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Issue No.: 574 | April 2015

Obama Came and Concurred: Convergences Enhanced and New Vistas of Cooperation Opened

B. Ramesh Babu
…the progress achieved in strategic security and defence cooperation during the Obama visit are equally, if not more, significant. If we read it together with the US-India Joint Strategic Vision for the Asia-Pacific and Indian Ocean Region issued during the Obama Visit, the convergence of interests between the two nations is unprecedented.

The second visit of the US President Barrack Obama enhanced the growing convergence of interests between the two countries and upgraded the strategic partnership to a higher level. The symbolism and significance of an American President gracing our Republic Day ceremonies as the Chief Guest for the first time should be understood and appreciated. To embellish substance with style and to drive home the significance of events in unique and unprecedented ways has by now become a tellingly successful Modi brand! The way he put the visiting American President on his very popular radio programme of sharing Man Ki Baat with his countrymen was a master stroke. By all accounts the Obama visit was a resounding success. Whether it would turn out to be historic only history would reveal!

"Breakthrough Understanding” on the Nuclear Deal

Naturally, the US-India Civilian Nuclear Agreement and the way-out of the impasse that arose in its aftermath hogged all the media attention. It was also the key issue facing the two top leaders before and during the visit. American nuclear energy industry found the "suppliers’ liability” clause in the Nuclear Liability Law to be unacceptable. Consequently, American corporations did not come forward to build nuclear reactors in India. During the last six years the Manmohan Singh and Modi Governments have been working hard to find ways and means of surmounting / circumventing the stipulations without violating the Law. 

The Modi Government came up with the idea of "an insurance pool” – which is an established international practice – as a possible way out of the impasse. The proposal is to create a multi-million dollar insurance pool to cover the risk of accidental loss of life and property. India’s big national insurance companies and the Government of India are to share the costs of the insurance coverage. This solution seems to have met the concerns of the US Government. President Obama declared that it is now up to the American corporations to go ahead and build nuclear reactors in India.

Nuclear issues are invariably unclear. The chain of queries from the American corporations and the clarifications given by the Indian side has not reached a clear and amicable conclusion so far. As far as India is concerned, the insurance coverage adds to the cost of production and the risk / burden devolves on the people ultimately. Those in the know of things say there is scope for litigation on the legality of "the breakthrough”. The whole thing is likely to take a lot of time. As far as India is concerned the delay is to our advantage. American nuclear energy technology is not as advanced as that of Russia and France. Nuclear energy produced by Russian reactors 1 & 2 at Kudankulam is estimated to be Rs. 3.50 per kWh. American and French companies Westinghouse and Areva respectively are talking about Rs. 6 and 6.50 per kWh. The cost of the proposed insurance pool will be additional. Therefore, it is a good tactic for India to drag its feet on the business of the American nuclear reactors; encourage the Russians to build more reactors as agreed; and sit back and see how this will play out. 

This approach has several advantages. Firstly, the private investment from the US in other sectors (like defence, infrastructure, and trade etc.) gets de-linked from the nuclear reactors issue. American economy is on the upswing after many years and their corporations will be happy to come in a big way if our reforms agenda moves forward soon. Secondly, the Russians have not pushed us on the liability issue. Since Russian investment is in the hands of the Government, there is room to negotiate with them unlike the American corporations for whom the bottom line is profits and nothing else. Russian economy is sorely in need of expansion at this time. During his recent visit President Putin agreed to set up as many as a dozen new reactors in the Kudankualm complex. It is likely that the Americans and the French may not want to lose the nuclear energy business to the Russians by default; and take a re-look at their inflexibility on the liability issue. In any case, nuclear energy accounts for a very small part of India’s total energy scenario. A bit of delay (a year or two) does not make a material difference. 

On a personal note, let me add that the author suggested the following as early as 2008: "Collect the gate pass from America. Get the nuclear reactors from Russia and France in that order of preference.” The Deal was in the final stages of agreement at that time and Sanjay Baru was the Media Adviser to the then Prime Minister Manmohan Singh. There is no way to know if any attention was paid to the unsolicited advice.
Such a diplomatic game has to be played with finesse and with the full knowledge that the other players in the field are equally clever, if not more!

Strategic Partnership and Defence Cooperation

While the Nuclear Deal and "the breakthrough undertaking” received the highest priority and attention, the progress achieved in strategic security and defence cooperation during the Obama visit are equally, if not more, significant. The long term Defence Framework Agreement, which has moved the security partnership to the next level and renewed up to 2025 is extremely important. If we read it together with the US-India Joint Strategic Vision for the Asia-Pacific and Indian Ocean Region issued during the Obama Visit, the convergence of interests between the two nations is unprecedented. The key paragraphs are as follows: 

"Regional prosperity depends on security. We affirm the importance of safeguarding maritime security and ensuring the freedom of navigation and over flight throughout the region, especially the South China Sea.”
"We call on all parties to avoid the threat or use of force and pursue resolution of territorial and maritime disputes though all peaceful means, in accordance with universally recognized principles of international law, including the United Nations Convention on Law of the Sea.”

The target is crystal clear – the aggressive expansionism of China in the region. This covers the security concerns of Japan, the ASEAN nations, and also India. It is pertinent to add that think tanks in America, India, Japan, Australia, and Indonesia announced the convening of what is called Track-II Quad Plus dialogue to discuss ways of enhancing cooperation in the areas of defence, regional security, and counter terrorism. Quad Plus means Indonesia joining the quadrilateral of USA, Japan, Australia, and India already in place.

No wonder China reacted strongly and immediately. President Xi "warned” India not to fall into America’s "pivot Asia trap” and get huddled into an anti-China coalition "against her own will.” He went on to invite India to join hands with China and Russia against the evil of America’s global hegemony – a long cherished objective of the two nations and the Asian- African people in general.

So the Modi strategy of enhancing India’s national security vis-à-vis China is working. Foreign Minister Sushma Swaraj utilized her recent meetings (that were scheduled earlier) with the Chinese and Russian leaders to soften their concerns. The current state of India-China relations in the wake of the Obama visit will be discussed in the article to be published in Freedom First next month. 

President Obama and Prime Minister Modi agreed that the two countries should move forward further on joint designing and joint development of advanced weapons in India. In this context the recent decision of the Modi Government to allow FDI in the defence sector and enhance its share up to 49 per cent was widely welcomed by the American side. It was also agreed that India would acquire more weapons, helicopters, military and civilian aircraft, and drones etc. from the US. 

Another very significant development in security cooperation between the two countries is the decision to establish a hotline between the two leaders and their national security advisers. This clearly indicates that the two sides are advancing their ties to a deeper strategic level. 

Second Generation Reforms are Crucial

It is important to not get lost in the maze of the issues discussed above and ignore the economic front, where the potential for progress is immense. President Obama’s visit has opened up new vistas of cooperation in putting India back on the track of rapid and sustained economic growth, i.e. Modi’s development agenda. However, so far the Modi led BJP Government has not been able to enact the much needed economic and political reforms. The US and the rest of the West are eagerly waiting for concerted action and real progress on the much hyped creation of business friendly environment in the country.  

The current Budget session of the Parliament (25 February to 21 March 2015) is extremely vital for the country and also the Modi Government. It does not have the needed votes to get its economic reforms agenda passed in the Rajya Sabha. Prime Minister Modi has appealed for cooperation from the opposition parties. He offered to respond to their real concerns. Congress Party is determined not to cooperate even though it agrees in principle that further liberalization is necessary for rapid economic growth. The Hindutva hotheads are hindering Modi’s efforts to build non-partisan consensus in support of his development agenda. The BJP President Amit Shah has met the RSS Chief Mohan Bhagwat in this connection. Let us hope things will be quiet on this front for a long while.

If the opposition parties dig their heels in and unfairly brush aside the massive mandate Modi won in the 2014 general elections, the Prime Minister will have to call a Joint Session of the Two Houses to get his agenda through the Parliament. If this does not work, he will be constrained to take the Ordinance route, despite President Mukherjee’s reservations in this regard. This bridge is yet to be crossed.

Other Possibilities in the Pipeline

In analyzing our relations with the US, it is necessary to distinguish between what the American Government can do on its own and what the private industry and business of the country can and will do. On his part President Obama has stretched himself to do the limit. President Obama announced one billion dollar assistance to India at the India-US Business Council meeting on the 25th January 2015. This is to be operated through the Overseas Private Investment Corporation (OPIC). It is heartening to note that YES Bank signed an agreement with OPIC immediately, on 27th January 2015, to lend up to 220 million US dollars to micro, small, and medium enterprises. It would be wonderful if equally quick action follows on the other initiatives as well.
On the trade front President Obama pledged $ 4 billion in investments and loans to release the "untapped potential” of business and strategic partnership between the two countries. There is another crucial area in which President Obama could deliver big. Indian professionals, especially in IT sector, working in the US are required to pay Social Security Tax. This is intended to fund old age pensions for American citizens. Since the Indian professionals in the US are on short term assignments, they cannot qualify for such benefits. The Indian side has been demanding to rectify this legal anomaly since long. President Obama agreed to have this rectified under the law. The dues on this score have grown beyond $ 4 billion, it is estimated. This will be a very significant contribution in making Indian businesses more competitive and a welcome boost to Indian investments in the US. Let us hope that President Obama delivers on this promise quickly. Since good relations with India enjoy bipartisan support in Congress, there is a good chance of this getting through, despite the pervasive hostility between President Obama and the Republican majorities in both Houses of Congress. Follow up from our side is crucial in materializing this prospect.

Parting Shot from the Famous Friend

On the last leg of his eventful visit President Obama gave a spirited speech at the Siri Fort on human rights and religious freedom. He emphasized the need to uphold the constitutionally guaranteed "Right to Freedom of Religion.” He rightly remarked that unity in the midst of enormous diversity of India is what fascinates the world and this should be preserved at all times. Obama is a good orator and he put his soul into the speech. In the present context of India only a true friend could publicly warn us on such a sensitive issue. These remarks should not be misunderstood. Instead our metropolitan media went wild in "patriotically” condemning Obama for lecturing to India, when his country’s record on racial prejudice is less than worthy. 

Final Word

President Obama has done his best to help and open up endless possibilities for India’s rapid and sustained growth. The ball is now in India’s court. Let us hope Modi will succeed in turning around the fortunes of the nation. The time for promises is over. Performance is overdue.

DR. RAMESH BABU is a specialist in International Relations, American Politics and Foreign Policy. 
He is a Visiting Professor at the University of Hyderabad, 2013- 2014 and 
Scholar in Residence, Foundation for Democratic Reforms, Hyderabad. 
Formerly, he was Sir Pherozeshah Mehta Professor of Civics and Politics, University of Mumbai.






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