Business StandardV O L U M E X V I N U M B E R 1 1

W

ITH all the domestic pre-

occupations this week, few

in India are paying atten-

tion to momentous developments in

West Asia and North Africa (WANA).

With the siege of Tripoli by rebel

forces, aided by European pow-

ers, the bell tolls for Libyan leader

Muammar Gaddafi. In Syria, the In-

dia-Brazil-South Africa (IBSA) ini-

tiative to prevent a Libya-like attack

and secure political change through

peaceful means is now facing new

obstacles. Having ensured a change

of regime in Libya, after Egypt, the

West may well focus on Syria. India

has had long-standing good relations

with Libya and Syria, but neither is

of great strategic importance to In-

dia today. Rather, the Arab nations

of the Gulf, including Saudi Arabia,

the United Arab Emirates (UAE)

and other Gulf states, matter more

for India from a purely economic

(oil and remittances) as well as a

strategic perspective. This part of

the Arab world remains relatively

stable for now.

India also has important strate-

gic relations with Israel, a country

that must now behave with greater

maturity given that the regional bal-

ance may be shifting in its favour.

Libya is not an important source

of oil for India, but people-to-people

relations between India and Libya

have remained good and strong and

the Indian government must move

quickly to ensure that good relations

are established with the new regime

in Tripoli. China has been fleet-foot-

ed, since its dependence on Libyan

oil is higher than India’s. A

spokesman of the Chinese Foreign

Office said on Tuesday, “The Chi-

nese side respects the choice of the

Libyan people.” India has maintained

silence till now. Libya accounts for

about 2.2 per cent of global crude oil

production, while Syria’s share is

just about 0.5 per cent. Libya is the

11th largest source of oil imports in-

to China but is an insignificant sup-

plier to India with a share of just

about 0.5 per cent in Indian crude

oil imports. India has diversified its

oil import sources in recent months,

buying more from Venezuela, Iraq

and Nigeria, apart from the tradi-

tionally more important sources in

Saudi Arabia and the UAE.

In the end, for India the main con-

cern over the situation in Libya and

Syria is less about direct oil supplies

and more about oil prices and over-

all economic activity in the region. If

Libyan oil exits the world market

in the near term, as a consequence of

the instability that is likely to fol-

low Mr Gaddafi’s final exit and the

inevitable regime change, global crude

supplies will be hit. This would push

the prices up in the near term, till new

supplies can be secured. Apart from

this, the continued turmoil in West

Asia will hurt overall construction

and other economic activity in the re-

gion, impacting inward remittances

of dollars from Indians working there.

All of this could push oil prices up

at a time when India remains un-

der pressure on the inflation front and

its current account deficit is rising

once again. Indian diplomacy in the

region has vacillated between hesi-

tant support for popular uprisings

and the desire not to rub Arab opin-

ion up the wrong way. It is in In-

dia’s interest to take a long-term view

of its geo-economic stake in good re-

lations with the Arab world and adopt

meaningful postures that serve her

immediate and long-term economic

and strategic interests.

West side storyRealism must shape India’s response to events in WANA

T

HE recent decision by the em-

powered group of ministers

(EGoM) to free urea prices and

bring urea under the nutrient-based

subsidy (NBS) regime should have

been taken along with the decon-

trol of phosphatic and potassic fer-

tilisers in April 2010, if not earlier. In

fact, the process of switching over to

the well-conceived NBS system has

been inconclusive without urea be-

ing covered in it. As a result, most

of the key objectives of this move have

remained unmet. These include pro-

moting balanced application of plant

nutrients to preserve soil health,

encouraging production of innova-

tive and situation-specific fertiliser

products, rationalising fertiliser sub-

sidy and attracting fresh investment

in this sector. Surprisingly, though

most of the ministries concerned – in-

cluding those of agriculture and fi-

nance – favoured extending NBS to

urea, the main administrative min-

istry, the fertiliser ministry, contin-

ued to have misgivings about it. Its

main worry was that it would lead

to an abnormal rise in farm gate rates

of urea which might hurt farmers.

However, the fact is that the rise in

prices, though inevitable, would not

be unreasonable since the govern-

ment is not abandoning the policy

of subsiding fertilisers to keep re-

tail prices lower than the production

cost. The EGoM has now decided

to allow a maximum of 10 per cent in-

crease in urea prices in the first year

of decontrol, after which firms would

be free to fix prices in a competi-

tive market. For calculating sub-

sidy under NBS for urea units us-

ing different feedstock and of vary-

ing vintage, the committee of sec-

retaries, headed by Planning Com-

mission member Saumitra Chaud-

huri, has suggested a useful formula

to the government.

However, decontrolling urea

prices is only the first step in the urea

sector reform. To take this process

to its logical end, the government

will have to address the issue of sup-

ply and pricing of gas for fertiliser

production and draw up a policy to

end the nearly decade-old drought

of fresh investment in capacity ad-

dition. The Saumitra Chaudhuri com-

mittee report can be useful for this

purpose. One suggestion that mer-

its consideration is notional pooling

of natural gas prices. This will en-

sure contracted prices for the pub-

lic and private sector gas suppli-

ers and a uniform feedstock cost for

a level playing field for all urea units,

regardless of their technology and

age. The uncertainty about sus-

tainable gas availability at reason-

able prices has, in fact, been one

of the reasons for the failure of the

government’s 2008 investment pol-

icy to attract fresh funding in this

sector. Of course, there have been

concerns about the implementation

of the policy on parity pricing for im-

ported urea. Since urea is a highly

capital-intensive industry, investors

seek assured and adequate gas avail-

ability and reasonable returns. For

this, the new and expansion projects

may also need some fiscal sops, such

as infrastructure status or a tax hol-

iday or concessions for the first few

years. Addressing these issues would

help reduce India’s import depend-

ence in urea.

Halfway houseRational fertiliser pricing needed for rational use

S TAY U P D AT E D T H R O U G H T H E D AY, V I S I T W W W. B U S I N E S S - S TA N D A R D . C O M

M U M B A I , W E D N E S D AY 2 4 A U G U S T 2 0 1 1

13

S TAY U P D AT E D T H R O U G H T H E D AY, V I S I T W W W. B U S I N E S S - S TA N D A R D . C O MS TAY U P D AT E D T H R O U G H T H E D AY, V I S I T W W W. B U S I N E S S - S TA N D A R D . C O M

OPINION

B

ISMARCK famously said of

the United States that it had

managed to “surround itself

on two sides with weak neigh-

bours and on the other two sides with

fish”. India, unfortunately, does not en-

joy this luxury of splendid isolation: in-

stead of fish it has Pakistan on one side

and China on the other, a China that is

on the verge of becoming economical-

ly dominant, sharing that status with

the United States for now and enjoying

it exclusively in the near future.

The India-China relationship is

fraught, having to contend with a num-

ber of things: the mutual resentment

created by history (India’s stemming

from its humiliation in the 1962 war and

China’s from having to endure the Dalai

Lama’s flight to, and long-term exile in,

India); tensions of contiguity; anxieties

of a hierarchical geography with up-

stream China controlling downstream

India’s access to possibly the most pre-

cious of all future resources — water;

and the unavoidable rivalries of large

growing economies competing for mar-

kets, commodities and seats at the high

table of global decision making.

Goldman Sachs, in creating the

grouping BRIC (Brazil, Russia, India

and China), thought that the common

denominators of size and promising

growth prospects could somehow wish

away or at least dilute these complica-

tions and create common purpose and

interest. Alas, that will not be the case.

So, a strategic question for India is: how

should it respond in the economic are-

na to a dominant China?

On the one hand, trade and eco-

nomic relations between China and In-

dia are intensifying, creating opportu-

nities for both countries and mutually

reinforcing stakes, and imparting a pos-

itive-sum dynamic to the relationship.

On the other hand, the economic rela-

tionship is seen, politically, as in-

creasingly imbalanced. India runs a

large and growing trade deficit with

China, and the pattern of trade is rem-

iniscent of trade during the days of em-

pire. India exports predominantly raw

materials to China and imports high-

value-added and sophisticated goods.

Indian industry and government of-

ficials have complained about China’s

policies on trade, industry, foreign direct

investment and exchange rate that aid,

often opaquely, Chinese industry and ex-

ports. China’s government procurement

policies have impeded Indian pharma-

ceutical exports and the fear is of a large

China using its size to create and set stan-

dards (for example, for telecommunica-

tions equipment) that others have no

choice but to follow. Not just the content

but even the tone of these complaints can

resemble the emanations from the Chi-

na hawks in the United States.

India, like China’s other major trad-

ing partners, has to grapple with the ques-

tion of how much it should engage with

China bilaterally and how much multi-

laterally. India’s dilemma is that its ne-

gotiating strength in a bilateral context

is limited owing to the stark imbalance

in economic size, yet it is unable to em-

brace multilateralism as conviction, pre-

ferring a reluctant and opportunistic mul-

tilateralism that can end up as ineffec-

tive multilateralism. Why the latter?

India has been a habitual naysayer

in its multilateral dealings. It was a “sov-

ereignty hawk”, in Strobe Talbott’s fa-

mous words, trying its best to minimise

having to do what it would otherwise

not want to do. In the trading system,

for example, India lobbied hard and

strong over the past three decades to

preserve the right to protect its econo-

my through tariffs and quotas. Sover-

eignty, in this arena, was equivalent to

the freedom to protect or prevent the

imposition of rules and obligations that

would deprive India of this freedom. Of

course, this objective, in turn, flowed

from an economic ideology that initial-

ly viewed liberalisation and market

opening as unhelpful to India’s inter-

ests, and later, when it recognised the

benefits of liberalisation, it still viewed

it as something to be undertaken at In-

dia’s pace and on India’s terms rather

than have it dictated by outsiders.

But if India was a naysayer, it was one

with a following with the old G77 serving

as a forum for India to intellectually lead,

and speak on behalf of, several develop-

ing countries. Leading this pack became

a habit, a mindset, even an entitlement.

In recent years, as India’s ideologi-

cal moorings have shifted, it has been

able, although gradually and episodi-

cally, to back away from playing the re-

calcitrant partner, stymieing efforts at

international cooperation (Jairam

Ramesh’s constructive role in the cli-

mate negotiations at Cancun is one ex-

ample). But its officials have been less

able to renounce the mantle of leader-

ship, and hence less willing to join mul-

tilateral coalitions where leadership is

shared or even sacrificed. In short, it

has been easier to repudiate ideology

than to spurn the spotlight.

As a result, India finds itself in an in-

teresting situation. For example, in dis-

cussions on China’s exchange rate pol-

icy, India has chosen not to align itself

with the United States as part of a mul-

tilateral coalition for fear of endanger-

ing the broader relationship with Chi-

na (“we live in a rough neighbourhood”

is India’s response with some merit),

and because it believes that the United

States can “handle” China alone with-

out India’s participation. The conse-

quence, of course, is the classic free rid-

er problem where all countries that

think similar contribute to the break-

down of co-operation.

Even where the need for forging

coalitions is recognised, the Indian in-

stinct is still to seek out developing coun-

try partners such as South Africa,

Brazil, or Indonesia rather than the

United States and Europe.

If China is to be tethered to the mul-

tilateral system – an imperative for

countries such as India against an un-

benign exercise of future Chinese dom-

inance – India must become part of the

effort to forge successful coalitions that

will strengthen multilateralism. Going

forward, the United States cannot do it

alone. Coalitions must be broad and re-

quire easy engagement between the old

powers and emerging ones. Thus, In-

dia must become a visceral multilater-

alist which would entail coming to terms

with a demotion in status and require

reaching out to all partners, not just erst-

while comrades in the G77.

The appealing symmetry in future

efforts to engage China is to induce a

greater humility in both the United

States and India. The United States will

have to spurn the temptation – rather

shed the delusion – that it can exercise

exclusive leadership and dominance in

shaping outcomes. India will have to

stop coveting the mantle of leadership

and instead participate in multilateral

co-operation as an important but hum-

ble drone rather than as the queen bee.

The author is senior fellow, Peterson

Institute for International Economics

and Centre for Global Development.

This piece is based on his

forthcoming book,

Eclipse:Living in the Shadow of

China’s Economic Dominance

ILLUSTRATION BY BINAY SINHA

COUNTERING CHINA’S

ECONOMIC DOMINANCE

A

good back-cover blurb is

a comparative rarity.

Even rarer is a blurb that

remains accurate and satisfying

after one has finished reading

the book it adorns.

The blurb on this book is both

good and useful. It begins thus:

“Throughout December 1767,

Alistair Douglas has been using

the Decipherers’ network of

contacts in London to attempt to

find two men, Pearce and

Flanagan, who have been

tracked to London from Boston

— well-known as dangerous

men and natural leaders of the

mob. As rumours fly around,

there has been an increasing

number of anonymous printed

attacks on the King and his

ministers. But, frustratingly,

there are few leads.”

If you are confused, you are

forgiven. Nevertheless, this, and

the rest of the blurb, is an

admirably succinct, if not

beautifully written, summary of

the premise of the story. The

story itself really is that

intricate; the “events” that

happen and leap breathlessly

from page to page – it is a page-

turner, despite the unpromising

density of the blurb – are only

the uppermost, visible layer of

the happenings, processes,

rivalries that move late 18th-

century English society and

government at the topmost and

bottom-most levels.

Now to explain. Alistair

Douglas is a young man of good

but provincial family in his late

20s. He is a Decipherer, that is,

he works at the sharper end of

the spy apparatus of the Crown.

Think of the Decipherers as

early MI6; and of Douglas as a

less decorative James Bond.

Douglas has served the

Crown as a secret agent since

1757. We know this because the

first title in The Decipherer’s

Chronicles series was The

Cobras of Calcutta (Macmillan,

2010), and in that book Douglas

came of age as a young East

India Company employee co-

opted into the British

clandestine effort to topple both

the French in Bengal and the

Nawab of Murshidabad. It

culminates with Plassey.

Douglas is not long returned

from the American colonies,

where he appears to have been

involved in the British

struggles against the French

and Native Americans.

“Appears” because the author

has let a decade of fictional

time elapse between the first

book and this one. Pearce and

Flanagan have been dangerous

to the British cause in America

– remember, the American

independence movement is

about to break out – and

Douglas has come to London on

their trail.

At least some of the

“anonymous printed attacks” on

members of the British

government are from the pen of

John Wilkes, a radical

pamphleteer and politician who

is the core around which this

novel turns. When the novel

opens, Wilkes is in exile in

Paris, where he has fled after

being convicted of “seditious

libel” and deprived of his

parliamentary seat. In Paris he

runs up huge debts and

eventually has to escape back to

England, where he resolves to

take up his seat in Parliament

despite all that the government

can throw against him.

This is where Douglas is

pulled into the business. While

the search for Pearce and

Flanagan goes slowly, he is

assigned to watch Wilkes. As

the political row over Wilkes

deepens and the threat to the

government grows – because

Wilkes has mobilised London’s

working class behind him –

Douglas’ multiple

responsibilities begin to

coalesce. Wilkes’ life may be

under threat, and the two

slippery Americans may have

something to do with it. Douglas

must keep Wilkes safe because

his death would rouse the

London mob to fury. And that

would bring the army out on to

the streets, which would result

in even more slaughter.

Douglas must negotiate

these deadly shoals and the no

less troublesome (in fact, quite

exciting) reefs of bureaucratic

jealousy and intrigue.

Meanwhile, his personal life

begins to unravel when a

woman he had loved and long

thought lost resurfaces —

engaged to a man who played a

part in Douglas’ experiences

in Bengal.

And so on. The Decipherer’s

Chronicles is developing into an

arresting series, and Alistair

Douglas a character worth

following. Author Grant

Sutherland makes some odd

choices — such as to let a decade

elapse between the first and

second books; to make a

historical thriller turn on a

character like Wilkes; to eschew

conclusion and let the story

slide along into the next

instalment, which may not pick

up where this one ends...

Perplexing. Perhaps

Sutherland is bored with the

deliberately circumscribed

environment of comparable

historical novels — such as

Patrick O’Brian’s naval

adventures, Georgette Heyer’s

upper-class romances, Gore

Vidal’s chronicles of American

empire, Hilary Mantel’s

Tudor drama.

Whatever it is, look forward

to the blurb: it will help you set

the complicated story in order.

Saved by the blurb

Active participation in multilateral co-operation can be India’s response

to China’s growing economic presence, says ARVIND SUBRAMANIAN

T

HE government’s decision yes-

terday to nominate Finance Min-

ister Pranab Mukherjee as its chief

negotiator to hold talks with Anna Haz-

are should expedite an early resolu-

tion of the stalemate over the Lok Pal

Bill. However, the decision is also like-

ly to trigger a question that would sure-

ly embarrass the top leadership of the

United Progressive Alliance (UPA) gov-

ernment. Why did it appear that the gov-

ernment dragged its feet over using

the services of Pranab Mukherjee, the

UPA’s most experienced politician and

administrator, to defuse the crisis caused

by the Hazare agitation?

Indeed, since the arrest of Mr Haz-

are on August 16 and the order of his re-

lease the same evening, several key

ministers in the UPA government ap-

pear to have gone into hiding. Until Au-

gust 16, you could watch them on tele-

vision and read about their views in

newspapers. No longer, after the gov-

ernment committed its biggest blunder

in recent times — by first facilitating

Mr Hazare’s arrest, then realising its

mistake and ensuring the order for his

release in less than 24 hours.

Even before the August 16 fiasco,

the role of some UPA ministers had be-

come intriguing. None of the ministers

belonging to the non-Congress alliance

partners associated themselves with

the government in its bid to tackle the

Hazare challenge. Trinamool Congress

leaders stayed away from such consul-

tations, barring a statement from Ma-

mata Banerjee extending support to the

prime minister. So did

the Nationalist Con-

gress Party leaders.

Leaders of the Dravida

Munnetra Kazhagam

had already become

quiet after the arrest of

one of its ministers in

the UPA government.

The message that came

out loud and clear from

this was that the Con-

gress alone, and none of

its alliance partners,

would come together to

respond to the Hazare

movement against corruption.

That was the first stage where the

Congress became isolated within the

UPA. This was ironic because Prime

Minister Manmohan Singh had earlier

attempted to rationalise irregularities,

particularly in the 2G telecom scandal,

by claiming that these arose out of the

compulsions of keeping an alliance gov-

ernment intact. Indeed, charges of cor-

ruption were levelled primarily against

ministers belonging to the non-Congress

coalition parties.

Within the Congress, a few ministers

experienced a different kind of isola-

tion. Mr Mukherjee appeared to have

withdrawn himself from such issues

ever since he came under criticism for

having gone to New Delhi airport to meet

the yoga guru, Ramdev. The idea of that

meeting was to persuade Ramdev

against holding his agitation against a

host of issues including corruption at

the Ramlila grounds

in New Delhi. That

was a risky move. If he

had succeeded, no-

body in the Congress

or outside would have

raised an eyebrow. In

politics, failure is an

orphan. Thus, Mr

Mukherjee had to eat

humble pie.

In contrast, Home

Minister P Chi-

dambaram and Tele-

com and Human Re-

sources Development

Minister Kapil Sibal had emerged as

the new stars of the Congress. Law en-

forcement agencies used force to throw

out the followers of Ramdev from the

Ramlila grounds at night. The police

later apprehended Ramdev while he

tried to run away from the venue of the

agitation and packed him off to Hard-

war. That was the end of Ramdev’s cam-

paign against the government.

Mr Hazare posed a different and

more formidable challenge. The Con-

gress leadership made a big mistake by

assuming that it could handle Mr Haz-

are the same way it took care of

Ramdev. His arrest on August 16

changed the contours of the debate. The

popular mood turned against the gov-

ernment not so much for the issues con-

cerning the Lok Pal Bill as for the man-

ner in which Mr Hazare was arrested

for merely threatening to violate the po-

lice orders. It goes to the credit of the

team behind Mr Hazare that it lost no

time in exploiting that opportunity to

the hilt, helped in large measure by the

UPA government of Manmohan Singh

which seemed to be bereft of ideas to

tackle the Hazare challenge.

It was not just Pranab Mukherjee, sev-

eral other senior Congress leaders may

have felt the same way. What use did the

government make of A K Antony, defence

minister and a member of the core group

of the Congress party? Neither Mr

Mukherjee nor Mr Antony could be seen

explaining the government’s position on

the matter. The irony is that the Congress

has many stalwarts who could effective-

ly present the party’s case on the Lok Pal

Bill. There is Veerappa Moily, Salman

Khurshid and Jairam Ramesh, just to

name a few. However, the manner in

which the Manmohan Singh government

functioned seemed to suggest that it had

become a ruling alliance without lead-

ers. Only from yesterday did it appear

that the government indeed had these

ministers at its disposal to defend and ex-

plain its position on the issue.

One explanation of such listless, and

often rudderless, government func-

tioning could be the absence of Congress

President Sonia Gandhi, who is abroad

recuperating from an illness. Remem-

ber that the Hazare challenge is perhaps

the biggest the UPA has faced in its en-

tire seven-year long history and Ms

Gandhi is not around to advise the gov-

ernment. If that indeed is the case, then

the Congress is in deep crisis and Sonia

Gandhi must be having sleepless nights.

Where are the Congress leaders?

BOOK

REVIEW

RRISHI RAOTE

THE HAWKS OF LONDON

Grant Sutherland

Macmillan,

VIII+356 pages; `550

NEW DELHI

DIARY

A K BHATTACHARYA