Sunday, September 21, 2008

Economic implications of the Nuclear Deal

This one is an essay which I tried to submit for Artha. but as I was busy with many things I failed to complete it on time and so I am putting this up on this blog. The topic was

“Will 123 Agreement in the realm of Foreign policy bring 'Economic Crisis' to the Indian Economy?"

“Will 123 Agreement in the realm of Foreign policy bring 'Economic Crisis' to the Indian Economy?"
Is this a question? Or is it a naked, wanton derision of the capabilities of this nation and its people. Or is it one more of those attempts to stultify the growth of this country by sowing seeds of doubt in our minds about our own capacities.
We have been down this road once and heard these voices before. It is time that we should shed our fear of outside world. India was and will become a great trader in global market.
Now this debate is not about whether should India go for nuclear energy or not. We are focusing on 123 Agreement and its impact on our economy. So I will not put any arguments on whether should we have nuclear energy or not, or whether it is cost effective. It is given that we are going for nuclear technology.
The economic benefits from this agreement will centre around two things
1) It will provide India access to “dual-use technologies” which, can be used to make nuclear weapons, but also are used to in industry. Right now these technologies are outside the reach of Indian industry thus placing India Inc. at a very serious disadvantage.
2) It will allow, in near future and provided that we take good policy measures to emerge as big global nuclear equipments and expertise manufacturer and supplier. Indeed if past is any indication, we might become a big outsourcing hub for nuclear industry as well.
Starting from the first point, right now Indian industry has access only to so-called “sunset technologies”, technologies which are no longer competitive. Most of the advanced technologies are denied to Indian manufacturing units at present. The biggest gains will be made in IT and software sector. As of now most of the advanced technologies in these areas are denied to Indian companies. High performance computing systems are unavailable to us. This denial forced the development of PARAM-10000, but private sector companies cannot re-invent the wheel every time they want to make a leap in terms of technology. These high performance computing systems have contributed to advancements in many diverse fields such as IC-development, weather forecasting, simulation of traffic accidents, weapons design, seismic predictions and drug design etc.
Then the industry in general, across all sectors, will benefit as it will be able to import components which were prohibited due to technology denial regime. Digital phosphor oscilloscopes, which are indispensable for oil refineries and electronics industry, also have a nuclear role and are currently barred — but will now be available. Filamentary poles, important for making tennis rackets, golf clubs and fishing poles, are also inaccessible because they can be used for uranium enrichment. Compressors, testing systems, furnaces for power generation, mining equipment, high-voltage power supplies, industrial and scientific equipment like heat exchangers, pipings, fittings, valves, measuring and calibrating equipment... Many of these have applications in different sectors and access to them would give Indian manufacturing a huge boost.
There is also technology and scientific research that relates to civilian applications in medicine, radiology and industry. In the field of medicine, X-ray imagers that use cobalt-60 may soon become accessible. So will specialised equipment for oil and gas exploration. Nuclear well-logging is used by advanced countries to help predict the commercial viability of new and existing oil and gas wells, and it could become available in India as well.
Communications switching equipment, certain types of electronic equipment, lower speed photography equipment, pressure-measuring instruments, and numerically controlled machine tools — much of all this is currently out of bounds for India's knowledge economy.
Also in the Defence and space areas India’s will have more choices. It can get a free hand to purchase weapon systems previously restricted, especially surveillance systems, electronic reconnaissance, navigation, military meteorology, nuclear explosion detection and missile defence capabilities. The range of Brahmos might get increased beyond 300 km.
Also Indian entities will get to participate in international research and development processes, which is currently difficult due to restrictions placed on entities and individuals. Especially significant will be possibilities in areas which involve multidisciplinary research like biotechnology, nanotechnology all of which are today controlled and restricted technologies. The nuclear deal will make it easier for Indians to compete on a more level field.
But still the benefits just do not stop here only. There is something which has not been given much attention. The deal may lead to a process where India will end up becoming a major manufacturing hub of global nuclear industry. Our strength in engineering and low-cost manufacturing will surely make this possible. Once our nuclear isolation ends we can become major exporter of nuclear equipment. Now sceptics will laugh at this but remember there were people around in 1991 who said that once the economy opens up, Indian companies will soon become sub-ordinates to global companies and Indian industry will become colonized. But now we are into an era of Indian MNC’s. There are many Indian companies who are market leaders in their fields. And they are acquiring foreign giants like Corus and Jaguar. The same can happen in nuclear industry also.
Global majors are now establishing their R&D hubs in India. Intel recently released its latest chip developed entirely in India. Renault is its small car in collaboration with engineers of Bajaj.
Now if we take a look at global nuclear industry today, practically all the reactors in operation were made before Chernobyl occurred. Nuclear industry grew very slowly (most of the growth from China) due to Chernobyl and Three-Mile incidents. But now high oil and gas prices and the prospect of an oil-peak in near future has forced nations to do a relook at this option.
Now if this new demand for nuclear power is to be met then a massive manufacturing capacity for nuclear equipment has to be developed. To make sure that the costs stay low, as installation costs are high for nuclear power, part of the manufacturing capacities will have to be located in countries with low costs and high engineering skills, and this is where India will play a big role.
We already have companies who have long been involved in domestic nuclear programme. They have a pool of trained people as well as capacities. They can on their own or with foreign collaborations get technical know-how as well as scale up their capacities. As they develop, Indian companies will develop the imported designs and indigenise them, they will cut costs and improve them. And slowly will become world class themselves. They can then go out and compete with the best in global arena. This story is not new and they have done it earlier in many fields.
Once India becomes a global hub of nuclear equipment manufacturing, it will transform strategic realities. We will then no longer be at receiving end of “sanctions”, as they will be rendered ineffective by the fact that equipment and parts will be manufactured in India by Indians. Even if we conduct the tests, as many politicians on the right side believe we will not be able to do once the agreement comes into force, the sanctions imposed against us will carry no meaning, with most of the manufacturing of nuclear parts and industry taking place in India. It will be “US” who will be in the position of dictating the terms of these sanctions. This will be a truly remarkable moment.

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