Indian Prime Minister Manmohan Singh is facing the toughest political test of his career; and the good news for investors is that he isn’t running away from it.
The very survival of his government is under threat following what’s proving to be an unpopular agreement with the Bush administration on civilian nuclear energy cooperation. The Communist parties that keep Singh’s coalition government in power are viscerally opposed to the accord which, they say, is capitulation to “American imperialism.”
The biggest of these—the CPM—has threatened Singh with “serious consequences” if he tries to implement the agreement by negotiating safeguards with the International Atomic Energy Agency (IAEA) next month.
Receding expectations of a compromise between the government and its Communist backers have sparked off speculation about likely elections before Singh can finish his term in 2009. Predictably enough, the Bombay Stock Exchange Sensex dropped 3% on 21 August. Yet, much of the pessimism is unjustified. Consider the cost to India of Singh trying to save his government by delaying implementation of the nuclear accord. US Democrats have considerable reservations about tweaking the global non-proliferation regime to accommodate India as a special case. If not ratified by the US Congress while George Bush is still in the White House, the accord may have little chance of becoming operational. That’s why Singh is right to put his government’s survival on the line to see the deal through. And he just might succeed.
Between them, the four main Communist parties have 59 seats in the 545-member Lok Sabha. It is their support that helps the Congress party-led coalition stay in power, even when the latter is 45 short of a majority. If the Communists were to withdraw their backing, a no-confidence motion against the government would have a good chance of succeeding. And even if Singh somehow manages to cobble together majority support in Parliament, he will effectively have a lame-duck administration, prompting Congress party leader Sonia Gandhi to seek a fresh mandate. No major political party is ready yet to face voters, and that includes the Marxists. The left-wing parties might lose a third of their seats in Parliament if elections were to be held now, says Seema Desai, an analyst at Eurasia Group, a London-based political-risk advisory firm.
Voters, Desai says, may reject the Communist parties because of their botched handling of land acquisition for building special economic zones in the state of West Bengal, where they are in power. In March this year, 14 people died when farmers clashed with the police after refusing to give up their land for a proposed 10,000-acre industrial park by Indonesia’s Salim Group. “It seems unlikely that they would want elections before they have repaired the damage done to their electoral prospects in the state,” Desai says.
That might leave Singh with the crucial six months or so that he needs at least to sign the agreement with the IAEA for India’s civilian nuclear reactors, as well as for the Nuclear Suppliers Group to be persuaded to resume trade with India and for the US Congress to approve the deal.
Singh is determined to seek a quick end to the global embargo that has afflicted development of nuclear power since India tested an atomic weapon in 1974. N-energy accounts for 3% of its power generation. The existing reactors are underutilized because the country is denied ready access to imported uranium. Meanwhile, some 13.5% of peak power demand is not being met: a heavy tax on the economy.
Now that the so-called 123 Agreement has given India the right to retain its indigenous nuclear weapons programme as long as the fuel and technology imported by it aren’t diverted to making bombs, Singh wants to move fast and implement the deal. Most of the criticism in India of the agreement—cutting across political ideologies—focuses on a single aspect: The text is silent on what the US response might be, were India to conduct a nuclear test again.
Singh’s detractors say that for lack of a formal guarantee, the US will cut off fuel supplies to India, just as it did in 1974. This view is grounded in a past that’s long gone.
There was very little cost to the US of cutting ties with India in 1974 when it was a poor, inward-looking economy, and an ally of the Soviet Union. In 2007, India is the world’s second fastest growing major economy. More importantly, Japan and the West are looking for a new strategic ally in Asia as China’s growing economic clout undermines their political influence in the region. In a speech in Delhi on Wednesday, Japanese Prime Minister Shinzo Abe asked India to be part of an Asian “arc of freedom and prosperity” which, he said, will include the US and Australia, too.
Except in the unlikely event of India ending up as a threat to US national security, it’s hard to see a repeat of 1974. Yet, some ambiguity in the text is healthy if it deters India from breaking its voluntary moratorium on future tests. Singh has produced the best deal India could hope for to solve its debilitating energy crisis, changing the course of the nation’s foreign policy in a bold, confident, progressive manner. Saving the nuclear accord from getting shelved is a goal worthy enough for him to risk his government’s survival.
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