living in different areas of the state.§  The Buddhist population of Ladakh has never supported the cause for either for Kashmir’s independence or accession to Pakistan, nor has the majority Hindu population of the Jammu region.
  •   To date, the Government of India has refused to reconsider the possibility of holding a plebiscite in J&K. Without, however, holding a plebiscite or referendum it is next to impossible to determine exactly what proportion of the people support which option.
Pakistan has consistently called for the issue to be resolved by means of a plebiscite and has blamed India for going back on its pledge. But although it supports the Kashmiri’s ‘right of self-determination,’ Pakistan has shied away from accepting the third option as a possible outcome - a third option being an independent Kashmir with non-allegiance to either India or Pakistan or China.  India, on the other hand, blames Pakistan for supporting anti India militant groups which it says are fomenting an Islamist insurgency in Indian Kashmir. This strengthens the development of the alternative narrative that Kashmir is more than just a territorial dispute.


The emerging narrative

The emerging narrative is that Kashmir is definitely more than a territorial and nationality dispute. The disputes emanates from the very fact that it is situated in the northern part of Indian sub-continent, and has boundaries with China (Tibet), Russia and Afghanistan, and is thus placed in a position of significant strategic importance. The Indian state of Jammu and Kashmir (or J&K in short) is, geographically, a continuation of the plains of West Pakistan into the mountains (western Himalayas).

A certain section of the international community feels, and perhaps rightly so, that over period of many years India and Pakistan have progressively arrived at a tacit agreement for the settlement of ownership of territories and in all likelihood the ‘Line of Control’ can be a step to it, and thus the dispute on Kashmir is no longer about altering its boundaries. It is perhaps not too abstract to infer that the military and civilian leadership of both countries recognize that the idea of going to war on Kashmir is no longer realistic. Water (or the lack of it) has now emerged as more central premise to the Kashmir issue between the two neighbours although initially it was only a territorial issue, or at best an issue of nationality for the original inhabitants of this strategic landmass in Asia.

J&K is emerged as a much prized landmass for both India and Pakistan – essentially to ensure long term sustainability of both nations by way of securing, controlling and harnessing precious waters of this prized landmass.

Pakistan’s population has been growing at an annual growth rate of 2.3 % as compared to India’s 1.3 %. Consequentially, in the last five decades, Pakistan’s per capita water availability has dropped from 5,600 to 1,038 cubic metres[3]. The figure is expected to further fall to 809 cubic metres by 2025, as estimated by the Pakistan’s Water and Power Development Authority. The country is fast moving from a water- scarce nation to a water-starved one. Its sole dependence on the Indus — 70 % of the country’s inhabitants live in the Indus basin — intensifies its critical water position.

Being an agricultural country, it’s rivers – Indus, Jhelum and Chenab –  are its sources of life. These three rivers flow into Pakistan from the State of J&K. Pakistan, readers may kindly note that, is a lower riparian country in the Indus valley system.

According to a dominant school of thought in Pakistan both Kashmir and the water flowing from Kashmir into Pakistan are matters of life and death to Pakistan. The same school of thought also perceives that without securing sovereignty for Kashmir Pakistan's sovereignty and security will always be on threat.

What the Green Revolution gave India and as well as Pakistan — an abundance to export water hungry crops — has now become unfeasible. Even in the most arid areas, farmers have no alternative but to irrigate their fields by flooding them. Few have adopted the much more efficient drip irrigation system, which governments urgently need to subsidize. Climate change too compounds the water problem. Experts say that climate change could alter the timing and rate of snow melt, with an initial increase in annual run-off, followed by a steep decrease as glaciers recede, severely impacting river flows.

The Riparian Rights

Under riparian law, water is a public good like the air, sunlight, or wildlife. It is not ‘owned’ by any government, state or private individual but is rather included as part of the land over which it falls from the sky or travels along the surface. ‘Riparian rights’ is a system for allocating water among those who possess land along its path. Under the riparian principle, all landowners whose properties adjoin a body of water have the right to make reasonable use of it as it flows through or over their properties. If there is not enough water to satisfy all users, allotments are generally fixed in proportion to frontage on the water source. These rights cannot be sold or transferred other than with the adjoining land and only in reasonable quantities associated with that land. The water cannot be transferred out of the watershed without due consideration as to the rights of the downstream riparian landowners.

The Indus Waters Treaty

The Indus Waters Treaty (IWT, or Treaty), a water-distribution treaty between India and Pakistan, mediated by the World Bank (then knows as the International Bank for Reconstruction and Development), was signed in Karachi on September 19, 1960 by then Indian Prime Minister Jawaharlal Nehru and President of Pakistan Ayub Khan. While the World Bank is a signatory to the Treaty for certain specified purposes, it is not a guarantor of the Treaty. The Treaty allows control over the three ‘eastern’ rivers of the Indus river system— the Ravi, Beas and Sutlej —to India and control the three ‘western’ rivers — the Indus, Jhelum  and Chenab — to Pakistan. The treaty stipulates that while water from the rivers Indus, Jhelum and Chenab will be used exclusively by Pakistan, water from the rivers Ravi, Beas and Sutlej will be used by India. The IWT also stipulates that either party (country) must notify the other of plans to construct any engineering works which would affect the other party and to provide data about such works.

While India cannot store any water from these rivers or stop them from flowing to Pakistan, it can construct hydroelectric power projects over these rivers, but has to allow a free flow of water. India can however go in for ‘pondage’, i.e., water being held behind a dam for a short time (as it flows into turbines to generate electricity) but even this is limited. Pondage is very different from storing Indus water, say, for major irrigation projects. Additionally, India must share designs of projects for irrigation and hydro power generation, water flow data and a host of other information with Pakistan.

The IWT, which is largely regarded as one of the success stories of water diplomacy between two neighboring nations, whose relations are often petulant, is essentially an arrangement to implement a fair distribution of a critical natural resource – water – between India and Pakistan. The Treaty also provides for mechanisms to resolve disputes over water sharing.

The treaty was a result of Pakistani apprehension that, since the source rivers of the Indus basin were in India (in the state of J&K), India could therefore potentially create droughts and famines in Pakistan, especially at times of war, by stopping or diverting away water from downstream Indus and its sister rivers. The treaty, signed more than five decades ago has remained in effect even during the wars between India and Pakistan—in 1965, 1971 and 1999. However, the Pakistani State, in spite of the Treaty being in place for over five decades now, has always remained in perpetual apprehension of the possibility of India repealing the Treaty, and the consequences of the same in Pakistani economy. That there is solid ground for this apprehension emanates from the ever worsening water crisis in Pakistani.

Pakistan’s Water Crisis

In a report published in 2013, the Asian Development Bank had described Pakistan as one of the most ‘water-stressed countries in the world, with a water availability of 1,000 cubic meters per person per year, a fivefold drop since its independence in 1947, which is about the same level as drought-stricken Ethiopia!



Total annual per capita actual renewable water resources[4] in Pakistan in 2014 had been estimated at 1,306 cubic meters. The graphic below illustrates the depletion in per capita renewable water resources in Pakistan during 1962-2014[5].
A country with annual water availability below 1,000 cubic metres per capita is designated as a water-scarce country. Pakistan is expected to become water-scarce by 2035, however based on current trends it is likely that per capita water availability will decline to around 800 cubic metres by 2025[6], making Pakistan a water scarce country.


According to the Pakistan Council of Research in Water Resources (PCRWR), the country has an estimated population of 187 million with an annual growth rate of 1.57 %. By the year 2050, Pakistan’s population is likely to double and become 63.7% urban. This will definitely put tremendous pressure on water supply for households, industry and agriculture. Pakistan has been facing a number of water related challenges. A few of these challenges include:
  •   Water shortage
  •   Inadequate water harvesting and storage facilities (only 10% of the average annual flow)
  •   Reduction in storage capacities of the existing reservoirs due to sedimentation
  •   Low system efficiency
  •   Conventional methods of irrigation - unleveled basins, improper size of furrows
  •   Low land and water productivity
  •   Non-existent national water policy
  •   Water logging and salinity
  •   Unmanaged dry lands
  •   Lack of monitoring infrastructure for glaciers and trans-boundary inflows.

The aforementioned problems get compounded by the apprehension of the Pakistani think tank that any action –intentional or unintentional– on the part of the Indian authorities to control the water supply of the Indus system can lead to famines and droughts in Pakistan.


Pakistan has also had limited success with harnessing its water resources towards developing hydro power generation capacity in order to meet its ever burgeoning energy demands. As on date Pakistan's energy generating capacity is 24,830 MW; the country currently faces energy shortfalls of over 4,500MW on a regular basis with routine power cuts of up to 5 hours per day, which has shed an estimated 2–2.5% off its annual gross domestic product (GDP).

At the Crux of the Matter

At the root of the Kashmir crisis lies the Indus river system. Pakistan, being largely an agrarian economy, depends heavily on the Indus waters for agriculture, employment, and a significant portion of its GDP. It is widely acknowledged that the Indus river provides Pakistan with:
  •   90% of its freshwater for agriculture
  •   50% of the country's employment
  •   25% of its GDP

It is no wonder therefore that the inhabitants of Pakistan affectionately refer to the Indus[7] as ‘the water of life.’

Tumorous population growth in both India and Pakistan has led to increased strain on the river for power generation and drastic measures on the part of India to secure sufficient hydropower to prevent sudden power outages. Pakistan for quite some time has been accusing India of stealing water from ‘the water of life.’ Pakistan alleges that India is ‘stealing’ its river waters, by violating the IWT. Pakistan’s allegations, at the moment, centre on the Nimmo-Bazgo and Chutak hydroelectric power projects over the Indus river in J&K. The allegation is that by going ahead with these projects, India is trying to divert river waters that rightly belong to Pakistan.

Many reports in recent times have highlighted that India too is a water stressed country and its water disputes (both intra and inter country) are bound to grow as Indian authorities strive to manage water for India’s huge population. Renewable internal freshwater resources in the country (in terms of cubic meters per capita) has come down from 3,089 (in 1962) to 1,116 (in 2014)[8]. In comparison, the neighbouring nation of Myanmar has a per capita renewable internal freshwater resources 18,770 cubic meters in 2014. Even Bhutan with per capita renewable internal freshwater resources of 101,960 cubic meters lead the south Asian nation in 2014.

The face-off between Punjab and Haryana over sharing of Satluj-Yamuna water and as well between Tamil Nadu and Karnataka over sharing of Cauvery water as the has put the spotlight on brewing confrontations between states across India over access to water. Even the newly formed state of Telangana and Andhra Pradesh too have locked horns over numerous water projects. A recent study pegs that 80% of India’s 1.25 billion population faces severe water scarcity for at least a month every year and 180 million Indians face severe water scarcity all year round. No, doubt India is increasingly looking at harnessing hydropower to find sustainable answers to its water and energy crisis.

What if the IWT were abrogated?

The Indus Water Treaty is one of the best examples of cooperation between countries as the most logical response to trans-boundary water management issues. India has not disturbed the flow of water to Pakistan even during wars, acts of terrorism and other such conflicts that have bedeviled relations between the two neighbours. The Treaty gives up to 80 % of the water from six rivers — the Beas, Ravi, Sutlej, Indus, Chenab and Jhelum — shared by the two countries to Pakistan, and has, therefore, been seen in India as being ‘too soft’ on Pakistan.

Sadly, this treaty between India and Pakistan, which has survived three wars and numerous lows in India-Pakistan relations, stands seriously threatened today. The Indian Government, understandably is under tremendous public pressure to take material actions against Pakistan, to rein in terrorism stemming from the Pakistani soil against India, as a repercussion to the gruesome killing of eighteen soldiers of the Indian Army in the Uri terror attack on September 18, 2016  (in J&K).


An insightful analysis (as illustrated in the figure underneath), undertaken by Data-Analyst Adipta Datta (an alumnus of ICFAI Business School, Kolkata) based on the comments made on social media pages (such as Facebook) of popular traditional media such as NDTV, Firstpost and others immediately in the aftermath of the URI incident and related to the incident, finds a significant percentage (63%) of the commentators viewing the incident with skepticism, which Datta refers to as negative sentiments associated with the incident.
Such negative sentiments stem from such comments wherein the post owners (commentators) have not related positively with the URI attacks i.e., they did not quite believe in the authenticity of the attack, to that extent that many of them felt that the attacks could have even been faked by the Indian State, in order to draw attention of the international community to the Kashmir issue/Pakistan. However, such sentiments cannot be seen as representative of the Indian population, as the reach of English news channel is around 12 million as against the reach of Hindi news channels which is about eight times that of the English news channels.

In what was a much looked up to high-level meeting chaired by the Indian Prime Minister with senior Government officials on September 26, 2016 to review Indus Waters treaty, which had also fueled speculations that the National Democratic Alliance (NDA) government may ultimately seek to alter or scrap the provisions of the 1960 pact with Pakistan, it was decided that India will now expedite the construction of three dams on River Chenab.

It is being widely perceived in India that such a pressure tactic (of altering or scrapping the provisions of the Treaty) is likely to compel Pakistan to crackdown on non-state and state actors acting operating on its soil against India. This is not to say that there are no pockets of cogent thought in India that question the astuteness and practicality of this approach to confronting Pakistan. In this connection, an editorial, published way back in 1998, in The Statesman, a venerable English-language daily published in Kolkata is perhaps still relevant and is worth quoting at some length:
“India, the bigger and arguably the more mature of the two (countries), must take the lead (in heading off an arms race). And no lead is better than a grand policy on Kashmir...India should respond to Pakistan’s tests and the possibility of escalating tensions by making a unilateral posture on Kashmir. It can announce that the government will exhume the nearly five decades old United Nations proposal to hold a referendum on the question of the valley’s (Jammu & Kashmir) territorial loyalty.This will seem preposterous to the BJP, indeed to many Indians. But an astute political party – BJP has shown it can be one – does not remain a prisoner of conventional wisdom. More, a referendum on and in Kashmir, internationally supervised, will again put India in a different league from one defined by sub-continental squabbles – a status the BJP thinks the country deserves. The ‘worst’ possibility is that Kashmir may not choose to remain with India. Is that too bad a prospect compared to the price India pays in blood, money, and a general marring of reputation when the troops ‘occasionally’ misbehave? A Kashmir referendum will also blunt global condemnation of the subcontinent as a mad hatter area full of nuke-wielding hot-heads. As well as forcing Pakistan to drop its belligerence, both verbal and clandestine. These are benefits that can be grabbed only by a government with vision and courage.”

Earlier on September 22 2016 India signalled that it could revisit the IWT on sharing of the waters of the river Indus, against the background of Pakistani State ignoring Indian concerns over its continued support to terrorism. However, a unilateral abrogation of the Indus Water Treaty (IWT) on India’s part is likely to attract criticism from world powers. India definitely runs the risk of alienating the World Bank if it abrogates the treaty, especially the US, the UK, Canada, (then) West Germany, Australia and New Zealand underwrote the facilitation of the treaty by contributing $1 billion (at 1959 rates) and virtually bribed Pakistan by giving it $315 million to enter into negotiations with India. Besides, China will be under no obligation to allow water from the Indus or Sutlej rivers to flow into India. Indus, which is covered by the IWT, originates in China, the fountainhead of this river basin lying in China.

China being not a party to the Indus Water Treaty may decide to divert water from the Indus river in the absence of any international treaty governing the management of this precious resource, India will be deprived of 36 % of the river's entire flow. Countless canals from which cities and towns draw water for daily use would dry up, causing urban and semi-urban distress. If China also decides to shut off water from Tibet that feeds the Sutlej river, huge swathes of northern India would be plunged into darkness and deprived of power. Water from the Sutlej flows into the Bhakra dam, the Karcham Wangtoo hydro-electric project and the Nathpa Jhakri dam which together generate at least 3,600 megawatts of electricity that lights up large parts of Punjab, Haryana, Rajasthan, Himachal Pradesh, Chandigarh and Delhi. Besides, stopping water supplies to Pakistan after any abrogation of the 1960 Treaty is likely to flood extensive areas of Jammu and Kashmir and Punjab.

There is also the possibility that China could utilize the opportunity, in the event of IWT being abrogated by the Indian Government, to divert water from the Brahmaputra river, which forms the lifeline of India’s north eastern region.

Arguments & Counter Arguments

Arguments and counter arguments, as well as allegations and counter allegations have led the two countries nowhere, except that the such instances have only led to unnecessary wars, and mistrust between two very culturally close set of populations. For instance, while Pakistan’s allegation that Indian Government's plans to divert the course of the Kishenganga river (a tributary of the Indus) to build a 330-megawatt hydroelectric power project will reduce the river’s flow by a third in the winter. That would make it unfeasible for Pakistan to move ahead with its own plans for a hydroelectric dam downstream.  

Essentially, both India and Pakistan were fighting over control of Kashmir since independence in 1947, where several Indus tributaries begin, because control of Kashmir means gaining the much needed control of the waters of the Indus system, until the IWT was signed between the two countries in 1960. Yet Pakistan's rows with India have intensified as its water situation has worsened over the years. On the contrary, observers in India say Pakistan is simply looking for a scapegoat as it struggles to manage its internal water politics – citing instances of the especially arid Pakistani province of Sindh, blaming the prosperous upstream Pakistani province of Punjab for consuming too much of Indus waters. But off-late even farmers from the Punjab province have been complaining that agricultural yields and incomes have dropped by a third in the past five years because of water shortages. In the past, canals used to supply water for irrigation year-round. They are now empty for about four months each year, forces farmers and villagers to pump groundwater, which is fast turning brackish and causing diseases like hepatitis.

Pakistan's rows with India have intensified as its water situation has worsened over the years. In 2005 Pakistan had raised issues with the Baglihar dam, an Indian power project on the Chenab river alleging  that the dam would store too much water upstream and reduce downstream flow to Pakistan. Subsequently in 2007 the World Bank mediated by appointing an independent expert, who ruled that India had to make minor modifications to the dam, such as lowering its height. Pakistan now contends that the dam, which began operations in 2008, is reducing the flow of the Chenab below levels stipulated in the treaty. India denies such an allegation. The Indian projects that Pakistan believes are draining its water resources are primarily on Indus tributaries in Kashmir.

B.G. Verghese, a veteran journalist who has studied water issues closely and is a visiting professor at the Center for Policy Research, a New Delhi based think tank, says,
"They're saying, 'We must liberate Kashmir to save our water.'"

Case for an Alternate Dispute Resolution for Kashmir

It is quite understandable why the popular Pakistani conscience revolves around Kashmir being the jugular vein of Pakistan, because without Kashmir and its rivers, its dream of economic independence is likely to remain utopian. This explains, why in spite of being supportive of the Kashmiris ‘right of self-determination,’ Pakistan has never accepted the third option as a possible outcome - a third option being Independent, and allegiance to neither India nor Pakistan. The same logic is also perhaps true, as to why India remains so steadfast on not conducting the much awaited promised plebiscite.

The predominant reason why India and Pakistan have been bickering over the control of Kashmir is because that is where several of the Indus tributaries begin. Needless to say, that there is an immediate need that, both India and Pakistan develop a transparent, participatory, democratic, and rule-based management – with integrated regional approach – of waters of the Indus system.

It needs to be appreciated by the Indian think tank that success of the region (south Asia) is critical to India's long term prosperity. Taking everybody along in the region, instead of being the 'Big Brother' in the region, has to be Indian strategy for ensuring nation’s long term sustainability.

It is the need of the hour that both nations realize there are absolutely no brownie points to be acquired by keeping control over a common natural resource – water of Indus system – which is for public good for the riparian communities – upstream as well as downstream. Any developmental activities being carried out on the upstream of a river system, which has been conceived for good for the upstream communities and without any regard to the downstream communities, is bound to impact devastatingly the downstream communities. This in the long run will only create animosity and mistrust between the communities; which will eventually lead to nuclear polarization of the sub-continent – thereby putting lives of billions of people in the region at stake.  Governments and States have no right to act so irresponsible.

It will therefore require policy makers, researchers, advocacy groups, development professionals and civil society groups from both nations to come together on one platform and build mutual awareness and understanding of the common water resource challenges and put pressure on their respective Governments to works towards achieving sustainable development in all its three dimensions – social uplift, economic development and environmental conservation.

Beyond Kashmir

India, owing to its demographic size and nuclear arsenal, sees its role as a potential counterweight to China on the global platform, and expects that this would translate into economic importance and the much coveted seat on the United Nations Security Council. However, by and large, global strategic currents still continue to bypass India.

India, perhaps instead of looking at China as a potential aggressor, needed to have attempted at understanding China’s global trade and business aspirations and interests, and in the process could have seen itself as a major ally.  The Indian policy makers need to understand that the principal measure of power in the 21st century is connectivity, specifically to global infrastructure networks, trade flows, capital markets and the digital economy; and by that measure China is already a dominant global power. China, as of today, ranks as the top trade partner of more than 120 countries in the world, which is double the number for the US (56), and far higher than for India (just one). Many decades back, when the United States was by far the dominant economic super power, India was far from anything that could have been remotely termed as ‘being on friendly terms’ with the United States. Even now, India views China with great mistrust. In fact, India not mistrusts China but is also equally sceptic about having a trustworthy relationship with its major neighbours – Pakistan, Bangladesh, Myanmar and Sri Lanka. It is sad, all these nations have had a shared past for millennia of growth, prosperity, trade and culture, and even very recent shared experiences of colonial hardships. People to people connect, owing to shared culture across Indian subcontinent still remains strong, and yet, India has miserably failed to convert such powerful connects into formal avenues for economic growth and prosperity.

It needs to be understood with immediate effect, where India has been failing, w.r.t cultivating a mutually beneficial relationship with neighbors, China is having great success at that – creating and forging alliances (especially in the Indian ocean rim) for the future.

The China–Pakistan Economic Corridor often referred to by the acronym CPEC is one such example. The CPEC, is a collection of projects currently under construction at a cost of $46 billion[9], intended at rapidly expanding and upgrading Pakistani infrastructure as well as deepen and broaden economic ties between Pakistan and China. Infrastructure projects under the tutelage of CPEC is expected to span the length and breadth of Pakistan, and will eventually link the city of Gwadar in southwestern Pakistan to China's northwestern autonomous region of Xinjiang via a vast network of highways and railways. Over $33 billion worth of energy infrastructure are to be constructed by private consortia to help alleviate Pakistan's chronic energy shortages, which regularly amount to over 4,500MW. Over 10,400MW of energy generating capacity is to be developed between 2018 and 2020 as part of the corridor. CPEC will be a strategic game changer in for Pakistan’s economy and also in the south-Asian region. The Government of India instead of seeking benefits from this regards portions of the CPEC project negatively as these pass through the Pakistani-administered side of Kashmir, a territory that India disputes.

In response to India’s objection to the corridor, the Chinese Government has stated that the CPEC which passes through Pakistan occupied Kashmir, is not designed to target India or take Pakistan’s side on the Kashmir dispute; instead is certainly a platform to further strengthen China-Pak cooperation. The Chinese position on the CPEC is that the corridor also benefits the region and is likely to positively contribute to the peaceful and steady development of the south Asian region and that many countries have already expressed their willingness to be a part of the project.

It remains open to speculation whether India will choose to oppose the CPEC or seek an active role for itself in the integrated regional development, that the CPEC is expected to facilitate. Even as India seeks to improve trade relations with countries along the Indian Ocean periphery, it must focus on improving its trade balance with China through higher value-added exports, and at the same time also on attracting more and more foreign direct investment from China into power, transportation and other key sectors – sectors that will lead to – social uplift and economic development in India.

To not connect to India’s neighbors – China, Pakistan, Myanmar, Bangladesh, Sri Lanka and beyond is to further cede strategic ground along the 21st century’s new trade routes.



Disclaimer / Caveat: The article reflects the views of the writer alone and does not seek to offend any community within or outside India. Its purpose is to purely encourage discussion.

(This post is not copyrighted and may be reproduced freely with appropriate attribution of source)


[1] JAMMU AND KASHMIR: DISTRIBUTION OF RELIGIONS, http://www.kashmirstudygroup.com/awayforward/mapsexplan/religions.html
[2] Victoria Schofield, "Kashmir's forgotten plebiscite", BBC News World Edition (17 January, 2002),
http://news.bbc.co.uk/2/hi/south_asia/1766582.stm
[3] Manipadma Jena, "NOT A SINGLE DROP TO DRINK", The Telegraph (May 6, 2010), http://www.telegraphindia.com/1100506/jsp/opinion/story_12381918.jsp
[4] As per the Food and Agriculture Organization (FAO) of the United Nations renewable water resources are computed on the basis of the water cycle. They represent the long-term average annual flow of rivers (surface water) and groundwater. Natural renewable water resources are the total amount of a country’s water resources, both surface water and groundwater, which is generated through the hydrological cycle. The amount is computed on a yearly basis. Not all natural freshwater, surface water or groundwater, is accessible for use. Exploitable water resources (manageable water resources or water development potential) considers factors such as: the economic and environmental feasibility of storing floodwater behind dams or extracting groundwater; the physical possibility of catching water which naturally flows out to the sea; and the minimum flow requirements for navigation, environmental services, aquatic life, and others.
[5] Food and Agriculture Organization, AQUASTAT data, https://knoema.com/atlas/Pakistan/Total-renewable-water-resources-per-capita
[6] http://www.gwp.org/Global/GWP-SAs_Files/CWP%20reports/World-Water-Day-Events-report-2015-Pakistan.pdf
[7] https://www.youtube.com/watch?v=2cUJ8IeNXd0
[8] Food and Agriculture Organization, AQUASTAT data, http://data.worldbank.org/indicator/ER.H2O.INTR.PC?year_high_desc=true
[9] https://en.wikipedia.org/wiki/China%E2%80%93Pakistan_Economic_Corridor