Wednesday, March 13, 2013

Importance of India

Kanwal Sibal 
(Member, VIF Advisory Board)

The back to back visits of French President Francois Hollande and British Prime Minister David Cameron to India in February call attention to the European dimension of our foreign policy. many in our establishment have a tendency to dismiss the importance of Europe.

It is argued that Europe is trapped in low growth structurally, its population is ageing, its welfare syatem is becoming unsustainable, its products are not sufficiently competitive, it has reached a alevel of comfort that makes reforms difficult, it has lost its edge in innovation, its defence capacities have got eroded with the decline in defence budgets and peace in the continent. The Eurozone crisis has strengthened the already negative perceptions.

Such thinking is fed by the conviction that global economic power is shifting from the West to Asia, and along with that political and military equations are also changing. Sooner or later, it is believed, the US/European hold over international political and economic institutions will be loosened. On the issue of “values”- those of democracy, pluralism, human rights and the like- both the aggressive manner in which US/Europe propagate them and the double standards adopted in this exercise has eroded their appeal, not to mention that China’s economic success in moving hundred of millions out of poverty under an authoritarian regime offers a competing model for numerous countries that have no tradition of democracy and no attachment to it.

India’s own high growth rates in the last few years, the transformation of its image from a poverty stricken country to an engine of growth for the global economy hit by recession, the bracketing of India with China in economic discussions in the perspective of these two countries steadily recovering their share of the global economy which was lost to Europe after the 16th century, the projections that India will become the third largest economy in the world by 2030, has led to the development of a certain world view in which Europe no longer looms as large as before. The US still retains its hold on the mind of those looking at India’s future.

Despite its current financial and economic troubles, it is believed that the US is still capable of innovation and that its recovery will be quicker than that of Europe. US military strength and its presence in all regions of the world also gives assurance that through good understanding with it many of the challenges India faces can be met or alleviated, whether that of terrorism or the threats posed by the rise of China. Europe, militarily dependent on the US, is not considered as a potent enough partner in this and hence a certain amount of disdain for the value of the strategic relationship with it.

Some commentators are presumptuous in arguing that for France, for instance, “to become a partner more in synch with a new post-liberalisation India, the key would be to make itself meaner and leaner at home”, a reference to hard decisions it needs to take on welfare costs and government spending. It is not clear whether with some 300 millions below the poverty line, urban decay, inadequate sanitation and the anguish in the country about poor governance we can smugly refer to the “new post-liberalisation India”.

Our declining growth rates, large fiscal deficit, expanding current account deficit, the fall in the value of the rupee, are problems we need to address urgently before we are in a position to give lessons on economic management to Europe. Sniping at the French economic model that is ceaselessly attacked by the Anglo-Saxons who believe in less government, less regulation and weak trade unions hardly clarifies the debate on the Indian situation and the economic and social policies we should pursue. It is not clear where calls for “inclusive growth” in India figure in the thinking of those who find continental Europe’s welfare model incompatible with the new Indian economy.

Europe, in which France and the UK are key countries, is our biggest trade and investment partner as a whole. It is for this reason that the crisis in the Eurozone has affected us, whereas we were able to weather better the impact of the 2008 financial crisis in the US. France and the UK are the world’s fifth and sixth largest economies. To believe that our economic ties with them can be neglected is being myopic. Both countries have much to offer us by way of high and advanced technologies, both civil and military; they provide markets for our products; two-way investment flows are important for our growth and for Indian companies to acquire assets that would strengthen their international profile and make them more competitive globally. In the WTO negotiations and those on Climate Change and the linked issue of green and carbon technologies, both countries are undeniably important. In the India-EU negotiations on a Free Trade Agreement, the role of these countries cannot be under-estimated, which is why during both visits India has called for a broad-based and balanced agreement in 2013.

French President Hollande chose India as his first destination in Asia and arranged to come early into his tenure. He wanted to signal that France attached high importance to its relations with India, more so the upsurge in the relations at the strategic level occurred during the presidency of his two predecessors belonging to the Gaullist tradition. As a Socialist president he wished to signal continuity in the relationship. There is good reason for France to focus on India as opportunities are immense for French equipment and products in an emerging market like India, with a growing middle class avid for consumer goods, with an industry in need of modernization and technological upgradation and an infrastructure desperately requiring improvement for which the government plans 1 trillion $ of investment in the next five years.

French economic presence in India is already considerable. The level of two-way trade at Euros 8 billion is not high. The target set in 2008 to double the trade then to Euros 12 billion by 2012 has not been met. French economic troubles and lower growth in India will not make it easy to increase trade volumes dramatically. On the investment side, while official figures show $3.5 billion French investments in India and $300 million Indian investments in France, the real figure of French investment, if investment from all sources by its global compnaies- from Mauritius, Singapore etc- is taken into account and not only mainland France, the figure is an impressive 17 billion.

A similar study of Indian investments in France would show a different figure, though it can be said that French regulatory requirements and labour laws discourage Indian investments in France as compared to the UK, for instance. The problems faced by Laxmi Mittal’s steel business in France could not but have dampened enthusiasm, though the fall-out from the issue seems to have been contained. Some 750 French companies are impanted in India, employing around 240,000 skilled workers. Much R&D work is being done by companies like Lafarge, Alsthom, L’Oreal, Cap Gemini, STMicroelectronics etc. France has strengths in the areas of urban development including infrastructure, water and waste management, transport and urban planning, apart from railways, and the president’s visit focused on them.

The civil nuclear dimension in Indo-French relations is of particular importance. The Jaitapur Nuclear Power Project, when finalized, will crown the constructive policy France has pursued on the nuclear issue involving India within the constraints imposed by the western policy of sanctioning India for non-adherence to the NPT, cultivating the ground for the eventual NSG exception for which the US palyed the most critical role. The new 1650 French EPR reactors, six of which will be located at Jaitapur, have undergone an intensive safety review after Fukushima, to India’s satisfaction. The issue of cost remains and so far there is no closure. Ways to reduce costs by manufacturing some components in India have been explored. Our effort is to bring the tariff figure as close as possible to the Kudankulam 3 and 4 tariff; there is also the issue of periodic escalation of cost of French supplies whereas the Russian deal is on a fixed price basis.

Hollande would have ideally wanted some demonstrable progress in negotiations in the context of his visit. The positive language of the joint statement would have given some satisfaction to the French, as it states that the status in regard to the first two EPR units was reviewed and the hope expressed for an expeditious conclusion of the negotiations. The Prime Minister in his joint press briefing stated reassuringly that “both leaders reviewed progress on the Jaitapur Nuclear Power Project and reiterated their commitment to its early implementation as soon as the commercial and technical negotiations, which have made good progress, are completed”.

Indo-French defence cooperation has been long-standing, with France supplying over the last almost 60 years a whole range of defence equipment. Our relationship with France in this sensitive domain has been time-tested, with France proving a reliable defence partner. France nevertheless has to contend with strong competition, not only from fellow Europeans, but also the Israelis and the Americans. Winning the 126 fighter aircraft contract against the Eurofighter has been a remarkable French success. Resistance from the British has not ended though, as they still look for an opportunity for re-entry should neogiations with Dassault falter.

It is believed that Cameron had intended to flag Eurofighter’s case to the Prime Minister, but statements during Hollande’s visit that contract negotiations were proceeding smoothly may have deterred him. The French had been told in advance of Hollande’s visit though that the Rafale contract would not be ready for signature. The French president would have wanted some statement from our side during the visit that would give him assurance of progress towards finalization, which he got in the joint statement that mentions that “both sides noted the progress of ongoing negotiations on the MMRCA programme and look forward to their conclusion”. PM’s statement to the effect that “discussions on the MMRCA contract are progressing well” would have added to the satisfaction.

The French could have legitimately hoped that at least the finalization of the much delayed SR-SAM project would be announced during Hollande’s visit. Here too the French had to live with disappointment, though the positive language in the joint statement- “steps are being taken for early finalization of the SRSAM Project”- would have been re-assuring, as would have been PM’s statement that “we have also concluded negotiations on the Short Range Surface to Air Missile, which, once approved by the Government, will be co-developed and co-produced in India”. The PM noted addditionally that “there is a welcome shift from defence trade to co-development and co-production of advanced defence items in India, which will help expand our domestic production base and strengthen the India-France strategic partnership”.

In the domain of space, another significant area of Indo-French cooperation, the next step after the successful launch of the SARAL satellite is the ambitious follow-on space cooperation proposals drawn up the respective space agencies in early February, which the Indian side expects should open up prospects for exchanges in satellite technology. Hollande’s visit focused considerably on education and scientific and technology cooperation. About 16 agreements were signed in these areas. France will be the partner country for the 2013 Global Technology Summit to be held in New Delhi. The French are keen to increase the number of Indian students in France and vice versa as the economical/commercial advantages of this is recognized, by Hollande himself in his public remarks.

Cameron’s visit followed closely on the heels of that of Hollande and therefore invited comparison. The UK possesses a wide range of defence technologies and cooperation in this area is considerable. However, unlike France which is building submarines in India and huge aircraft and missile programes are under discussion, besides being a contendor for a major helicopter contract, the UK is not involved in such big ticket programmes. It does not have nuclear reactors to offer, nor is it involved in space cooperation with India.

The “strategic” content of its ties with India is therefore less substantial. During Cameron’s visit it was decided to begin negotiations on a civil nuclear agreement. It was also agreed to step up cooperation between DRDO and the UK Defence Science and Technology Organisation, already agreed in september 2011, but it would seem visas have been denied to DRDO scientists because of the work DRDO does on strategic programmes.

Unlike France, which is relatively more liberal in technology transfers, the UK has been restrictive and this has to change to boost technological coopertion. Cameron committed the UK to make available to India the cutting edge British technology, civil and military, that the UK currently shares with its top international partners, but it remains to be seen how much this gets translated into reality.

On a more positive side, the co-investment made by both countries in supporting joint research activities has risen from £1m in 2009 to over £100m today with advanced manufacturing, bio-energy, smart grids, energy storage, next generation wireless systems and applied mathematics as areas of collaboration. The energy sector including oil and gas, renewable energy, energy efficiency, the power sector, low carbon technologies are areas identified for fruitful exchanges, with India welcoming the substantial British investment in its energy sector.

On the economic side, while preparing for Cameron’s visit, it was thought that a signature project such as the Mumbai-Bangalore industrial corridor for British investment was needed for creating a real impact. India has been interested in British investment in its infrastructure, for which a joint Infrastructure Committee set up in 2011 has not produced much result so far.

Sceptics in India have felt that the economic crisis in the UK hardly gave hope of any major UK investment. Cameron actually spoke of British architects, planners and designers for the project, not the kind of financing made by the Japanese in the DMIC. In the event this signature project was treated in highly non-committal language in the joint statement as well as our PM’s statement, which said, repectively, that both leaders “noted the UK’s interest in cooperating with India for the development of a new Bengaluru-Mumbai Economic Corridor (BMEC). The leaders agreed to examine and evolve the modalities and content of a feasibility study of this project concept through mutual discussions and to work out a roadmap for a possible partnership in this area” and that “ we have asked our officials to explore British participation in India’s National Manufacturing and Investment Zones and in a possible industrial corridor in the Mumbai-Bangalore sector”. This is verbiage indeed.

The UK has strength in services and Cameron’s accent was on them as a driver for enhancing India-UK exchanges. While he promised to further reduce barriers for Indian investment in the UK, he wanted India to reduce barriers for British architecural, legal, accountancy, financial and banking services. He emphasized UK’s interest in the education and health sectors ( an over-arching MOU at the government-to-government level was concluded to strengthen cooperation in this sector), noting that India’s 500 million people under the age of 25 had to be educated and British educational institutions were open to them.

To set at rest concerns about UK’s immigration and visa policies, he emphasized that there was no limit to the number of Indian students going to Britain and doing graduate jobs. He also promised same day visa services for Indian businessmen to attract more Indian investment in the UK, noting that 50% of Indian investment in Europe was in Britain. In the field of investment, UK is India’s 3rd largest FDI investor country with over $ 8 billion of investment in the last six years. India is the 5th largest investor in the UK, with Cameron pushing them to invest more and signalling that the British did not believe in “economic nationalism”. About 700 Indian companies are operating in the UK, with the Tata group being the largest employer. The UK is the largest market in Europe for Indian IT services.

On political and security issues there was considerable parrallelism in the documents issued at the end of the two visits. Both leaders reiterated support for India’s candidature for permanent membership of the UN Security Council as well membership of the NSG, the MTCR, the Australia Group and the Wassenar Arrangement, the four export control bodies. With both countries enhanced cooperation in cybersecurity and counter-terrorism was underlined. Terrorism was deplored strongly and Pakistan asked to expeditiously try those guilty of the Mumbai terrorist attacks. The constitutional principles on which the inter-Afghan dialogue should be conducted was stressed during both visits. This was important for India in the case of the British who are seen as pushing for accommodating the Taliban in the power structure in Kabul and being insufficiently transparent with the Indian side. It is in this context that with the UK it was agreed to established a new Joint Working Group for a regular bilateral dialogue on peace, security and development in Afghanistan.
Where there wasn’t parallelism was in India and the UK expressing their commitment to working towards a world free of nuclear weapons and holding regular consultations on disarmament and non-proliferation issues. The French haven’t joined the bandwagon of Global Zero and hence this subject did not figure in the documents issued during Hollande’s visit. Surprisingly, the joint document with France did not speak of Syria and Iran, whereas in the case of the one with the UK, called, significantly, for a peaceful resolution of the Iranian nuclear issue.

In the case of Mali, India supported action against terrorists there, earning Hollande’s public appreciation of this support for French military action. It is not surprising that India and France reaffirmed their independence and strategic autonomy, a language understandably missing in the joint India-UK statement given UK’s strong commitment to Nato and its trans-Atlantic ties. India and France agreed to establish an annual bilateral dialogue between the two Finance Ministries on economic and financial issues, but no such dialogue was instituted with the UK. Finally, our PM conveyed his very serious concern to Cameron regarding allegations about unethical means used in securing the 2010 contract for Agusta Westland helicopters. The eruption of this scandal was untimely for the Cameron visit.

All said and done, both visits were successful. No major agreements were announced during these visits and to that extent they lacked dramatic outcomes. The visits were more an expression by both leaders of a their desire to invest in the India relationship in a longer term perspective. Cameron exuded a lot of goodwill for India, rather earnestly, and so did Hollande in his own style. France has no history to live down in India, unlike the UK, which makes the relationship with France easier to handle psychologically. India has been offered political and economic space by both countries to capitalize on. We should play our hand intelligently and derive the maximum benefit from these important bilateral relationships with two of the world’s leading powers. However important the US may be, the importance of Europe should not be minimized, especially at a time when India is in transition and needs as many partners as possible for securing a bright future.

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