Russia sends a warning to the west

The west has rushed to condemn what it regards as Russian bullying of Georgia. I refer to the recent hostilities between Russia and Georgia over Georgia's province of Ossetia which harbours a large Russian population. Russia will not accept Georgia trying to ride roughshed over the province and thinks it has every right to protect the interests of Russians there.

The west is outraged. But, as Kishore Mahbubani points out in the FT, not the rest of the world, including India and China. Mahbubani is dean of the Lee Kuan Yew School of Public Policy in Singapore, a former minister in the Singapore government and a well regarded commentator on international affairs.

Indeed, most of the world is bemused by western moralising on Georgia. America would not tolerate Russia intruding into its geopolitical sphere in Latin America. Hence Latin Americans see American double standards clearly. So do all the Muslim commentaries that note that the US invaded Iraq illegally, too. Neither India nor China is moved to protest against Russia. It shows how isolated is the western view on Georgia: that the world should support the underdog, Georgia, against Russia. In reality, most support Russia against the bullying west. The gap between the western narrative and the rest of the world could not be greater.

The lesson from the Russian intervention, Mahbubani says, is that the world is not going to watch while the west tries to lord it over. Moreover, the west must make up its mind where the primarily challenge to the west lies- is it Islamic militancy or China?

Western thinkers must decide where the real long-term challenge is. If it is the Islamic world, the US should stop intruding into Russia’s geopolitical space and work out a long-term engagement with China. If it is China, the US must win over Russia and the Islamic world and resolve the Israel-Palestine issue. This will enable Islamic governments to work more closely with the west in the battle against al-Qaeda.

RBI proposes, Finance ministry disposes?

The RBI wants to bring down growth in banks' commercial credit in a bid to slow down growth in money supply. Money supply has been growing at over 20% against the RBI's target of 16.5-17%. The RBI has raised interest rates but commercial credit has been growing at 24-25%, against the RBI's target growth of 20%.

Many think this is because public sector banks have not been aggressive enough in raising their lending rates, thanks to interference from the finance ministry. The ministry, they say, wants to sustain growth and it wants to keep home loan borrowers happy as elections loom, so it gets PSBs to refrain from raising rates as much as they should.

I am not so sure. I examine this whole issue in my ET column, Is finmin foiling RBI? and find that there isn't a strong enough case for this view.

There are just a couple of points I would like to add. One, the finance minister asking banks not to hike rates on home loans of upto Rs 30 lakh is not such a bad thing. A rise in home loan rates, as I mention in my column, may push many borrowers into default. Also, a sharp drop in home loan demand will affect a whole range of industrial sectors to which banks are exposed. So, in trying to extract better returns on home loans, banks may end up shooting themselves in the foot where corporate borrowers are concerned.

It is in the collective interest of banks not to raise home loans. But no bank on its own has the incentive to maintain home loan rates on its own- some other bank will then try to produce better returns by raising interest rates. In other words, we have what is called a "coordination failure". For the ministry to step in and provide coordination is appropriate.

The second point is that commercial credit growth is one element in high growth of money supply. A more difficult problem is the rise in forex reserves. There isn't much the RBI is able to do about this, so we can't expect a deceleration in commercial credit alone to bring down the inflation rate.

Creating world class universities in India

Dinesh Mohan, Professor at IIT Delhi, has an excellent piece in Business Standard on where India stands in the business of creating world class universities. The Shanghai Jiao Tong University's latest academic ranking of world universities confirms what we already know: we have been left far behind in the race.

In the top 500 universities in the world, India has only two: IIT Kharagpur and IISc, both ranked in the lowly range of 303-401. China itself has 18 universities in the list. Predictably, the US tops the list with 159, all of Europe has 210. The US has 9 of the top 10 (the tenth is Oxford) and 17 of the top 20. In academics, as in defence, it is a superpower.

The methodology, Prof Mohan points out, is sufficiently sound to command respect. The motivation behind the exercise was to figure out where China stands and what it needs to catch up. Prof Mohan highlights a number of interesting findings:

• A vast majority .... are large public universities enjoying liberal funding. Even in the USA, where many private universities exist, over 70 per cent of the universities making the list for engineering sciences are state funded. Even in the private universities, a significant proportion of research funding comes from the public sector. In the middle and low income countries, only state-funded universities are able to do any scientific research of any consequence.
  
• The age of specialised institutions like IITs, IIMs and IIITs seems to be over. A great deal of modern research involves interdisciplinary work and that is why such institutions are the exceptions.
• The kind of people who take up research and teaching jobs in any country come from middle and lower middle class family backgrounds. They are the ones who look for security in a job and work hard. Those who have spent money on education or taken loans are unlikely to take teaching jobs. We will have to reverse the trend of rising costs of education and give liberal scholarships even for living expenses.
• Our public sector institutions like the railways, NTPC, ONGC, DRDO, municipalities, BIS, building and road departments, etc. must put in place policies to hire such people (people with Master's and Ph D degrees) and give them meaningful jobs to do.
  

The bottomline? Forget the notion, currently popular, that in order to create world-class universities, we need government to get out of education. Forget also the notion that private institutions, motivated by profit and charging appropriate (that is, sky-high) fees will do the trick. Think again about the notion that you need fabulous pay packages in universities in order to attract talent- no, the types who are attracted look for job security, decent pay and a supportive environment.

We need to strengthen the IIT-IIM model and give it wider application. At least where the IITs are concerned, fees remain reasonably low and affordable and they must remain so. Improved governance at generously funded state institutions and inclusive, affordable education are the key to creating world class universities. In short, the drift towards privatisation, higher fee and higher pay packets for faculty as the answer must be checked before it is too late.

American prisoners in the Soviet Union

I had heard of a US invasion of the former Soviet Union in a bid to abort the communist revolution- the invasion was ineffectual. But it's news to me that the Soviet gulag harboured last numbers of Americans.

I got to know this from a review of a book on the subject in the Economist. The Americans were workers who landed in the Soviet Union during the Great Depression, desperate for jobs. At first, they were welcomed with open arms. But later the mood of the Soviet authorities changed:

Initially lauded as welcome refugees from the miseries of capitalism (and as useful specialists who might help replicate the bits of it that worked, such as factories) from 1935 onwards they became enemies of the people, infiltrators and spies. A tiny handful, such as Paul Robeson, a singer, were tolerated as propaganda trophies. The rest sank into a living Hades of torture, rape, slave labour, starvation, frostbite and death, shared with millions of others.

American diplomats in the Soviet Union and also American journalists turned a blind eye to the fate of these unfortunate workers. 'Serves them right' for having forsaken the US for the Soviet Union seems to have been the attitude:

Even before their arrest, most of the Americans were, in effect, prisoners: with their passports confiscated they were involuntary Soviet citizens. But the only people who might have helped saw no reason to do so. Diplomats in America’s newly established embassy in Moscow regarded all the migrants as communist sympathisers who had thrown in their lot with the system.

... If the diplomats look bad, so too do the Moscow-based foreign journalists, who shunned the story as liable to risk their official accreditation; the debaucheries on offer nightly at the Hotel Metropol, courtesy of the NKVD secret police, may have led them to choose their own livelihoods over the lives of others.

There was a shabby postcript to all this: American prisoners of war, freed by Soviet troops in Germany, were also packed off to the Gulag. And even this did not evoke outrage in the US!

Oil bubble burst

Excuse my giving myself a pat on the back but, as readers of this blog would know, I did say that oil prices would head towards $100. I said this at a time when oil was ruling at $140 and people thought it was headed towards $200. I based my forecast on two facts: the run-up in oil prices had been too steep; and the supply-demand imbalance was too small to warrant an increase of the order we had seen.

I did not say so at the time but we must also recognise that the world's sole superpower will not accept a situation where oil prices threaten to destabilise the US economy as well as the world economy. And it has some ability to influence oil prices. President Bush's visit to Saudi Arabia and some tough talk on his part elicited an assurance from the Saudis about an increase in output. Demand has been moderated by the passing on of some of the increase in oil prices to users. The SEC has toughened norms for speculators in oil. All this has combined to force down oil prices.

I read an excellent analysis in ET today of the issues related to the oil bubble. The author, a Chief economist with a US think-tank, addresses each one of the arguments made as to why the oil price rise was related to fundamentals and not speculation. He shows the arguments are dead wrong ( quotes from the article in italics:

• Oil prices rose because of a weak dollar: The price of oil has risen far more than the dollar has fallen. That means that oil prices have increased in other countries, which should have reduced, not increased, demand.
• Oil producers have held back production in anticiption of higher oil prices down the road: Nor have there been any report of unusual production cutbacks — the linchpin of the second argument. Indeed, the spike in oil prices actually gives independent producers an incentive to boost production.
• There can't be speculation in oil because inventories have not risen: the storage argument fails to recognise different types of inventory. Thus, record-high speculative prices have likely caused bunker traders to release inventory, but those releases may have been purchased by speculators who are now active lessees of commercial storage capacity. The implication is that speculators can drive up prices and increase their inventory holdings even as total commercial inventories remain little changed.
  

<>The author also underlines the fundamental change in the character of oil trading in recent years: speculative trades account for 70% of all trades compared to 37% seven years ago.
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HBS's two failings

The Economist reviews a book, Ahead of the curve: two years at Harvard Business School, by a recent graduate, Philips Delves Broughton. It quotes Delves as citing two main failings of HBS:

First, it pushed the idea that its alumni would be equipped as leaders capable of solving all the world’s problems, rather than merely doing a decent job of running a company. “Business needs to relearn its limits, and if the Harvard Business School let some air out of its own balloon, business would listen,” he grumbles.

His second worry was that so many of his classmates seemed destined for careers that would leave them no space for a happy personal life. He opted for more time with his family, rather than follow in the footsteps of the “Goldman Sachs executive who came to talk about leadership and values…I just remember this look of total defeat on his face when he said how he had four ex-wives.”

Policy towards foreign banks in India

As per the RBI's roadmap for foreign banks, there is to be a review of policy towards foreign banks' entry into and expansion in the Indian market in 2009. My own assessment is that the RBI will continue to be cautious unless a government with a very different attitude comes to power next year. I don't see major sales of public sector banks to foreign banks, for instance.

Branch licensing policy may become more liberal but a level playing field between foreign banks and Indian banks is unlikely. Even the Raghuram Rajan committee on financial sector reform, which wants abolition of branch licensing, does not favour extending such a policy to foreign banks until a couple of years after it has been extended to Indian banks.

I wrote an article about the theoretical pros and cons of foreign bank entry into India for EPW recently.

More on "lessons from sub-prime crisis"

Philip Purcell, former chairman of Morgan Stanley, lists five lessons, all of which are familiar enough by now but are worth repeating:

First, profits matter more than revenues.....

Second, compensation should be based on profits, margins and return on equity over time, not current year revenues....

Third, leverage works not just on the upside but on the downside as well...

Fourth, diversified and recurring revenue streams not based on trading or principal investing have immense value in a down cycle....

Finally, risk management should become a board-level responsibility, with appropriate committees meeting regularly with management....

Perhaps, it's worth asking: how many of these were practised in Mr Purcell's own firm?

Shiller on the sub-prime crisis

Robert Shiller of Yale has come out with a book on the sub-prime crisis, The Sub-Prime Solution (Princeton). I had a chance to review it in my ET column, Can we prevent a sub-prime crisis?

Shiller's focus is on sub-prime loans. I thought the focus was somewhat misplaced. The problem may have originated in the sub-prime market but it got magnified into a financial crisis because of financial institutions' leverage exposure to sub-prime loans. It is financial regulation that needs to be revisited after the sub-prime crisis, not so much the sub-prime market and the protection of home loan borrowers.

Nuclear deal and the Hyde Act: Burns clarifies

One of the more asinine assertions in the nuclear debate has been that India is not bound by the Hyde Act because it only a "domestic legislation" in the US. This assertion has been made despite categorical statements to the contrary from US Secretary of State Condoleeza Rice.

Nicholas Burns, who was the chief negotiator on the US side, emphasises this point in a story reported in Rediff.com.:

Burns said, "When this agreement was negotiated, it was fully consistent with the provisions of the Hyde Act. So we have the right to terminate it if India tests." But he said it was highly unlikely that India would conduct a nuclear test.

He also added, "No aspect of this deal recognises India as a nuclear weapons state."

I also do not buy the argument that this only a deal about nuclear energy. I am inclined to believe the deal is more about a strategic partnership with the US. It will give us access to dual-use technologies and it makes us an ally of the US at a time when China is on the rise and there are serious threats to Indian security arising from the Pakistan- Afghanistan neighbourhood as well as unfolding developments in Nepal, Burma and Sri Lanka.

No alternative to tighter financial regulation

I wrote in my post yesterday that Greenspan's arguments in favour of competitive markets was misplaced in the context of financial institutions especially those that have a regulatory safety net.

Henry Kaufman, an erstwhile Oracle of Wall Street, echoes this viewpoint in an article in FT today that rebuts some basic premises of Greenspan:

First, we should recognise the deregulation illusion. When faced with the choice between regulated and deregulated financial markets, most nations try to sidestep. Market participants laud the virtues of unhindered competition over regulation for disciplining market behaviour. That works, by and large, for small and medium-sized companies, but not for the integrated financial giants that dominate many aspects of financial markets. These behemoths are “too big to fail”. Whenever one of these favoured institutions gets into serious trouble, some kind of formal or informal safety net is deployed.

A second and related precept is that comprehensive financial deregulation is impractical as well as politically and socially intolerable. This precept rests on the necessity that financial authorities safeguard the payments mechanism. Indeed, most large depositors are also fiduciaries (investment advisers, corporate treasurers and the like) that are compelled to shift funds out of institutions that seem to be in peril. Given these realities, the only way to abandon the “too big to fail” doctrine is to ensure that leading institutions are too strong to fail. That, in turn, requires close, ongoing official scrutiny.

The more free-market oriented our economy, the greater its need for official financial supervision. A truly ­market-oriented economy poses high risks of business failure and, correspondingly, high risks to institutions that lend to and invest in the private sector. Moreover we need to acknow­ledge that, while financial competition fosters innovation, it also contributes to instability

Greenspan on the sub-prime crisis

How to deal with asset bubbles? At the policy level, Alan Greenspan's view is: not much. If central banks act to fend off bubbles, they risk derailing growth. The best they can do is manage the problems that arise when a bubble bursts.

In an article in FT, Greenspan seems to suggest that firms do not have much of a choice but to ride the bubble. Not to do is to lose market share.

A financial crisis is heralded, in fact defined, by sharp discontinuities of asset prices. The crisis must thus be unanticipated. The fact that risk was heavily underpriced for much of this decade was broadly recognised in the financial community, but the timing of the sharp price correction was nonetheless a surprise.

Recent history is replete with such underpricing persisting for years. Those market players who withdraw from “long” commitments at the first sign of an excess of exuberance, risk losing market share. They thus continue “to dance” as Chuck Prince, the former Citigroup chairman put it, but always assume they will have time to exit the markets. The vast majority invariably fail. When the current crisis emerged, it was assumed that the weak links would be unregulated hedge and private funds. The losses, however, have been predominately in the most heavily regulated institutions – banks.

We see this happening all the time . No fund manager wants to exit the stock market in a hurry; banks are reluctant to switch off the lending tap; investment banks' proprietary trading desks are reluctant to forgo long positions. This is fine as long as the institutions concerned do not pose systemic risk when they fail. That is not the case in the sub-prime crisis. As Greenspan points out, banks are the biggest losers and this is what is creating problems for the world economy. It's hard to see how we can regulate banks with a lighter hand after the recent experience.

Sting operation on cash-for-votes

Most broadcast organisations have rushed to the defence of CNN-IBN and have criticised the BJP for its handling of the sting operation in the cash-for-votes affair. Readers would know that CNN-IBN has withheld broadcast of the tape. The BJP has said it will not entertain the channel until it airs the tape.

Today's Business Standard has an edit that argues in favour of airing the tape and it also suggests that balance of evidence is tilting against Amar Singh and company:

With the BJP on Monday releasing more information on the link between a certain Sanjeev Saxena, who gave its MPs money to support the government, and Samajwadi Party leader Amar Singh — the party alleged that Mr Saxena’s son’s college admission form has Amar Singh’s residence address on it — the circumstantial evidence in the cash-for-votes scandal appears to point in only one direction.

Earlier, on Sunday, the BJP had alleged that mobile phone records showed calls were made from Mr Saxena’s mobile to Amar Singh’s residence when Mr Saxena was at the house of one of the BJP MPs, handing over the cash (how the party got the phone records could well be the next controversy!). The party also said the car that Mr Saxena used was registered at an address that belonged to Amar Singh.

To establish that the two were closely linked, the party showed old SMSs sent by Mr Saxena to journalists, inviting them to Mr Singh’s press conferences. If all that the BJP says is true with regard to telephone records, car identity and college admission forms, there is strong justification for the television channel CNN-IBN to air the sting operation and let the public make up its mind.

Perils of PPP

I return to this blog after a bit of a layoff thanks to various preoccupations.

As somebody who has been somewhat sceptical about public-private partnerships (PPPs), I have watched with some interest the sly bailouts of Freddie Mac and Fannie Mac, two, private, secondary market institutions for home loans in the US. These guys operated for years on public sector and raked in enormous returns for shareholders and executives. Now, when they are in trouble, the taxpayer has to step in.

The obvious thing to do- as even the die-hard exponent of the free market economy, The Economist, has urged- is to nationalise the two institutions. One option later would be to privatise the commercial components, leaving behind a rump that can be remain in the public sector in order to meet social obligations. But, nationalisation is anathema to the neo-cons in power, so what we have is covert public ownership.

More on this and the implications for Indian banking sector in my last ET column, Private profits, public losses.

Reforms? What reforms?

Now that the UPA government has survived, there is the usual babble about "pushing ahead with reforms". What reforms are people talking about? Can you imagine any government cutting subsidies or changing labour laws in the run-up to elections?

Many reforms require legislative approval and are time consuming. Unless the market rally continues, disinvestment may not be attractive. Not least, the government cannot move an inch if any measure offends one of the numerous small groups whose support it garnered in order to survive.

Even the survival of the government for long cannot be taken for granted. So, talk of a burst of reforms that will lift the stock markets is just hot air. What will lift the markets is the decline in oil prices (which I had predicted) and a return of net FII flows later in the year.

More on the prospect for reforms in ET's debate last Tuesday.

Mayawati gains in stature

One unintended consequence of the PM's insistence on seeing through the nuclear deal is the emergence of Mayawati as the head of a Third Front and contender for the PM's job sooner than most people had thought.

It's fair to say that opposition to the deal came mainly from the Left and Mayawati. The BJP and many of its allies would gladly opt for the deal with some minor changes- or that's the impression they have created. The BJP's lack of determination to topple the UPA also registered- witness Advani's statement in the course of his speech in parliament that the NDA wanted to defeat the government, not destabilise it.

Mayawati made two important points about the nuclear deal: one, it increased the chances of a US attack on Iran with all its implications for India; two, an attack on Iran would see oil prices shooting up further and worsening the suffering of the poor. It does appear that she is carving out a distinctive position for herself. The constituency she is targeting- dalits, upper castes,muslims, the economically backward- is the one that kept the Congress in power for decades after independence. Both the UPA and the NDA have cause for worry.

Why did UPA want a "Confidence" vote?

Tomorrow is D-day. We will know whether the UPA government stays or goes.

I am little puzzled, though, as to the rationale for a "confidence" vote in parliament. As far as my understanding goes, a party or a coalition is required to prove its majority only when it stakes its claim to government and there are doubts that it has the necessary numbers. Then, the president may ask the leader of the coalition to demonstrate its majority on the floor of parliament.

At any other time, it is for the opposition to move a "no confidence" motion. In the present instance, after the Left parties withdrew support, the onus was on them or the other Opposition parties to move a no-confidence motion. At least in constitutional terms, it is not obvious that Congress and the UPA needed to seek a vote of "confidence".

The PM assured parliament that he would seek its approval for the nuclear deal. The right course for the UPA would have been to table a motion on the nuclear deal and seek parliament's approval. The UPA should have done this before approaching the IAEA with the safeguards agreement. Even if the motion had been defeated, the government could have carried on- only a defeat on a no-confidence motion requires the government to quit. The Left would not have had a problem with the UPA government even if the motion was defeated- after all, its opposition to UPA centres on the nuclear deal.

So, why did the PM and the UPA not do the obvious thing? Why seeek a vote of confidence? Was it because they feared that a motion on the nuclear deal itself may not have a great chance of going through? If so, the only way to ensure the success of the deal would have been to stake the survival of the government itself. Then, all members of the UPA and others as well would have had to choose - between the survival of the government and, perhaps, the present parliament and fresh elections. Confronted with such a stark choice, there was a better chance they would back the government- and the nuclear deal.

If the UPA government survives and goes ahead with the nuclear deal, all this may seem clever politics. But it carries with it a heavy price: a fall in standards in politics to new lows and a badly divided nation. The nation would have been better served had the government done what it had promised- come to parliament solely for its approval of the nuclear deal.

What were bank boards doing?

What were bank boards doing as the sub-prime crisis built up? What penalties do they face in banks that has suffered huge losses. Many CEOs have lost their jobs; not many directors have. One fact that took away my breath was mentioned in an FT report: nearly two thirds of bank boards were bereft of banking expertise.

So, who typically sat on these boards? Well, the mighty and the respectable, ex-CEOs of manufacturing firms, faces and names that have wide recognition. Is that good enough? I don't think so. I think it makes sense to have a minimum of finance and banking expertise on board boards. Here, India's Banking Regulation Act gets it absolutely right: at least 51% of board members must have expertise in specified areas: banking, economics, agricultural, small enterprises, etc.

The RBI also has norms for bank governance over and above the norms applicable to listed companies under clause 49. This is entirely appropriate: in many other countries too, governance for banks tend to be stiffer than for other firms or there are separate norms for governance for banks and for other companies.

Is having expertise on boards an insurance against failure? Not at all. Boards are limited by the information that management presents to them and the form in which these are presented. So, the best-intentioned boards may proved ineffective. But there is a more fundamental reason why boards are not as ineffective as one might like.

Most boards are clubby affairs. Those invited to serve as "independent" directors are pals of the CEO, they brush shoulders in the same watering holes and they are often retired people who value the handsome fees that many companies pay these days.

The atmosphere in boards is that of a mutual admiration society. CEOs pay ritualistic obeisance to the "sage guidance and wisdom" of boards in their annual statements- one retired CEO, whom I respect, told me there was not an iota of truth in this. Boards compliment management on their stewardship. Over sumptuous lunches and equally sumptuous snackes, top management and directors share jokes and anecdotes, there is a general air of conviviality. I mention this because, in this atmosphere, it is not done for an independent director to probe or to question. Bad form, old chap.

So, having expertise on bank boards is not enough. We need to ensure that there are enough directors who are independent of management, that is, they are not beholden to the management for their positions. This can happen only if financial institutions with equity stakes in the company and minority shareholders can directly elect a certain number of directors. The present concept of "independent" director, whereby management invites outsiders on to boards, is something of a farce. Alas, I don't see such a revolution happening in the near future.

More on this in my ET column, Banking's governance disaster.

Rating agencies - only a light rap?

Moody's confession of a botched $1 bn securities rating, thanks to a computer bug, is only latest in a series of woes for the ratings industry. Let's face it- rating agencies are not the most popular species in the financial sector today. They had eggs on their face after the East Asian crisis; they seem to have gone and blown it again in the sub-prime crisis.

But it appears the agencies will get away with a mild rap or two. The Economist reported last month that despite half a dozen agencies looking into their role in the recent crisis, the outcomes will be inconsequential: a commitment not permit 'ratings shopping' among clients; more transparency; more disclosure of the collateral; and the like. No fines, no crippling prohibitions.

I guess part of the reason is that it's hard to find an alternative- an independent rating agency promoted by government and funded by investors through the exchanges is a non-starter because governments getting into financial markets is the last thing people want.

The role of rating agencies is poised to get bigger with the implementation of Basel II because, for starters, most banks will rely on the ratings approach- this requires capital to set aside based on ratings assigned to borrowers by rating agencies. Basel II itself is under discussion now. I think there is a case for allowing the better banks to go with their own internal ratings instead of requiring them to go by rating agencies' ratings.

In India, I can't see that the better banks' rating of borrowers is likely to be of lower quality than that of the agencies- most banks, in any case, use the rating models supplied by the agencies and superimpose their own judgement. This probably makes more sense than banks relying entirely on the rating agencies.

Contrarian views on the nuclear deal

The debate on the Indo-US nuclear deal has been reduced to a test of patriotism. Those who who favour the deal want India to be a great economic power with the help of the US and are patriots. Those opposed to it have hang-ups about the US and are not averse to India falling behind China; their patriotism is questionable.

I have found this characterisation utterly puerile given the many nuances to this issue. Remember three top nuclear scientists in the country have come out with a statement expressing their reservations even now.

How refereshing, then, to come across two contrarian views on the deal on the same day. In an interview to Rediff, former diplomat M K Bhadrakumar makes a number of points:

• The UPA government is guilty of breach of trust in pursuing the matter of IAEA safeguards without the concurrence of the Left. When the Left gave the go-ahead to the UPA government to negotiate safeguards with the IAEA last November, it was on the understanding that the agreement itself would later be discussed and approved by the joint UPA-Left committee on the subject. The Congress has gone back on this assurance.
• There is lack of transparency on the safeguards agreed with IAEA- the government has not disclosed what these are.
• The IAEA agreement, once signed, will be 'in perpetuity'; once this agreement is signed, the further course of the nuclear deal is out of India's hands. Even if the form of the NSG waiver is unpalatable to India, it is out of our hands.

In another article, Brahma Chellaney questions the current line that the deal is about reducing dependence on oil and opening up prospects for nuclear power. He points out that India's dependence on oil for electricity purposes is negligible- just 4% of all our needs. Oil is primarily required for transportation purposes whereas nuclear power plants are all about generating electricity! He goes on to blast the case for nuclear energy as a substitute for oil:

If global oil demand is threatening to outstrip supply, so is the case with uranium. Current concerns associated with oil’s price volatility, supply security and geopolitical risks are no different than uranium’s. And if global oil reserves are finite, so are uranium resources, with proven uranium reserves likely to last barely 85 years, according to the Red Book published jointly by the OECD and IAEA.

In fact, in the past five years, the international spot price of uranium has risen faster than that of crude oil, with uranium today trading six times above its $10 a pound historical average. Oil and uranium prices are likely to stay volatile, but the long-term trend for both is surely up. Just as cheap oil now seems fanciful, cheap nuclear power for long has been a mirage.

Chellaney is right. This deal is about a strategic alliance with the US to counter the rise of China, it is merely being presented as an energy proposition for political and diplomatic reasons. The real worth of the strategic alliance lies in the transfer of a whole range of advanced dual-use technologies- these technologies cannot be transferred unless India's status as a nuclear power changes.

The key question is: do we want the strategic alliance at the cost of surrendering some of our freedom of action in foreign policy and in the nuclear field? I do think there is a case for an open national debate and that there is no compulsion to be bound by some artificial time-table.