Afghanistan In Mid-2021 And The Indian Conundrum

30 AUGUST 2021

The situation in India's neighboring country Afghanistan (technically India has a border through the Wakhan Corridor) has turned from unpropitious to highly worrisome for all stakeholders in a matter of 2-3 weeks of August 2021 and in the process, making this a historic moment. We, at PBS, have been keen followers of historical developments and this one is no exception. Guided by requests from our clients to shed some light on the situation there and also weigh in our thoughts on India's behavior of the road to be pursued ahead and also the economic fallout of that crisis on doing business here in India, we requested CA Karthik Natarajan to provide his take on the same.

A week, they say, is a long time in politics. Given what's transpired in Afghanistan in August 2021, we may say that a month can pack a decade-shaping events.

Afghanistan's Modern History to Date

By way of recap, here's what has happened so far in the war-torn country.

For much of 19th century, Afghanistan was a fertile ground for geo-political games between the Tsarist Russia and Imperial Britain, both harboring beliefs that the other would harm its interests strategically. Britain feared that Russia planned to invade India (Crown of the British Imperial Holdings) and Russia feared the expansion of British interests in Central Asia. This, in our considered view, laid the unshaking foundation for wholesale interference of foreign powers in Afghanistan's matters, something which continues to this very day.

In the first half of 20th century, Afghanistan seemed to unshackle foreign dominance under a monarchy, but that semblance of independence vanished when Sardar Mohammed Daoud Khan converted his country into a republic and shortly, thereafter being overthrown himself by the Saur Revolt, ostensibly supported by the Russians. This paved the way for the Russo-Afghan war, which saw anti-communist forces led by the United States of America enter the scene to destabilize the then-Communist Russian-backed Government. Even after the Russians ignominiously packed up in 1989, Afghanistan plunged into a deadly civil war since a lot of countries were meddling in its affairs the chief protagonists being America and Russia, culminating in the Taliban takeover of Kabul.

We, in India, remember the Taliban 1.0 regime for the infamous Kandahar Air-India hijacking episode, which saw India capitulate before the demands of kidnappers and the release of terrorists, who would later play their ominous part in horrendous crimes globally.

Yet another historic moment visited Afghanistan in September 2001, when thousands of miles away, terrorists demolished the World Trade Center in New York, thus taking the battle to American continent and earning the ire of the United States of America. This triggered an American-led invasion of the country, which saw stationing of foreign troops in Afghanistan and which President Trump tried to wrap up by the Doha Agreement with the Taliban, who were down but never out in these 20 odd years, often finding sanctuaries in neighboring Pakistan. The process of vacating foreign troops continues to this day, unabated even despite a Democratic US-Government led by President Biden. Things stand precariously at this juncture.

Why has it come to the current Impasse?

Though America and its allies took the fight to the Afghan territory 'to drive out Al-Qaeda and Taliban and other terrorists' as President Bush Jr. put it, but the fact of the matter remained that despite achieving modest success in eliminating a lot of terrorists especially from Al-Qaeda network including their Chieftain Osama Bin Laden, the Americans could not eliminate the scourge of terror completely. And given the long stay in a now unwelcome Afghanistan, the Americans sort of became part of the problem, with drone strikes killing civilians and America trying to superimpose their model of democracy on an unfamiliar and unready populace. It didn't help either that the two successive Afghan Governments did not achieve spectacular progress in winning the trust of its people. Thus, there was a deep resentment of foreign presence in Afghanistan which seems to have been exploited by the Taliban backed by its unscrupulous backers in Pakistan and suspectedly China and perhaps even the Russians, who have a wedge to settle for their ouster from Afghanistan earlier.

So, we now have a situation where the US and its allies want to leave the country, but their exit is being complicated by a host of factors including vested interests trying to retain the Americans in Afghanistan and certain others who want to inflict greater humiliation of sorts on the hapless foreign troops vacating the place in a hurry. That's the impasse playing out in the war-torn nation these days.

What about India? What must be its Path Ahead?

An unstable Afghanistan teeming with terrorists of all hues augurs badly for the security situation across the world and India has been and continues to be a special recipient of that unwanted attention. After all, India is a thriving and shining example of democracy which some envy and a rising power which many want to curtail. We feel that India's famed Unity in Diversity presents few fault lines which its enemies have been and would be keen to exploit and the crisis in Afghanistan offers a conducive conduit for such a dubious foray.

In our considered view, we, at PBS, believe that -

• India should keenly watch the current situation as fluid and dynamic as the waters flow in the Kabul River and hedge its options and not rush into any action.
• The priority must remain to ensure that the Indians and their assets (as a show of our gratitude) in Afghanistan reach India/its bases safely.
• India needs to also make certain that Afghan minorities are given a safe passage into India as they have nowhere else to turn to.
• It would also help if India could conduct an assessment of key Afghan constituents whom it feels could play an important role or could contribute incrementally to Afghanistan's future and concentrate on them for grant of varied kind of protections.
• Indian Ministries of Education and that of Commerce and Industry in tandem with the Ministry of External Affairs needs to facilitate additional intake of Afghan research scholars and bright students in our Universities and Colleges after careful scrutiny, of course. India must welcome Global Talent for local Research and Development, to become a Global Hub in 5-10 years.
• Guided by the motto of ensuring a Stable Afghanistan and prosperity of its People, India must engage with whoever is in Power there and has been legitimately recognized by the International Community. To achieve this end, India must not display a tearing hurry, need not be the first mover and can take its own time for the recognition and establishment of ties, synchronizing itself with like-minded nations, having congruence of 'geopolitonomic' (geographical, economic and political) interests. Of course, it goes without saying that until the globe accords recognition to an Afghan Government, India must keep channels of communication open and live with all stakeholders, including the Taliban. Talking does not mean giving up or capitulation. Talking could very well mean engaging now for a serious discussion at a later day. It needs to be remembered that the Taliban had also kept on engaging the Americans and even the Ghani Government in talks without ceding much and finally, striking when it was opportune.
• The new Afghan Government may reach out to India for business links and economic aid. But in our view, unless safe passage of our businesses is tangibly guaranteed (not like how the Taliban gave guarantees written on water to the Americans), Indian businesses must be encouraged to stay away and come in harm's way, leading to pressure put on the Central Government in the eventuality of a safe evacuation. The World is a big place and we argue that it may not hurt India's economy a bit if we did not transact much with Afghanistan in the backdrop of the current turmoil. Some might argue that there's a trillion US dollars' worth mineral reserves. But we strongly believe that on sound principles, India must not hanker to share the ill-gotten spoils from Mother's bounty and benevolence.
• On Economic aid to Afghanistan, we feel that there are enough sister-nations in our neighborhood who deserve our attention and aid and they may be prioritized.
• As for now, we do believe that India could sit back and enjoy the spectacle with popcorns as all the major players believe they need to do something proactively to fill the power vacuum that the US and its allies will leave behind, though not completely.

How will it impact the Cost of Doing Business in India?

• In our considered view, the Indian business climate just got a notch tougher in terms of risks owing to the Afghan situation. So, businesses having links to the Middle East can now experience higher insurance costs and also elongated delivery schedules.
• Ditto for business sourcing and dealing with the Indian state of Jammu and Kashmir owing to heightened security concerns.
• One-off security challenges in the India (such as sporadic bomb-blasts) may disturb the localized economy for a day or so leading to hoarding and black-marketing; then it will soon be business as usual.
• Flight costs may push upwards given the closure of Afghan and Pakistani airspaces for flights to and from India. Airlines may feel the need to recalibrate the least cost route to operate from India. This will lead to increase in freight costs for goods supply to and from India.
• The Government of India must seriously encourage and incentivize the Indian businesses, through various ways and means, to explore opportunities of becoming the preferred backend supply chain to front-ending businesses dealing with Afghanistan whilst predominantly based in the Middle-East and Europe.
• Continued higher defense spends by the Indian Government means higher need for funds for national security and also social security and therefore, we may not see any tapering or sobering of the tax rates (income-tax and GST) in the mid-future, definitely not in the next couple of years. 2024 could be different as that will be the Poll-Year here in India.

Disclaimer:

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