A Nuclear Iran?

So the Iranians have finally mastered the nuclear fuel cycle at the laboratory level. Is it only a negotiating tactic to make it clear that Iran’s nuclear program cannot be touched or is it a step closer to Iran’s acquisition of nuclear weapons? What options does the US have? Military option has been a hot topic of debate after Seymour Hersh’s article but it is unlikely that a military strike will have the kind of effect the US government is hoping for. It might further accelerate Iran’s advance towards nuclear weapons. History suggests that once political elites in a state make a decision about pursuing nuclear weapons, there is very little the international community can do. The best alternative is to reconcile to limited Iranian uranium enrichment while making sure that effective mechanisms are in place to prevent cheating. All the huffing and puffing notwithstanding, the US and its European partners have little real leverage vis-à-vis Iran in the current global climate, especially as China and Russia are not willing to jeopardize their special relationships with Iran. A nuclear weapon Iran is not in India’s interest, given the complexities of Middle Eastern politics and India’s interests in the region. How far India would be willing to go if the US and its allies decide to get tough with Iran remains to be seen?

A Bird's Eye View of Recent Developments

Apologies for our long absence but we are back and will try to be more regular. Meanwhile, events have moved at a frantic pace around us. The US President came to India, he saw, and he conquered despite his all time low ratings in his own country. The US-India civilian nuclear energy agreement is generating great excitement in India but continues to be a thorny issue in the US. Despite Condoleezza Rice’s bravura performance in the US Congress last week, it’s far from clear if the deal will get the approval of the US legislature. And Bush Administration, like its other foreign policy fiascos, deserves a lot of blame for doing shoddy work in managing the nitty-gritty of the administrative process. But let’s hope that the larger support for an Indo-US “strategic partnership” will make the deal go through the US Congress.

China, as expected, is going all-out to scuttle the deal, including a diplomatic offensive to block any changes in the Nuclear Suppliers Group guidelines to make room for India’s needs for dual-use technologies. One can also expect an even greater Sino-Pakistani engagement on sharing dual-use materials, now that the US has made it clear to Pakistan that there is absolutely no possibility of US offering it a deal similar to the Indian one. See Mohan Malik’s piece on Chinese response to the US-India nuclear pact for details. China’s concern for the global non-proliferation is all the more intriguing given its central role in scuttling any serious attempt by the Western powers to deal the Iranian nuclear program in the United Nations Security Council. For the record, however, Iran is not interested in nuclear weapons, as claimed by its United Nations Representative.

China’s President is visiting Washington later this month but the Americans are refusing to describe it as a state visit (Manmohan Singh’s visit to the US last year was a state visit, by the way). Anti-Chinese feelings are rampant in the US these days with the members of the US Congress particularly vociferous on issue of Chinese currency. This is happening at a time when evidence is coming out of increasing domestic dissent on the direction of China’s economic policy. The Chinese elite seems increasingly concerned that the consensus behind two decades of rapid economic growth might be eroding with the resurgence of socialist thinkers critical of the lurch toward capitalism. It would be interesting to see if this debate has some real impact in the coming days or is this merely a tactic by the Communist Party of China to allow critics to let some of their steam off.

Though China is trying hard to woo the Taiwanese, the pandas that it tried to offer as a gift to Taiwan were not accepted. On the other hand, the Dalai Lama's chief negotiator is on his way for the fifth round of talks with China on the future of Tibet and sees the potential in these negotiations to bring about some fundamental shift in China. I guess we will have just to wait and see about that but it is slightly difficult to figure out what exactly justifies such optimism?

As for India’s own neighbourhood, it remains mired in turmoil and religious fanaticism. Despite all the talk of India emerging as a new global player, what about India’s ability to manage the affairs in its own backyard that seem to be spiralling beyond its control? Does the Indian government have a strategy to deal with the chaos in Nepal, religious fanaticism in Bangladesh, or the break-down in the peace process in Sri Lanka? And what about India's obsessive relationship with Pakistan? Where's it going? Does anyone have a clue? Perhaps the Indian government is too busy with the Assembly elections? But it would do well to remember that one nuclear deal does not a great power make.

Chinese demographics - reliable figures?

Andy Mukherjee of Bloomberg has some interesting comments on the topic of China's demographics, most notably that those figures are also suspect. It could be that the reports of China's aging are somewhat premature.

India and the United States

Parag Khanna and C. Raja Mohan competently survey the current state of play in the emerging Indo-US relationship. Selfishly, I am pleased to note that most of what I had to say on this topic in 2001 and 2002 (concluding remarks on the subcontinent) has stood the test of time. The ingredient that I missed, and which is yet to establish itself fully, is the convergence between Indian and Chinese growth rates which as reduced the pressure that India feels from China and generally given the Indian state greater room for maneuver.

Falun Gong versus the Chinese State

Two recent pieces in Forbes detail the ongoing contest between the Falun Gong movement and the Chinese state. The Falun Gong have attempted to use the internet and international phone calls to bolster dissent against the CCP with some success - they claim credit for 7 million CCP members having renounced party membership. In response, the CCP appears to have extended a campaign of violent intimidation to the United States. The persecution of the Falun Gong illustrates, perhaps better than any other single fact, the limits to any propensity to political reform in China.

No Sino-Indian Rapprochment, It's All Containment

Mohan Malik argues that notwithstanding the recent hype about the improving Sino-Indian relations, “India-China ties remain fragile and as vulnerable as ever to a sudden deterioration. The combination of internal issues of stability and external overlapping spheres of influence forestall the chances for a genuine Sino-Indian rapprochement.” His entire piece can be found here.

Savings and efficiency in India and China - a tipping point in sight?

The evidence of the last three years is that India's economic growth has moved into a higher bracket, optimistically to something close to 8%. While China's rate of growth, on a large base, is still higher the narrowing of the gap is bringing the strengths of the Indian economy into sharper focus and prompting more detailed comparisons between the two countries. At a very gross level two features stand out: China's investment rate is much higher, and India's utilization of capital is much more efficient. Currently, the first effect is winning but one can wonder (and I would guess) that this cannot last for ever.

Two recent pieces shed light on these matters.

Andy Mukherjee of Bloomberg summarizes a recent Fitch report which discusses why the Chinese save much more (absence of decent returns on savings) and how India's government deficits (dissaving) are at the root of lower investment. Mukherjee himself is not convinced that the Chinese "model" is sustainable as much of the extra investment is channeled into state enterprises.

Separately, Yasheng Huang of MIT revisits his work with Tarun Khanna on the strengths of India's private sector and notes that the intervening two year have been kind to them.

What all of this suggests to the politically minded is that we look for a "tipping point" where India's rising rate of growth edges above a declining rate of growth in China. While this will not redress the actual size of the two economies, it will certainly cause a shift in perceptions of considerable consequence.