'State-sponsored terror is a red line for India': Former union minister Suresh Prabhu

Suresh Prabhu

India is navigating a most challenging time—a trade war and a war against terrorism. Ten-time minister Suresh Prabhu, referred to as India’s reforms man, in a conversation with Shweta Punj said that India’s actions against Pakistan are a reaction. And that state-sponsored terrorism  is a red line for India.  On the suspension of the Indus Waters Treaty, Prabhu said India can find ways to use the water “in the upper riparian part is our own territory, our own Punjab. If you start using that water more, obviously, the lower riparian area will get less. So, there are ways of using that water. Of course, the other way is storage, which can actually be used to generate electricity or something.” India must ensure that linkages of a state to terrorism are completely delinked, he emphasised.

On the trade talks with the US, agriculture and dairy are two sensitive sectors, he pointed out. Good chemistry between US President Donald Trump and Indian Prime Minister Narendra Modi will play a big role because “political intervention  is really what drives the final conclusion”, he said. Edited excerpts:

If you look back, from the time you became a cabinet minister in 1996 in the first flush of liberalisation to today, would you say that the times we're going through right now are perhaps some of the most difficult in India's contemporary history?

Firstly, the terrorist attack is a most deplorable one and the saddest part is that these are innocent people. They were just tourists; they were just randomly killed, mercilessly annihilated. So that's a very, very sorry state of affairs and really deplorable, and whoever has done it, as the prime minister said, we must hunt them down and give them a severe punishment for the crimes they have committed.

Now, if you look at it globally, yes, we are passing through very challenging times. In a sense, we always felt that there is a world order, there is a governance structure that is going to operate global affairs, which is right now under a lot of stress. For example, there was a GATT, General Agreement on Tariffs and Trade, which was done in 1948, but that was not an organisation. So we created WTO, the World Trade Organisation, to regulate global trade and  also to bring in rules and regulations, to put in place a system so that if there is anything wrong going on, we have a redressal system. All that is now changing.

Multilateral agencies were part of the global governance system. The US has already walked out of WHO, the World Health Organisation  at a time when we realised that global health is a big issue, highlighted by the coronavirus pandemic, which was just four, five years ago, and now suddenly they have walked out. So, WTO is under stress, WHO is facing a problem, and then also the Paris Agreement (on tackling climate change), which was so laboriously agreed upon, where Prime Minister Modi played a role and President (Barack) Obama from their side, along with then French PresidentFrançois Hollande—and now suddenly the US has walked out of that.

So just imagine: globally, the biggest challenge globally is climate change; the US has walked out of it. Health—we always felt public health is not an issue, private health is something people should look into—that belief was challenged during the time when we had COVID. The WHO is now in a very difficult situation. And the WTO… You know it well, that trade drives economic growth globally.

In fact, we have always seen that the WTO was regulating it, but because of trade, the world economy expanded like never before. In world economic history, the unprecedented economic growth that happened till 2008—of course, then it slowed down a bit—there is absolutely no comparison to that. Today, the world’s biggest economy is saying that it will rescind whatever agreement it has had or whatever the trade order that was prevailing.

So we have to see the economic challenges that arise because of trade, the health challenge, the challenge of climate change, which is threatening each and everyone's life. You are right in saying that these are very different times, unprecedented times. And also, we have taken certain things for granted. For example, nobody could ever imagine that the US, Canada and Mexico—close neighbours— would have any issues. We could never imagine that Europe and the US would be at loggerheads.

So these are never-thought-about situations, at a time when we need stability, because we had a contraction of global GDP during COVID we were just coming out of. And now suddenly these types of problems have come. Also, none of these problems can be tackled without global cooperation. You cannot deal with climate change unless all countries agree. That's why we had the Paris Accord. And earlier we had the United Nations Framework Convention on Climate Change.

We said during COVID that no one is safe unless everyone is safe. What it meant was that it is global—anybody anywhere could catch COVID eventually. So at a time when global cooperation has to be the cornerstone of running the world, we are actually moving away from it. So it's a very big issue.

I want you to apply this idea that no one is safe until everyone is safe to terrorism. After what we witnessed a few days ago in Pahalgam, Prime Minister Modi has had talks with global leaders as well, where he made a very strong statement that the culprits would be held accountable. We've suspended the Indus Waters Treaty, to begin with. How much is that likely to hurt Pakistan?

Firstly, as you said, among the global challenges, terrorism is undoubtedly one of them. Because if a terrorist hits a particular geography, it is only a manifestation of the mentality that is happening at that particular point. So it appears local in that sense. But it's actually part of a global terror network. The motivation comes from a certain global ideology and philosophy that is causing all these problems in different parts of the world.

Therefore, it has to be dealt with globally. Now, terrorism again can be divided into two parts. One is an individual act of terror, the other is state-sponsored terrorism, which in itself is a very dangerous thing. It is one thing for a person to randomly conduct a mass shooting. But if you are actually sponsoring it as an act of your state policy, it's a very dangerous thing.

In terms of government action, the suspension of the Indus Waters Treaty—what is the treaty all about? You agree on certain things, for a mutual benefit.

The whole idea is that the river is flowing in one particular direction. We want to make sure that a lower-riparian country like Pakistan also enjoys the benefit of that river’s flow. The whole idea is that you should also benefit and that's how the treaty has survived for so many years. But the very fact that there is such a strong, unprovoked, uncalled-for action on the part of the other country to really try to kill some innocent people and give shelter to them—obviously, the government has to do something, and this is one of the actions the government has initiated. Obviously, it is a suspension and, therefore, the government is expecting the other side will react and say we will stop the state-sponsored terrorism. I think that's what should really happen, and that's good for them as well. Because terrorism is actually also a big, big problem for all countries, including the countries that actually harboured it to begin with.

But please try to realise—who started this? Did India start it for no rhyme or reason? When innocent citizens of our own country are killed—including a man married just five days earlier and who was on his honeymoon, killed in front of his wife. So something like this, such a dastardly act, really needed some strong response. And that's why the prime minister said we will do everything possible within our own rights, within our own sovereign power, to make sure that the perpetrators of this crime are punished adequately. That's why this is a reaction, not an action, that's what we must keep in mind.

Is stopping water from going into Pakistan feasible? We don't have the infrastructure to really hold back or store water. If we try doing so, we risk flooding the area. So, technically and practically speaking, how do these sanctions really play out? Will it hurt Pakistan as much as we think it would?

Firstly, as I said, the river flows in a particular direction. The upper riparian part is our own territory, our own Punjab. If you start using that water more, obviously, the lower riparian area will get less. So, there are ways of using that water. Of course, the other way is storage, which can actually be used to generate electricity or something.

But even without storage, more use of the water is possible, to irrigate more land, etc. So it is definitely doable. But as the government has said, it is a suspension, to make sure that the other side also realises that what they have done is something that harms innocent people in India for no rhyme or reason.

When we talk about suspending a treaty, it gives us a timeframe, right? Hydropower projects have been stalled or slow to get off the ground in the whole region primarily because Pakistan has raised a lot of concerns around them. The Shahpur Kandi project took 45 years to build. I want you to wear your power minister hat now—how should India go about its projects during this window? How crucial is it for India to build its water infrastructure in the area? Because it is not only working with the economy of the region, it is clearly also a national security issue.

There are various ways you can use the water. As I said, storage is one part. The second is actually usage of water for agriculture, for power generation, for many other things. You can do power generation not only by storage, you can also have pump storage, where you use the same water, pump it back, and keep generating electricity. So there are many ways the water can be put to use. But as I said, this is our right. The government also must be thinking about it. I am not aware of what they could be doing. And they will also be awaiting a response from the other side. They should not say this is something unprovoked. This was something started by killing innocents. India didn't do anything at all in this context.

We must be very clear and conscious of the fact that India is only reacting to an action that was completely unwarranted, unnecessary and deplorable—the most heinous act of killing innocent people. Obviously, we are doing everything possible to respond to this.

Any other sanctions that India can impose on Pakistan? Any economic sanctions that we can look at that could hurt Islamabad?

We already suspended visas. We also worked on the diplomatic missions, bringing down the staff on either side. I think this is something India is doing and there will be many more steps that can come up depending upon how the situation evolves.

Coming to China because the China-India relationship gains a lot of significance with this development. Pakistan and China are seen as close partners. India and China have a complicated relationship. Trump has nearly declared a trade war against China. How should India tread now given that the relationship it has with China becomes even more important considering the heightened tensions with Pakistan, besides the fact that we have a trade war going on?

Again, look at China. Until 1962, we had good relations with Beijing. China again unnecessarily encroached on our border, occupied our territory. So for a long time, we had no relationship with China on any account.  Then we decided that we will start trade with them, start normalising the relationship, and we will keep discussing the border. Then China again transgressed that agreement and actually tried to do something, which was recently de-escalated and disengagement also has happened. Prime Minister Modi and (Chinese) President Xi Jinping have had meetings on the sidelines of larger summits.

Today China has a huge trade surplus with India, and our trade deficit with China is huge, almost $100 billion. So trade has grown but not in favour of India. Therefore, we'll have to negotiate with China to find a way out. When I was commerce and trade minister, we had made that effort to find how we could reduce the trade deficit. Because it cannot be one-way traffic that India only runs a trade deficit all the time and China benefits. I had told them that we have identified certain products like pharmaceuticals that faced entry barriers in China, with regulatory bodies—what you can call non-tariff barriers—and also issues related to logistics within China, because after reaching the port, the goods have to go into the hinterland to the marketplace. I think China must address those issues. And of course, it is very clear that nobody, no country in the world should support terrorism. No country in the world should stand by a country that has state-sponsored terrorism. That's a red line for India. India will definitely not like to deal with a country that supports state-sponsored terrorism.

If you were commerce and trade minister today, how would you approach the bilateral trade agreement with the US? What according to you are the complete non-negotiables?

This is not a first. The US is a very important partner of India. We have a strategic relationship that we value a lot. We have a lot of common interests—security issues, trade issues, and many others. Technological issues, education—many Indians go and study there.

There are more than 5-6 million Indians actually working in the US or are part of our diaspora. So, in that situation, we look at the US-India relationship from a much broader perspective. Trade is an important but not the only part of the relationship. The US also realises the importance of India playing a critical role in global governance.

As US Vice President JD Vance who visited recently said, we are past the first 25 years of this century. How the world evolves in the remaining 75 years will also depend on the US-India partnership. To that extent, it's a very important relationship and partnership.

We have a trade surplus with the US. In fact, the largest trade surplus India has with any country is with the US. What is important to understand is that trade is two things. One is merchandise, the other is services Globally, the US may have a trade deficit globally. But it has a surplus in services—almost more than $400 billion. Some parts are merchandise—like when you buy a mobile phone. But if you are downloading something from Google or somewhere else, it's a technological product. This is, it's a service.

And then again—we have been telling this to the US earlier too—India is now the third largest aviation market in the world. Two Indian airlines, Air India and Indigo, have placed orders for almost 1000 new aeroplanes. We could buy that from the US. Then the trade deficit will completely change.

The US has discovered huge shale oil and shale gas reserves. We could probably buy that from them. So this trade surplus/deficit is dynamic. It can turn today's deficit into a surplus tomorrow.

Moreover, India is a growing economy. It is not static. It is a dynamic economy slated to become the world’s third largest soon. Once we cross the threshold, we can probably grow at a faster rate.

All of that could change the dynamics of trade between the US and India. And trade is only one part. As I said, it's a very comprehensive relationship. I always say the phrase trade-off came from trade. There has to be a trade-off. Let us see how we can work it out. But I am sure we have very good, experienced and knowledgeable people who will represent India. And they will be able to work out a good deal with the US.

Do you think there are specific sectors where our tariffs are much higher and India should be prepared to let go of those tariff barriers? Because some sectors have been pushing for zero tariffs also, especially electronics.

I think the government is already talking to stakeholders, including industry, and also talking to specific sectors, which will probably have some impact. First of all, auto components—the US has already levelled a 25 percent duty, not just for India but everybody. Then they have put a 10 percent blanket levy for all the countries. Let us see how that evolves. But I think, sector by sector, if you look at it, two sensitivities will be dairy and agricultural products. Let us see how we can take that forward. Because we also have a large agriculture sector. We have got a very big dairy sector.

I am sure with both the parties deciding to iron out the differences, it is not a very difficult thing to do. Also, knowing the very good chemistry between Prime Minister Modi and President Trump, I think that will work. Because finally, these trade deals are negotiated for sure. But political intervention is what really drives the final conclusion of it.

How are you reading President Trump calling India a tariff abuser, tariff king? Do you think that's a lot of political rhetoric and at the end of the day the camaraderie between the two leaders yields a trade relationship that could be mutually beneficial?

India had kings almost eight decades ago. India now has no kingdom or king. We are a democracy. I think it's okay politically sometimes to use some rhetoric. But India is, I can certainly say, not a country that has the highest tariff regime. We have some tariffs for sure. But that has been historically done to protect some of our sectors because we are a developing economy. We have a large number of people who are poor.

Amul is one of the big brands that India has produced for the global market. Of course, I would not say the entire global market, but still, an acceptable, respected, acknowledged brand. Who supplies milk to Amul? It is all women farmers. And they have a very small number of cows. And even our agriculture—those who have more than 2 acres of land will not be even 5 percent of India's population of farmers. So, it's small farmers, small dairy farmers. That's why we have to protect this interest.

But I would definitely say India does not have the highest tariffs. There was a time when it was the case. But over a long period of time, in the course of the last 35 years, we have reduced it considerably to comparable with global levels. There are countries that actually have even higher levels. But now the US itself has put 10 percent on all the countries. Right.

You have been a minister under Atal Bihari Vajpayee and Modi. And in the last 10 years of Modi's term in India, there has been an idea of India that has been spoken about and that has been discussed, from an economic perspective as well. But I want to get a sense from you on how you would view the state of the economy at this point. Because currently, from the corporate results we are seeing, the IT sector has given a very subdued forecast. We are seeing a jobs problem.

When Modi came to power, he promised jobs. There was this promise of minimum government, maximum governance. But the sense one gets is the government continues to be omnipresent. And we are seeing economic stress in the country. But how much of that is to do with domestic policies and how much of that is to do with the global environment? The global effect is undoubtedly there on the domestic economy. Because if you look at 1991, our share in the global economic output was much smaller than what it is today.

Secondly, we were not part of a global value chain and supply chain as much as we are today. Then, we were not so much integrated with the global trading system as much as we are now. So whenever there is a global crisis or economic slowdown, it affects India for sure.

Now, the second part, yes, there is always room for making the business environment far, far better so that productivity gains are realised. Entrepreneurship can come to the fore in its ultimate form. There is undoubtedly an effort towards this. If you ask me, Prime Minister Modi's personal view is that he is really for it. He genuinely believes that entrepreneurship should thrive and therefore he wants—he is trying—to deregulate as much as he can. But of course, there is always room for doing more.

This is something which I know from my personal experience working under him—that he is really interested in making sure that our economy grows faster. He also understands that economic growth can happen only when the private sector, new entrepreneurship, startups all play a key role. That's why he launched Startup India, which is a very important initiative. And today, we are the third largest ecosystem in the startup world.

You have been a policymaker, cabinet minister. There is a vision at the top. And then there are people who have to execute it. How challenging is that? Is it the bureaucracy that makes it slightly difficult for the vision to be translated into action? Where is the disconnect happening? Or is it another peril of democracy?

One thing I will tell you is that Prime Minister Modi has this incredible ability to understand the implementation part. In fact, because he spent almost 15 years as the chief minister of Gujarat before he became the PM, he understands the cutting edge where the action really happens. I have seen him when he was the Gujarat CM as well, how he could understand these final points of execution.

He is trying to work on that. But at the same time, the central and state governments are completely two different entities—constitutionally as well as in real life. And then there is also a third layer of government after the 73rd and the 74th amendments (of the Constitution)—the district government. That's why that always, unless everybody falls in line, things will not happen.

I had worked on something like this when I was commerce and industry minister. Can you work on district-led growth? GDP is calculated nationally but it happens not nationally. The actual economic output—whether it is agriculture, services, or industry—happens in some district. We had launched a programme in six districts of India with our Indian Institutes of Management to prepare baseline studies as well as strategies.

Just imagine, if you now make district-led growth, then the district administration—the point that you are asking about bureaucracy—will now be thinking, My performance evaluation is going to be based on how much economic output I added. Because that's what I am asked to do. Instead, today he is thinking that this is something which is decided either in the state capital or national capital. I have just my law and order and doing some other things as my responsibility as district administration.

If you just change a little bit around, then the district will be now pushing for economic activity. You can  take this idea forward and make sure that we make the district the centre of growth. Then what happens? This is also that point you asked me about employment a little earlier.  When you start doing that for a district, what do you do for economic growth? You will actually first work on the natural resources available in the district. But you also work on human resources available in the district.

So, when the district is the centre of planning, we will automatically bring in all that—using locally available natural resources as well as leveraging the human resources in the district. Employment also can happen at a local level at a faster rate. If you bring a huge technological idea, that may not necessarily translate into more jobs. And particularly now, AI is going to create a huge challenge for some of the existing jobs that will be under threat. In industry, the more manufacturing we bring into the GDP, we will automatically have more technology into manufacturing. More technology means manufacturing share can increase in GDP, but not necessarily the share of employment from manufacturing commensurate with the rise in GDP.

How much of a disruption do you see with AI? It's already been getting reflected in companies' hiring plans in the IT sector, for instance. They have all pared down their hiring outlook. A lot of them have announced layoffs too. One gets a sense that maybe India is a little behind on that AI curve, and there could be considerable pain before the gains start to show.

We cannot stop any technology from being used once it is developed. My view was that we should have a global protocol on development of any new technology. Because if you have a protocol for development of technology, you can bring some ethical standards and issues like that. But once it is developed, when the genie is out of the bottle, then nobody can do anything about it. Today AI is the genie out of the bottle. It is inevitably going to affect us.

Today our idea should now be: if it is there, accept the reality. How can we use it in sectors where common people can benefit more? Say, for agriculture? Can you do it for crop management? How can you do it for cropping patterns? How can you do it for water management? Can you do this for delivery of certain services in cutting-edge technology? Because what you have mentioned earlier is absolutely true.

That, for example, if you can bring AI into areas where the delivery of services happens, everything can happen. One area I just thought of, and not sure it can be done—suppose you use AI, because now we have a unique identity for every citizen of the country. Now, suppose you use AI for taking a poll on certain issues that the government thinks is important, which is going to affect people. Today it is very difficult, with 1.5 billion people — how can you get their opinion on this? But AI can help you to do that. You can understand the public opinion on a particular subject. Want to start a particular project? You don't want to start a particular project? Maybe locally you can use AI-based opinion taking on that subject.

AI can be used in other areas that will improve the quality of life, and can increase the participation of people in decision-making. Don’t look at it as only a threat. It is a threat, for sure. Elon Musk said five years ago that he was going to bring in autonomous cars, that the drivers of the world would go jobless. Just imagine: there are millions of drivers in the world. Not only in India, globally. So if you bring completely autonomous driverless cars, what happens to them?

Therefore, I think we will have to really work on areas that will benefit the common people. Some displacement is inevitable, some disruption unavoidable. But can we create and use that same technological tool for doing something better for the people? Lke farmers—they are totally away from technology now. Can we use it for their benefit? We will have to think something like that now.

I want to go back to the Pahalgam terror attack. You A What are three things according to you that India must do at this point to give a very strong message? And also, to take this war against terror global—to get world leaders to support us?

Prime Minister Modi himself has been talking about it—that there should be a global coalition against terrorism. That's the one track already. But here we clearly know where the terrorists came from. We know where the terrorists must have gone and therefore we know who the inspiration and supporters are. I think we must ensure that such linkages of a state to terrorism are completely delinked and they should not be allowed to carry this on with immunity. We will definitely make sure that we will take action that is warranted, that is necessary. And I hope that no country will ever be able to dare to do it against India anytime in future.

We did not suspend the Indus Waters Treaty when Pulwama happened. Is now the time for India to work with a single-minded focus on building its power infrastructure in these areas which are very sensitive when it comes to security? Because that will automatically also add to our capability to hit back when needed.

That's one option. I am not in the government. The government must be exploring all the possible options available to them. And I am confident in the leadership of Prime Minister Modi, that he will do whatever is in the best interests of India at a time best preferred by India. I think we will have to wait and watch and see how it unfolds.