The Government has recently set up a committee under the chairmanship of K.G. Subrahmanyam  to look at long-term strategic options for our external policy. Such an exercise is long over due.

A country’s foreign and defense policy is generally shaped by what it perceives as threats to its security and integrity where an explicit and hostile intent by specific parties can be identified and countered.  But in today’s world a country’s external policy must move beyond direct threat perceptions and take into account two further concepts – competition and vulnerability.

Competition refers to rivalries that fall short of explicit threats in the political, economic, cultural sphere.  The tussle to get oil concessions is an example. Vulnerability is a much broader concept.  It covers the impact on the possibility of stable progress at home of events/trends/policies in other parts of the world. These may not be directed at us specifically. Yet they have an impact on us and our external policy must look beyond threat management and provide insurance against vulnerability.

Vulnerability can come from instability in other countries, its spillover effect and the effect of responses of regional or global powers to this. 

The most important risk is of instability in Pakistan and the potential US response which could be swift and severe given Pakistan’s nuclear status.  India is also vulnerable to instability in other neighbours, mainly because of spillover effects like refugee flows and the impact on domestic politics The Tamil issue in Sri Lanka, the Maoist insurgency in Nepal and the ethnic tensions in Bhutan are relevant.

Central Asia and the “-stans” are also in for some instability which is already manifest in most of them. Instability in this region is of some consequence for India if gas supplies from the region become crucial.

Instability in West Asia is a near certainty as the Gulf  sheikhdoms are not viable polities. There are other uncertainties in West Asia.  Will the Palestine-Israel imbroglio ever be resolved? If it is, will it lead to a revival of secular Arabism? What will be the role of Iran and Shiah militancy?  What of the US response to Iran and its nuclear ambitions? 

The future evolution of West Asia will have profound impact on India because of its impact on oil supplies, and the stability of Pakistan and Central Asia.  More than that the disruption of oil supplies can have profound consequences for the world economy with further spillover effects on India.

Turn now to China where economic liberalisation and the growth of a middle class will continue to generate pressures for democracy.  Tiananmien was only a beginning and the crucial issue for India, and for that matter the world, is will the Chinese polity find a soft landing?  Of course from a narrower perspective Chinese instability is not necessarily a problem for India. It may even reduce competition in Himalayas and support for Pakistan’s military ambitions.

The sketch of vulnerability from political events in other parts of the world involves one common uncertainty– the potential US response. The choice between the unilateral route, coalitions with willing regional satraps or pliant multilateral institutions will vary, but the underlying belief in importance of US hegemony (“full spectrum dominance”) is common to all the possible responses.

Political instability is clearly the most important source of vulnerability, because the uncertainties it engenders can leave few options for defensive action.  There are two other global trends that will constrain national options – the growth of evangelical interventionism for human rights protection and a tightening of arms control regimes as a response to terrorism.

Economic instability can be as disruptive of the possibility of stable progress.  One must distinguish here between the normal vulnerability of the trade cycle from the deeper instability of a large-scale breakdown of the world trade and investment system.

In the longer term a lot hinges on the willingness of world to hold dollars as the preferred reserve currency.  There are no immediate sign of declining confidence but the huge dollar stocks in hands of China, Taiwan, Hongkong, Singapore and Japan makes the whole system depend on sentiment in a few countries.  Could an aggressive US enmeshed in overseas adventures provoke a reaction?  What of the possible impact of US domestic debt burden on confidence?  If the US cannot finance its balance of payments  deficit, major expenditure adjustments will follow in US government (with implications for its defense posture) or in private sector (with implications for world exports to US).  But the world needs a reserve currency and the plausibility of this scenario depends on how the Euro emerges and whether the principal holders of world reserves, the East Asian countries, develop their monetary cooperation to a point where a new preferred reserve currency emerges.

The other principal source of profound uncertainty for the world economy lies in the consequences of any political instability in China and West Asia.  China is the engine of global growth today and any large-scale disruption of Chinese imports and exports would certainly throw the world economy into a major tailspin.  Disruption in West Asia could affect global energy supplies severely and the potential for disruption can only grow as the world depends more and more on Gulf oil.

There are other areas of external vulnerability, which have to be addressed even if the consequences lack the character of a sharp and well-defined crisis.  Most of them are related to global and regional environmental issues.  In many of these cases the impact on the possibility of stable progress are even more profound than with political or economic crisis.  Some of these are energy and climate change, water issues with neighbours, global pressures for forest and fishery conservation and the possible spread of communicable diseases.

No country can insure itself against all uncertainties.  But in our case it would be prudent to look for policy options that could help us if there is widespread political instability in our neighbourhood and if the world economy is disrupted by one or more of the three great risks mentioned above – a major recession in the USA, dislocation in the Chinese economy because of a choppy political transition and oil supply disruption caused by upheavals in West Asia.