All entries for Thursday 13 October 2005

October 13, 2005

Asia Times Letters

The problem with Rabindra P Kar's article [The flip side of outsourcing to India, Oct 13] is that he tries to gauge the "general" from the "particular". He necessarily draws a brazen conclusion without looking at the overarching picture. First, outsourcing is not the cornerstone of the Indian IT/ITES [information technology enabled services] industry. In fact, it is only worth [US]$4 billion or so vis-a-vis $16 billion that is contributed by software development. Indian companies are now developing bespoke applications tailor-made for companies such as ABN Amro. Second, there is a difference between offshoring and outsourcing, which the author has erased. In China, Western companies have opened plants to produce and export commodities. In India, Indian companies are developing solutions for Western companies. Third, the author has no understanding of the concept of "positive externality". Even if the IT/ITES sector is not a mass employer, the cumulative effect on the economic engine of the increased disposable income of the hundreds of thousands of software professionals is tremendous. Their increased consumption will aid industries and employment across the sectors. Fourth, India submitted the second-highest number of proposals for patents at the WTO [World Trade Organization] after the US last year. It shows that … companies have a lot to gain from the intellectual-property regime – they can protect their innovative applications, and even market them to generate additional revenues. Fifth, the [Indian] government should indeed be spending more on water resources and reusable energy sources (a curious argument, since the government has kept out of the IT industry), and it can only spend more with the increased tax receipts it gets from the burgeoning IT/ITES companies

Gas from Myanmar: Brushing Aside Bangladesh

SAAG Paper 1575, 13.10.2005

The foreign policy and strategic dynamics of the Indian sub-continent never ceases to stump those observers who believe in unearthing “meta-narratives” or “trends” in their development. On October 5th, ministers of the Bay of Bengal initiative for multisectoral technical and economic cooperation announced in a meeting at New Delhi to “study the possibilities” of setting up a power grid and a gas pipeline for South and South East Asia. It naturally followed from this announcement that a new era of closer co-operation in the field of power and energy would be witnessed in the region. Two days later, however, came a complete volte face. India announced that the proposed pipeline to bring gas from Myanmar via Bangladesh- valued at anywhere between $1 to $4 billion- was “as good as shelved”.

It’s not as if talks at the BIMSTEC meeting were at a cul de sac. In fact, it had give out certain positive vibes. Ministers had talked about “power exchange and grid interconnections” between the countries to facilitate electricity supply. Power Secretary R V Shahi mulled a possible “trans-Bimstec gas pipeline network” for securing energy supply for the members. There was even some talk about investing in renewable and “clean” energy resources for long-term energy security.

So what happened?

Proshanto Banerji, chairman of the Gas Authority of India Limited (GAIL) – the company in charge of the pipeline- made the cost and benefits of the move clear. The pipeline would be routed through India ’s North East- possibly through Mizoram- en route to Myanmar , making it 40% longer than the 850 kilometres it was originally supposed to be. Even though that might push up costs by $290 million, the decision seems to be final.

Two main strands of explanations can be used to illustrate India ’s change of heart. First, as Mr Banerji made it clear- “Our past experience shows we get into all kinds of trouble when we try to work through a third country.” On face value this seems to refer to the long-term destabilising elements in its politics that surfaced in August with 459 bombings in one day, and also the turmoil that has recently gripped the country over en masse arrests and a rather draconian anti-terrorism law that is being mulled by the government.

India is so unsure about the ability of Dhaka to provide adequate security for the pipeline, that it feels it is not worth paying $125 million a year as transit fees and still risk having one of its most valued energy assets being held hostage by terrorists or worse yet, blown to bits. The extent of India ’s apprehension can be seen in the fact that it would rather re-route the pipeline through Mizoram, one of its most restive states, than through Bangladesh .

Second, the Bangladeshi government had been dragging its feet over the deal for a while now, realising the importance of the pipeline for Delhi . Despite “agreeing in principle” with the Burmese and Indian governments in January, Dhaka had continued to ask for major trade and transit concessions as a quid pro quo for letting the pipeline pass within its domain. A while back Indian Petroleum Minister Mani Shankar Aiyar had said “the ice [was] melting”, but a deal was not yet in sight. Unfortunately for Dhaka, India ’s patience has just run out.

However, it may have taken more than mere frustration with Bangladesh for India to declare that the deal was off. Recently, Myanmar ’s Energy Minister Lun Thi conveyed to his Indian counterpart that they had other parties interested in the gas fields of Arakan- Thailand and, most importantly, China . Delhi is still licking its wounds from the recent failure of Oil & Natural Gas Corporation (ONGC) to acquire PetroKazakhstan in view of aggressive- albeit shady and dubious- bidding by China National Petroleum Corporation (CNPC). It would be a geopolitical embarrassment, not to mention another loss of a valuable energy asset- to let China steal the bread from India ’s mouth.

In fact, it could be argued that the timing of this announcement came at precisely the right time for India . Various public interest groups had been demanding this re-routing for months, in the belief that its construction and maintenance would bring jobs to the struggling local economy. Now that the pipeline will pass through West Bengal, Assam and Mizoram- it does look like their demands will be met. Moreover, the pipeline will merely complement GAIL’s recent endeavours in the region, including a Rs. 55 billion “gas cracker” project in Assam . Furthermore, it is of no mean significance that GAIL, which had been given shares to the A1 offshore block in Myanmar , was awarded shares in the A2 block following this announcement. Someone must have been happy in Yangon to see India ’s promptness.

As India ’s economic growth notches up closer to 8% (Q1 growth was 8.1%), demand for energy rises at 10% a year. For an economy of India ’s size, that is a huge demand to be fulfilled. Bangladesh ’s backtracking and indecisiveness has therefore left India with no choice but to do without this irritant- especially now that the future of the $7 billion Iran pipeline is in question- and even there India faced problems of routing the pipeline through Pakistan . All Dhaka has managed to do is make itself a few billion dollars poorer (money that is desperately needed in the economy). At the time of writing, a news report quoted a spokesman from India ’s $17.6 billion Tata Group, who expressed his company’s intense frustration at the delaying of its $2.7 billion investment proposals by various bureaucracies in Bangladesh .

A u-turn still cannot be ruled out. After all, we’ve all seen this before- and in many areas of Indian diplomacy. But there are concrete lessons which Dhaka can- and should- learn from this debacle if it does not wish to be excluded from future regional projects. Whatever happened to signing the South Asian Free Trade Area? That could be next.

The author is based at the University of Warwick and takes a deep interest in the political economy of the Indian sub-continent

October 2005

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