Posted by: John Elliott | March 9, 2011

David Cameron’s ‘diplomatic’ gunboats misfire in India and Libya

 If the Indian government looks as if it’s in a spiral of never-ending crises, come to London (where I am this week) and have a look at Britain’s maladministration headed by David Cameron.

A UK “diplomatic” (actually MI6 spies) mission to woo Libyan rebels arrived unexpectedly one night last week by helicopter and was instantly arrested. There is a royal crisis over Prince Andrew, Britain’s roving trade ambassador’s links with a paedophile and call girls, which are being splashed across the front pages, with Cameron’s Downing Street public relations machine contradicting its own briefings on whether the prince should lose his trade job.

David Cameron in India last July

And – of special relevance for this blog – a badly planned letter that Cameron wrote last month to Manmohan Singh moaning about the Indian government’s lack of commercial transparency has been leaked in India this week, which means it will probably be doing more harm than good.

All that should have led to interesting conversations this evening at the British High Commissioner’s annual Queen’s Birthday Party on the lawns of his Delhi residence that was attended a year or two ago by Prince Andrew.

Last July, when Cameron visited India with an over-large posse of six cabinet ministers and accompanying businessmen and academics, I suggested on this blog that Britain was punching above its weight. The current (peaceful) gun boat diplomacy of the Libya helicoptered emissaries and the letter to Manmohan Singh shows again that the UK is getting its diplomacy wrong and expecting too much, given the country’s declining economic importance.

Whoever advised Cameron to send the letter last month does not understand that the best way to score goals with the Indian government is not to send gripes and warnings of declining trade ties. Most other countries seem to accept this, which makes it even sillier for Britain to send such letters.

The letter listed three cases:- a $2.5bn tax demand against Vodafone’s mobile phone business; delayed regulatory approval for the $9.6bn sale by Cairn Energy of its Indian natural gas fields to Vedanta (an Indian-controlled UK-listed company) that might soon be cleared; and late payment for work done by British companies at last November’s Commonwealth Games. Such problems risked “affecting the wider business climate” warned the British prime minister, who implicitly complained about India’s lack of “transparency in the business environment”.

‘Not done old chap’

There is a telling editorial in today’s pro-Congress government Hindustan Times newspaper mocking Britain under the headline “Not done, Old Chap”. It uses cricketing metaphors to chime with the current World Cup and notes that “Britain doesn’t happen to be among India’s top ten trading partners,” saying:

“It’s not cricket, British prime minister David Cameron has told India while the game’s greatest spectacle is underway here in the old colony. British lads Cairn and Vodafone – and sterling fellows too – are playing on a queer pitch in the subcontinent, the Conservative resident of 10 Downing Street has written to Manmohan Singh. The umpiring isn’t up to scratch. Energy company Cairn is being bowled a bodyline every second delivery and nobody seems to notice. Before that, telecom company Vodafone was declared leg before wicket when it obviously wasn’t. Gentlemen don’t use tax googlies and regulatory bouncers on the Oval! Surely, good chaps don’t get too nosy about details like tax dodges and unpaid royalties, do they?”

Those words were not very eloquently crafted, but they make the point.

Vodafone’s problems

Vodafone’s $2.5bn tax demand stems from its $11bn purchase in 2007, through offshore tax havens, of a Hong Kong-held controlling stake in what was then the Hutchison-Essar mobile phone business. It is widely believed, based on circumstantial evidence, that this demand was initiated by the finance ministry with encouragement from a rival Indian telecom company boss, who had good political connections in the ministry. This allegedly led tax collectors to find a novel interpretation of regulations, which then led to Vodafone being told it should have set aside $2-2.5bn that Hutchison owed as corporate gains tax. This is now going very slowly through the Indian courts, with the next hearing due in July.

Cameron’s appeal on Vodafone’s behalf is just the latest of a series of unsuccessful bids for help. Early on, the company appealed to the Prime Minister’s Office (PMO) in Delhi, and then sought redress from India’s Supreme Court. These moves however seemed merely to make the finance ministry and its tax collectors even more determined to win. Expecting the PMO to step into a court case, is scarcely sensible – nor were warnings issued by Vodafone’s ceo, Vittorio Colao, in two Indian newspaper interviews last October that the case was having a negative impact on foreign investment (though curiously he also said at the same time that he planned to invest more!).

Colao said the tax case offered “an opportunity for India to reverse its position and assure global investors that it will not offer them an unfriendly and unpredictable environment”. But no-one in India took any notice, and court hearings have been delayed for much longer than had been expected. Perhaps Vodafone hoped the government law officers would be advised to go soft on the case. Such advice can apparently sometimes be issued, but it is not likely, I am told, on a highly technical tax case – and certainly not when there is the prospect of $2bn or more landing in the government’s kitty.

One can feel sorry for Vodafone. It genuinely had no idea that it should have set the tax aside, and it argues that it should not be forced to pay for what it sees as a retrospective change of tax policy. The government says it is not a change of policy, but a new legal interpretation of existing regulations. Either way, Vodafone has done itself no favours with its legal bids and hollow investment threats.

Cairn and Vedanta

Vedanta, a rapidly emerging and relatively new international metals group, has been facing a myriad of mining regulatory blockages on major Indian projects, as well as opposition to the buy-out of Scotland-based Cairn Energy’s Indian gas field business. It shares a dreadful reputation for corporate ethics and environmental reputation that its Indian sister company, Sterlite, has had for a decade or more.

Cairn, by contrast, has operated in India successfully and without much fuss or trouble since 1996, when it bought an Australian company’s exploration rights. So I was amazed when Cairn announced it had chosen to sell control to such an accident-prone company as Vedanta, though apparently the $9.6bn offer was too good to be turned down.

It was however inevitable that the sale would arouse behind-the-scenes opposition from three different areas – foreign metals companies that wanted to curb Vedanta’s growth, at least one of India’s big family groups with similar motivations, and other Indian public sector oil interests, including ONGC, the government-owned oil and gas company, that claimed pre-emptive rights to the Cairn shares and raised other issues.

Cairn also appealed to the PMO for help, and did not receive much encouragement, though it is now expected that the Indian cabinet might clear the deal this week or next – subject to important qualifications on contentious issues including payment of royalties. That was however going to happen anyway around this time, and seems to owe little if anything to the Cameron letter.

There has been a decline in foreign investment into India, and the country’s international image is slipping, as I argued here last week. Despite what the companies have been saying however, that has been caused not by the Vodafone and Cairn problems, but by a spate of big corruption cases and examples of poor governance. It is also beginning to look as if the combination of Sonia Gandhi, leader of the Congress Party, and Manmohan Singh, the prime minister, is not working effectively at the top of the coalition government.

But these are different issues and do not in any way justify a Cameron-style letter. Indeed, when the Indian government is being hit almost daily by stories revealing an appalling lack of transparency, it was scarcely tactful of Cameron to goad the government with a transparency-based letter.

The British government needs to realise that, though there are close emotional as well as economic ties binding India and the UK together, they only work to the UK’s advantage if it does not throw its weight around.


Responses

  1. i like your blog.

  2. This post also appeared on The Independent newspaper’s blogs http://blogs.independent.co.uk/2011/03/08/david-cameron%e2%80%99s-%e2%80%98diplomatic%e2%80%99-gunboats-misfire-in-india-and-libya/

    It got 33 comments – here are some of them:

    Jaques_Schitt 2 days ago

    • ‘one can feel sorry for Vodafone’
    HOW THE FLYING F*$K can anybody feel sorry for Vodaphone?
    Oh yes, people that have shares in the company. Sorry. Then again, I’m just an ordinary taxpayer. Sorry…. sorry…..

    Gerasmus 2 days ago in reply to Jaques_Schitt

    • There may be some pension funds that have invested members’ funds in the company.

    mintman60 2 days ago

    • Poor old William Hague looks like he is out of favour with Dave the vague. But with that regional accent, grammer school education and only getting to oxford on academic merit he must seem a bit of an oik to Dave and gideon and the rest of the top public school Mafia in the cabinet and they now need a fall guy.

    • 4 people liked this.

    David Gardiner 2 days ago

    • Well, he can’t blame Hague for this one, can he? I wonder what the new Foreign Secretary, Mr Mitchell will make of all this?

    • 1 person liked this.

    Pablo contrara and 500 others 2 days ago

    • Well I see Hague is ready for the chop.. Cameron said he had complete faith in him..the long knives are being drawn!! (Mind you rightly so..)

    • 3 people liked this.

    Matthew Pringle 2 days ago

    • Lets just stop sending them aid money. Let their top 10 trading partners foot that bill.

    • zochoten and 7 more liked this

    Globe14 1 day ago in reply to Matthew Pringle

    • The UK is one of it’s top ten trading partners.

    vaio 2 days ago

    • Mr Cameron’s letter belongs to a bygone era. No longer is it the case the UK can simply demand, expect and lecture other nations on the way it feels things should be. Perhaps if the PM relaxed his ‘Burlington Club’ attitude he would be better placed in matters of foreign diplomacy.

    • Globe14 and 20 more liked this

    RACINGINTIME 2 days ago

    • John Elliot seem to have missed the fact that India is not going with the UK but prefers links with the USA. It has been heading the USA way for a long time.
    Cameron was right in protecting British interests and right to complain about transparency.
    In Vodafone’s case its like buying a car and the government saying after you have bought it sorry but we have interrupted VAT to mean 40% on cars pay up.

    • devo4u and 4 more liked this

    Charles 2 days ago

    • Instead of moaning about the Indian Government demanding Tax from Vodafone maybe he should moan to his chancellor and get Vodafone to pay some of the 6bn they avoided paying here. The ConDems are all show and no substance – just what you expect from a failed PR man.

    • Globe14 and 37 more liked this

    johndeed 2 days ago

    • David Cameron and the coalition government are certainly guilty of one thing and that is trying to do too much too soon. They are trying to deal with too many issues and as any good General will tell you fight on too many fronts without the resources and you may win the odd battle but you will lose the war. DC needs to rein in his ministers and concentrate on dealing with the deficit and creating jobs the rest can go on the back burner, it’s like your Sunday dinner the meat has to go on to roast early the sprouts can wait.

    • helenabrown and 11 more liked this

    frankspence 2 days ago in reply to johndeed

    • I may agree with you were it not for the disastrous state in which Labour left us in almost every aspect and level of Governmental activity. Yes they are trying to do an awful lot in a short space of time, but when the ship is sinking everyone has to bail like hell or go under. Don’t blame Cameron and the coalition put the blame squarely where it belongs – with Labour. Note that Miliband the Moronic and his merry band continue to deny a) that there is a problem and b) that it is anything to do with them.

    johndeed 2 days ago in reply to frankspence

    • I am not blaming DC or the coalition government I have been a Tory supporter all my voting life. I fully blame Labour for our current mess and have posted on that subject before. I am saying I would prefer them to concentrate on the deficit and creating jobs rather than be side tracked on issues that could wait.

    Guest 3 days ago

    • Comment removed.

    oldtel 2 days ago in reply to Guest

    • They would probably kick the crap out of us, they’ve got aeroplanes.

    • Onmebike and 11 more liked this

    Imranp2010 2 days ago in reply to oldtel

    • And we’ve armed them with nukes…

    • 2 people liked this.

    barabu 2 days ago in reply to Imranp2010

    • WMD! Attack! Or is it the wrong way round: WMD! Don’t attack! Makes one’s head hurt.

    • 1 person liked this.

    oracleone 3 days ago

    • Namaste !!

    Ladck of commercial transparency,, wake up indeed
    any sensible guesses at the current UK rate of inflation ??
    would love to hear from any economics guruhs their opinion
    Safe odds that ca moron will start something he will never finish
    Be careful and be watchful he is a very, very dangerous man.

    • rock_steady_eddy and 16 more liked this

    ben_arnulfssen 3 days ago

    • frankly, if Cameron doesn’t realise already that Indian business is very largely carried out in an atmosphere of collusion, bribery, corruption, opacity and nepotism, what is he doing there at all?
    Moaning about it will not do the slightest good and can only upset anyone who is paying attention at all.
    But of course he doesn’t understand business at all, does he? I wasn’t impressed with him in opposition, where he gave the impression of being just another soft-left, politically correct opportunist whose talents began and ended with internal faction-fighting. I haven’t changed that view, and this fiasco makes no contribution.

    • mactang and 24 more liked this

    IanF 1 day ago in reply to ben_arnulfssen

    • “if Cameron doesn’t realise already that Indian business is very largely carried out in an atmosphere of collusion, bribery, corruption, opacity and nepotism, what is he doing there at all? ”
    Just like business anywhere . Where exactly do you have business that is NOT corrupt, nepotistic and opaque ??
    The problem with Western business is that it doesn’t know how to play the game in India, so they moan about corruption, politics and the like. The fact is that the Chinese, the Americans, the Japanese are making money hand over fist in India. British companies better adapt to how business is done locally or pack up because waiting for it to change is a fool’s errand.

    ben_arnulfssen 1 day ago in reply to IanF

    • I would agree entirely. This is Cameron’s fundamental problem, he simply does not know how to get things done in the real world. It used to be said of Labour that they did not know how the levers of power operated, it does rather seem that BluLab aren’t much different


    zochoten 2 days ago in reply to ben_arnulfssen

    • ben_arnulfssen

    “Indian business is very largely carried out in an atmosphere of collusion, bribery, corruption, opacity and nepotism,”
    What a perfect description of Indian business and government.
    I have friend here in Spain that runs an export business and any trade done with India, Greece or Italy must be payment in advance. How anybody can ever do any (repeat) business with these countries is beyond me.


    cm999 2 days ago in reply to ben_arnulfssen

    • I would have thought he would be used to that. This describes how plenty of british business is done too.

    • murdochlies and 9 more liked this

    debater2 3 days ago

    • Cameron appears increasingly as the Head Boy surrounded by a bunch of fags – Cherry and Bunter could do a much better job!

    • MicheleDerry and 26 more liked this

    yahoo-F6LNVTNI7PJMS3JU2UFCI2TI7Y 3 days ago

    • The rebels in Libyan failed to corporate and take expert help from the UK and are now suffering the consequences. It is hardly moral no matter if you are politically left or right wing to sit back and see a bunch or untrained poorly lead rebels being slaughtered by a brutal dictator. The SAS are experts in tactics and insurgency operations and had the ability to tip the balance and stop Libyan government forces, but a few rebels decided to ruin their chances for short term kudos.
    The idea of the SAS calling up the rebels on the telephone or asking for landing permisson on an unsecured VHF radio that can be detected hundreds of miles away is ludicrous. The whole idea of helicopter insertion at night was to evade Libyan government detection.
    This operation was textbook but the textbook assumes the people you want to help have a degree of strategic thinking.

    • mactang and 6 more liked this

    Christopher East 2 days ago in reply to yahoo-F6LNVTNI7PJMS3JU2UFCI2TI7Y

    • Hardly moral to sit back….
    Just had Gideon Levy (Haaretz prize winning jounalist) book “The Punishment of Gaza” drop through the door. We turned the other way as Israel brutally killed women and children: “It was just a wild onslaught upon the most helpless population in the world, beseiged and jailed with nowhere to run, not even into the sea”.
    We didn’t sit back, we just turned our head as did almost every other country, as we always do when Israel commits its brutalities.


    • MicheleDerry and 8 more liked this

    Mabuz Luciferi 3 days ago

    • Britain is moving into the same football division as Iceland and Ireland, they need to adjust as a nation with limited influence and with no empire. Wake up Britain.

    • McQueue and 21 more liked this

    helenabrown 2 days ago in reply to Mabuz Luciferi

    • Your comment is the most realistic here, if ever a country needs to readjust it thinking is the United Kingdom. I am sick to death of hearing our Politicians waffling on about things out of not only out of their league but outside their understanding.

    • Andrew and 18 more liked this

    HairyScot 2 days ago in reply to helenabrown

    • Well put!
    They should start looking at the tax receipts to this country, they have the ability to make things happen there.

    • 2 people liked this.

  3. Please do not bring national interests of UK and India and their emotional ties into murky business deals where these politicians might be eager to garner some moolah for their influence peddling. Business interests do not recognise national boundaries and same is true here in this case also.
    We do not sense any drift neither in UK nor in India as perceived from media . Both are solid and moving ahead with their elphantine grace. Business interests will always be there and will never be in synchronisation with general public mood in both countries.

  4. Your post made very interesting reading. About the current state of things in India, the supreme court in its recent remarks on the inaction/go slow over tax evaders said it all in a single question – “what the hell is going on in this country?”

  5. The leaked letter is just what the relationship did not need at this point. It tells the Indians that they were right to think the Brits were still basically arrogant and condescending. Dr Cable’s humble work is undone.
    I can’t help but agree it was ill-advised to write in these terms, and that the Government here needs no reminding of the problems it faces. It is now clear that there is a crisis of governance here – not so much directly because of the scandals but because nothing is getting done, adding to the political drift apparent even a year ago.


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