All about the guns and money

September 30, 2013

Nagesh Rao analyzes the cold calculations concerning trade and geopolitics at the heart of a summit meeting between high-ranking U.S. and Indian officials.

REPRESENTATIVES OF the world's largest arms dealer will meet with representatives of the world's largest arms importer in New York and Washington in the coming days. The third high-level U.S.-India summit in four years comes as India has gone on a military shopping spree for three years in a row, topping the charts in global arms imports and accounting for some 12 percent of global arms purchases from 2008 to 2012.

As a recent report in the Times of India put it, "Having already bagged Indian defense contracts worth over $8 billion in recent years...the U.S. is now headed towards clinching another four major deals worth almost $5 billion."

In 2005, India and the U.S. signed the nuclear deal known as the "123 Agreement," and during his visit to India in 2010, Barack Obama signaled a shift in the relationship between the two countries, terming it a "defining partnership of the 21st century." With an eye towards China, Obama's "pivot to Asia" involves courting India as one of its key strategic partners in the region, thus building on a process begun under George W. Bush.

Indian Prime Minister Manmohan Singh walks with Barack Obama
Indian Prime Minister Manmohan Singh walks with Barack Obama (Pete Souza | White House)

In the months leading up to the current summit, a number of high-ranking U.S. military officials have visited the country not only to strike arms deals, but to further strengthen this "partnership."

The Indian military establishment has of course welcomed this development. Former Indian Army chief General Vijay Kumar Singh recently opined, "There is a great [scope for] cooperation that can be worked out as a joint venture between the two to upgrade capabilities if the U.S. thinks that India is a friend and a focal point for it in Asia."

Challenges Facing the Indian Sub-empire

"Upgrading capabilities" means different things to the two sides. India is in the market primarily for military hardware, from submarines to aircraft to heavy artillery. While it has a sophisticated space program, having just launched its first dedicated military satellite, it lags behind in development, manufacturing and mass production, particularly of heavy artillery, and has imported 75 percent of its weaponry for the last few years.

Prime Minister Manmohan Singh's current shopping list includes C-130J "Super Hercules" aircraft, Chinook heavy-lift helicopters, Apache attack helicopters and the latest generation of "ultra-light" M177 howitzers. These purchases are in keeping with the government's plans to expand the army by 80,000 soldiers by creating a new mountain strike corps, two new infantry brigades and two new armored brigades to "plug operational gaps against China."

On the other side, the U.S. hopes to upgrade its ability to fight in difficult mountainous terrain and its counterinsurgency operations. (These goals, as Ninan Koshy points out, are an indication of U.S. failures in Afghanistan, where it has struggled both to carry out counterinsurgency and wage war in mountainous terrain.)

U.S. Army Chief of Staff General Raymond Odierno returned from his visit to India in July gushing with praise for India's counter-insurgency operations in Jammu and Kashmir. "The U.S. would like to learn from the Indian experience as to how to fight militants in a tough environment and difficult terrain as in Afghanistan," Odierno said. According to Koshy, Odierno also "expressed an interest in conducting U.S.-India joint exercises in Kashmir."

This partnership is one of a web of relationships fueling a growing arms race in (South) Asia. While there is much talk about the U.S. displacing Russia as India's biggest arms supplier, it remains the case that Russia supplies nearly 80 percent of India's arms imports. Meanwhile, Pakistan continues to be the biggest buyer of Chinese weaponry, taking in 55 percent of all Chinese arms exports, even as China has displaced the UK to become the fifth-largest arms exporter in the world. Of course, Pakistan also continues to receive some arms from the U.S.

According to a Congressional Research Service briefing document:

[T]he Pentagon reports total Foreign Military Sales agreements with Pakistan worth about $5.2 billion for FY2002-FY2011...The U.S. Congress has appropriated more than $3 billion in Foreign Military Financing (FMF) for Pakistan since 2001, more than two-thirds of which has been disbursed. These funds are used to purchase U.S. military equipment for longer-term modernization efforts. Pakistan has also been granted U.S. defense supplies as Excess Defense Articles (EDA).

The upsurge in Indian military spending should be understood as a necessary response to the challenges facing this regional "subempire" in the neoliberal age. Indian subimperialism today faces increasing pressures along its borders with Pakistan and China as well as an irrepressible struggle for liberation in its colonial outpost in Jammu and Kashmir.

The Indian Raj coexists with its subimperial rival in the region, Pakistan, in an increasingly hostile standoff that shows little regard for the people of the subcontinent. This rivalry is not merely a policy-driven one, but one that is structurally hardwired into Indian nationhood and into the very constitution of the Indian state. The further militarization of the state thus seems inevitable as these contradictions continue to fester.

The Nuclear Boom

Another major item on the agenda during this summit is the Indian government's quest for six 1000MW nuclear reactors that it hopes to purchase from Westinghouse for a whopping $14 billion. The proposed site of the new nuclear plant is in Mithi Virdi, Gujarat, where there is widespread opposition to the plant.

While the fallout from the disaster at Fukushima continues to unfold, India is hurtling ahead with its plans to build several new nuclear power plants at Koodankulam (Tamil Nadu), Jaitapur (Maharashtra), Mithi Virdi (Gujarat), Kovvada (Andhra Pradesh), Gorakhpur (Haryana), Chutka (Madhya Pradesh) and Haripur (West Bengal).

To make matters worse, Indian negotiators are reportedly planning to do away with a liability clause that would hold reactor suppliers like Westinghouse responsible for accidents caused by defective or faulty equipment. While the government denies these reports, such "dilution of nuclear liability" would represent a capitulation to nuclear suppliers' insistence that liability should rest on the plant operator's shoulders alone.

This is a sensitive issue in India where the memory of the Union Carbide disaster is still raw. In 1984, an accident at the plant in Bhopal caused toxic methyl isocyanate gas to be released into the atmosphere, killing more than 3,800 people and injuring tens of thousands more. But in the decades since, victims of the disaster have seen paltry reparations, if any. Indeed, just last year a New York district court dismissed a lawsuit against Dow Chemical, holding it not responsible for the water and soil pollution in the wake of the disaster.

More recently, in the state of Gujarat, there have been reports of "minor accidents" of radiation exposure at the Kakrapar nuclear reactor. The Indian government is going ahead with these nuclear projects in arrogant defiance of the people on whose lands these plants will be built. Protests against the proposed nuclear plant at Kudankulam in coastal Tamil Nadu had been building for years until the dramatic events of 2012, which brought home to television viewers scenes of protesters creating human chains in the sea.

As all eyes turn now to the struggle in Mithi Virdi, a press release by a coalition of activists and communities stated that 777 hectares of fertile land will be given over to the Nuclear Power Corporation of India Ltd. (NPCIL) if this deal goes through. The people of the surrounding villages have been agitating against the project, with nearly 2,000 people protesting recently in pouring rain.

Military Carrots and Neoliberal Sticks

While the military-to-military lovefest continues, it is primarily for investment- and trade-related reasons that U.S.-India relations are said to have "cooled" in recent years. This comes despite the fact that "India ranked fourth in its growth rate of foreign direct investment in the United States from 2006 to 2011."

According to the New York Times, "India's financial interests in the United States rose 40.8 percent in that period, with a total spending of $9.8 billion." Since 2000, bilateral trade, which stands at $100 billion today, has quintupled, and there is optimism on both sides that it may quintuple again.

But behind this bubbly optimism are growing tensions in trade relations. In 2010, Lee Sustar wrote about the "knives behind the smiles" at the G20 summit in South Korea: "[W]hatever the official outcome of the summit, economic rivalries will intensify, wrapped in nationalism, trade protectionism and, in the U.S., endless China-bashing." The same can be said about the current India-U.S. summit, complete with opportunistic India-bashing.

The Brookings Institution summarized the problems facing the Indian economy, whose GDP stood at $1.8 trillion in 2012:

After three years of 9 percent growth, India's economy has sharply slowed. Projections for 2014 range from 4 to 5.5 percent; Paribas bank estimates growth during the April-June 2013 quarter at 3.7 percent. Manufacturing growth, which had done well during the boom years, sank to 3.5 percent in 2011 and barely topped 3 percent in 2012. Perhaps the biggest attention-getter has been the plummeting value of the rupee, down 22 percent between May and September 2013, Rs. 63 to the dollar in mid-September.

The current account deficit hit a record high of $88.2 billion in 2012-2013 and now stands at 4.9 percent of GDP, the highest in the world. An impending real estate slump has also exposed potential debt-related vulnerabilities. According to the New York Times, "Publicly traded real estate investment groups in India are heavily in debt, so they struggle to make interest payments and are not in a position to bankroll further projects."

While domestic capital investment "remains high by international standards," at around 35 percent of GDP, and foreign trade continues to grow (exports increased last month by 13 percent from a year earlier), foreign investment has dried to a trickle in the wake of the slowdown. According to the Wall Street Journal, foreign investors withdrew $1 billion from Indian stocks in just seven trading sessions when the rupee seemed to be in free fall earlier last month.

The National Association of Manufacturers (NAM), one would think, would break out the champagne for Prime Minister Singh's visit, given his multibillion-dollar shopping list. They instead took out ads in various outlets calling on India to "play fair on trade."

Citing "overwhelming bipartisan opposition to India's discriminatory trade practices," NAM wants the Indian government to further deregulate its economy by raising limits on foreign direct investment in everything from retail to insurance. The Indian government has lifted these limits somewhat, but American capital isn't buying it. They also want India to crack down on its pharmaceutical industry's practice of producing cheap generic versions of drugs patented by U.S. firms.

The U.S. views India as a huge untapped market, especially with net investment at home at all-time lows, as Doug Henwood has pointed out. American corporations flush with cash are seeking avenues for investment in India, but on their terms. So from NAM's point of view, the timing of Singh's visit couldn't have been better, as the slowdown in the Indian economy has dominated the news in recent weeks. They see this as an opportunity to dangle the military-alliance carrot while wielding a neoliberal stick.

So do international financial institutions. The World Bank's Kaushik Basu put it bluntly: "India's problem...lies in the culture of governance and bureaucracy in the country. This exacerbated the impact of the global crisis on India and this is what we should work to change. We should use the current Indian crisis as an alibi for such an exercise, if need be."

The spate of gloom-and-doom warnings about India's economy from every corner of the Western world's corporate establishment is telling in this regard, as they serve to heighten the sense of impending crisis--all the better to apply a healthy dose of neoliberal "shock doctrine."

From the other side, we see the economic dilemmas facing Indian subimperialism today. As a rising power, India is behind China (and perhaps Brazil) in its penetration of foreign markets and in its geopolitical positioning. For instance, while Indian overseas investments have risen sharply to $21 billion for the first seven months of this year, they are still behind China's overseas investments of $60 billion in roughly the same time period. A slowing economy will have an impact not only on trade and capital export, but also on India's financial clout, such as it is.

If the economy continues to slow down, as seems likely, there will be new doubts about the role India will be able to play in a proposed development bank for the BRICS (Brazil, Russia, India, China and South Africa).

India's military expansionism, which is partly a consequence of its subimperial surrogacy to U.S. strategic interests in the Pacific and Indian Ocean, will likewise face pushback, should the economy go south. On the other hand, further deregulation and privatization will make the Indian economy even more vulnerable to crisis and hardship in the future by increasing its exposure to volatile global markets.

But the calls to further liberalize the economy are not coming from U.S. business interests alone. In fact, Indian capital has been leading the charge, attacking recent "populist policies," licensing requirements and regulatory delays, and threatening capital flight. Indian overseas direct investment shot up by 38 percent year-on-year, as business houses have gone on an international buying spree of their own.

In a seemingly desperate effort to curb capital flight and to prop up the rupee, the central bank recently lowered the limit on overseas direct investment for Indian companies from 400 percent of their net worth to 100 percent.

Fascism and its "India Inc." Discontents

While railing against the "populism" of the Congress Party, the corporate media and business press having been pointing to a recent decision by the ruling coalition to increase the miserly food subsidy for the poor. In a country where 30 to 70 percent of the people live below the poverty line (figures vary widely because of different benchmarks), food (and fuel) subsidies are essential for survival.

Yet, as recently as 2010, the Indian government refused to comply with a Supreme Court order to distribute food for free instead of allowing it to rot in storage. At the time, India had nearly 60 million tons of grain in storage compared to the buffer norm of about 30 million tons. But the source of the problem--a lack of storage facilities--was also given by the government as the reason for its inability to comply with the court's order!

Then, earlier this year, with an eye towards next year's elections and in response to the fact that rampant inflation has sent food prices soaring, the government passed a food security bill that increased food subsidies modestly. But making sure that people eat rather than starve is frowned on by the free market. International credit rating agency Moody's declared that the increase in food subsidies would have a negative affect on India's credit rating.

Similarly, the regulatory delays that some investors are complaining about include, among other things, recently enacted modest reforms to the infamous Land Acquisitions Act. In the face of massive ongoing land grabs by mining companies, this nasty piece of legislation dating back to the British colonial era should be scrapped outright.

Instead, some partial reforms, such as increased compensation, have been introduced, but these are half measures designed to provide a sugar coating for the government's frequent breach of property rights on behalf of corporate interests: "Instead of insisting that companies take responsibility for acquiring the land they need for their projects--at whatever price the market demands--just as they do other factors of production, the government will continue to wield its power of eminent domain on their behalf."

The displeasure of India Inc. at what they see as the "populism" of the ruling Congress-led coalition has been amply expressed in their virtual anointment of the fascistic Narendra Modi as the next prime minister. Indeed, in keeping with the jackbooted tactics he has perfected in Gujarat, Modi's campaign seems to be in full swing in Muzzaffarnagar and its neighboring villages, where Hindu-fascist mobs forced tens of thousands of Muslims to flee from their homes in an act of ethnic (or communal) cleansing earlier this month.

A fact-finding report recently offered a damning indictment not only of the right-wing political forces behind this fresh spate of communal violence but of the complete inaction of the ruling Samajwadi Party and state institutions.

But the upper classes and their media mouthpieces have contributed enthusiastically to the cultivation of a cult of personality around Narendra Modi and his hard-nosed, tight-fisted and iron-gloved blend of corporate liberalism and Hindu nationalism. That India Inc. favors Brand Modi--while Congress' milky populism merely soothes anger at the scourge of poverty, oppression and inequality without addressing them--is as clear as day.

Meanwhile, India's wealthy elite are flush with cash. In the last year, India's super-rich with a net worth of $30 million or more have fared the best among the super-rich in all BRICS countries. There are now 7,850 "ultra-high net worth" individuals in India with a collective wealth of more than $950 billion--equal to approximately half of the country's annual GDP.

Sales of luxury cars, private jets and helicopters have gone up, as conspicuous consumption rules supreme in public life and in mainstream popular culture. The unholy nexus between corporate money and politics has been exposed by a series of corruption scandals in recent years revealing this structure for the kleptocracy that it is.

So pay no heed to all the hot air you'll hear at this summit about the "world's greatest democracy" and the "world's largest democracy." When the kleptocrats and the plutocrats meet, it's all about the guns and money.

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