Posted by: John Elliott | November 8, 2016

Theresa May runs into EU-style blockages in New Delhi

India warns Britain that free trade includes movement of labour

Theresa May has discovered in India during her first bilateral visit outside Europe that she runs into the same blockages over free trade and movement of labour internationally as she does in her post-Brexit discussions with the European Union.

The lesson, which is highly significant for Britain as it prepares to leave the EU, is that she can’t run a strict visa regime at the same time as expecting open doors for goods and services.

She has been told this repeatedly in the EU, and now she has heard it in Asia from a country with which the UK has strong though complicated ties – a book published at the weekend An Era of Darkness (below) recounts how, as a colonial ruler, Britain crippled the Indian economy and self esteem.


May arrived in unhealthily smog-ridden New Delhi late on Sunday night and began yesterday morning with a speech at the opening (above) of an India-UK “tech summit”, followed by meetings with Narendra Modi, the prime minister. Later there was a press conference (below), with no questions, and an almost embarrassingly brief appearance at an evening reception hosted by the British high commissioner.

It rapidly became clear that May still behaves as if she had her old job as Home Secretary, making visas difficult for students and for professionals such as information technology workers. She is prepared to make some (inadequate) improvements in the visa process, but not to the substance of regulations, and especially not to do anything that might be interpreted in the UK or the EU as softening her tough line in immigration

She did not show charm or personal touch in her rigid Brexit persona on what was, she said, her “first ever trade mission”, so totally failed to win support for the pitch that Britain is “open for trade” but not for immigrants, as she is also doing in Europe.

Modi was no doubt pleased that May had chosen India for her first visit outside Europe and talked about the two countries’ “truly special” relationship. But he will have realised that there was not much competition since the US is embroiled in its presidential election, and May would not have wanted to be seen to be following her predecessor David Cameron’s kow-towing by choosing China.

img_6663Cameron made three visits to India as prime minister and charmed people to a degree that May did not even attempt, though he overplayed his hand and achieved little.

He said after he became prime minister in 2010 that he would double bilateral trade with India within five years, but it actually fell in dollar terms from $15.7bn in 2011-2012 to $14bn in 2015-2016, despite India’s strong economic growth.

He promised to ease student and business visas, but was thwarted by May at the Home Office. The number of Indian students going to UK universities halved from 39,090 in 2010/11 to 19,750 in 2013/14 as regulations were tightened, notably restrictions that prevented graduates staying on in the UK for two years.

May said that she had as Home Secretary eased visa processes for Indians, and she announced concessions on businessmen’s visas including one under a “Registered Traveller Scheme”. This will ease passage for a lucky few through the EU immigration queues at British airports.

Britain's Prime Minister Theresa May visits the Someshwara Swamy temple in Bengaluru

Theresa May at the Someshwara Swamy temple in Bengaluru today – Reuters photo

The day before she flew to India however, her government announced new restrictions on professionals’ visas, raising the minimum salaries required for company transfers from £20,000 a year to £30,000, which will restrict technology staff transfers by companies such as Infosys and Tata.

She also took a tough line saying, “The UK will consider further improvements to our visa offer if, at the same time, we can step up the speed and volume of returns of Indians with no right to remain.” Indian officials responded saying they could take those who had rights to live in India, but not everyone on the British list.

May didn’t even mention students or education in her opening speech, but Modi made it clear inn his opening speech a few minutes later that this was essential.

“Education is vital for our students and will define our engagement in a shared future,” he said . “We must therefore encourage greater mobility and participation of young people in education and research opportunities.”

Sir Keith Burnett, vice chancellor of  Sheffield University, who is visiting Delhi, put his profession’s view in a Reuters article. “How can we say ‘free trade’ and not be willing to teach their children even as they help make our universities economically viable? What has led us to this madness?”, he asked.

img_6662May’s main pitch was quickly to negotiate a free trade deal with India once Britain is clear of the EU, and to boost trade and investment in the meantime. A “working group” is being set up to handle such issues, and investments totalling over £1bn were announced, though only a few results have materialised from previous billions announced on Cameron’s visits and when Modi was in London last November.

The need for free movement of labour as well as trade dominates debate however. Amitabh Kant, a close Modi adviser and chief executive of the government’s Niti Aayog economic think tank, told the conference that, while India was opening up its manufacturing and defence sectors to foreign investors, its professionals faced restrictions on working in Britain and other Western countries.

“There is no such thing as selective free trade,” he said. There was a need for free trade in cross-border movement of manpower as well and the UK should allow meritorious people from India to work in the UK.

On other issues there was more of a meeting of minds. Talks between the two sides ran on for three hours instead of the planned two, and reports said that Modi and May had a 90 minute meeting without officials. No doubt they recognised each other’s political limitations, and they agreed on a range of issues such as combating terror, investments (both are major investors in each other’s businesses), energy, and successful cooperation on science and technology.

May has travelled on today to Bengaluru (see photo above) to see a British tech investment and meet more people. She flies back to the UK this evening after a visit of just under two days.

Officials are making the best of what was achieved. At a media briefing, I asked a senior Indian diplomat if his positive presentation of what had been achieved meant that May had changed from when she was Home Secretary, and whether enough had been offered by the U.K.

“Changes in life are always incremental’, he replied with a smile, quickly moving on to details.

The problem with Britain’s new stubborn prime minister however is that she doesn’t show much inclination to change, even incrementally, whether she’s in London, Brussels or New Delhi.

In line with Mr Tata’s personal style of dealing with executives

Ratan Tata, the veteran patriarch of India’s revered Tata empire, personally instigated and forced the sacking on October 24 of his successor, Cyrus Mistry, as chairman of Tata Sons, the group’s holding company. This is clear from the way the coup was done, which is in line with Mr Tata’s personal style of dealing with executives that fell out with him when he was the Tata Sons chairman for 21 years.

It was also characteristic that, as soon as Mr Mistry had gone, an internal interview he gave last month for staff was removed from the company website (Oct 26: It has been reinstated). There he talked about realising Tata was “a unique institution with a rich and glorious history” and said “we now needed to build the capabilities that would allow us to succeed for the next 150 years”.

Mr Tata has a complex character. In an article on this blog when he retired in 2012, I wrote: “Watching him as a reporter since I first met him in the mid-1980s, when he was working his way towards becoming Tata Sons chairman, I’ve learned that he feels personal hurt deeply. This has made him ultra-sensitive and unforgiving over what he considers unfair media coverage, and also unforgiving to senior executives who have displeased him”.

From reports, it seems that Mr Tata’s main complaint is that Mr Mistry’s decisions and management style were doing harm to the group’s traditions and image – despite what Mr Mistry had said in that interview.

The way in which Mr Mistry has been shunted out has arguably however done more damage to the group’s strong image of trust, stability and good governance than he himself could have done. It will also make it extremely difficult to find a new chairman to succeed Mr Tata who has taken over temporarily.

“The halo that once surrounded the Tata name has gone. The group looks like just one more conglomerate that has lost its way,” says Swaminathan S Anklesaria Aiyar, a respected veteran writer on economic affairs, in The Economic Times. “Most group companies have long been underperformers. And the manner of Mistry’s ouster falls short of the high standards the group boasts of”.

There could also be long-term damage to the group’s stability because Mr Mistry’s family is the largest single shareholder and will be around long after Mr Tata, 78, has finally finally stopped work. Mr Mistry, 50, was the group’s sixth chairman since it was founded in 1868 and was the first not to be from the Tata family, though he shares the Tata’s Parsi religion and there are also links by marriage.

When Mr Tata retired in December 2012 as chairman of Tata Sons, which is India’s biggest and most respected group, he was succeeded by Mr Mistry but remained chairman of Tata trusts that hold a controlling 66% stake in the group. This means that Mr Tata has continued to wield authority, rather like a supervisory board chairman. He also had enough personal pull to whip other Tata Sons board members into line and secure a six-out-of-nine majority yesterday for his coup.

I first heard suggestions in 2012 that Mr Tata was not happy with the choice of his successor but realised that, having himself failed over several years to choose and groom a successor, he had to accept him because of the Mistry family’s shareholding. Mr Tata did not however show any signs of his unhappiness from the time in November 2011 that Mr Mistry was selected, nor after the handover.

mistryPublicly, Mr Tata has occupied himself with a series of personal and Tata trust investments in new mostly high technology ventures, leaving Mr Mistry to run Tata Sons – but behind the scenes, tensions were building up.

This was inevitable because Mr Mistry’s job was to sort out the baggage and legacy left to him by Mr Tata. No-one bestraddled Indian business in the way that Mr Tata did, presiding over $100bn-plus revenues, more than half from 80 countries overseas, with over 450,000 employees in 100 operating companies and interests ranging from tea to telecoms, software to hotels, wrist watches to defence rockets, and coffee (Starbucks) to power and steel.

But he left big problems for Mr Mistry to sort out. They included a debt-ridden £11bn Tata Steel investment in the UK’s loss-making Corus, poor performance and a dismal new product line at Tata Motors’ India business, unsatisfactory results at the group’s Taj hotels, plus other problem areas including telecoms.

Ironically, the big company that was performing worst and needed most basic change was Tata Motors, in which Mr Tata had taken most personal interest, saddling it with the disastrous Nano mini car that has made losses since it was launched in 2009. Offsetting that was Mr Tata’s highly successful $2.3bn takeover in 2008 of the UK’s Jaguar Land Rover (JLR) that has supplied Tata Motors with its profits.

Contradictory criticisms

Criticisms being leaked yesterday and today by Mr Tata’s supporters focus contradictorily on how Mr Mistry did not grapple enough with these problems, and how he brought in too many changes.

Similarly, on the Indian television channels tonight, a representative of the Tata trusts said they were motivated to sack Mr Mistry because of worries about profits to fund charitable works, while Mr Harish Salve, a senior lawyer and Ratan Tata confidante, said that Mr Mistry had been too profit-oriented for Tata as a broader-based institution.

Lord Kumar Bhattacharyya of the UK’s Warwick University, who is a Ratan Tata loyalist and was involved in the choice of Mr Mistry, told the Financial Times that he had been replaced as a result of a “lack of performance”. That echoed a critical article in The Economist on September 24 that contained a very detailed analysis of the group’s finances but arguably did not give Mr Mistry enough credit for trying to balance what it called being “socially responsible but financially disappointing”.

Tackling problems

Mr Mistry was trying to sort out the problems. Last year he began to close or sell the UK steel interests, a move that now seems to have been put on hold, partly because of the impact of Brexit on investments. There were changes in the Taj hotel group which sold at least one big investment, and Tata Power plans to sell stakes in Indonesian coal mines. There has also been an increasingly bitter legal dispute with Japan’s NTT DoCoMo over a $1.2bn arbitration award.

Possibly the most contentious were the plan to sell or close Corus and the DoCoMo clash, neither of which really fit with the Tata gradualist ethos. There have been some criticisms of the way that the Corus affairs was handled, but there were substantial talks with the UK government before the initial decision was announced. The DoCoMo row certainly worried the Indian government, which feared it would put off potential Japanese investors.

Profits actually improved under Mr Mistry. Total net profit in 16 listed companies where Tata Sons is a shareholder amounted to $5bn in the financial year ending in March, according to S&P Capital IQ data. This was 21% higher than in Mr Tata’s last year in charge, reported the FT. But this relied heavily on Tata Consultancy Services (TCS), the group’s information technology cash cow, which accounted for 69% of total earnings. Excluding TCS, net profit for the 16 companies fell 42 per cent, reflecting Tata Steel’s heavy UK losses and a sharp decline in earnings for Tata Motors’ core Indian business. The rest of the companies included many bad performers

Beyond all that there have been suggestions that Mr Mistry was leading the group into his own Pallonji family’s main investment area of infrastructure projects. Tata has little or no experience in this area, where bribes and other corruption could cause problems for its “clean” image.

Mr Tata is also known to have been unhappy about a group executive council of new recruits that was set up by Mr MIstry in 2013, introducing a new tier of authority below the Tata board. That council was significantly closed down yesterday.

Ratan Tata was chairman of Tata Trusts and Sons

None of this however is very exceptional, and in fact is very similar to what Mr Tata did when he became the group chairman in 1991. He centralised power in the group’s Mumbai headquarters and, one by one, removed satraps who were running key parts of the business including Tata Steel, Tata Chemicals and the Taj hotels.

No-one interfered with him because he was the chairman of the Tata trusts as well as of Tata Sons, as had always happened till Mr Mistry was appointed. That was a luxury that Mr Mistry did not have, and he did not have time to prove that he could perform long-term as well, if not better, than Mr Tata had done.

It is not yet clear what finally led Mr Tata to decide his successor had to go. Mohan Parasaran, a senior lawyer and Tata adviser, said on NDTV television today that he had been consulted a month ago by Mr Tata about the legality of removing Mr Mistry, who declined an invitation to resign.

Even those who think it was right for Mr Mistry to go however, criticise Mr Tata’s way of handling it “I am not at all happy about the development which looks very ugly to say the least,” V.R.Mehta, one of the Tata trustees, told NDTV.

That just about sums up the problem that Mr Tata has created for himself and for the group by deciding it would be better to sack Mr Mistry than to try to work with him and his new ideas.

NEWS UPDATES Oct 26 and 27: In an email to the company, leaked in the media,Cyrus Mistry warned it may face $18 billion in writedowns because of five unprofitable businesses he inherited from Ratan Tata. He describes Indian Hotels, Tata Motors’ passenger-vehicle operations, Tata Steel’s European business, as well as part of the group’s power unit and its telecommunications subsidiary as “legacy hotspots,” – plus Mr Tata’s favourite Nano car. The email says that despite deploying  Rs 1,96,000 crore – more than the net worth of the group – the businesses still face challenges and could result in writing down about 1.18 trillion rupees over time.

Tata responded with a long statement that says Mr Mistry’s allegations were “unwarranted”and begins, “It is a matter of deep regret that a communication marked confidential to Tata Sons board members has been made public in an unseemly and undignified manner. The correspondence makes unsubstantiated claims and malicious allegations, casting aspersions on the Tata group, the Tata Sons board and several Tata companies and some respected individuals. These will be responded to in an appropriate manner.”


Souza depiction of Christ’s burial fetches 80 times 1998 price 

LONDON: Sotheby’s yesterday dispelled some of the gloom and uncertainty emanating from a poor Christie’s $3.8m auction of South Asian art in New York last month when its annual London auction yielded sales totalling £4.02m – $4.90m at the depleted pound’s current post-Brexit level.

souza-win-bid-2-img_6540The top lot was a memorable depiction of Christ’s burial by Francis Newton Souza titled The Deposition that sold for a hammer price (left) of £1.30m – £1.57m ($1.92m, Rs12.78 core) including buyer’s premium. The hammer price was just over two to three times a surprisingly low estimate of £400,000-£600,000 for the 54in x 67in oil on canvas

The tragic but colourful painting – of Christ’s body being moved by his followers (below) – was last sold in 1998 for £12,000 by London’s Grosvenor Gallery. In a demonstration of the surge in top prices since then, its value has risen 80 times in the intervening 18 years (after adjusting for inflation). 

Souza was one of India’s leading 20th century artists and he died in 2002. Many of his works show the tortured legacy of a strict Roman Catholic upbringing under Portuguese colonial rule in the Indian state of Goa, before he left to live in London and New York.


The successful sale of this and other paintings in the Sotheby’s and other recent auctions underlines one of the key points about the current uncertain state of the South Asian modern art market, which is being swamped by a surfeit of auctions: works generally do best if they have a strong provenance and are new to the market. 

Even The Deposition might have stuck at around £700,000, when early bidders dropped out, if two potential buyers represented in the auction room by Yamini Mehta, Sotheby’s department head, and Conor Macklin of the Grosvenor Gallery, had not fought it out. They raised the price by some £600,000 and Mehta won – for what Sotheby’s describe as a “European Trade buyer” and not for Kiran Nadar, India’s most prolific collector, who was thought to be interested.

vsgaitonde-untitled-sothebys-lndn-oct-16The next highest sale was achieved for a brightly coloured untitled 60in x 39in oil on canvas by Vasudeo S. Gaitonde (left) that went to a private Indian buyer.

Estimated at more than twice the Souza price, it sold for far less – an £800,000 hammer price that was under the £900,000 low estimate. The total figure of £965,000 ($1.18m, Rs7.88 crore) including buyer’s premium was however more than twice the $507,000 it sold for in September 2013 at Christie’s in New York, so it bucked the trend.

By contrast, the most prominent failure at the Christie’s New York sale last month was a rather dark and gloomy similar-sized Gaitonde (below) that was estimated at what proved to be an unrealistically high $1.8m-$2.2m. 

Gaitonde has been doing well in recent years and he currently holds the record for the highest auction price achieved by an Indian modern artist.

vsgaitonde-christies-ny-sept-16It could be that the number of potential Gaitonde buyers with over a million dollars to spend is fading out, though another of his works sold successfully, albeit only just above its low estimate, for Rs 10.12 crore ($1.53m) at a live auction staged in New Delhi on September 8 by Mumbai-based Saffronart.

With sales at that auction totalling Rs68.55 core ($10.39m) including buyer’s’ premium, Saffronart, whose main business is on-line auctions, did amazing well overall in striking contrast to Christie’s $3.8m – but none of my art market sources have been able to explain why that was. 

It was the top end of the Christie’s sale that was worst hit. Below that, many works sold well including an acrylic on canvas by Syed Haider Raza, who died a few months ago, going for a hammer price of $245,000. That was well above the $100,000-150,000 estimate, while one of his early works failed to reach the low estimate of $1m and did not sell..


Saffronart’s top work was a remarkable large 52in x 144in plastic emulsion on canvasGreek Landscape,(above)  by Akbar Padamsee that had not been in the market since 1960. It sold for Rs19.19 crores ($2.91m), more than double the high estimate.


Reproduction pictures of this work do not do it justice, say people who saw it hanging in the New Delhi home of the veteran artist Krishen Khanna. He bought it in 1960, the year it was painted. Khanna was originally a banker, and the reverse side of the work is inscribed “owned by K Khanna / National & Grindlays Bank Ltd / Kanpur UP’. 

Commenting on yesterday’s Sotheby’s auction, Yamini Mehta underlined the point that it included a large number of works that were “new to market”, and said that she had intentionally aimed at works in lower prices ranges that would attract new and younger buyers.

The auction started with 21 works from the estate of Dolf Amacker, a Swiss air-conditioning engineer who amassed a collection when he was working in India between 1947 and 1961.

husain-family-42500-img_6546These were the years when now famous Indian moderns were beginning to attract attention and the works have not been seen on the market for 60 or more years.

Yesterday Amacker’s collection fetched prices mostly between £5,000 and just over £40,000 (including buyer’s premium). They  included colourful early M.F.Husains (above and right), originally bought direct from the artist, that fetched up to £42,500. A Ganesh Pyne went for £77,500.

There are four or five South Asian art auctions in the next few months, but the main test of the market will come on December 18 when Christie’s holds its annual India Sale in Mumbai. This is its prestige event for this market, so it is determined not to repeat the New York experience.

Posted by: John Elliott | October 11, 2016

Happy Dussehra!

img_6485It’s the festival of Dussehra and I’ve just watched an effigy of Ravana going up in flames in the park in front of my Golf Links flat in New Delhi – here are some pictures.

This is the start of a festive season that  leads on to Diwali, the festival of lights, which this year is on October 30. 

Tonight, there have been fireworks displays, ending with a ceremonial burning of effigies celebrating img_6493Ravana’s defeat by King Rama.

Ravana was a rival king, who had abducted Rama’s wife Sita to what is now Sri Lanka – signifying victory over hubris and ego, as I explained  in a post a few years ago for some foreign visitors to Delhi when this blog appeared on the Fortune magazine website.


Another terror attack today by militants at government institute

A 12-year old boy died on Saturday in the Kashmir state capital of Srinagar after being hit in the head by pellets fired by para-military forces at crowds of youngsters protesting against the Indian government. Junaid Ahmad’s death sparked clashes during his funeral later in the day, with thousands of protesters chanting “Go India, go back” and “We want freedom”, as they marched to the city’s “martyr’s graveyard” with the boy’s body.

The security forces claim Junaid was playing an active part in the protests, throwing stones, but his parents and friends said he was hit in the garden outside his home.

The boy’s death sparked little apparent interest or concern in New Delhi, where politicians are engrossed in point scoring following the government announcing on September 29 that it had conducted “surgical strikes” against alleged terrorist “launching pads” in Pakistan  across Kashmir’s disputed Line of Control (LoC) border.

Despite the “surgical strikes”, terror attacks are continuing. This morning militants stormed the Jammu & Kashmir state government’s Entrepreneurship Development Institute (EDI) at Pampore near Srinagar and engaged in a gunfight with security forces. There was a three-day battle with militants in the same building in February after a militant attack, but the authorities had not strengthened the security – tenders for bunkers were only floated last week.


Junaid Ahmad’s funeral procession – HT photo

September 29 was the first time for many years that India has publicly announced such strikes, and it presented them as evidence of the strong approach of Narendra Modi, India’s Bharatiya Janata Party prime minister, against alleged Pakistan-sponsored terrorism. BJP politicians have been boasting politically about the strikes (even though Modi has said they shouldn’t), and Congress politicians have tried to recover ground by revealing that their government  conducted similar strikes secretly in earlier years.

Meanwhile in Islamabad, Pakistan government spokesman described Junaid’s death as the “worst example of state terrorism” and said the incident was part of “continued Indian atrocities” in Kashmir. And in Washington, Pakistan government emissaries continued to lobby the US government and other politicians about India’s alleged human rights abuses in Kashmir and the rightness of the Pakistan cause, but were reportedly given little time and were told to stop encouraging terrorist activities in India.

Such is the seemingly never-ending often deadly international theatre over Kashmir that basically stems from the Pakistan army and government failing to accept the inevitability of the Line of Control being recognised one day as the permanent border. Instead, Pakistan encourages and facilitates militants’ terror attacks in Kashmir, and sometimes also elsewhere in India. That leads to heightened tensions in Kashmir, which it also encourages.

For most of the time, the political leaders and military involved are content to let the overall situation simmer, providing Pakistan’s terror attacks are not too outrageous and successful, and providing unrest in the Kashmir valley does not get out of hand. 


Tear gas shells being fired at Junaid’s funeral procession – photo Waseem Andrabi/HT

Since early summer however, the situation has become more volatile than Delhi wants. There was unrest earlier in the year, and Junaid’s death was the latest tragedy in three months of large-scale violent protests and clashes that began on July 8 after a prominent Kashmiri militant, Burhan Wani, was killed by Indian forces. 

Life in Srinagar and the surrounding Kashmir valley has been crippled with curfews, bandhs (political strikes), and confrontations between demonstrators and the police and paramilitary forces. At least 90 people, most of them young protesters, have been killed and more than 12,000 injured in the clashes. Reports suggest that as many as 7,000 people have been arrested, nearly 450 in a crack-down during the past week.

Indian governments rarely take a pro-active interest in Kashmir, even when their own party is also in power in the state of Jammu and Kashmir as is the case now with the BJP being a partner in the state administration. On this occasion however it reacted and sent Rajnath Singh, the home minister (below), and other politicians to Srinagar a month ago to try to talk to local leaders, including separatist groups, and calm the protests. That failed, so New Delhi now sees the situation as one that needs to be quelled by force.

While the domestic situation has got out of hand in Kashmir, so has cross-border terrorism. Pakistan-based militants have capitalised on India’s appallingly poor defence security by attacking a military air base last January near the border at Pathankot, south of Kashmir in Punjab, and then last month entering an army camp at Uri in Kashmir and killing 18 soldiers.

rajnath-singh-kashmir-photo-waseem-andrabihtEmbarrassed by not defending its bases, Modi ordered the publicly-declared army paratrooper strikes against the terror “launching pads”. He has also effectively isolated Pakistan internationally, even getting all neighbouring South Asian countries for the first time to condemn the terrorism.

Although this is never formally admitted, there is virtually no chance of a permanent solution in the foreseeable future. As Shyam Saran, a former Indian foreign secretary, put it during an NDTV television discussion last night, “we have to recognise that India Pakistan relations are essentially adversarial relations, and are likely to remain adversarial for a considerable period of time”.

Although Saran did not spell it out, an Indian government cannot come to a settlement with disgruntled Kashmiris without Pakistan making peace over the disputed border, and that will not happen for two reasons. First, Pakistan’s army, which dominates the country’s politics, needs a disputed border to keep itself in business. Secondly, its main ally China wants India’s western border to be destabilised, providing that does not get out of hand and lead to war between the two nuclear neighbours. Nothing can be permanently settled without China’s agreement, and there is no sign of that happening.

Saran added  that India’s policy objective therefore had to be to “manage the adversarial relationship in a manner that it does not lead to the escalation of conflict”. He also said, significantly, that India could not become a global power unless it learned to manage relationships in its own region, as it has now begun to do.

For India that means strengthening its military bases’ notoriously weak defences, and those at other sensitive sites like the Pampore institute that was attacked this morning. There were reports last week that another such attack had been thwarted.

It also means guarding against a major terror attack elsewhere in India because attacks on high profile targets, and those causing fatalities, are more likely to lead to an escalation in conflict between the two countries. It also means spotting terror “launch pads” across the LoC and dealing with them, sometimes announcing what has been done, plus maintaining the diplomatic isolation of Pakistan.

India also needs for the first time to take a pro-active role in the economic development of Kashmir, hard though that may be to achieve in the present mood. Modi said on August 9 that Kashmir’s young people, who should have laptops, cricket bats or books in their hands, “were being given stones” (to throw).

Two months have now elapsed. I wonder what has done since then to deliver the economic and educational development that he symbolised with laptops, bats and books. Probably nothing, and that is the tragedy of India’s rule in Kashmir.  

Narendra Modi plans measures to isolate and hurt Pakistan 

India has launched a series of moves against Pakistan in the past few days that culminated this morning in an announcement that the Indian army conducted “surgical strikes” last night against alleged terrorist locations across the disputed Line of Control (LoC) border in Kashmir.

This is the first time that India has publicly declared such military action inside Pakistan for many years. Previous governments have followed what is called “strategic restraint” and rejected such a response to terror attacks, or kept those that did happen secret (like these in 2011), because of the risks of escalating military retaliation between the two nuclear-armed neighbours.

The attacks were based on “very specific and credible information” that “some terrorist teams” had positioned themselves to infiltrate into India, the director general of military operations, Lt. Gen Ranbir Singh (below) said today. “Significant casualties have been caused to the terrorists and those who were trying to support them”. No further details have been released, but media reports suggest that the attacks involved ground troops operating one to two kilometres inside Pakistan territory in up to seven locations where “launch pads” were located.

DGMO Ranbir Singh briefs media

Pakistan has however played down the significance and denied heavy casualties, apparently to avoid the need for immediate escalation. Its army denied that there had been “surgical strikes”, and said there had only been heavy Indian firing.

A stronger line was taken yesterday by Pakistan’s defence minister, Khawaja Muhammad. He warned that, if attacked, Pakistan  would respond with nuclear weapons “to annihilate India”. That was interpreted in India not so much as a real threat, but as an attempt to ratchet up international concerns about a nuclear war so that the US and other countries increased pressure on Modi not to escalate anti-Pakistan initiatives.

India’s action was a direct response to an attack on an army base at Uri in Kashmir on September 18 that killed 18 Indian soldiers and led to intense media and public pressure for retaliation. Pakistan has denied responsibility and accused India of organising the attack for internal reasons and

This afternoon, the government has briefed opposition politicians and international diplomats about the situation, including an escalation of tension on the border where villagers have been evacuated. Its line is that it is targetting terrorist preparing to attack India, not the country of Pakistan, and that it will do so again if and when it finds terrorists gathering in “launch pads” close to the LoC.

Isolating Pakistan

Narendra Modi, the prime minister, has also taken other initiatives in the past few days that over-turn decades of India’s regional diplomatic policy, and could change the alignment of countries in South Asia.“We will leave no stone unturned to isolate Pakistan in the world,” he said last weekend, responding to public demand that has been fuelled by intense media coverage for some form of retaliation..

His mostly co-operative approach to Pakistan since he was elected in April 2014, and especially personal approaches to the prime minister Nawaz Sharif,  have failed to stop the attacks. He has been widely criticised for lacking focus and consistency. The aim now, which fits with his hard-line image, is to weaken Pakistan to such an extent that it stops the militancy, say well-informed diplomatic observers.

Declaring that “blood and water cannot flow together,” the prime minister held a meeting on September 26 with senior officials of the water resources and external affairs ministries to discuss limiting the flow of rivers from India under a 1960 India-Pakistan Indus Waters Treaty. It was decided at this stage only to increase India’s take-off from rivers flowing through Jammu & Kashmir to the maximum allowed under the World Bank-brokered agreement. That would reduce what is available to Pakistan without breaching the treaty.

India has also pulled out of a big South Asia co-operation (SAARC) summit that was due to be held in the Pakistan capital of Islamabad in November. Bangladesh, Afghanistan and Bhutan have also withdrawn (Oct 2 insert: now  joined by Sri Lanka and the Maldives), citing terrorist activity. This unanimity is significant because it shows an unusual alliance with India over Pakistan. Next week these and other countries belonging to a regional grouping called BIMSTEC, which excludes Pakistan, will be meeting in India to push trade and other ties that have been largely stymied by Pakistan since SAARC was set up in 1985.

Today Modi was to have considered taking action over Most Favoured Nation (MFN) trading status that India gave to Pakistan in 1996. India could possibly cancel the status on the grounds that it has not been matched by Pakistan, but this would only have a limited effect because indirect informal trade via countries such as the UAE far exceed some $2.6bn annual formal trade. Discussion on this was deferred, maybe to next week, because of Modi’s preoccupation with the army strikes.

Balochistan stir

India has also opened up a new pressure point with Pakistan over the country’s south-western province of Balochistan, which borders Afghanistan, Iran and the Arabian Sea. In response to Pakistan alleging Indian army human rights violations in Kashmir, Modi has publicly lined up with Balochistan separatists to accuse Islamabad of atrocities in the impoverished province that has been crippled by tribal wars as well as an independence movement for decades. Sushma Swaraj, India’s foreign minister, told the UN General Assembly on September 26 that Pakistan’s action in Balochistan was the “worst, form of state oppression”.

India has for many years been accused by Pakistan of fomenting trouble in the province, and it is widely believed that its RAW secret service is active there. Now the area is specially sensitive because of disruption to China’s planned Pakistan economic corridor (CPEC), which runs from the two countries border at the northern end of the Karakoram Highway in the Himalayas down through Balochistan to the port of Gwadar that it is building.

China’s reaction to last night’s attack will be significant. While it backs its close ally Pakistan causing disruption on the LoC, it has never wanted that to escalate into a border war. There were reports today that it is appealing to both countries to tone down the confrontation. Last week officials said it was concerned about the risks of an economic spin-off from the Uri attack. It has its own separate differences with India over their Himalayan border and also over other issues including the South China Sea.

Modi’s new aggressive stance ends the pattern under previous governments where a terrorist attack would lead to a heightening of border tension and empty Indian threats against Pakistan that would be replaced with US-encouraged bids for fresh co-operation after a few months or a year or so. Modi criticised such an approach before he became prime minister and has now taken the tough military line he promised. Internationally there will be critics of such a line but domestically Modi will have widespread support. How Pakistan responds has yet to be seen.

Posted by: John Elliott | September 23, 2016

India places $8.6bn jet order amid a trail of failed defences

Uri army camp attack shows India’s vulnerable and weak security 

At the end of a week when India agonised about how to deal with the aftermath of a deadly attack on an army camp near the Pakistan border in Kashmir that should never have been allowed to happen, the government on September 23 signed a $8.66bn deal with Dassault of France for 36 fighter jets that will have only a limited effect on the under-equipped Indian Air Force’s lack of readiness.

The link between the two events is that they both underline the deplorable state of India’s military defences, and demonstrate how inadequately it tries to improve them, despite tough talk by successive governments and especially by prime minister Narendra Modi before he was elected, and despite his promise to make the country work more efficiently.


Smoke rising from the Uri camp during the attack –

Eighteen Indian soldiers were killed in the army camp attack that was carried out at Uri on September 18 by four men – dubbed “militants” by the international media but “terrorists” in Indian reports.

It has led to outrage in India against Pakistan, whose army or ISI secret service is blamed for instigating the attack allegedly by Jaish-e-Muhammad, a Pakistan-based group named by the US as a terrorist organisation.

Yet the real horror of the event is not that Pakistan dare do such a thing, but that India is so lackadaisical and inefficient at maintaining security that the four men were able to cut a boundary fence, move 150 yards inside the base and set fire to tents before they were detected. Unprotected soldiers were having early morning showers in a camp whose operational troops were patrolling on the disputed “line of control”  (LoC) border with Pakistan just 10kms away.

If no Indian soldiers had been killed, the outrage against Pakistan would have been far less and Delhi could have congratulated itself on the excellence of its defences. Yet there is scarcely any public outcry against the government and defence ministry for failing to secure its bases and protect the lives of its soldiers.

More horrifying

Even more horrifying is that the camp was so unprotected despite a similar incident last January at an air base, near the Pakistan border at Pathankot in the Punjab, that had no defences against a terror attack. Border patrols and thermal imaging were inadequate, and the initial police responses were confused and slow. Floodlights were not working in some areas and buildings were located against perimeter walls, making access easy.

Shyam Saran, a former Indian foreign secretary, has warned that “India will remain vulnerable unless it does a better job of managing and securing its long land and maritime borders”. He lists numerous defence failings and warns, “Unless we turn the searchlight on our own failings….we will remain at the receiving end of terrorism”.

And as Omar Abdullah, a former Kashmir chief minister has tweeted, “While we work out who is to blame for Uri, and what an appropriate response will be, do we not owe our troops flame retardant tents & huts?”   

manohar-parrikar_647_092116070823Manohar Parrikar, India’s defence minister, admitted that “something must have gone wrong” at Uri, adding that “we will definitely find out what went wrong and take steps to ensure it doesn’t happen again”. He was speaking on September 21 at a management conference (above) and said he believed in “zero errors”, a term his audience would use in their own companies but must have heard with incredulity in this context.

“Air defence units field antiquated Soviet-era guns and missiles that should have been retired long ago,” said an editorial in the Business Standard, the next day. Talking about “serious deficiencies “ in India’s radar network, fighters squadrons and ground defence units, it continued: “The mechanised forces, too, rely on Soviet-era air defence systems from the 1980s, which are ineffective, given the advanced electronic warfare equipment in modern fighters….Obsolescent radars with inadequate coverage ranges leave gaps along the border that enemy aircraft can exploit”.

None of this is new. Senior armed forces officers have been complaining about the lack of readiness for combat for years – which makes the signing of the Rafale order inadequate. In 2012, India decided to order 126 Rafale jets from Dassault of France, but negotiations became deadlocked, and Modi suddenly substituted an order for just 36 of the planes in “fly-away condition” when he was on an official visit to Paris in April 2015.

Red tape

That was seen at the time as an astute move by Modi, cutting through the red tape and ordering the urgently-needed jets for quick delivery, even though this would undermine his Make in India manufacturing campaign. The decision was taken by the prime minister’s office without Parrikar being privy to the discussions, as Ajai Shukla, a leading defence journalist, has explained in the Business Standard.

Parrikar was instructed by Modi to speak in favour of the new deal, which he did, saying that the planes would be in service within two years of April 2015, yet they will not now begin to arrive till 2018 or 2019. The negotiations became bogged down in detail, partly because India insisted that Dassault agree “offsets” for 50% of the Rs58,000 crore (Euros 7.8bn, $8.66bn) deal. That will be done by Dassault spending in India 30% of the total on aero research programmes and 20% on components, though it is not yet known how that will be done.

RafaleThe main point here however is that the jets (right) will do little to solve the air force’s overall shortage of fighters, despite their superior capability and advanced missiles, because they will add only two squadrons to the current total of 32 when 42 are needed. The Rafales will also complicate maintenance and support services because there will be seven different types of aircraft from various countries. The air force’s concerns have been spelt out in the Shukla article, including worries that the Rafales cost twice as much as Russian Sukhoi jets that are already in service.

Now India must decide what to do about the 90 aircraft that are needed following the unexplained reduction from 126 to 36. Two more aircraft types – the US’s F16 and the Swedish Gripen – are reportedly being considered. 

India’s defence orders are awash with corruption allegations and, significantly, Shukla notes that Indian MoD officials, fearing graft allegations over deals, draw some “comfort” in US deals because of the country’s foreign corrupt practices legislation.

Such is the muddle with which India runs its defences, both in terms of its internal security and its ability to strike at its neighbouring and hostile nuclear neighbours, China and its client state, Pakistan.

The focus has been on how India should fight back against Pakistan following the Uri attack, which the prime minister has said “will not let go unpunished”. Diplomacy has so far been the main weapon, at the United Nations and elsewhere. Other possibilities aired and debated have included selected strikes across the border, cyber warfare, cutting off river waters that flow from India to Pakistan, and cancelling trade pacts.

It would however be much more effective to strengthen India’s domestic security because, as Shyam Saran says, India will otherwise “remain at the receiving end of terrorism”.

Posted by: John Elliott | August 31, 2016

India warily edges closer to the US with defence logistics deal

China warns India could become a “centre of geopolitical rivalries”

New Delhi doesn’t really trust Washington and many US policy experts regard India as a tiresome non-performer, but both countries need each other because of China’s increasing adventurism and aggression, and this is leading to a flurry of activity before President Obama’s time in office finishes at the end of this year.

A historic defence deal called LEMOA, or Logistics Exchange Memorandum of Agreement to give it its full name, was signed in Washington on Monday (Aug 29) between the two countries’ defence ministers, Ashton Carter and Manohar Parrikar (below). After tortuous negotiations lasting some 14 years, it provides for both countries making their naval, air force and army bases available to each other for servicing and repairs on a case by case basis. 

At the same time, America’s Secretary of State, John Kerry, was arriving in Delhi for the second India-US strategic and commercial dialogue that includes India’s foreign minister, Sushma Swaraj, and both countries’ commerce ministers. Their agenda has ranged from climate change and clean energy to cyber co-operation and arbitration arrangements.

Obama, who has a built a constructive relationship with Narendra Modi, India’s prime minister, may be in the closing months of his presidency, but there is a continuing momentum in the country’s overall strategic links. These began in 2004, though India is intensely wary, and both sides have let progress slip at various times. 

Carter Parrikar LEMOA Sept '16The US see India primarily as a buffer against China and would like to build a closer relationship as allies, but India is prepared to go no further than being a partner on various fronts while pursuing its own independent interests. In the past that has included refusing to join US-led boycotts of Iran and Myanmar.

The US has emerged as a major supplier of defence equipment with orders totalling some $4.4bn in just the past three years, and has taken part in several joint military exercises. Russia however remains India’s most consistent defence supplier and partner and, significantly, the US failed to make the short-list on a key multi-billion jet fighter deal that it coveted.

The defence logistics agreement is historic because it shows what can eventually be achieved, while also illustrating India’s concerns. The signing owes much to the sensitivity and persistence of Ashton Carter, America’s secretary for defence and India’s most prominent supporter in the Obama administration. He said after the signing that he had spent more time with Parrikar since taking on his job than with any other defence minister anywhere in the world.

“Over the last two years, Carter and Parrikar have built up an unlikely rapport – the former a defence and security technocrat and academic; the latter a street-savvy politician, albeit with an Indian Institute of Technology degree,” says Ajai Shukla, an Indian defence journalist and analyst.

“Foundational pacts”

When the discussions on the logistics deal began in 2002, it was one of the four “foundational pacts” that the US had expected to push India into agreeing quite quickly, but Washington’s defence officials seriously under-estimated the time it would take to achieve just two of them.

An End User Verification Agreement, which was signed in 2009, paved the way for the US to become a major defence supplier by laying down restrictions on India passing technology on to other countries. But a Communications Interoperability & Security Memorandum of Agreement and a Basic Exchange & Cooperation Agreement on Geo-spatial Services have not been agreed and seem unlikely to make much progress in the near future.

This is because of concern both in India’s defence establishment and among opposition political parties that India is gradually moving into what could become a formal military alliance that would drag it into America’s international action in places such as Iran and Syria.

“We resisted this agreement for long because we didn’t want to give the perception that we are ganging up with Americans against somebody else, in particular China,” says Pallam Raju, a defence minister of state in the previous Congress-led government.

India’s defence ministry has tried to answer that point by stressing that the agreement neither created “any obligations” on either India or the US “to carry out any joint activity”, nor provided “for the establishment of any bases or basing arrangements”. It would be used “exclusively during authorized port visits, joint exercises, joint training, and humanitarian assistance and disaster relief efforts.”


India’s powerful neighbour China is of course far from happy, as one of its official mouthpieces has made clear (reported above on Indian tv news). After praising India’s traditional international independence, the Global Times warned: “If India hastily joins the US alliance system, it may irritate China, Pakistan or even Russia. It may not make India feel safer, but will bring strategic troubles to itself and make itself a centre of geopolitical rivalries in Asia.”.

China is getting into the habit of warning other countries about what or what not to do as it becomes more aggressive internationally, though there is of course nothing new in it coercing others to follow its line. Some 25 years ago, when I was reporting for the Financial Times from Hong Kong, it was providing economic aid for small countries to persuade them not to recognise Taiwan as a sovereign country,

Now the stakes are far higher, as the Chinese ambassadors in both London and Delhi have shown in recent weeks with dire warnings to their host countries about failing to  fall in with Beijing’s wishes. One was over a China-backed nuclear power station project at Hinkley Point in Britain that the UK government is reconsidering.

The other was about India’s concern over China’s recent belligerent adventurism in the South China Sea, where the new agreement could become significant if India allows US ships patrolling in those waters to use its naval bases.

Perhaps India would have been less willing to sign up with the US if China had responded constructively to friendly moves initiated by Modi. Instead, it has blocked India’s entry into an international nuclear supplies body, has strengthened its ties with Pakistan, and has failed to make progress resolving differences on its disputed Himalayan border.

With Modi’s friendly overtures leading to that sort of negative response from Beijing, India seems to have had little to lose by doing the logistics deal while Obama and his friendly defence secretary are still in office.

Posted by: John Elliott | August 4, 2016

India at last takes a leap forward on tax reforms

New goods and services tax passed by Rajya Sabha

It has taken 16 years, which is sluggish even by India’s dreadfully slow approach to change, but finally it has happened – late last night the upper house of  India’s parliament passed a constitution (amendment) bill that paves the way for the introduction of an epoch-making tax reform known as the goods and service tax (GST).

The government optimistically hopes to introduce the tax at the start of the next financial year on April 1, merging myriad taxes into one value added measure that will straddle the whole country and abolish different tax regimes run by India’s individual 29 states. There will then be one national tax system for the manufacture, sale and consumption of goods and services, and India will in effect become a single common market.

This is being touted as the single biggest change since India’s major burst of economic reforms in 1991, and it probably is, given its potentially enormous benefits for business efficiency and tax collection. Arun Jaitley (below), the finance minister, says it will add 2% to gdp growth, which is currently just above 7%.

488002-355862-arun-jaitley-3-pti-edited-picmonkeyThe business welcome was well summed up by Chanda Kochhar, ceo of ICICI, a leading private sector bank. She has described it as the “most important reform in indirect taxation in India ever”, which would benefit all parts of the economy. “Consumers will see lower prices in the medium term, businesses will able to operate more efficiently and the government will see a broadening of its tax base along with ease of tax collection”.

One of the biggest benefits will be faster road transport times, which are more than double those of developed economies, partly because trucks have to pay taxes at each state border. Companies’ distribution and warehousing systems will also be simplified. It should also be possible for the government to restrict tax evasion.

Jaitley and Narendra Modi, the Bharatiya Janata Party prime minister, claim this as great victory for the government, and proof that they are bent on economic reforms.

Such a claim is not wrong, but it is biased because both the BJP and the Congress Party deserve equal praise for backing the measure over the past 16 years – and both also need to be strongly condemned for blocking it when the other was in power.

It was Atal Bihari Vajpayee (below) who, as the then BJP prime minister, launched the first GST discussions in 2000 and set up a committee with states’ finance ministers to design the tax and the systems required.

Atal_Bihari_VajpayeeThe BJP however refused to support Manmohan Singh, the Congress prime minister from 2004, when he tried to push the measure with a 2010 target implementation date. It then changed tack when the Modi government was elected two years ago, but that was met by obstruction from Congress, which wanted to build up its credibility in opposition. The Modi style was arrogant, which made co-operation with other parliamentary parties, as well as Congress, virtually impossible

In the past few weeks however, the BJP has improved its political tactics. It won support from almost all regional political parties, which would have left Congress isolated had it not ended its opposition.

Consequently, the bill was unanimously passed last night after nearly eight hours of debate in the Rajya Sabha, where Congress has a majority of the seats. Opposition came only from Tamil Nadu’s AIADMK party MPs who walked out. The bill now needs to be cleared by the Lok Sabha (lower house), which is a certainty given that the BJP has a majority there.

States’ ratification needed

But the bill only paves the way for change. It needs first to be ratified by individual states, which then have to draw up their GST laws, and that will be a substantial task. At least 15 of the states must do this for the measure to be implemented. Most will fall into line, though states such as Tamil Nadu with strong manufacturing industries have reservations because they fear they will lose out, unless they are adequately compensated, by the benefit the value added tax brings to consumer-based states.

All the states, and individual businesses, need to prepare for what is in effect a totally new tax regime. That seems somewhat unlikely to be achieved by the government target date of April 1, even if the legislative process is completed with the central government setting the tax rates. Congress wants the tax capped at 18%.

The Business Standard, a leading Indian newspaper, has said this morning that almost 98% of Indian companies are not ready with the software infrastructure, accounting systems and human resources training that are needed to handle the tax. The indirect tax regime “would require all companies, their suppliers/vendors, retailers, dealers and even shopkeepers/entertainment centres/restaurants to install computers, which could access the centralised GST network so that tax credits can be logged into the system”, it said.

The GST will be collected at each stage of sale or purchase of goods or services and will provide funds for both the central and state governments. Nationally, it will subsume central excise duty, additional excise duty, service tax, countervailing duty, and special additional duty of customs. At the state level, it will absorb state value added tax/sales tax, entertainment tax, central sales tax, octroi (state border tax), purchase tax, luxury tax, and taxes on lottery, betting and gambling.

Government veto

It will be run by a council where the states will have two-thirds of the seats, but the national government will have a veto because, while it will have only a third representation, decisions will need a 75% vote in favour. This strengthens the central government’s overall powers because it will be able to control tax rates in the states, which goes against the general approach of encouraging the states to led development. This could lead to tensions and political clashes.

Critics have suggested that there are some inflationary risks and that states, which have always over-spent in order to improve the political credibility of their ruling parties, will feel even more free to spend recklessly and wait to be baled out by the council and central government.

So while there is much to celebrate today, now that the GST has crossed a major parliamentary hurdle, there is plenty of scope in the future for disagreements and lack of progress.

Successful implementation will test the government’s political leadership and skill in the coming months. That gives Modi an opportunity to prove that he can do what he was elected to do and change the way India is run.

Posted by: John Elliott | July 30, 2016

Theresa May dares to risk upsetting China

New Prime Minister delays Cameron government power project 

LONDON: At last Britain seems to have a prime minister in Theresa May (below) who means business, and is not primarily interested in playing to the gallery like her predecessor, David Cameron, and his Chancellor of the Exchequer henchman, George Osborne, did both at home and abroad.

A Financial Times columnist has reported that Whitehall officials are saying it feels like having a new government rather than just a change of prime minister.

theresa mayThis means that old assumptions about how the government will react and about who matters around town have to be re-calibrated.

People in India, and especially in Delhi (where I live), have been experiencing that with Narendra Modi’s government replacing the Gandhi dynasty two years ago. He has over-turned an established elite and governs on his own terms.

In Britain the change has been dramatically illustrated by May’s unexpected decision on the evening of July 28 to delay final confirmation of an £18bn ($26bn) nuclear power station at Hinkley Point in Somerset that would lead to China having direct involvement in Britain’s electricity supplies.

The plan is for state-owned China General Nuclear Power to provide about a  third of the finance in a joint venture with EDF, a French utility company with UK electric power interests. The UK government would buy electricity for £92.50 per megawatt hour – double the current wholesale price – for 35 years. The European Pressurised Reactor (EPF) technology involved is unproven because two projects in Finland and France have yet to be commissioned and are years behind schedule and far over budget.

China expects, as part of a deal struck by the Cameron-Osborne government, to follow this with its own Hualong technology for two more power projects at Sizewell in Suffolk and Bradwell in Essex.

That breathtakingly irrational gift of control over sizeable chunks of Britain’s electricity supplies (Hinkley would be a significant beginning at 7%) has been aptly dubbed by critics as the most extravagant of Osborne’s and Cameron’s “vanity projects”.


David Cameron (left) and George Osborne in the House of Commons

Another is HS2, a widely-criticised plan for a high speed railway link of dubious financial viability between London and Birmingham, for which Chinese investment has also been desperately sought despite cost estimates as high as £90bn, up from an official 2011 figure of around £50bn. (Other funding for this project has been offered by the controversial Gulf state of Qatar).

There has been extensive debate and concern internationally over the security risk of doing business with China in sensitive areas – most of its current $30bn investments in the UK  are not sensitive though it does have a stake in Thames Water.

The debate has focussed in the past mostly on telecom networks, especially as I noted on this blog in 2012, those made by Huawei for countries such as the US (which has banned it on government contracts), the UK (where BT and others use it extensively) and India where it is well entrenched.

It was argued then (by John Gapper, a leading Financial Times columnist) that it was too late to eliminate Huawei because “the time to declare telecoms a strategic, protected industry like defence, was 20 years ago”.

Well, the time to declare and make nuclear power a protected strategic industry is surely now. China has to be regarded as a potential future enemy by the west, as it already is by several of its Asian neighbours. Hinkley would be operating for around 50 years and no-one – not even Beijing’s leaders – can predict where and what fights China will begin over that timescale.

Currently China is challenging its neighbours in the South China Sea by asserting no-fly zones and by claiming sovereignty over islands and sea lanes and challenging international maritime rules, despite a recent international court ruling in the Hague rejecting its claims. This could lead to confrontations with countries in that area and with the US.

If Hinkley goes ahead with Chinese money, the UK would presumably have to remain a silent spectator instead of backing its allies in such a situation. Would a Cameron-Osborne government have even dared to vote against China at the United Nations?

The investments crystallised into a £30bn wish list when President Xi Jinping made a state visit to the UK last October. He was given a royal welcome and rode down the ceremonial Mall to Buckingham Palace in a gilded carriage with Queen Elizabeth. (Narendra Modi got invited to the palace for lunch a few weeks later but went by car).

Osborne rejected security concerns

Cameron – and Osborne, whom May sacked from the government immediately she became prime minister – had spent years courting Chinese investment. But May, formerly the former home secretary, raised security concerns with cabinet colleagues when the Hinkley decisions were being made.

Two ministers in the Cameron’s Conservative-LibDem coalition government (2010-15) have said that Osborne blocked attempts both to give the British government a “special share” that would restrict China’s ability to act at Hinkley against the UK’s interest and  to introduce security-oriented restrictions on Chinese business visitors’ visas.

May’s chief of staff warned that China would be able “to use their role to build weaknesses into computer systems which will allow them to shut down Britain’s energy production at will”. He also said China would be buying British silence on human rights abuses, which was proved right when Cameron and Osborne duly Kowtowed to Xi.

So it is not really surprising that May stepped in on Thursday evening and got her energy minister to announce a review of the project instead of the expected confirmation.

The timing however was curious – the EDF board had earlier that day voted to go ahead and officials from France and China as well as the UK were about to travel to the site for a celebration ceremony. Even more curious, Philip Hammond, May’s Chancellor of the Exchequer, had said during a visit to China for a G20 meeting a week earlier that “we must make sure the project goes ahead.”

May was presumably concerned primarily about the Chinese angle and also maybe about disagreements in the EDF, as well as about the unproven technology and risk of delays and cost over-runs. The EDF finance director resigned last March, fearing the project would ruin EDF financially, and another director resigned just before the board vote. After those two had gone, the board only approved the project on Thursday by ten votes to seven. One executive is reported to have said that the vote might have gone the other way if May’s intentions had been known.

modi-xi-swing1 - IndianExpressMay has risked upsetting both President Hollande of France and China’s Xi. They will no doubt both understand that, having been in office for just two weeks, May needs time to approve such a massive project for which she will now bear prime ministerial responsibility.

But they will be extremely annoyed if she were to cancel the deal, which could make Xi unwilling to help the UK negotiate a quick post-Brexit bilateral trade deal with China, while Hollande could cause problems in Europe.

Such political considerations however are surely less important than Britain putting its future in a Chinese noose, and on a project of unproven technology and uncertain financial viability. A compromise solution will probably be found – maybe restricting the Chinese involvement in some way.

Narendra Modi might learn something if May takes a tough line. He is split between his inclination to serenade Xi, as he did (above) when the Chinese president visited India in September 2014, and the reality that China blocks India’s advancement internationally, encourages neighbouring Pakistan to cause problems, and hassles India on their common border.

How, one might ask, could Cameron and Osborne ever have decided to trust China with the projects. Did they really think China would treat Britain differently from the rest of the world?

« Newer Posts - Older Posts »


%d bloggers like this: