India hopes Modi has Midas touch

Mohan Guruswamy

Jan 27, 2015

Modi is playing the diplomatic game adroitly by building strong ties with the US, China and Japan. Just as the US can’t sacrifice its interests in Pak, India can’t sacrifice its interests just to placate any of its three main partners.

The Obama visit and the gains, real and imaginary, mark a sort of coming out for Narendra Modi. If comparisons have to be made I can’t think of anything better than Eliza Doolittle at the grand ball being led out to the dance floor by the visiting Prince of Transylvania. Unlike Eliza Doolittle, Narendra Modi had no Professor Henry Higgins to turn him from a humble chaiwala to a leader who calls the most powerful man in the world by his first name. He is a self-made and what he is, warts and all, is to his credit. Today he scored big for himself. As far as Indo-US relations go, Prime Minister Narendra Modi has done well for India. He has shown us a Modi touch that we now hope will turn into a Midas touch!

He has got the long-stalled Indian bid to generate 63,000 megawatt of power in 2032 from nuclear energy back on track. He has managed to create a climate favourable for foreign direct investment (FDI) which will create a bigger manufacturing base. Also, rather than mainly being an exporter of primary goods, it will make more exports of value added goods possible. Lest we get carried away by visions of huge flows of mother and apple pie American cash, most of the FDI which comes into countries like India and China are funds held by their own nationals. That more than 60 per cent of our FDI comes from Mauritius should make this obvious. India has to woo Indians as hard as it has to woo foreigners to invest in India.

We need to remain focused on the economic aspects of this relationship, rather than being constantly seeking baubles the professional diplomats keep hankering for and, in the process, keep raising the bar. What will being member of the nuclear suppliers group do for job creation in India? And some of the toys that the military keeps hankering for are also quite irrelevant to our real needs. What will India do with drones such as the Globalhawk or Predator? Does it think that Pakistan will allow India to use the Predator on its terrorist hideouts like it allows US drones? Or do you think China will take kindly to India flying the Globalhawk over its territory? They seem to forget that drones are effective against adversaries, who cannot shoot them down and cannot retaliate. Short range and small drones will find utility under battlefield conditions and those we already have.

The US does not have the kind of money India needs to build its infrastructure like high-speed railways or expressways that require long-term funding with 30-40 year spans. These can only come from countries with huge sovereign funds, like China and Japan. The US government is quite broke, unlike US companies, which are quite loaded with cash and technologies. These can be the investors and partners for the relatively short-term investments in manufacturing, and most important of all, be exporters of their Indian-made goods. Thus, all the three major global players — the US, China and Japan are important to India. Mr Modi is playing this diplomatic game adroitly and is building strong bilateral relations with all three. Just as the US cannot sacrifice its interests in Pakistan because India would like that, India, too, cannot sacrifice its interests just to placate any of its three main partners.

This being Mr Modi’s I-could-have-danced-all-night day is probably is not the day to say it, but I will say it. The breakthrough understanding on two issues that were holding the advance civil nuclear cooperation was a carefully choreographed event to sell it to the Indian public.

The unsustainable liability clauses in the Civil Liability for Nuclear Damage Act 2010, were inserted to placate the Left as well as the Bharatiya Janata Party. A vociferous Yashwant Sinha mounted the BJP attack. He termed it as a sellout to the Americans. The fact that the law will inhibit all countries and companies, foreign and Indian, from getting involved either eluded his mind or he didn’t care. L.K. Advani typically made a feeble attempt to beat down this unwarranted criticism but gave in to political expediency. The consequence of this was that India’s nuclear power generation ambitions just got stranded midstream.

The Americans don’t build nuclear power plants anymore. When Westinghouse sold its nuclear power plant business to Hitachi, the US lost all nuclear plant building capacity to Japan. The US has not commissioned any nuclear power plants since 1996. The only nations building giant nuclear power plants within and abroad since then have been France and Russia. China and India build smaller 110 and 220 MW plants with varied success.

The question then would be why then the civil liability laws were such a sticking point on the Indo-US agenda? That is because even if the US doesn’t build nuclear power plants anymore, its engineering companies like GE and Bechtel, and its insurance and finance companies are integral to the commissioning of any new plant. Since all our new plants would involve Western financing and capital participation, the Americans are integral to all the financial architecture and engineering involved. Otherwise we are left only with the Russians, who are as strapped for cash as we are.

The only mega nuclear power plants commissioned in India were the Russian-built Kudankulam 4,000 MW cluster, the last of the four was commissioned a few weeks ago. But the 2010 Civil Liability Act, which kicked in, took its toll in terms of adding to costs. The approved cost of units 1 and 2 was Rs 17,270 crore, while the approved cost of units 3 and 4 was Rs 39,747 crore. The French nuclear power generator, Areva, is interested in building similar mega plants but has held back because of the civil liability law. The Russians, too, were now deterred from building any. The nature of the law made intimidating for even Indian companies to take part in supplying equipment. Supposing a small locally produced stainless steel valve failed, the Indian company would have faced extinction. But the BJP then was not thinking of this. It was more intent on pillorying Manmohan Singh as a US stooge.

Now that it is in office, the BJP’s government has had to swiftly backtrack, as it has done on other issues like Aadhar. That’s where the orchestration comes in. To help us make “adjustments” to the Civil Liability Act, last September the US obliged us by introducing a new condition requiring “tracking” of nuclear fuel supplied by US inspectors. This then became the big giveaway in exchange of the implicit changes in the application of the Civil Liability Act by India. Well, it has worked and it seems like everyone concerned will go happily laughing all the way to their banks. And Mr Modi and Mr Obama will be on first-name basis for a long time.

The writer held senior positions in government and industry, and is a policy analyst studying economic and security issues. He also specialises in the Chinese economy.