The ABC to NMD of sanctions

Or why just going ga-ga about how great NMD is won’t help

Sunil Jain

So we’ve supported President Bush’s National Missile Defence (NMD) programme wholeheartedly, and we’ve incurred Chinese displeasure for it, not to mention that our Russian guest (Foreign Minister Igor Ivanov) was deeply upset when we rushed to endorse Mr Bush’s proposal. What are we going to get in return?

While several analysts (generally of a ‘left’ persuasion) say India’s support is ill-founded in that the NMD will just spur Cold War-Part II, an equal number (generally right-of-centre) feel India’s done the right thing: after all, since China’s a competitor for South Asian supremacy, it makes sense for India to ally with a country that’s trying to fix China.

The question, however, is what India’s going to get in the short run. Remember how, when India said it had exploded the nuclear devices because of the Chinese threat, the Chinese suddenly began talking of tens of thousands of square km of a disputed border (Arunachal Pradesh and Aksai Chin) with India? Those in favour of India’s support for NMD will argue, and US Deputy Secretary of State Richard Armitage hinted at this during his just-concluded visit, that the US will soon lift all economic sanctions, that this is a direct result of India aligning with the US.

This is bunkum. We were first told all sanctions would go when President Clinton visited India and then when Prime Minister Vajpayee visited the US last year. If the US does finally remove existing sanctions it’s not because it loves us, it’s because the sanctions don’t serve any purpose and, if they hurt anyone, it’s US industry that wants access to Indian markets. US policy is like that, the commercial interests of its firms play a big role in diplomatic policy — one reason why the US didn’t impose sanctions on China in 1996, for instance, despite its role in Pakistan’s nuclear programme is that equipment supplier Caterpillar Inc would have lost an opportunity to sell equipment worth several hundred million dollars for the Three Gorges Dam.

On India, the US found the sanctions had limited utility: according to a study by the Washington-based Institute for International Economics, the cost of the sanctions was just around $500 million, or around 0.1 per cent of our annual GDP. (The day the sanctions were announced, the White House said the potential scope of the sanctions was a whopping $21 billion!)

The companies that were the worst affected were big US firms doing business in India, and even they explored options to work around the sanctions. Enron Power Corp’s (then) CEO Rebecca Mark had told newspersons that Enron would look at raising funds from Europe for Phase II of the Dabhol Power Company plant in Maharashtra. Several companies began exploring options of getting their European subsidiaries to supply equipment to India. And Dinesh Keskar, who headed Boeing’s India operations and was interested in the $1bn deal for Air India’s expansion, insisted the sanctions wouldn’t impact Boeing’s bid as “there are several other financial institutions in Europe and Japan which can fund aircraft acquisitions”.

So, to cut a long story short, if the US does finally remove sanctions, it’ll be because they don’t suit US firms. It traditionally plays hardball, and it’ll give no concessions just because India supports it on some issue. It’ll give concessions only when it can get concessions. Right through the tortuous negotiations on WTO issues during the so-called ‘friendship years’, the US hasn’t budged one inch on the issue of textiles — because the US position is that US firms will get hit by this. The US took India to the Disputes Settlement Body of the WTO on patents, on our automobile policy, and it’s now put us on a ‘watch list’ of countries that flout intellectual property rights. This is friendship!

So by all means let’s go ahead with supporting the US plans on NMD if it’s in our strategic interests (that’s the one area I don’t have an opinion on!), but let’s understand clearly that this alone will not change the US attitude towards India in any material fashion.

But talk, unfortunately, is what mostly passes for action in this part of the subcontinent. That’s why, for instance, the government was so thrilled with its decision to hike foreign investment limits in telecom to 74 per cent recently. The fact is that not even one telecom firm welcomed it. Why? Because the issue for investors is not just equity ownership, it’s the hassles in implementation, and the vicissitudes of telecom policy that keep investors away. The WiLL-centric about-turn in telecom policy is a classic example. This applies not just to telecom but to every area. I’m no great Dabhol supporter, but the huge problem even after one round of renegotiation five years ago does speak very poorly for our record as serious players.

Rooting for the NMD won’t do much to fix this problem.