All entries for September 2005
September 29, 2005
The Telegraph, 29.09.2005
Biswarup Sen blames globalization for the decreasing popularity of football and hockey vis-à-vis cricket in India, but his proposition is untenable. The logic of a free market says that if a team were to perform badly in any sport, and not bring in large crowds, the game would not be promoted. From the time India failed to shine in international hockey and football, the numbers following the two games dwindled. Had Indian players been more successful, there would not have been a shortage of sponsors. Sania Mirza or Vishwanathan Anand are popular not because the market arbitrarily chose to support the games they played, at the expense of others.
The need of the hour is to include sports in the mainstream school curriculum. At the moment what goes on in the name of physical education is a farce. To generate interest in sports from a very young age is to plant the seeds of world class sportspersons of the future. Since the state still organizes a number of local and international tournaments both in hockey and football, blaming the government squarely only serves to blur the problem.
India Cause, 28.09.2005
It is all too easy for us to remember Angela Martin’s Baker Tony’s Pizza while gauging the important legacy of Anthony Charles Lynton Blair for this country. Did his pizza “make all the children cry” or did he make most of them smile? For Labour enthusiasts, it is perhaps preferable to look at Gordon Brown’s speech at the Labour Party Conference in Brighton, where he paid “repeated tribute” to Mr Blair for “his achievements in transforming” Britain. The truth, as usual, is somewhere in the middle.
Indeed, Mr Blair was in no mood to harp for his legacy yet, as he gave a very policy-centric speech at the conference on the 27th of September. He dwelt on all major issues- from criminal justice to public services- and re-iterated his party’s commitment to be the “change makers”. A lot of issues are in contention to the determinant of Tony’s legacy- Europe (although both the British adoption of the Europe as well as the constitution seem to have hit a cul de sac), public services, devolution, constitutional reforms (Lords, devolution and electoral system), Iraq and the wider war on terrorism, his ambitious plans for environmental protection and debt relief, among others. Some would even classify London’s winning of the 2012 Olympics bid as a contender.
A few of the “Globalist” visions of Mr Blair have already been discarded. Take climate change for example- America refuses to recognise it as an ongoing phenomenon, and therefore wouldn’t sign the Kyoto Protocol, whereas China and India prefer breakneck economic growth to pollution control. Debt relief hasn’t really made headway despite the recent pledge of $55 billion relief by the World Bank and IMF, as donors insist- correctly, one might add- on better governance and transparency as a precursor to any concessions on that front. Free trade within the EU and the WTO has been continuously professed by Britain, and ignored by France and Germany- so much so that the Hong Kong round of negotiations seem doomed to failure even before the start.
On foreign policy, whether one agrees on the Iraq war or not, consensus is fast emerging that the handling of the post-war situation has been disastrous at best. Violent insurgency in the “Sunni triangle” continues, and even in the relatively quiet southern city of Basra, a judge issued an arrest warrant for two British soldiers for allegedly killing an Iraqi civilian. The enthusiasm that went overboard when Afghanistan clocked a 75% turnout during the presidential elections waned last week, when parliamentary election turnouts fell to around 50%.
Back home, he has tripled the investment in the NHS, which has not produced proportionate results (although improvements have occurred). His achievements on education are more contentious, and foreign students preferring Australia and America to Britain certainly does not bode well for international perception of its state. Economic management is an area where Mr Blair prides himself on, and despite general economic stability, it seems that the good times are at an end. The IMF cut the growth forecast for the UK to 1.9% for this year, down from the Treasury’s rather optimistic 3–3.5%. The deficit in public coffers is hovering around £12 billion.
Two books have also come out recently to analyse how Mr Blair fared. Anthony Selden, in his The Blair Effect argued that he was “quite a weak man”, while Lance Prince, in his The Spin Doctor’s Diary, makes the case rather self-explanatory. Tim Hames, writing for The Times, perhaps hit the nail on the head about Mr Blair’s attitude- “I want it all, and I want it now”.
But perhaps Mr Blair’s real legacy lies in reforming his own party- both in terms of following up on Neil Kinnock’s administrative reforms, as well as by being “the man who saved the British left from socialist irrelevance”, according to Time’s Joe Klein. It could be argued that Mr Blair is merely a part of Mrs Thather’s legacy, as his economic policies almost duplicate hers, but true legacy comes when your followers do it your way. Mr Brown’s insistence on following “Tony’s way” seemed to drive home the point.
September 27, 2005
September 25, 2005
SAAG Paper 1547, 23.09.2005
The United Nation Development Programme’s (UNDP) Human Development Report 2005 was published on September 7th. Predictably, it has been used to present the supposed perils of globalisation, as many of the left-leaning intellectuals have done. Keeping that context in mind, attention needs to be drawn to two articles recently published at Asia Times Online that have criticised what they perceive to be the negative outcomes of globalisation. In reality, however, what they have merely managed to do is show, as Professor Jagdish Bhagwati of Columbia University has argued, that globalisation is already good, but could be better. The critiques have, therefore, no locus standi.
Marwaan Macan-Markar, in All Growth, No Jobs (September 3) has pointed at an apparently “glaring flaw” in the process of globalisation, whereby he argues that unemployment and under-employment have been the prime feature of economies. To substantiate his claims, he has cited the Asian Development Bank’s Labour Markets in Asia : Promoting Full, Productive and Decent Employment.
An initial, and perhaps minor, methodological problem in using the unemployment data presented in the report to comment on the employment scenario in the Asian labour market is the fact that much of it is outdated. For example, on p.11 of the report, the unemployment figures for Cambodia, Maldives, India, Bangladesh, Nepal, Kyrgyz Republic, Uzbekistan, Fiji and the small Pacific islands were all for one of the years between 1999 and 2002, i.e., the latest figure was 3 years old. This can create major conceptual errors. For example, citing the 7.3% unemployed figure for India (1999) ignores both the job boom in sectors such as information technology, real estate, pharmaceuticals and the financial sector, but also ignores the slow job growth and job losses in the uncompetitive manufacturing sector or the farm sector.
The larger issue at hand can be tackled with the help of the International Labour Organisations’ Global Employment Trends (February 2005). Despite a fall in global unemployment levels from 2003 to 2004, the rate nevertheless rose from around 5.5% in 1990 to 6.2% in 2004. What can explain this anomaly?
First, faster population growth during the 90s has created a huge supply of new workers every year, which has outstripped demand for new workers as a result of economic growth. It is untrue that the world economy is resulting in job losses- 47.7 million “new” jobs were created in 2004 compared to the previous year- it is just that “new” workers are growing faster.
Second, slow or even lack of job growth was most prominent in Sub-Saharan Africa and South Asia- two of the least globalised regions of the world. Regulation to business (it takes 89 days to start a business in India , according to a UN report, vis-à-vis 3 in Australia ), stringent labour laws, closed external trade regime and a high tax economy are the prime reasons behind this. Even within economies, variations in the degree of liberalisation in different sectors can have great impact on employment. For example, in the information technology sector in India , companies are increasingly offering attractive remunerations to offset the high staff attrition ratios due to the availability of choice for the workers. On the other hand, because manufacturing is still heavily protected, there is less demand for workers, which can put their employers at an advantageous position when negotiating working conditions.
Third, many parts of the world are now in a transitional phase of economic development which entails passing of control of economic activity from the state to the private sector, resulting in job losses in the short-term with long-term job creation in the offing.
Fourth, a major reason for under-employment is the large proportion of economic activity conducted by the informal sector in a number of big transitional economies especially in South Asia and Latin America . However, as the ILO report cited above makes clear “…that there are many opportunities for creating decent work in the informal sector”. For example, job growth in the informal sector grew by nearly 4% compared to a 2.1% growth in the formal sector.
Thus it seems that more, not less, globalisation is needed for industries across economies to boom and consequently hire more workers. As for estimates of poverty for people in work, the absolute number of wage earners living below $1/day declined from 611 million in 1994 to 535 million in 2004, i.e., a 6.5% reduction as percentage of global employment. The figure for $2/day increased from 1.33 billion to 1.39 billion over the same period, yet registering a 6.2% fall as percentage of global employment. It once again highlights the impact of population growth, and proves that globalisation has in fact done well, but to maximise its beneficial impacts, government need to inject a stronger dose.
The Heritage Foundation publishes an annual Index of Economic Freedom. In its 2005 report, some of the “Repressed” countries included North Korea , Myanmar , Cuba and Zimbabwe , while a few of the “Mostly Unfree” countries included China , India and Brazil . On the other side of the spectrum, some of the “Mostly Free” countries were Taiwan, South Korea, South Africa and Cyprus, while the “Free” countries, among others, were Hong Kong, the UK, the US and Singapore. Now chart the income levels, poverty and other human development indicators for all these countries onto a graph- and the correlation between economic freedom and prosperity would be decisively positive, i.e., the freer the country, the richer it gets over time.
What does HDR 2005 say? A few excerpts from the data should paint the outline of the general picture. Let’s consider four countries on varying trajectories of economic freedom- Thailand , China , Uganda and India . In these countries, the female-to-male income ratio was 0.61, 0.66, 0.67 and 0.38 respectively. The proportion of undernourished was 20%, 11%, 19% and 21%. India has taken a far more ad hoc approach towards economic reform out of all these countries.
Over 80% of the world’s produce is consumed by the 1 billion people in the affluent countries. I love this piece of statistics- like many before him, Haider Rizvi uses it to argue that the “rich have become richer, and the poor even poorer” in his Globalising Disparity (September 3). However, what we have to remember is that the affluent countries also produce what they consume. The 20% also produce the 80% and hence should have no qualms about consuming it. The way ahead for developing countries is produce and sell more to increase their share of the pie, as China and India are increasingly showing, and not by trying to stifle consumption in the developed world by certain “redistributive methods” which have severe consequences in store for the rich and poor alike.
The inequality question has also been much misunderstood. First a basic point. I earn $10, my neighbour earns $20- he is therefore 2 times as rich as me. Suddenly if I earn $15 and my neighbour now earns $45, he is 3 times richer than me. Anti-globalists would be quick to point out that I have become poorer than my neighbour by 200%. However, there is another way of looking at it- I became richer by 50%. No need to look at my neighbour- he can buy way more than me, sure, but we can both buy more than we previously could. Relative poverty is a far lesser evil than absolute poverty. According to the United Nation Human Development Programme, Bangladesh is more “equal” than South Korea . Where are people more prosperous?
And absolute poverty has fallen. According to the Asia Development Bank, people living below $1/day fell from 921 million in 1990 to 621 million in 2003- this despite population growth. Ifzal Ali, Chief Economist at the ADB, said, “Asian governments are making significant progress in the fight against poverty.” China has reduced its share of people below $1/day from 33% in 1990 to 13.4% in 2003. Assuming China achieves lower-than-predicted growth rates and spiralling inequality, the figure is still set to decline to around 3.3% by 2015. India reduced its ration from 42.1% in 1990 to 24.9% in 2005. The reason for China ’s better performance is simple- its economy was far more open than India .
The impact can be visibly observed in the figure below. China in 1990 had a lower GDP per capita by PPP than India . Today it boasts of an economy 2.5 times India ’s size and a GDP per capita that is also twice as much as India .
That economic growth reduces poverty is also evident. China has grown faster than India ; it has reduced poverty faster as well. The huge difference between their growth rates in the early 90s meant that while China made a greater dent on poverty, India ’s ad hoc reforms had relatively little impact. In the late 90s, India excelled in poverty reduction- the reason being faster growth rate.
All right, some say, but China and India are the success stories (a bizarre argument, as they have become success stories precisely because of globalisation). What about others? Vietnam began to open up by encouraging export driven industries in the 90s- as a result it reduced poverty from 50.7% in 1990 to 9.7% in 2003, Indonesia, despite the Asian Financial Crisis, reduced the proportion of poor from 20.5% to 6.5% over the same period. Other examples can also be given.
Onto inequality then. According to the Human Development Report 2004 (pp. 50-3), it seems that countries that have embraced globalisation are not necessarily more unequal. For example, Uganda , which is democratic and has an outward oriented economy, the richest 10% of the population are 14.9 times better off than the poorest 10%- the consequent figure for Nigeria , which does not have rule of law and is inward looking, is 24.9. Governance can also play its part. The figure for Russia , which has mismanaged globalisation, is therefore 20.3% vis-à
vis 5.2% for the Czech Republic , that favourite child of the International Monetary Fund. No one would argue that China is more globalised than Britain yet the figures for these countries are 18.4% and 13.8% respectively. Yes, there are some countries where globalisation has led to inequality- but there are also some where this has not taken place. It is wrong to generalise.
It is also indicated that women come off worse because of globalisation. According to an ILO report, female unemployment was 12.9% in 2004 compared to 13.2% for males. In any case, globalisation creates a free marketplace where employers choose those workers that are the most productive, irrespective of gender. That this is not the case is because of the failure of governments to channel resources to empower women- what on earth this has to do with globalisation eludes me.
This is not to say that the job has been done. Far from it. Even in 2003, nearly 80% of Bangladeshis, 77% of Cambodians and 41% of Chinese lived below $2/day. But the credit for the progress that has been achieved till date goes to globalisation, and it is globalisation, which holds out the beacon of hope. All talk of human face is a façade- globalisation has a human face, we just need to recognise it through proper reforms- not necessarily a blitzkrieg of reforms, but a gradual but focussed approach.
The author is based at the University of Warwick and takes a deep interest in the political economy of the Indian sub-continent.
September 22, 2005
Asia Times, 23.09.2005
India's banking system has been generally stable, with low and falling non-performing assets (NPA) ratios, growing deposits and profits in the post-liberalization period of the past decade. However, as India hopes to improve on its growth rate from the compounded year-on-year average of 5–6% to 7–8%, this clearly is not enough for the government.
Recently, Finance Minister Palanippan Chidambaram, himself an ardent reformist, gave public sector banks a severe dressing down for projecting lesser-than-satisfactory growth trajectories. The main reason why Chidambaram pulled up the banks was their recent anticipation of a "slowdown in deposit mobilization and credit disbursal targets".
Speaking at the annual general meeting of the Indian Banks Association, he said, "Public sector banks have been consistently outperformed by the new private sector banks in deposit mobilization. Some of the frontline public sector banks
have projected a lower deposit growth in 2005–06 than 2004–05."
This comes at a time when, despite global crude prices of more than $70 a barrel, the growth estimates of the economy for 2005–06 have been revised upward from about 6.5% to 7%. Naturally, credit extension of the major banks should have increased along with this spurt in economic activity. To be fair to Chidambaram, he did acknowledge that. Where he did chide the bankers and advised them to "remedy their perceptions" was their comparative performance vis-a-vis the burgeoning private banks. However, the government may be more to blame than the bankers.
As outlined earlier, the major government-owned banks have been doing brisk business. Take State Bank of India (SBI), the largest of them, as an example. Its total deposits rose from $52.09 billion in 2000–01 to $83.91 billion in 2004–05, its operating profit was up from $850 million to $2.51 billion and its net NPA ratio down from 6.03% to 2.65%.
Similarly, Punjab National Bank (PNB), the third largest bank, saw its revenues rise from Rs96.46 billion ($2.19 billion) in 2003–04 to $2.30 billion in 2004–05, and its operating profit rose from Rs27.07 billion in 2003–04 to Rs31.21 billion in 2004–05.
However, this rosy picture fades when compared with the performance of major private players in the market, despite them being considerably smaller in size both in terms of operational capability as well as market share.
For example, ICICI Bank, the largest private sector bank, increased its deposits by nearly 47% between 2003–04 and 2004–05, compared to a meagre 15% for SBI over the same period. Similarly, the operating profit margin (operating profit as percentage of revenue) for HDFC Bank increased to nearly 36% in the first quarter of 2005 from the same quarter of 2004 vis-a-vis a 32% figure for PNB
The fact that India's public sector "Goliaths" are falling behind the private sector's "Davids" is what caused the recent irritation expressed by the finance minister. Yet the reason lies in the ad hoc nature of banking sector reforms. Successive finance ministers have warned the public sector banks "to brace for a wave of consolidation" to become global players. However, calling for world-beaters does not produce them; visionary and consistent policy does.
First, domestic mergers and acquisitions are hampered to a great degree by the vociferous opposition of trade unions. Labor reforms Delhi promised are nowhere in sight, and banking strikes are frequent in the public sector – sometimes asking for an impossible pay rise, sometimes protesting against feared job losses due to any proposed mergers.
Second, government banks have been constrained in their capital-raising capability due to political roadblocks. Raising foreign investment caps has always proven difficult, and initial public offerings (IPOs) have been slow to come. The banks have not really hit the markets with an IPO spree, as many smaller private banks have done in recent times.
The proportion of shares on the market remains small anyway. Moreover, apparently to hold the banks accountable, the government has recently reiterated its stand of holding controlling stakes in these banks. A K Purvar, managing director of SBI, has plans for some major acquisitions, and yet is "waiting for government notification" before he can raise preference capital for this purpose.
Third, government control necessarily translates into government intervention, much of which is arbitrary and hampers efficiency. The Central Vigilance Commission (CVC) regularly exercises its powers of purview, which creates a "fear psychosis" among bankers and slows down operations. Recently, however, the government has instructed the CVC to reduce its jurisdiction and stop intervening in top-level managerial decisions. Nonetheless, this remains at the proposal stage and is being discussed between the comptroller and auditor general of India, along with other government agencies before it translates into reality.
Furthermore, the government still appoints the board of directors and chief executives of these banks, along with the Reserve Bank of India appointing the auditors. On the other hand, the RBI appoints only one of the auditors in private sector banks, while the rest are appointed by shareholders. Ironically, this creates much greater accountability than in the public sector banks, despite the government retaining control for precisely this reason.
Foot-draggers say that the expectations of the Finance Ministry are "over-ambitious and unrealistic". Yet public sector banks are strategically better placed than their private competitors, with greater market penetration and opportunity to get economies of scale. Yet the return on assets ratio of these banks remains at 0.7% compared to 1.6% in government banks in Brazil, 1.42% in South Korea, 1.36% in Malaysia and 1.2% in Singapore.
It should be said that the performance of the public sector banks is not bad by most standards. For example, they have a far bigger role in extending rural credit than private sector banks. Agricultural lending rose to Rs1.5 trillion, which is Rs100 billion above the target, while NPAs are down by Rs21 billion. Cumulative profits are at Rs377.37 billion. SBI, PNB, Andhra Bank, Bank of Baroda and Oriental Bank in various parts of Africa and Asia are planning major foreign acquisitions.
So, where's the problem? The point is that they could be better. And a dose of continuous, consistent and pragmatic reform is what is needed.
Aruni Mukherjee is based at the University of Warwick, UK, and takes a deep interest in the political economy of the Indian subcontinent. He is originally from Kolkata, India.
September 19, 2005
India Cause, 18.09.2005
The Indian business process outsourcing (BPO) sector is booming. Yes, we’ve heard that story before. Earlier this year when The Economist ran a special report on outsourcing, it hinted that Indian information technology and IT-services companies were gradually moving up the value chain into application development. On 1st September, a landmark deal signed between the Dutch bank ABN Amro and three of India’s leading IT/ITes companies- Tata Consultancy Services (TCS), Infosys and Patni Computers- announced with a bang that this was really what was happening.
The deal is estimated to be worth around €1.8 billion ($2.24 billion), and will cut ABN Amro’s headcount in the IT department from 5,000 to 1,800 with 2,000 of those jobs headed India’s way. The estimated savings for the bank will be around €258 million a year. Apart from the three Indian companies, Accenture and IBM are also part of this deal. While the former will focus on delivering applications in co-ordination with the Indian companies in certain parts of the operations of the bank, IBM will provide the IT infrastructure, i.e., servers, storage and desktops.
T.V. Mohandas, Chief Financial Officer at Infosys, says that initially work will be largely onsite, with 5–6 months being required to gradually begin the offshoring. Beginning on 1st September, it would take around 18 months to implement the arrangements that have been agreed upon.
Predictably, the heads of the Indian companies are upbeat about the prospects of this deal. Nandan Nilekani, Chief Executive Officer of Infosys, remarked that “[t]his is a landmark deal [for the company].” Worth around $200 million, the company will be in charge of developing and delivering applications for the bank’s Asia Pacific operations from its bases in Taiwan and Hong Kong.
For TCS, India’s largest IT company, this is simply a nice ending to a happy European summer which has seen its business go up by 60% in the last year in the region. Leveraging its Global Delivery Model based in Latin America and Hungary, the company will manage application support and enhancement services for ABN Amro’s operations in Netherlands and Brazil, besides catering to its private clients globally. It will also deliver the Strategic Pan King Platform for the bank.
All this is pleasant, yet hardly a surprise for S. Ramdurai, CEO of TCS, who says- “TCS has been investing continuously to build its Global Delivery Model and best-in-class execution abilities. The milestone engagement with ABN Amro is a complete and irrevocable validation of [our] global delivery strategy.” The share markets seemed to agree, as the Bombay Stock Exchange saw sharp rises in the stocks of all the three Indian companies involved in the deal.
A question on profitability of this deal for TCS has been raised. While bagging large contracts, companies with a cost advantage generally push themselves to the extent of losing their current profitability margins. The deal is supposed to pocket $200 million over 5 years for TCS. However, company bosses maintained that while prices had been competitive, profit margins would remain unhampered.
There are also speculations raised on in-fighting between the Indian companies over this deal. NDTV, a popular television channel in India, reported on September 1st that Infosys had initially hoped to bag the “Indian part of the deal” all for itself and it had strong confidence in its business model. In the end, while it turned out to be the single largest deal ever bagged by the company, it had to share the glory with two of its competitors. Lars Gustavsson, CIO at ABN Amro, explains why- “There is simply no single vendor who can satisfy all the needs of the bank”. However, industry pundits should be encouraged by the fact that not one, but three of India’s companies were “good enough” for the Dutch bank to take on board.
All this isn’t out of the blue moon. Indian BPO and software companies have been posting sales growth rates in excess of 30% for a few years running now. Perhaps the most encouraging point here is that Europe seems to have finally jumped on the outsourcing bandwagon. ABN Amro joins the list of eminent banks already associated with Indian IT/ITes companies- BNP Paribas, Sociele Generale, ING, etc. It also provides exciting opportunities for Indian firms to explore new avenues to hitherto unexplored markets of Latin America and continental Europe, even as they already look towards East Asia (Japan in particular). The global sprawling of India’s IT companies has, it seems, finally begun.
What purpose this deal serves the most is the big names involved in it. This will give invaluable positive and stature-raising publicity for the Indian companies. Consistent performance has always been there- but headlines are what they need now. Dheeraj Sachdev, portfolio manager at ASK Raymond James says- “[The IT industry] needs a few more such wins”. Indeed, it could be seen as an important step forward.
September 17, 2005
The Telegraph, 16.09.2005
Githa Hariharan tries hard to keep to the centre ground in her article, “Perfecting the past” (Sep 11), about the debate over deleting objectionable references to Dalits from our scriptures, yet all she manages to do is to muddy the waters. By claiming that “the villains of the present have ancestors” and citing a sentence from the Ramcharitmanas that shows bias towards Dalits, she makes the same mistake as those who vilify Islam by quoting the Quran. We must study old texts in the context of the times they were written in, otherwise we are no better than the extremists.
Hariharan also seems to have problems with Hindutva ideologues glorifying the Gupta and Mauryan ages. Perhaps she will be convinced by Western endorsement of the successes of these two dynasties in the areas of international trade, taxation, general prosperity and entrepreneurship. Their achievements are also recounted in our folklore and popular culture. There were drawbacks such as the caste system (a distortion of the original varna system). But then, every age has its drawbacks. All that left-leaning intellectuals can see in India’s early history are Brahminical oppression and poverty. Writing new texts for the new age is the way forward, as the author rightly argues. But it is time to acknowledge the achievements of ancient Indians — for only then will we realize how far we’ve fallen behind.
September 15, 2005
SAAG Paper 1539, 15.09.2005
On the second leg of his visit to China and India, two of the world’s fastest growing economies and emerging political powerhouses, British Prime Minister and President of the European Council of Ministers Tony Blair arrived in New Delhi earlier this week. He pledged to ink and cement “trade deals, educational and cultural partnerships” with India during his stay. With Britain traditionally enjoying close relations with India , the bigger challenge for Mr. Blair was to forge a new chapter in relations between India and the European Union. He has been largely successful.
Prior to Mr. Blair's visit a spokesman for the British High Commission in Delhi explained why Europe was so keen to take the relationship to the next level- “ India is the fastest growing democratic country in the world.” In a world laden with arbitrary governments, the EU wants to be seen as helping not hindering the progress of the world’s largest democracy. Moreover, apart from being a good public relations exercise, it also generates rich dividends for companies and investors on both sides.
While in Delhi, Mr. Blair signed a “strategic partnership” between India and the EU, which will foster closeness in many aspects including trade, education, climate change and energy co-operation. The EU is already India’s largest trading partner, and as EU Trade Commissioner Peter Mandelson recently remarked, boosting of economic ties between the two power blocs could only lead to closer relations and increasing prosperity on both sides. Mr. Blair too urged Europe to “embrace the economic powerhouse” and not look at it as a job stealer, as many not well versed in the benefits of free trade do.
In a related development, the Hindujas, Indian-turned-British entrepreneurs, announced a $15 billion “India Fund” which they would be raising in liaison with investors from around the world for the core sectors of India’s economy. Incidentally, Britain is already the largest foreign direct investor in India . During his stay in Delhi , Mr. Blair, this time in his avatar as the British Prime Minister, met up with eminent Indian industrialists and visited the UK Trade & Investment meeting to gauge the importance of the economic relationship between India and his country.
Undoubtedly, Mr. Blair had a big role to play in the inking of the £1.2 billion deal signed for the purchase of Airbus jets by India . He would also be lobbying for the quickening of the deal where India is considering buying 12 Scorpene submarines from France, and 125 front line fighters, for which French companies Mirage and Rafale are in the race with America ’s Lockheed Martin and Russia’s MIG.
However, there was uncomfortable ground for Mr. Blair to tread on as well. Indian Prime Minister Manmohan Singh called upon the EU to lower or drop duties and non-tariff barriers on Indian exports to the bloc, and stop unwarranted subsidies in a range of sectors, primarily agriculture. Although Mr. Blair did support the idea of systematic opening up of markets on both sides, he is reading from a different page of the book than Herr Schroeder and Monsieur Chiraq. Acknowledging that “protectionism was simply outdated and no longer sustainable”, Mr. Blair is, however, unlikely to find accord in this from his continental or trans-Atlantic colleagues, as an acrimonious dispute between the Quad (US, EU, Japan, Canada) and the G-20 (group of developing countries) ala Cancún looks imminent to erupt at the Hong Kong ministerial summit of the World Trade Organisation in November.
Nevertheless, the two biggest news items to come out of Mr. Blair’s brief Indian summer were the declaration of increased co-operation in civilian nuclear energy and the re-aligning of Britain’s position on terrorism in Kashmir . He said, “I have always condemned terrorism in… Kashmir . But I think there has been a reluctance- not confined to the UK alone- to see this terrorism for what it is…but the world has woken up.” For years, many of the perpetrators of attacks on security forces and civilians in the valley got asylum in Britain as “freedom fighters” escaping state repression. With Britain having woken up by its home grown breed of this terror, 10 Downing Street finally branded the insurgency in Kashmir as terrorism, and called upon concerned parties (no guessing who) to end the infrastructure of this menace. Equating the dangers faced by people from both countries, he said- “[T]his global terrorism we face in India [and]…in Britain …comes from a perversion of the true faith of Islam.”
On his recent visit to Washington, PM Singh managed to secure US co-operation in civilian nuclear technology, and supply of fuel for the Tarapore Nuclear Plant. He also got the Bush administration to assure India of allowing freer access to nuclear technology from all nuclear suppliers. Now Mr. Blair, speaking both on behalf of the British Government in London, and the European Union in Brussels, agreed to the same.
He “promised to bring about the required changes in policy” for Britain to be active in the Nuclear Suppliers’ Group, and pledged to transfer to India civilian nuclear energy and other dual-use technologies. The EU has also acknowledged India ’s need for “clean energy” to ensure its energy security, and backed Delhi to be a part of the International Thermonuclear Reactor Project, which was a “recognition of India’s nuclear and scientific capabilities”. Arguably, this will be more effective than the American pledge, as unlike President Bush, Mr. Blair does not need any parliamentary ratification to bring about this policy change. This is because after the 1998 nuclear detonation by India, the Clinton administration passed a law through Congress preventing transfer of such technology to India- Britain had merely made a policy statement.
In other, albeit minor, agreements, the two sides agreed on greater co-operation in combating HIV Aids, hydrogen carbon, a new air service agreement, intellectual property rights and climate change. They also agreed for greater co-production of films. A recent report by the BBC showed the interest among film circles in Britain to tap the potential of the Indian film industry- the largest in the world. The 1 million strong British-Indian population also helps to cement this cultural relationship.
Although Mr. Blair did pledge to transfer most of what was signed on paper into actual developments, it is relatively easy to undermine the importance of the EU-India mini-summit ahead of next Wednesday’s United Nations Assembly in New York as mere empty rhetoric. To gauge the long-term significance of the same, we need only to look as far as China , where Mr. Blair was before his India trip. It could be argued that his visit was primarily for “damage control” over the “bra wars” between the EU and China. Moreover, he also raised the usual questions over human rights abuses in the country. Although driving clear of indicating any conflict of interests between the West and China , Mr. Blair did say that “It’s not that people resent China, but they’ve got a question mark”.
No such qualms about India though- it is looked upon as a far more benign power vis-à
vis China. As Mr. Blair and Mr. Singh strolled through the gardens in the Lake City of Udaipur, he summed up the outcome of his trip “The result of these two days is to cement a new modern relationship between India and the United Kingdom for the 21st century”. Now his challenge will be to get the Franco-German sphere on board.
The author is based at the University of Warwick and takes a deep interest in the political economy of the Indian sub-continent
September 13, 2005
I am rather disturbed by certain fundamental errors – both in content [and] in methodology – in Ramtanu Maitra's article China's shadow over India's US lobby [Sep 13]. First, he conveniently mentions that China is the world's second-largest economy – even larger than Japan – but fails to point out that those calculations are based on purchasing power parity (PPP) terms. In real terms, China is the world's seventh-largest economy, with Japan nearly three times as large. This tends to confuse the non-economic-minded reader, just as the statement "India is a larger economy than Germany" would (true in PPP terms). Second, while correctly mentioning that India receives very little foreign direct investment, it is curious how the author forgets to point out the role of foreign institutional investors in the Indian economy. By some estimates, the Bombay Stock Exchange holds around [US]$50 billion of FII. Third, he has made a plain judgmental error when he argues that foreign perception of Indian development is marred by the visible poverty in Indian towns and villages. Pick up any reputable international newspaper – The Economist, Wall Street Journal or anything else – it is positive press all the way. Sometimes it is even possible to argue that India is getting more good press than it deserves.