The omens for the third bilateral summit meeting between the prime minister, Manmohan Singh, with President Barack Obama on September 27 were not propitious. Both leaders appeared diminished and distracted by domestic dissent and dissonance. Both democracies were looking inwards, with deep and potentially debilitating political polarization. There were manifestations of disinterest, even disenchantment, about the relationship in influential sectors of corporate America and in the US Congress which, till recently, were its strong proponents. Our steadily declining growth-rate was certainly a cause for this erosion of confidence. But more so was the growing gap in both countries between articulated political intent and practical implementation, between promise and performance, rhetoric and reality.
Given this backdrop, the visit was most timely as an action-focusing event. It was a belated, but much needed, intervention at the highest level to restore the relationship to an even keel, consolidate its gains and chart a course for redeeming past pledges and moving beyond. Since this perhaps was their last bilateral meeting, both leaders graciously acknowledged each other’s roles in forging this partnership. Their personal rapport was evident. It was more than a valedictory visit. There was reaffirmation of continued commitment for realizing the goals of strategic cooperation, which had fundamentally transformed the relationship. Though some bridging agreements and mechanisms were put in place, major decisions on legacy issues of civil, nuclear and defence cooperation, as well as important economic issues, were left for the future.
The most historic landmark emblematic of the strategic partnership was the civil nuclear deal, preceded by the American initiative to free India from global nuclear isolation in 2008, which permitted all other countries to enter our market and for us to enter other markets. We made a commitment to the United States of America to adhere to the Vienna Convention on Supplementary Compensation for Nuclear Damage. We signed the CSC, but have not yet ratified it. In accordance with the global norms, the CSC exempts suppliers from any liability. The Civil Liability for Nuclear Damage Act, adopted in our Parliament in 2010, broadly conforms to prevalent international laws, except for its unique provision on liability of suppliers. Our domestic law is also not in conformity with our prior international commitments, including those with the US and Russia. We will clearly have to abide by our law unless its provisions are amended by Parliament to conform to global norms. The signing of a preliminary contract between the Nuclear Power Corporation of India Limited and Westinghouse, as against the usual Early Works Agreement, was essentially to permit continued negotiations and preparatory work. The resolution of the liability issue has apparently been left to a later date.
Out internal debate has largely been restricted to the application of our liability law to foreign suppliers. If liability is mandatory, it would have to apply to all suppliers, foreign or domestic, large or small, covering all relevant nuclear facilities. Even for nuclear power-plants being set up in collaboration with foreign firms, we will obviously aim to maximize local supplies. This will not only be necessary for cutting project costs, but for leveraging our massive market for high-technology transfers and offsetting our costs by export earnings by joint ventures for global manufacturing and supply chains. Apart from NPCIL itself, companies such as BHEL, L&T, Bharat Forge, Walchandnagar, and others already have collaboration agreements with foreign companies. We need a more open debate on the implications of transparent and non-discriminatory application of our law for our atomic energy programme.
Another important manifestation of India-US strategic cooperation was the framework agreement for defence cooperation signed in 2005. American companies have bagged substantial contracts since then for high-technology weapon systems. More are in the pipeline. All other countries that we deal with have clear, predictable and upfront procedures. In contrast, with the US our people are confronted by constant constraints and irritants. They go through a byzantine maze of procedures on data-sharing, export licensing, technical assistance agreements and end-use monitoring of all sorts before, and even after, the conclusion of contracts.
The Joint Declaration on Defence Cooperation announced during the visit did well by agreeing to address these process-related difficulties. For the first time, it also made explicit the earlier implicit understanding of treating “each other at the same level as their closest partners”. It recognizes that over eight years after its signing, the “the full vision” of the 2005 agreement, which envisaged, among other things, technology transfer, co-production and research had not been realized. While reiterating and elaborating the agreement on such collaborations “in most advanced and sophisticated technologies”, the US has proposed specific collaboration projects for our consideration. Here again, we choose to delay our decision till “within the next year”.
We will need to use the interim period for an extensive review of our own systems and procedures. We gained little from any country in terms of conventional defence technology transfers, including those through license production or defense off-sets. We do not have integrated policies on research amenable to industrial applications relevant to our military and paramilitary requirements. We have to balance our dependence on over-extended, and often inefficient defence PSUs with increased involvement of our private sector companies. The FDI limit needs to be raised right away, rather than in stages, to 74 per cent. This would give potential Indian and foreign partners enough flexibility for taking investment decisions based on economies of scale and longer term viability. We need closer institutionalized interaction between our armed forces with designers and manufacturers. There is, of course, the long overdue need for integrating our armed forces with ourdefense ministry on patterns prevalent in other major democracies.
Our prime minister’s visit was preceded and accompanied by an unseemly public campaign marked by shrill recriminatory rhetoric against perceived discriminatory trade practices by India. Its political repercussions were manifested in letters from governors of states and over 200 American senators and Congressmen. This unedifying campaign not only reflected double standards but also ignorance about, and arrogance towards, a fellow democracy.
Fortunately, this campaign did not vitiate the atmosphere during the summit meeting. Both sides did, however, clearly recognize the need to remove obstacles and improve the business environment with greater transparency, predictability and openness to investment. These concerns arose after a spate of our executive, legislative and judicial decisions, which retroactively affected our prior commitments to several countries across a wide spectrum of issues.
We had announced a preferential market access scheme for understandable reasons, but without appreciating, let alone anticipating, some legitimate concerns of global companies. Key elements of this scheme were subsequently kept in abeyance. But the damage had already been done, which may be difficult to reverse. During the visit, the setting up of a joint committee on investment in manufacturing was announced. The decision to work towards a bilateral investment treaty was a positive first step. If leaders in both countries could rescue trade negotiations from their bickering bureaucracies and take strategic decisions, we could move on to India’s membership of Asia-Pacific Economic Cooperation and commence negotiations on joining the Trans-Pacific Partnerships. This will probably have to wait for our next government. Many issues will be resolved if we start acting in our own interest, with less posturing and more action in getting our economy back on track.