Business Standard

VOLUME XVI NUMBER 11

M U M B A I , W E D N E S D AY 2 4 A U G U S T 2 0 1 1

S T AY U P D A T E D T H R O U G H T H E D AY, V I S I T W W W. B U S I N E S S - S TA N D A R D . C O M
ILLUSTRATION BY BINAY SINHA

OPINION 13

West side story

Realism must shape Indias response to events in WANA
ITH all the domestic preoccupations this week, few in India are paying attention to momentous developments in West Asia and North Africa (WANA). With the siege of Tripoli by rebel forces, aided by European powers, the bell tolls for Libyan leader Muammar Gaddafi. In Syria, the India-Brazil-South Africa (IBSA) initiative to prevent a Libya-like attack and secure political change through peaceful means is now facing new obstacles. Having ensured a change of regime in Libya, after Egypt, the West may well focus on Syria. India has had long-standing good relations with Libya and Syria, but neither is of great strategic importance to India today. Rather, the Arab nations of the Gulf, including Saudi Arabia, the United Arab Emirates (UAE) and other Gulf states, matter more for India from a purely economic (oil and remittances) as well as a strategic perspective. This part of the Arab world remains relatively stable for now. India also has important strategic relations with Israel, a country that must now behave with greater maturity given that the regional balance may be shifting in its favour. Libya is not an important source of oil for India, but people-to-people relations between India and Libya have remained good and strong and the Indian government must move quickly to ensure that good relations are established with the new regime in Tripoli. China has been fleet-footed, since its dependence on Libyan oil is higher than Indias. A spokesman of the Chinese Foreign Office said on Tuesday, The Chinese side respects the choice of the Libyan people. India has maintained

silence till now. Libya accounts for about 2.2 per cent of global crude oil production, while Syrias share is just about 0.5 per cent. Libya is the 11th largest source of oil imports into China but is an insignificant supplier to India with a share of just about 0.5 per cent in Indian crude oil imports. India has diversified its oil import sources in recent months, buying more from Venezuela, Iraq and Nigeria, apart from the traditionally more important sources in Saudi Arabia and the UAE. In the end, for India the main concern over the situation in Libya and Syria is less about direct oil supplies and more about oil prices and overall economic activity in the region. If Libyan oil exits the world market in the near term, as a consequence of the instability that is likely to follow Mr Gaddafis final exit and the inevitable regime change, global crude supplies will be hit. This would push the prices up in the near term, till new supplies can be secured. Apart from this, the continued turmoil in West Asia will hurt overall construction and other economic activity in the region, impacting inward remittances of dollars from Indians working there. All of this could push oil prices up at a time when India remains under pressure on the inflation front and its current account deficit is rising once again. Indian diplomacy in the region has vacillated between hesitant support for popular uprisings and the desire not to rub Arab opinion up the wrong way. It is in Indias interest to take a long-term view of its geo-economic stake in good relations with the Arab world and adopt meaningful postures that serve her immediate and long-term economic and strategic interests.

COUNTERING CHINAS ECONOMIC DOMINANCE

Active participation in multilateral co-operation can be Indias response to Chinas growing economic presence, says ARVIND SUBRAMANIAN
So, a strategic question for India is: how should it respond in the economic arena to a dominant China? On the one hand, trade and economic relations between China and India are intensifying, creating opportunities for both countries and mutually reinforcing stakes, and imparting a positive-sum dynamic to the relationship. On the other hand, the economic relationship is seen, politically, as increasingly imbalanced. India runs a large and growing trade deficit with China, and the pattern of trade is reminiscent of trade during the days of empire. India exports predominantly raw materials to China and imports highvalue-added and sophisticated goods. Indian industry and government officials have complained about Chinas policies on trade, industry, foreign direct investment and exchange rate that aid, often opaquely, Chinese industry and exports. Chinas government procurement policies have impeded Indian pharmaceutical exports and the fear is of a large China using its size to create and set standards (for example, for telecommunications equipment) that others have no choice but to follow. Not just the content but even the tone of these complaints can resemble the emanations from the China hawks in the United States. India, like Chinas other major trading partners, has to grapple with the question of how much it should engage with China bilaterally and how much multiISMARCK famously said of the United States that it had managed to surround itself on two sides with weak neighbours and on the other two sides with fish. India, unfortunately, does not enjoy this luxury of splendid isolation: instead of fish it has Pakistan on one side and China on the other, a China that is on the verge of becoming economically dominant, sharing that status with the United States for now and enjoying it exclusively in the near future. The India-China relationship is fraught, having to contend with a number of things: the mutual resentment created by history (Indias stemming from its humiliation in the 1962 war and Chinas from having to endure the Dalai Lamas flight to, and long-term exile in, India); tensions of contiguity; anxieties of a hierarchical geography with upstream China controlling downstream Indias access to possibly the most precious of all future resources water; and the unavoidable rivalries of large growing economies competing for markets, commodities and seats at the high table of global decision making. Goldman Sachs, in creating the grouping BRIC (Brazil, Russia, India and China), thought that the common denominators of size and promising growth prospects could somehow wish away or at least dilute these complications and create common purpose and interest. Alas, that will not be the case.

Halfway house
Rational fertiliser pricing needed for rational use
HE recent decision by the empowered group of ministers (EGoM) to free urea prices and bring urea under the nutrient-based subsidy (NBS) regime should have been taken along with the decontrol of phosphatic and potassic fertilisers in April 2010, if not earlier. In fact, the process of switching over to the well-conceived NBS system has been inconclusive without urea being covered in it. As a result, most of the key objectives of this move have remained unmet. These include promoting balanced application of plant nutrients to preserve soil health, encouraging production of innovative and situation-specific fertiliser products, rationalising fertiliser subsidy and attracting fresh investment in this sector. Surprisingly, though most of the ministries concerned including those of agriculture and finance favoured extending NBS to urea, the main administrative ministry, the fertiliser ministry, continued to have misgivings about it. Its main worry was that it would lead to an abnormal rise in farm gate rates of urea which might hurt farmers. However, the fact is that the rise in prices, though inevitable, would not be unreasonable since the government is not abandoning the policy of subsiding fertilisers to keep retail prices lower than the production cost. The EGoM has now decided to allow a maximum of 10 per cent increase in urea prices in the first year of decontrol, after which firms would be free to fix prices in a competitive market. For calculating subsidy under NBS for urea units using different feedstock and of vary-

ing vintage, the committee of secretaries, headed by Planning Commission member Saumitra Chaudhuri, has suggested a useful formula to the government. However, decontrolling urea prices is only the first step in the urea sector reform. To take this process to its logical end, the government will have to address the issue of supply and pricing of gas for fertiliser production and draw up a policy to end the nearly decade-old drought of fresh investment in capacity addition. The Saumitra Chaudhuri committee report can be useful for this purpose. One suggestion that merits consideration is notional pooling of natural gas prices. This will ensure contracted prices for the public and private sector gas suppliers and a uniform feedstock cost for a level playing field for all urea units, regardless of their technology and age. The uncertainty about sustainable gas availability at reasonable prices has, in fact, been one of the reasons for the failure of the governments 2008 investment policy to attract fresh funding in this sector. Of course, there have been concerns about the implementation of the policy on parity pricing for imported urea. Since urea is a highly capital-intensive industry, investors seek assured and adequate gas availability and reasonable returns. For this, the new and expansion projects may also need some fiscal sops, such as infrastructure status or a tax holiday or concessions for the first few years. Addressing these issues would help reduce Indias import dependence in urea.

laterally. Indias dilemma is that its negotiating strength in a bilateral context is limited owing to the stark imbalance in economic size, yet it is unable to embrace multilateralism as conviction, preferring a reluctant and opportunistic multilateralism that can end up as ineffective multilateralism. Why the latter? India has been a habitual naysayer in its multilateral dealings. It was a sovereignty hawk, in Strobe Talbotts famous words, trying its best to minimise having to do what it would otherwise not want to do. In the trading system, for example, India lobbied hard and strong over the past three decades to preserve the right to protect its economy through tariffs and quotas. Sovereignty, in this arena, was equivalent to the freedom to protect or prevent the imposition of rules and obligations that would deprive India of this freedom. Of course, this objective, in turn, flowed from an economic ideology that initially viewed liberalisation and market opening as unhelpful to Indias interests, and later, when it recognised the benefits of liberalisation, it still viewed it as something to be undertaken at Indias pace and on Indias terms rather than have it dictated by outsiders. But if India was a naysayer, it was one with a following with the old G77 serving as a forum for India to intellectually lead, and speak on behalf of, several developing countries. Leading this pack became a habit, a mindset, even an entitlement.

In recent years, as Indias ideological moorings have shifted, it has been able, although gradually and episodically, to back away from playing the recalcitrant partner, stymieing efforts at international cooperation (Jairam Rameshs constructive role in the climate negotiations at Cancun is one example). But its officials have been less able to renounce the mantle of leadership, and hence less willing to join multilateral coalitions where leadership is shared or even sacrificed. In short, it has been easier to repudiate ideology than to spurn the spotlight. As a result, India finds itself in an interesting situation. For example, in discussions on Chinas exchange rate policy, India has chosen not to align itself with the United States as part of a multilateral coalition for fear of endangering the broader relationship with China (we live in a rough neighbourhood is Indias response with some merit), and because it believes that the United States can handle China alone without Indias participation. The consequence, of course, is the classic free rider problem where all countries that think similar contribute to the breakdown of co-operation. Even where the need for forging coalitions is recognised, the Indian instinct is still to seek out developing country partners such as South Africa, Brazil, or Indonesia rather than the United States and Europe. If China is to be tethered to the multilateral system an imperative for countries such as India against an unbenign exercise of future Chinese dominance India must become part of the effort to forge successful coalitions that will strengthen multilateralism. Going forward, the United States cannot do it alone. Coalitions must be broad and require easy engagement between the old powers and emerging ones. Thus, India must become a visceral multilateralist which would entail coming to terms with a demotion in status and require reaching out to all partners, not just erstwhile comrades in the G77. The appealing symmetry in future efforts to engage China is to induce a greater humility in both the United States and India. The United States will have to spurn the temptation rather shed the delusion that it can exercise exclusive leadership and dominance in shaping outcomes. India will have to stop coveting the mantle of leadership and instead participate in multilateral co-operation as an important but humble drone rather than as the queen bee. The author is senior fellow, Peterson Institute for International Economics and Centre for Global Development. This piece is based on his forthcoming book, Eclipse:Living in the Shadow of Chinas Economic Dominance

Where are the Congress leaders? T

HE governments decision yesterday to nominate Finance Minister Pranab Mukherjee as its chief negotiator to hold talks with Anna Hazare should expedite an early resolution of the stalemate over the Lok Pal Bill. However, the decision is also likely to trigger a question that would surely embarrass the top leadership of the United Progressive Alliance (UPA) government. Why did it appear that the government dragged its feet over using the services of Pranab Mukherjee, the UPAs most experienced politician and administrator, to defuse the crisis caused by the Hazare agitation? Indeed, since the arrest of Mr Hazare on August 16 and the order of his release the same evening, several key ministers in the UPA government appear to have gone into hiding. Until August 16, you could watch them on television and read about their views in newspapers. No longer, after the government committed its biggest blunder in recent times by first facilitating Mr Hazares arrest, then realising its mistake and ensuring the order for his release in less than 24 hours. Even before the August 16 fiasco, the role of some UPA ministers had become intriguing. None of the ministers belonging to the non-Congress alliance partners associated themselves with the government in its bid to tackle the Hazare challenge. Trinamool Congress leaders stayed away from such consultations, barring a statement from Mamata Banerjee extending support to the the Ramlila grounds prime minister. So did in New Delhi. That the Nationalist Conwas a risky move. If he gress Party leaders. had succeeded, noLeaders of the Dravida body in the Congress Munnetra Kazhagam or outside would have had already become raised an eyebrow. In quiet after the arrest of politics, failure is an one of its ministers in orphan. Thus, Mr the UPA government. Mukherjee had to eat The message that came humble pie. out loud and clear from In contrast, Home this was that the ConMinister P Chigress alone, and none of dambaram and Teleits alliance partners, com and Human Rewould come together to A K BHATTACHARYA sources Development respond to the Hazare Minister Kapil Sibal had emerged as movement against corruption. That was the first stage where the the new stars of the Congress. Law enCongress became isolated within the forcement agencies used force to throw UPA. This was ironic because Prime out the followers of Ramdev from the Minister Manmohan Singh had earlier Ramlila grounds at night. The police attempted to rationalise irregularities, later apprehended Ramdev while he particularly in the 2G telecom scandal, tried to run away from the venue of the by claiming that these arose out of the agitation and packed him off to Hardcompulsions of keeping an alliance gov- war. That was the end of Ramdevs camernment intact. Indeed, charges of cor- paign against the government. Mr Hazare posed a different and ruption were levelled primarily against ministers belonging to the non-Congress more formidable challenge. The Congress leadership made a big mistake by coalition parties. Within the Congress, a few ministers assuming that it could handle Mr Hazexperienced a different kind of isola- are the same way it took care of tion. Mr Mukherjee appeared to have Ramdev. His arrest on August 16 withdrawn himself from such issues changed the contours of the debate. The ever since he came under criticism for popular mood turned against the govhaving gone to New Delhi airport to meet ernment not so much for the issues conthe yoga guru, Ramdev. The idea of that cerning the Lok Pal Bill as for the manmeeting was to persuade Ramdev ner in which Mr Hazare was arrested against holding his agitation against a for merely threatening to violate the pohost of issues including corruption at lice orders. It goes to the credit of the

NEW DELHI DIARY

team behind Mr Hazare that it lost no time in exploiting that opportunity to the hilt, helped in large measure by the UPA government of Manmohan Singh which seemed to be bereft of ideas to tackle the Hazare challenge. It was not just Pranab Mukherjee, several other senior Congress leaders may have felt the same way. What use did the government make of A K Antony, defence minister and a member of the core group of the Congress party? Neither Mr Mukherjee nor Mr Antony could be seen explaining the governments position on the matter. The irony is that the Congress has many stalwarts who could effectively present the partys case on the Lok Pal Bill. There is Veerappa Moily, Salman Khurshid and Jairam Ramesh, just to name a few. However, the manner in which the Manmohan Singh government functioned seemed to suggest that it had become a ruling alliance without leaders. Only from yesterday did it appear that the government indeed had these ministers at its disposal to defend and explain its position on the issue. One explanation of such listless, and often rudderless, government functioning could be the absence of Congress President Sonia Gandhi, who is abroad recuperating from an illness. Remember that the Hazare challenge is perhaps the biggest the UPA has faced in its entire seven-year long history and Ms Gandhi is not around to advise the government. If that indeed is the case, then the Congress is in deep crisis and Sonia Gandhi must be having sleepless nights.

Saved by the blurb

BOOK REVIEW
RRISHI RAOTE

good back-cover blurb is a comparative rarity. Even rarer is a blurb that remains accurate and satisfying after one has finished reading the book it adorns. The blurb on this book is both good and useful. It begins thus: Throughout December 1767, Alistair Douglas has been using the Decipherers network of contacts in London to attempt to find two men, Pearce and Flanagan, who have been tracked to London from Boston well-known as dangerous

men and natural leaders of the mob. As rumours fly around, there has been an increasing number of anonymous printed attacks on the King and his ministers. But, frustratingly, there are few leads. If you are confused, you are forgiven. Nevertheless, this, and the rest of the blurb, is an admirably succinct, if not beautifully written, summary of the premise of the story. The story itself really is that intricate; the events that happen and leap breathlessly from page to page it is a pageturner, despite the unpromising density of the blurb are only the uppermost, visible layer of the happenings, processes, rivalries that move late 18thcentury English society and

government at the topmost and bottom-most levels. Now to explain. Alistair Douglas is a young man of good but provincial family in his late 20s. He is a Decipherer, that is, he works at the sharper end of the spy apparatus of the Crown. Think of the Decipherers as early MI6; and of Douglas as a less decorative James Bond. Douglas has served the Crown as a secret agent since 1757. We know this because the first title in The Decipherers Chronicles series was The Cobras of Calcutta (Macmillan, 2010), and in that book Douglas came of age as a young East India Company employee coopted into the British clandestine effort to topple both the French in Bengal and the

Nawab of Murshidabad. It culminates with Plassey. Douglas is not long returned from the American colonies, where he appears to have been involved in the British struggles against the French and Native Americans. Appears because the author has let a decade of fictional time elapse between the first book and this one. Pearce and Flanagan have been dangerous to the British cause in America remember, the American independence movement is about to break out and Douglas has come to London on their trail. At least some of the anonymous printed attacks on members of the British government are from the pen of John Wilkes, a radical pamphleteer and politician who is the core around which this novel turns. When the novel

opens, Wilkes is in exile in Paris, where he has fled after being convicted of seditious libel and deprived of his parliamentary seat. In Paris he runs up huge debts and eventually has to escape back to England, where he resolves to take up his seat in Parliament despite all that the government can throw against him. This is where Douglas is pulled into the business. While the search for Pearce and Flanagan goes slowly, he is assigned to watch Wilkes. As the political row over Wilkes deepens and the threat to the government grows because Wilkes has mobilised Londons working class behind him Douglas multiple responsibilities begin to coalesce. Wilkes life may be under threat, and the two slippery Americans may have something to do with it. Douglas

must keep Wilkes safe because his death would rouse the London mob to fury. And that would bring the army out on to the streets, which would result in even more slaughter. Douglas must negotiate these deadly shoals and the no less troublesome (in fact, quite exciting) reefs of bureaucratic jealousy and intrigue. Meanwhile, his personal life begins to unravel when a woman he had loved and long thought lost resurfaces engaged to a man who played a part in Douglas experiences in Bengal. And so on. The Decipherers Chronicles is developing into an arresting series, and Alistair Douglas a character worth following. Author Grant Sutherland makes some odd choices such as to let a decade elapse between the first and second books; to make a

historical thriller turn on a character like Wilkes; to eschew conclusion and let the story slide along into the next instalment, which may not pick up where this one ends... Perplexing. Perhaps Sutherland is bored with the deliberately circumscribed environment of comparable historical novels such as Patrick OBrians naval adventures, Georgette Heyers upper-class romances, Gore Vidals chronicles of American empire, Hilary Mantels Tudor drama. Whatever it is, look forward to the blurb: it will help you set the complicated story in order.

THE HAWKS OF LONDON

Grant Sutherland Macmillan, VIII+356 pages; `550