April 30, 2008
India may be a magnet for future investors. But it has also become a focal point for political dissension involving the U.S.-India nuclear pact.
President Bush is determined to enact the trade deal -- one that would reverse 32 years of U.S. foreign policy and allow the sale of nuclear technologies to India for peaceful purposes. While the presidential candidates have all supported the compact, India's leaders have been unable to win support for it from Communist opponents who keep the current government afloat and who don't want outsiders meddling in their affairs.
India's economy is growing by 8 percent a year and its energy demands are expanding by a proportional amount. Proponents of the covenant say that it not only opens India to further trade but it also gives the nation access to non-polluting generation. They also say that the agreement would boost India's standing in the region and permit it to act as a counter-balance to an increasingly powerful China.
"We remain cautiously optimistic about the agreement process and will continue to support its successful conclusion in any and all ways possible," says Abhishek Singhvi, chief spokesman for India's Congress Party. He describes the debate in India as complex and involving a mixture of law, politics and economics.
In July 2005, President Bush and Prime Minister Manmohan Singh signed the pact that would lift the moratorium on nuclear trade with India, which conducted its first nuclear tests in 1976. In return, the United States would insist on allowing independent monitors to oversee India's use of the technology at its civilian nuclear installations.
Critics complain that the agreement would undermine international efforts to stop the proliferation of nuclear weapons and that it would serve to enhance India's nuclear stockpile, noting that eight military plants would be excluded from international inspection. The policy would furthermore undermine the message that the global community has been trying to send Iran and North Korea, which is that any attempt to gain nuclear weapons would result in extremely harsh penalties.
The governments of both the United States and India, however, insist that the expansion of trade ties along with giving India greater access to nuclear technologies is the goal. Undoubtedly, India has trouble meeting its current electricity demand. As the country grows, the problems will compound. Right now India is the world's sixth largest energy consumer, although it is expected to become the third biggest by 2030.
The quandary for those who fear nuclear proliferation is that the country is now dependent on oil and coal -- sources that pollute the air and add to global warming. While nuclear power has not endeared itself to many critics, others have acknowledged that it would make significant contributions in the overall effort to battle climate change.
Rapid Expansion
India's rapid expansion necessitates the development of a modern grid and efficiency technologies along with diversified fuel options. It's urgent. Already, power shortages and blackouts plague the country's major cities. The situation is exacerbated by the fact that India's political and economic framework belies risk takers.
According to KPMG, a worldwide consulting group, India's energy sector needs $120 billion to $150 billion over the next five years. Meantime, the government there not only owns about 90 percent of the coal markets but it still subsidizes electricity prices. Investors, understandably, have reservations.
In that regard, the trade pact would try to liberalize domestic markets in India and make them attractive to such manufacturers as General Electric and AREVA. As the Bush administration rounds third base, it is becoming less likely that the deal will go through this year. And while those who would replace Bush have all said they support the measure, they may have other policy initiatives that consume them.
"Regardless of whether this arrangement is passed in the next year or not, one thing that I don't think will change is the continuing strengthening and deepening of the U.S.-Indian relationship that has begun under this administration and we certainly hope will continue into the future," says State Department Press Secretary Tom Casey, before reporters.
Indeed, many of India's policymakers realize that foreign investment can help modernize the nation. It's about creating a sustainable energy future as well as building a fresh infrastructure that can avert the repeated blackouts that many areas now endure. It all fits into the school of thought that advocates more use of internal nuclear energy supplies and the subsequent ratification of the Indo-U.S. pact now being debated.
At present, India has 17 operational state-owned nuclear energy units that comprise 3 percent of its energy mix. There are currently 6 more nuclear units under construction. It emphasizes that it is committed to the peaceful use of nuclear energy, noting that it has to triple its energy supplies if it is to continue to grow at 8 percent annually.
"The United States is our largest trading partner, the principal destination of our information technology services exports and the major source of foreign investment, and we attach great importance to developing this relationship further," says Indian Foreign Secretary Kanwal Sibal, in an address before the Carnegie Endowment. "The U.S. has no better partner than India in combating fundamentalist terrorism and the security challenges it poses. We are both targets."
The central question is whether the practical concerns surrounding a U.S.-India nuclear deal will outweigh the fears. The relationship between the two nations will only get stronger as both battle environmental challenges and terroristic threats. Increasing trade would solidify the bond and henceforth diminish the odds that shared nuclear technology would be misused.
More information is available from Energy Central:
Respond to the editor.
Ken Silverstein EnergyBiz Insider Editor-in-Chief
Read Ken's Blog