On Hollande’s mind

What the French president might encounter in India

This is the English version of a piece that appeared in BBC Hindi today

When President Francoise Hollande arrives in New Delhi next week as the chief guest on India’s Republic Day celebrations, he will be taking a short, partial break from his two main preoccupations: how to reduce unemployment in France ahead of the 2017 presidential elections and how to ensure that the threat from home-grown Islamist terrorists is contained.

In addition, he will no doubt be concerned about the economic trajectory of the euro zone, the prospects of long-term instability in Syria and the Middle East and, ultimately, of the risks to France’s geopolitical standing in the twenty-first century.

The honour, symbolism and pageantry apart, where does India register in President Hollande’s agenda? The immediate, tangible prize is to bring the long-drawn negotiations over fighter aircraft and nuclear reactors to fruition, which might together be worth $30 billion or more. The devil, as usual, is in the detail, and an agreement might prove elusive until the last minute. These deals matter for Mr Hollande not only because it will help him stay on the right side of politically powerful business interests, but also because they could create thousands of skilled jobs.

Mr Hollande had pledged not to stand for re-election if he “failed on growth, failed on unemployment, failed on the recovery of the country”. So a boost in jobs, investment and growth is important to his own political prospects. Given that unemployment rose to from 9.7% to 10.1% during his term, disproportionately affecting younger people, it is small wonder that he declared an economic emergency earlier this month.

If these important defence and energy deals are what Mr Hollande hopes he can take back with him, he would do well to explore how India is tackling its own employment creation challenges.

In fact, France and India have common problems on this front, in terms of restrictive labour laws, choke-hold by trade unions and a skills gap. Indian businesses like TeamLease Services, Ma Foi Randstad and others have developed experience in creating employment in an environment where there are powerful regulatory and political-economic disincentives for direct hiring. (Disclosure: Manish Sabharwal, co-founder of TeamLease is a donor to my institution). If Mr Hollande were to spend some of his time meeting Mr Modi’s officials dealing with skills and employment generation, he might carry home some good ideas in addition to the good deals.

While France and India share some similarities in the internal security context, the nature of the threat is different: for France it comes from its own citizens disgruntled with its foreign policy; for India it emanates from across its borders. Therefore even if the Paris attacks and 26/11 appeared similar, how they materialised is different. Therefore, while India and France could discuss counter-terrorism cooperation and better share intelligence, there are limitations to the extent they could go.

Similarly, India’s role in assuaging French worries over the Eurozone crisis is limited.

In recent years, France has increased its commitment to the security of the Indian Ocean. By virtue of its possession of islands of La Reunion and Mayotte, and their accompanying vast Exclusive Economic Zones, France considers itself a stakeholder and power in the Indian Ocean. It also has bases in Djibouti and Abu Dhabi that support its military interventions in Africa, the Middle East and Afghanistan. In contrast, its capacity is limited east of the Malacca Straits.

Given that India’s own maritime footprint is significant in the Western Indian Ocean (including a diaspora in La Reunion) there is a degree of strategic contestation between the two powers in this part of the maritime space. On the other hand, shared interests in freedom of navigation indicate a scope for greater collaboration on the Eastern part of the ocean. Both Paris and New Delhi realise that this calls for closer dialogue between the strategic establishments of the two countries and regular exercises between their armed forces.

Indeed, a closer relationship with New Delhi is vital to France’s continued standing as an important global power in the twenty-first century. It was far sighted on behalf of the French to initiate a strategic partnership with India in 1998. From the Cold War era to recent times, New Delhi has had in France an independent-minded partner unhesitant to buck the Western consensus on defence, space and atomic energy issues. It is for the Modi government to build on that relationship and enlist France as a partner to extend India’s own geopolitical profile.

How the UPA government’s policies caused inflation

Gargantuan spending without addressing underlying supply bottlenecks

Inflation is like fever — it is not the disease itself but a symptom of an underlying disease. The right approach is to treat the underlying disease and not focus on treating the symptoms.

Supply bottlenecks are the underlying problem
Inflation is the direct result of the UPA government’s failure to put in place the necessary policies that could sustain the growth spurt that started during the NDA’s term. When an economy grows at 8% year on year all classes of people — poor, middle-class, rural and urban — will demand more goods & services. Yet, the UPA government has failed to ensure that the economy can produce and efficiently distribute goods & services. This is the core cause of inflation.

The anaemic growth in infrastructure industries is an indicator of the policy failures that have led to inflation. Better infrastructure can moderate price rises by better connecting buyers and sellers. Despite the economy growing at 8%, the infrastructure industries growth has been only 6.7% under the UPA government. In fact this has further fallen to 5% in mid-2010. The shortfall in power supply has worsened from 8.5% in 1992 to 12% in 2008-09. Worse, capacity addition in thermal power is a mere 4.4% of the target.

NREGA has contributed to price rises in many areas because the UPA government has failed to make rural markets competitive. In a village with a few shops, any rise in income of the villagers will cause shopkeepers to increase their prices. If rural areas are better connected to each other with good roads, electricity and cheap transport, villagers can purchase goods in adjacent villages if the goods are cheaper there. Despite the claims by the promoters of NREGA it is unclear if NREGA has benefited the rural poor. The UPA government has shown much less enthusiasm to complete the Golden Quadrilateral programme and extend it to rural areas.

The UPA government has failed to enable farmers to participate in India’s growth. The failure to dismantle barriers to agricultural marketing and failure to integrate India into a single market for agricultural goods not only contribute to food price inflation but undermine the welfare of farmers. (Farmers receive only 50 paisa for a kilo of tomatoes while consumers pay Rs 20).

It is a matter of basic economics that when demand rises faster than supply, prices will rise. By neglecting this basic reality, the UPA government has created the conditions for inflation

Regarding fuel prices
The UPA frittered away the chance to complete the process of fiscal consolidation started by the NDA government, otherwise credit rating agencies like Moody’s would have upgraded India’s sovereign credit rating a long time ago, rather than in 2010.

The removal of fuel price subsidies was done without adequately preparing the nation for the same. The UPA has not revealed that it intends to rectify the fundamental problems in the petroleum sector because of the patchwork of pricing policies. Furthermore, despite it being clear for the last few years that energy prices are rising globally, the UPA government failed to create the framework for a massive improvement in public transportation.

The removal of petrol subsidy and rise in prices does not directly affect the poor — mostly they use buses and trains. Those who use two-wheelers are affected. However, despite presiding over a healthy economy for over 8 years, there is no sign of the UPA government evolving a integrated public transport policy. Instead there is a continuation of the licence-permit raj that leads to the harassment of auto-rickshaws and other private bus operators, and increasing inconvenience for ordinary people.

The fuel pricing policy has damaged our public sector and private sector oil & gas companies. Reliance had to close down 2000 petrol stations because prices are non-remunerative — this is a major waste of capital. While the UPA government is damaging our oil & gas companies in this way, the Chinese government is throwing its weight behind their state-owned companies to corner energy resources around the globe.

UPA’s fascination with pet projects is diverting attention from the necessary ones. For instance, instead of thinking of only building a pipeline to buy natural gas from Iran, and paying money to the Pakistani government to safeguard our lifeline, we should have invested in building LNG terminal & pipelines along our coastline. Investing in ports, refineries and pipelines in India would not only increase the income of Indians but also improve our energy security. We can still buy the gas from Iran without having to depend on Pakistan.

(This note was prepared and privately circulated in July 2010. It is published here as it is still relevant, unfortunately.)

A naval standoff between Bangladesh and Burma

A new territorial dispute in the Bay of Bengal

The Burmese navy has withdrawn two of its warships from an area in the Bay of Bengal 50 nautical miles south-west of Bangladesh’s St Martin’s Island. Bangladesh is to withdraw its four ships after the intruding commercial gas exploration ships leave the scene. (via Information Dissemination)

It appears that the standoff ended without shots being fired. But not before a war of words.

Bangladesh’s foreign minister Iftekhar Ahmed Chowdhury said he had warned Myanmar’s envoy to Dhaka that “all steps would be taken to protect the sovereignty and territory of Bangladesh.” [AFP]

A senior official from Myanmar’s military government said they were open to talks, but insisted that oil and gas companies were operating inside their territory and far away from the disputed sea boundary. “We will try to solve this peacefully, but we are also ready to protect our country if needed … we will not tolerate being insulted, although we do want good will. We will continue with exploration,” [AFP]

The Congressional OK

A big deal passes muster

It was the big deal until the Paulson bailout upstaged it. But the US Congress has voted in favour of the India-US nuclear deal. Senators John McCain, Barack Obama and Joseph Biden all voted in favour.

As is the practice, they’ve sent it to President George W Bush for his assent. Technically he can veto it. But the chances of that happening are, ahem, slim.

Slapping cess

How you should react if the government increases taxes to subsidise petrol

Over at Barbad Katte, Ramesh makes a startling call:

Here is a possible response to the Petroleum Minister’s proposal to levy a cess on income tax payers in lieu of a hike in the price of fuel. Get hold of your neighbourhood Congress man and give him one tight slap. [Barbad Katte]

No, no, it’s not a partisan thing. Go read his post to understand why.

Now, this blog deplores the use violence to make political points (and this has to be said, because there are always some irony-deficient, metaphor-deaf people). Instead, it recommends that taxpayers to line up in large numbers and vote against the simians making economic policy.

Right said Bidwai

What is bad for Bidwai is good for India: the rule always applies

Praful Bidwai offers honest, rational arguments against the India-US nuclear deal.

Many of the deal’s opponents are also mistaken in arguing that it’ll reduce/cap India’s nuclear arsenal/fissile material production. India will only subject 14 of its 22 operating/planned power reactors to inspections. The rest can annually yield 200kg of plutonium—enough for 40 bombs, in addition to the existing 100-150, and way beyond the professed “minimum deterrent”.

India can also stockpile unlimited amounts of weapons-grade material in its military-nuclear and other unsafeguarded facilities, including the “Dhruva” and prototype fast-breeder reactors. Besides, India can dedicate scarce domestic uranium exclusively to weapons. Again, India can live with the Hyde Act’s constraints. They’re a small price to pay if you want your weapons normalized and expanded, while resuming global nuclear commerce.

The honest, rational, argument against the deal is that it legitimizes nuclear weapons (India’s and the US’), weakens the global non-proliferation norm, unfairly favours India because it’s Washington’s friend, consolidates an unhealthy, unequal India-US relationship, and promotes the wrong kind of energy.

The deal will admit India into the global nuclear club—on the side of those who run a system that India long condemned as atomic apartheid. Once it joins the club, India will bid goodbye to its commitment, reiterated in the UPA’s Common Minimum Programme, to fight for global nuclear disarmament. You don’t join an exclusive club, and then demand its dissolution! The deal will detract from a principled commitment to a peaceful, equitable world order free of the scourge of nuclear weapons. [Mint]

Those who feel that a deal that favours India—fairly or otherwise—is good for India should therefore rally in support of the deal. The time-tested dictum that India’s national interest is the opposite of what Mr Bidwai advocates holds true.

Mr Bidwai is not the only anti-nuclear activist arriving at the conclusion that the deal allows India to hone its nuclear deterrent and expand nuclear power. Here’s M V Ramana in IEEE Spectrum:

What’s more, the agreement is likely to increase—not decrease—India’s capacity to produce nuclear weapons and material. By importing uranium, India will be able to channel its native supply toward military purposes.

There is also the possibility that those nuclear reactors not subject to IAEA inspection will be converted to military ends. Any power reactor not under safeguards can be used to make weapons-grade plutonium by limiting the time the fuel is irradiated. This prevents the build-up of higher isotopes of plutonium, which are undesirable in a weapon. When a typical heavy-water reactor is operated normally, fuel remains inside the reactor seven times as long as when it is producing weapons-grade plutonium. Heavy-water reactors are particularly suited to making bomb-grade material, because new fuel is continuously added (and old fuel continuously removed); this type of reactor could produce the same amount of electricity every year but would use seven times as much fuel to do so. In theory, a 220-MW heavy-water reactor, run at 60 to 80 percent capacity, could produce 150 to 200 kg per year of weapons-grade plutonium. [IEEE Spectrum]

Elements of the BJP who continue to reflexively oppose the India-US nuclear deal need to explain the public why they are on the same side as the likes of Mr Bidwai.

(Mr Bidwai’s piece, by the way, contains many of the usual canards. He’s entitled to them)

Narendra Modi’s foreign affairs

The Gujjus of Astrakhan

Newspaper columns this week are mostly about Narendra Modi, and mostly about domestic issues. Those interested in foreign affairs will find K P Nayar’s piece in The Telegraph of interest:

While India’s strategic community and sections of the media have been obsessed with the India-United States of America nuclear deal, it has largely escaped their attention that Modi travelled twice to Moscow to cash in on traditional Indo-Russian links, going against the recent fashion in New Delhi of running down such commercial-cum-cultural ties with Russia in an eagerness to suck up to Washington. No one should be surprised if it is Modi who has the last laugh at the Americans, who denied him a visa in a moment of extreme bad judgment and short-sightedness in Washington. Continue reading Narendra Modi’s foreign affairs