The nuclear deal is still work-in-progress, but a new pragmatism on both sides is the key takeaway
THE operationalisation of the Indo-US nuclear deal, signed a decade ago, is not just a sign of how far relations between the two countries have progressed, it speaks volumes for how far the BJP travelled under Narendra Modi—when Manmohan Singh signed the deal with George W Bush, the BJP played a major role in pushing through strong liability clauses that stopped not just US nuclear suppliers, but even Indian ones like L&T. That the US obstacles to the nuclear deal got removed during a Democratic dispensation—President Barack Obama used his executive privilege to waive off the US tracking of nuclear fuel and to leave matters to IAEA inspections—indicates just how much relations between the two nations have matured, no doubt strengthened by signs of a new-found practicality on India’s part. As in the case of the nuclear deal which was originally inked during the UPA’s tenure, the attempt to clear the horrible tax tangle US firms find themselves in also dates back to the UPA tenure when, as finance minister in July 2013, P Chidambaram summarily removed the head of India’s international taxation division as the US government simply refused to deal with him. The tax talks, though, got a real fillip when, after the NDA came to power, finance minister Arun Jaitley made it clear the government had every intention of reining in the taxman—this ranged from holding back of tax demands based on the retrospective law until the courts had ruled on them to, in the high-profile Vodafone and Shell cases, not appealing the Bombay High Court judgments that went against the taxman. It is, of course, a sign of just how far we need to go that, a year and a half after P Chidambaram tried to mend tax relations between the two countries, neither country has signed any Advance Pricing Agreements (APAs) or been able to conclude the Mutually Agreed Procedure (MAP) discussions, though it is true considerable progress has been made.
There is a lot of distance to be traversed in the Bilateral Investment Treaties (BIT)—India wants BITs to exclude tax matters and wants all local judicial remedies to be used up before the BIT is invoked, to cite just two major differences—but relations between the two countries are on a much firmer footing, as behoves India’s stature in the region. That the US chose four relatively modest defence projects for joint production as ‘pathfinder projects’ is disappointing—the joint statement holds out the promise of working on aircraft carrier and jet engine technology though—but it has to be acknowledged that India didn’t help by keeping defence FDI at low levels and by refusing to clear enough defence projects. While the BJP would do well to hike FDI levels to at least 51%, it has left a window open through the FIPB route and has demonstrated it is willing to do business—something the UPA didn’t do enough of—by clearing R1.5 lakh crore of defence deals so far. For India, greater US defence production in India not just means greater access to cutting-edge technology, it helps keep the current account deficit in check and also gives a big fillip to Make-in-India given how India’s defence procurement industry is projected to grow from around $16 billion right now to over $80 billion annually by 2025—CII-BCG have projected 1 million jobs getting created in this area over the next five years.
Given that both leaders met barely four months ago and that most in the media and the Opposition—several BJP leaders are convinced they are both the same!—wrote off the visit as mere theatrics, the movement forward is palpable. There is, of course, great theatrics and if Obama advancing his State of the Union address to make place for his Delhi visit was one, Modi abandoning protocol to receive Obama at the airport was one better. But such ‘theatrics’, it has to be kept in mind, are what breathe life into stalled talks and lift sagging spirits. Who would have thought four months ago that the US would abandon its fuel tracking or that India would create an insurance pool solution for US firms wary of the liability clause or say that the tort provision applied only to the producer—Nuclear Power Corporation of India Limited—and not to suppliers? And while the totalisation agreement is still some distance away—if it succeeds, it will save Indian IT firms from paying $3 billion annually to US social security—who would have thought it would even figure in the joint statement by the two leaders? Or that, principled though it was, the US would support the Indian stand on food subsidies that eventually paved the way for the first WTO deal, on trade facilitation, in two decades?
Lots of work still remains to be done, and as former foreign secretary Kanwal Sibal has pointed out in an oped, the fact that the nuclear deal does not find mention in the joint statement suggests the agreement is not as final as both sides make it out to be—the joint statement, for instance, talks of matters way ahead in the future such as trying to get India entry into the Nuclear Suppliers Group, the Missile Technology Control Regime, the Wassenaar Arrangement on dual technology items and the Australia Group on chemical and biological weapons. And the Indian side has to read a larger US gameplan when, while talking of joint work to tackle terrorist entities like the Lashkar-e-Tayyiba, Jaish-e-Mohammad, D-Company and the Haqqani Network, the joint statement does not talk of the Afghan Taliban. And, while the CEOs Forum has aired only some of the problems faced by the CEOs of both countries—as FE reported last fortnight, India’s Department of Space is still not ready to move on Hughes Network System’s 2010 application to build its own satellite—the important takeaway from the Obama visit is the recognition of the need to move forward in both countries and, in the case of India, that negotiation is a two-way street. Even if a cause is just, as India’s was in the case of the WTO’s calculations on food subsidies, no country is going to support it unless there is some quid pro quo. Modi’s success lies in showing the US that India means business.