Gist of The Hindu: September 2016

Gist of The Hindu: September 2016


On this highway, proceed with caution

Prime Minister Narendra Modi’s event-filled visit to the United States, from June 6-8, has just ended, though his oratorical flourishes during his address to a joint meeting of the U.S. Congress still reverberate across the globe. The 3,800-word Joint Statement is available with the public. Ignoring the euphoria is not easy but due diligence about outcomes may be in order. We need to make a distinction between good copy and finite results.
The Prime Minister came through as more restrained this time when compared to previous occasions. An exception was his address to the U.S. Congress. Even here, the Prime Minister was more statesman than politician. For instance, Mr. Modi displayed a high degree of strategic wisdom in not launching an attack on China by name. Nor was there any criticism of the U.S. for implicitly acquiescing in Pakistan’s employment of terror as a strategic instrumentality vis-à-vis India. The Prime Minister was also careful not to highlight the difference in approach between Capitol Hill and the U.S. administration with regard to Pakistan’s record on terrorism, and the sale of F-16 fighter aircraft to that country.

The length of the Joint Statement notwithstanding, the many specific takeaways are not many. Important among these are: (i) creation of a $20 million U.S.-India Clean Energy Finance initiative and a $40 million U.S.-India Catalytic Solar Finance Program, with equal financial contribution from the two countries and (ii) an announcement that the U.S. recognises India as a “major defense partner”. In both cases, the benefits are not as unalloyed as they may seem. The former could impede India’s efforts to obtain funds from non-U.S. approved sources, while the major defence partner label is unlikely to lead to a firm commitment by the U.S. to part with the entire range of “dual-use technologies”, as export of sensitive U.S. technologies is solely dictated by U.S. law. The coincidence of India of being admitted into the 34-member Missile Technology Control Regime during the Prime Minister’s visit to Washington adds little to India’s hopes of securing the entire range of “dual-use technologies”. Announcement of the start of preparatory work in India for six Westinghouse nuclear reactors does mark a significant thaw in civil nuclear matters after the deep freeze of many years. When completed, this should substantially raise the share of nuclear energy in India’s energy mix. However, while the Joint Statement avers that this had become possible on account of India ratifying the Convention on Supplementary Compensation for Nuclear Damage, it left unsaid whether it also takes into account the specific obligations imposed under India’s draconian Nuclear Liability law.

A degree of opacity and vagueness surrounds the language employed with regard to some key issues, lending itself to differing interpretations. One relates to India’s commitment to ratify the Paris Climate Change Agreement by this year end, which, according to a U.S. spokesman, indicated a more ambitious approach on India’s part when compared to its previous timeline. If indeed India has committed itself to work towards “shared objectives” within the 2016 timeframe, then the Prime Minister has obviously ceded ground, and this was possibly intended to enable Mr. Obama to achieve his legacy of global climate change.

Similarly, uncertainty exists regarding the signing of the bilateral Logistics Exchange Memorandum of Agreement (LEMOA). The wording is delightfully vague, viz . that it would now be inked after “finalization of its text”. This could either mean it stands deferred or that it is a done deal. The absence of specific mention of the South China Sea (SCS) in the Joint Statement, though the SCS had found specific mention in the 2014 and 2015 summit statements, could have been passed off as a concession to Chinese concerns. Yet, enigmatic references to a purported “road map” — which is not to be disseminated — and which U.S. officials claim contains specific actions relating to advancing the “joint strategic vision” of India and the U.S. in the Asia-Pacific and the Indian Ocean, are highly intriguing.

The paradox is that all this is taking place when evidence shows that many countries are moving closer to China. Even the U.S. is seen taking several conciliatory postures notwithstanding its periodic declamations against Chinese “expansionism”. At the recent Shangri-La Dialogue in Singapore, U.S. Defence Secretary Ashton Carter went out of his way to acknowledge that Washington and Beijing have a shared view on many global issues apart from a commonality of interests. He even talked about the many available areas of cooperation with China. The U.S.-China Strategic and Economic Dialogue, for instance, is today an important plank for bettering Sino-U.S. ties.

Vietnam, a country which India has developed close relations with, is currently making overtures to China. At this year’s Shangri-La Dialogue, considerable bonhomie was noticeable between the Chinese and Vietnamese delegations. Russia has more recently gone much closer to China. This was again in evidence during this year’s Shangri-La Dialogue. Russian Foreign Minister Sergei Lavrov is already on record as saying that the Russian-Chinese partnership had grown into a strategic relationship in terms of ensuring global and regional security and stability.

Given this backdrop, India needs to carefully weigh the advantages and disadvantages of having too close a relationship with the U.S. Despite the current warmth in India-U.S. relations, the U.S.’s and India’s objectives still remain far apart. U.S. dependence on Pakistan is unlikely to shift substantially due to continuing U.S. interest in Afghanistan and Central Asia. While New Delhi would like Washington to consult it more actively on Afghanistan, there is little evidence that this was on the agenda during the recent Obama-Modi meeting. India and the U.S. also remain far apart on global trade. The U.S. is neither favourably inclined to accommodate India in the Trans-Pacific Partnership negotiations nor has pressed strongly for India’s membership of Asia-Pacific Economic Cooperation. Arms sales and security dominate the U.S. agenda. India’s objectives are very different. It is not in India’s interest to be involved in any kind of showdown in the South China Sea, which involves an established superpower and a presumptive one, or to align with the U.S. to prevent China from dominating Asia. It is far from certain that this is the key issue in global geopolitics today.

Nervous takeoff

The civil aviation policy, unveiled after much ado, ticks all the right boxes. The intent to fast-track the sector and harvest its multiplier effects on the economy, spurring investments, tourism and employment, is clear. Making flying affordable and bringing more cities on the air transport map — either by reviving defunct airports or building no-frills as well as full-fledged commercial terminals — would boost domestic traffic, but the target to more than triple passenger numbers by 2022 is too ambitious. A critical reform is the de-politicisation of identifying destinations. Indeed, resources ought to be deployed based on economics rather than as populist gestures to the hinterland voter. The regional connectivity scheme will be purely demand-driven, on the basis of commitments from airlines and State governments. Aiming for a Rs.2,500 air ticket for hour-long flights by securing concessions from States and airports and subsidising airlines is a populist gesture. Implementing a subsidy-based network comes with its perils — oil prices tend to swing, and the wisdom of a dole for flyers on new routes to be financed by a levy on flyers on high-traffic routes is questionable. A complex regime would make airlines hesitate before investing in smaller aircraft for such routes.

Liberalising the right to fly abroad by scrapping the five-year domestic flight operations requirement doesn’t create real room for manoeuvre for investors. Quick offers of international routes may not mean much for new airlines; it is not financially feasible to scale up to a fleet of 20 aircraft just to get the right to deploy the next one on an overseas route. Similarly, while an open sky policy with SAARC countries is a positive, it has a misleading ring when applied to countries beyond a 5,000-km radius. India already has unused flying rights to EU countries and an open-sky policy with the U.S. and the U.K. The success of the regional connectivity plan will hinge on concessions from States in the form of free land, lower utility rates and tax cuts on aircraft fuel. The Centre has offered to grant special economic zone status for any aeronautical manufacturing activity. But such sops are not as tempting as they used to be. While the policy promises to bring down airport user charges and make flying cheaper, future tariffs at airports will be calculated on a hybrid till basis that allows operators to use just 30 per cent of non-aeronautical revenues to subsidise costs. This would not only push up airport costs, but also run counter to the single till approach followed by the independent airport economic regulator. The trajectory of the policy seems right, but several unseen variables remain. These could well throw Indian aviation off the flight path that the government has sought to determine.

India and the Brexit forecast

Unlike many other governments of countries with strong economic and historical ties with the United Kingdom, India has refrained from officially commenting on the crucial European Union (EU) membership referendum to be held on June 23.

At a recent debate on “Would Brexit Benefit India” at the House of Commons moderated by journalist Ashis Ray of Ray Events, Lord Archie Hamilton, a former Defence Minister and now Brexit supporter argued that the EU was the biggest obstacle to U.K.-India trade. “We should be doing much more business with India with its middle class of 200 million people, but we can’t because trade with India is part of what is known as an EU competence,” he said. “An EU trade deal with India is almost completely out of the question, and Britain will have to get out of the EU if we are going to tie up a bilateral trade deal with India which I am absolutely certain we can do.” In the absence of any realistic projection on what a post-Brexit U.K. holds in store, such claims carry little authority. That said, India remains deeply vested in the outcome of the referendum for two reasons. The first concerns the welfare of a nearly three-million strong diaspora of Indian-origin U.K. citizens, while the second concerns the interests of a large moving population of Indians who come to Britain ever year as tourists, business people, professionals, students, spouses, parents and relatives.

Indian industry in the U.K. is thriving. There are 800 Indian companies in the country — more than the combined number in the rest of Europe. According to the India Tracker 2016 commissioned by the Confederation of Indian Industry (CII), Indian companies generate 110,000 jobs. The number of Indian companies growing at more than 10 per cent — the key benchmark for inclusion on the list — has nearly doubled this year over the last. The total turnover of the fastest growing Indian companies in the U.K., especially in the fast growth sectors of technology, telecom, pharmaceuticals and financial services, rose by 18 per cent in 2016 — from £22 billion in 2015 to £26 billion this year, according to the Tracker. Telecom and technology companies Bharti Airtel and HCL Technologies top the list of Indian companies, registering phenomenal growths of 886 per cent and 728 per cent respectively. In turnover terms, the Tata Group still dominates, although its share has fallen from 83 per cent of total turnover of Indian companies on the Tracker compared to 90 per cent last year. Despite the downturn in the automobile industry, Jaguar Land Rover’s business is still the success story it was, reporting a 13 per cent growth due to increased demand for its product range.

Chandrajit Banerjee, Director General of CII, in a statement that spoke to a Brexit scenario underscored the importance of continued border-free access to European markets as a “key driver for Indian companies coming to the U.K.”. “Anything that lessens this attractiveness may have a bearing on future investment decisions,” he said. This pro-Europe sentiment was echoed in a memo issued to its staff by the management of Tata Steel — a company currently in the process of finding a buyer for its Port Talbot steelworks. The Daily Telegraph reported that the letter urges staff to give “careful thought” to the referendum “because the choice you make on 23 June will make a difference to your working life”. The memo stated that access to the EU market is “fundamental to our business”.

The Indian industrialist and philanthropist Lord Swraj Paul, head of the Caparo Group, sounded a strong warning on the perils for British industry from leaving the EU in respect of skilled labour supplies, free trade opportunities in Europe, and immigration restrictions. On a historical note, Lord Paul spoke of the great damage to India and Pakistan wrought by the Partition of 1947. “At the time of Partition they [citizens of India and Pakistan] were people with the same language; yet it was decided that they should become separate countries with their own sovereignty. In my view, and in the view of many other people, India and Pakistan are still suffering today from that decision,” he said.

Work-related visa restrictions have already resulted in a fall in the number of Indian students studying in British universities from 22,385 in 2012-13 to 18,320 in 2014-15, according to the U.K. Council for International Student Affairs (UKCISA). Given their tough stance on cutting immigration, a Brexit government could be expected to make such curbs more stringent. According to Lord Karan Bilimoria, President of the UKCISA, the clutch of new visa rules that have impacted student flows from India — especially the withdrawal in 2012 of the post-study work visa — has had disastrous consequences. A Brexit vote would only exacerbate these. “Unlike other countries, Britain classifies overseas students as immigrants.” He argues that Justice Minister and Brexit advocate Michael Gove has recommitted to a post-Brexit government aiming to reach the Conservative party target of bringing immigration down to the “tens of thousands”. The latest immigration figures put the number of immigrants at between 330-350,000 in 2015, of which 180,000 are non-EU migrants.

The “curry and mango wars’ are a part of the Brexit arsenal used by the U.K.’s Employment Minister of Indian-origin Priti Patel, a leading voice of the South Asian community for Brexit. Protectionist EU acts as a barrier to trade for the U.K., including from India, she argues, citing the EU-led ban on Indian mango shipments to the U.K. in May 2014 after fruit flies were found in consignments. The ban was lifted in early 2015, but not before Indian exporters and local traders suffered considerable losses. High European regulatory standards are a dampener on Indian exports, as the mango ban demonstrates.

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Courtesy: The Hindu