Power failure

PUBLISHED : Friday, 02 November, 2007, 12:00am
UPDATED : Friday, 02 November, 2007, 12:00am

It was a vague remark, the kind that would usually be ignored and then forgotten. But when Indian Prime Minister Manmohan Singh told visitors from McKinsey management consultancy last week that India's political climate made it 'difficult sometimes for us to do what is manifestly obvious', it was leapt upon by political analysts and the media as a kind of slogan for his tenure as prime minister.

As Mr Singh struggles through the worst crisis of his political career, the significance of his comment is unmistakable. Since August, the government's communist allies have threatened to derail a deal with the US which would allow India to import US nuclear fuel and reactors, despite having tested nuclear weapons but not having signed the Non-Proliferation Treaty (NPT). On October 12, Mr Singh bowed to the pressure, indicating that he would rather ditch the agreement than risk a general election.

The nuclear pact was regarded as the most important act between the world's two biggest democracies since India's independence 60 years ago, laying the foundation for a new strategic alliance between them - and a major foreign-policy triumph for Mr Singh.

That triumph has now become an embarrassing failure. But Mr Singh's feelings of frustration will be familiar to him. Ever since he came to power in 2004, the prime minister has been hamstrung by his communist allies. Though they control only two of India's 28 states, they have the power to bring down the ruling coalition of which they are part, the United Progressive Alliance (UPA). They have used that power to block important proposals to liberalise labour laws and foreign investment in retail trade.

As finance minister in the 1990s, Mr Singh was the architect of the economic liberalisation programme that has allowed India's economy to surge forward at 9 per cent annually. But as prime minister, he has achieved little of note.

The nuclear deal was going to change that; many believed that it would be Mr Singh's legacy. 'Undoubtedly, he would have been remembered for this for many years to come,' said Nidhi Narain, a security analyst for the Delhi Policy Group, a think-tank.

It is difficult to see how the deal could have been anything other than beneficial to India. Ending a 30-year-old international ban on India's access to nuclear and other sensitive technologies, including much-needed uranium for existing nuclear power, the deal would address India's chronic energy shortfall. A shortage of electric power is one of the biggest barriers to sustaining India's growth rate.

The deal would also transform US-India relations. Many other countries regretted that NPT-free India had secured what they believed were unfairly generous terms in the pact.

'After decades of being denied access to nuclear power technology, the deal would have meant a tectonic shift,' said Mr Narain. 'It would also have meant great prestige for India.'

The communists believe that the deal would give the US dangerous power over India and threaten India's sovereignty. They object particularly to the deal's demands for India to accept International Atomic Energy Agency (IAEA) inspections of some of its nuclear installations. Indeed, it was as talks with the IAEA approached that the communists threatened to withdraw their support from the coalition.

The opposition Bharatiya Janata Party (BJP) also joined in the attack, although the agreement builds on earlier detailed understandings established by the previous BJP government. And the BJP and the communists are normally established and bitter rivals.

In Washington, meanwhile, there is fury over India's behaviour. For more than two years, President George W. Bush has pushed for the deal, though it is unpopular with many Americans who see it as letting India off the NPT hook. But Mr Bush wants to build a strong relationship with India. New Delhi and Washington are eager to feed off each other's economies and work to counterbalance the rise of China. The US also wants India as a partner because it considers its secular democracy a role model for the region.

For the US, the loss of the deal will translate into the loss of billions of dollars in potential projects to help build India's creaking energy infrastructure. The deal would also have opened the opportunity for US companies to sell civilian and military technology to India.

Last Sunday, America entreated India to press ahead with the deal. 'Again, we think this is a very important deal and I would encourage you to move forward as quickly as possible,' US Treasury Secretary Henry Paulson said in Amtala, India.

He said the US regarded the deal as important for India's economic development and growth, energy security and environmental protection efforts. But he acknowledged that the problem was an internal political one. 'You all have to work through your own internal political decision,' he said. 'That's up to India.'

Mr Singh faces a mammoth task, and has described himself as a 'politician by accident'. He came to power as prime minister three years ago at the behest of Sonia Gandhi, leader of the Congress Party, who renounced her claim to the job, worried about attacks over her foreign birth. This reluctant prime minister invested much political capital and energy in reaching the agreement with the US.

In the early days of the communist revolt, it seemed as though the famously gentle, reserved and polite economist was going to stand his ground. When the communists first threatened to withdraw their support from the government, Mr Singh dared them to do so. 'I will let posterity judge the value of what we have done,' he declared in the Indian Parliament.

Some analysts believe it would have been better for Mr Singh if he had called the communists' bluff and gone to a general election in August, when the shouts of dissent began. Because the main opposition group, the BJP, is much diminished at present, Congress would almost certainly have won, allowing it to revive the nuclear deal before the US presidential election next November.

'Manmohan Singh never had much of a reputation as a politician,' said Bharat Karnad, research professor at the Centre for Policy Research in India. 'But he mishandled this deal from the start, investing far too much political capital when he should have been focusing on his forte: economic reform.'

Ever since the government stalled the deal, there have been rumours that Mr Singh is on the verge of resigning. 'Quitting buzz grips the capital,' read the front page of the Times of India last week. The message running through all such stories, even those that did not mention resignation, was that Mr Singh was ineffective, weak and directionless.

Few now dare to hope that the deal will survive. Before the deal can go ahead, India has to strike a safeguards agreement with the IAEA, win approval from the 45-nation Nuclear Suppliers Group and another backing from the US Congress. And Washington had wanted all this done in good time before the US elections in November, fearing that the deal might not make it under a new administration.

The deal's collapse will not only damage the Congress party and Mr Singh, some analysts believe it will also dent India's image abroad and will affect future cross-country agreements. But its relationship with the US seems assured. Merchandise trade between the two countries is growing. Also, after a long, cold war lull, India and the US now regularly conduct military exercises together. Another factor is the steady flow of Indians to the US for education and jobs; and to shops in India of American goods.

The greatest damage seems to have been done internally. India must hold general elections by 2009 and the government, anxious to regain some of its lost ground, will doubtless introduce populist, vote-winning policies ahead of them.

Last week, Citigroup published a report about how the government was increasingly intervening in the markets. It was, for example, discouraging exports of onions in an attempt to lower domestic prices and curb voter discontent.

The fact is, for most people in India, the nuclear deal is of little interest and practically no importance. India's government has been close to collapse and the country has probably lost out on a historic deal with the US that would secure it the energy it so desperately needs, but Mr Singh's popularity - and his success in future elections - is likely to rise and fall with the price of onions.