ORF

Column in The Hindu: “Looking beyond the honeymoon”

by Samir Saran and Seema Sirohi
New Delhi, 29th of September 2012

Please find here the link to the original article.

The relationship between India and the U.S. is emerging as one of the three that will shape Asia and global politics in the decades ahead, the other two being U.S.-China and India-China

It is rare for the ideas people to be behind the curve but those who say the India-US relationship has been reduced to merely “feel good” meetings and junkets are exactly that — a little behind the curve. Critics in both Washington and New Delhi complain about the preponderance of grand rhetoric which remains unmatched by delivery. Yes, India has signed some significant defence deals with the U.S. but where’s the real beef or the strategic content, they ask.

This reductive description is more a function of the traits typical of people in the two countries — if some Americans are driven by “instant gratification,” their Indian counterparts see “melodrama” as a virtue. But beyond these personality quirks, clues point to a maturing partnership that no longer needs the adrenalin rush of big-ticket developments such as the Indo-U.S. civil nuclear agreement of 2008.

The language

It is apparent that India and the U.S. have made a long-term bet on each other even though the language reflects a cautious discretion bred in political realities. In India it is still not kosher for many to call America a good friend, a useful partner. It is ever so easy to point to the long history of Washington’s coddling of Pakistan and its disregard of Indian concerns as exhibit A. Their counterparts in Washington complain: what has India done for the U.S. lately? Remember the promise of commercial dividends from the nuclear deal?

Fortunately, those who make decisions are largely unfettered by this narrative. They don’t want the present to be completely hostage to the past. They are already moving ahead, pushed by new geographies and challenges. The India-U.S. relationship is emerging as one of the three bilateral relationships that will shape Asia and perhaps define global politics in the decades ahead. The other two being U.S.-China and India-China.

Four trends

The new India-U.S. partnership has four broad trends, which were apparent during recent discussions between Indian parliamentarians and scholars with senior officials in the departments of State and Defence, and at the National Security Council as part of a delegation organised by the Naval Post-graduate School, Monterey Bay and the Observer Research Foundation.

The relationship has moved beyond “parallel actions” where both countries despite a congruence of interests moved separately, whether in Myanmar, the Middle East or Afghanistan. The old distrust has been replaced by a new respect for this kind of independent parallelism, which now seems to be converging. This has opened up the field to a wide variety of issues for frank discussion and an exchange of ideas between the two. From Pakistan to cyber security to space, no subject is taboo.

The two main drivers for American consolidation of thought: an externality called China on the one hand, and internal doubts about the merits of unilateralism, on the other. American people have no appetite for new, expensive engagements. They imagine themselves better off “leading from behind” despite the hawkish clamour from conservative talking heads.

The second noticeable trend is the understanding between the political leadership in both countries, stressed and repeated at very senior levels. In the U.S., bipartisan support for India is public and enthusiastic, putting New Delhi in the sanguine position of not having to fret about a change of administration in Washington this November. In India, the support is pledged quietly and firmly and repeated through itinerant former foreign secretaries and retired generals. The challenge here is to overcome the inertia of the mid-level bureaucracy on both sides which can puncture their political masters’ biggest dreams with pinpricks born of residual institutional memories.

Also apparent is a new appreciation at high levels that the bet on India cannot and should not be purely for its large market. India’s emergence is good in itself because of strategic convergences. Short-term transactional expectations around that odd contract or defence deal gone awry will continue to disappoint, but policymakers understand the need for “patience” — a word that has become part of official U.S. speak on India. The understanding has opened the door to Washington looking at India in the medium-term instead of just for short-term gains. A growing number of thinkers in Washington believe the strengthening of India will be one of the main features of the U.S. presence in Asia this century.

The last and perhaps the most interesting development is the real entry of the U.S. Defense Department to try to “own and guide” the India relationship in ways that were unimaginable a few years ago. Defense Secretary Leon Panetta and Deputy Secretary Ashton Carter have taken a decision to act on some of India’s perennial complaints about tech and weapons transfer to put real meat on the bones. Almost all key U.S. relationships are driven by the Department of Defense (DoD) because of the high element of the strategic content. The trajectory from the early 1990s when the DoD hardly had any interest in India to reach a point where it wants to be the main driver is significant.

Regional issues

This has important benefits. Plain talk is one. Senior U.S. officials have apparently conveyed to the Pakistani generals that India’s strategic interests in Afghanistan far outweigh theirs because India has greater capacity, reach and ultimately more robust goals in the region. So they had better get used to the idea. The de-hyphenation is complete. This attitudinal change is a far cry from even two years ago when the Americans were hedging their bets between the two countries. But today there is greater appreciation of India’s pain. The Americans are equally perplexed about how to deal with a country that has allowed its own slow radicalisation and despite opportunities, has failed to stem the tide.

Where will the new trends lead? There could be a mismatch of expectations and capacity. For instance, the U.S. may now be willing to see India as a key balancer in the region and in Afghanistan. New Delhi, however, may be more comfortable with a far modest role. India is unlikely to agree to be a net provider of security and its strategic outlook may be limited to ensuring that anti-India forces don’t dominate Kabul. The green-on-blue attacks against U.S. troops may have already given the Indian political class jitters about training Afghan forces.

Then there is the brute reality of India itself, which can alienate the strongest ally. The Democrats and the Republicans are united in their support for India but what about the political climate in a country with narrow horizons and where short-term obsessions manifest in “tactical” moves that can derail the country’s larger strategic goals?

Seema Sirohi is a columnist based in Washington DC. Samir Saran, Vice-President at the Observer Research Foundation, was a part of the recent Track-2 interactions with the U.S. establishment.

Samir Saran in MINT discussion on “Making sense of sustainability”

Mint conclave on the ways to promote sustainability in business
New Delhi, 16th of July 2012
Please find here the original link to the article

New Delhi: Ravi Narain, managing director and chief executive of National Stock Exchange of India Ltd; Rajat Kathuria, economist and in-coming director, Icrier; Sivasubramanian Ramann, executive director of Securities and Exchange Board of India (Sebi); Seema Arora, executive director at CII-ITC Centre of Excellence for Sustainable Development; and Samir Saran, vice-president at Observer Research Foundation, were the panellists who took part in a Mint debate on sustainable development. The panellists discussed the ways to promote sustainability in business. Mint’s deputy managing editor Anil Padmanabhan moderated the discussion. Edited excerpts:

Padmanabhan: Sustainability is not possible without inclusion. Environment has to be seen holistically. Is there a business case for sustainability?

(Left) Ravi Narain, Managing director and CEO, NSE and Seema Arora, Executive director, CIIITC Centre of Excellence. Photos: Pradeep Gaur/Mint

(Left) Ravi Narain, Managing director and CEO, NSE and Seema Arora, Executive director, CIIITC Centre of Excellence. Photos: Pradeep Gaur/Mint

Arora: There is certainly a case for sustainability. As the minister (M. Veerappa Moily) said, it is not that business has to do it for anyone else. Business has to do it for its own survival. And that’s how we advocate it. That’s why mainstreaming sustainability into corporate decision-making. Sustainability here includes social and governance issues. Corporates need to look at it from this lens as well as from long-term perspective. Typically businesses look at it from short-term lens because they are driven by certain rewards they get. For this movement to actually succeed, that reward mechanism has to have a long-term lens. This is what we are trying to do with different stakeholders. Coming back to your question, there is certainly a business case, that is why we see many corporates already doing it. They are creating value for themselves and their stakeholders.

Saran: I am not sure about there being a business case for sustainability because there is no agreement on how we define sustainability. You saw Rio +20, there was no agreement among various nations on what sustainability is. But governance is something that can be measured. We have tried to create a method where we measure energy and emissions. We see these two as a proxy for governance. Any company with good governance will be efficient with its fuel consumption.

Padmanabhan: If we look at the guidelines laid by the (ministry of corporate affairs) ministry, they are more holistic.

Saran: Here again, we have to separate sustainability from social enterprise. If you were to tag your social ventures as corporate social responsibility, CSR, then I think you are confusing the cost of employee with CSR and that’s not right. That’s what most of the companies do. They try to project workforce infrastructure development as giving back to larger society. I think, these two have to be segregated. Up to the 90s, companies were hiding that they were making profit. Because the companies were projecting themselves as not profitable, they didn’t have to do much for others. Post 90s, profit became the mantra and then inclusion didn’t matter. And until 2007-08, it was the mantra. Only in 2009, social inclusion was introduced in the budget by UPA (United Progressive Alliance). The issue is, social transformation and growth are not linked.

From Left to Right: Samir Saran, VP, Observer Research Foundation; Rajat Kathuria, Economist, Icrier and Sivasubramanian Ramann, Executive director, Sebi

From Left to Right: Samir Saran, VP, Observer Research Foundation; Rajat Kathuria, Economist, Icrier and Sivasubramanian Ramann, Executive director, Sebi

Narain: There is a very clear business case, but it is not explicit enough. The so called enlightened businesses see it as a business case, but it is not out there in all our faces. We need to help bring out the cases of successful businesses who managed to see it as a business case and that has the ability to move it forward. There is empirical and anecdotal evidence that companies can get a premium if they are able to demonstrate good governance. It gets fuzzier when you come to non-governance part of sustainability. That’s about markets and investors. The other half is funders. I think the banks need to do a lot more to align their interests with corporates in making a business case.

Padmanabhan: As a regulator, how do you see it?

Ramann: I agree there is a business case in this whole move towards sustainability. If inputs are costed correctly, that is where a company is going to go forward, and make the best of whatever inputs are available and discard the expensive one and take on what is cheaper. We should bring that out more clearly.

Padmanabhan: You mean include the environment and social cost in the price?

Ramann: We are talking about moving ahead, looking clearly ahead at cost, which is real. One good thing that happened was the BSE green index. So, why not put out a simple number on which companies could be graded. That would certainly be good step forward.

Kathuria: One of the classic reasons for market failure has been that the externalities. It is not the inability but the complete dissociation from firms’ point of view to include those costs, those externalities into cost of production, which gives rise to market failure issue. The question is how to get firms to do that. There are two ways, one is voluntarily, or force companies to include those costs and therefore get the desirable results. The world is experimenting with carbon credits and standard for environmental sustainability and jury is still out there. But the problem is market failure and addressing that market failure, culture is also important. Do we have the culture of compliance in our country or not. So getting the firms to do it is a long road ahead. One of the ways in which compliance happens is through a strong institutional structure. Nor are we that sanguine about market any more, that the market is going to lead to the outcomes that are desirable, neither is the world. The way, to get the market to achieve the desirable outcome, is the institution structure that has sound enforcement and the right market incentives.

Padmanabhan: Samir you said growth and social inclusion are delinked at this point of time. Do you think these incentives can be a bridge?

Saran: I am not a believer in carrots. I think sometimes sticks are needed too. Now, I am not saying that should be done. The Greenex is a good way of doing it, you are listing good performers. Then, like Ravi (Narain) mentioned, hopefully we can ensure that funds flow to these performers. What is not happening today is that you are creating institutions and standards, but funds are not necessarily being driven to those performers in that framework. I completely agree with Ravi, unless bankers start backing good performers, good governance and social practices, you are not going to see companies either hurt enough or incentivize enough to change.

Padmanabhan: It is clear that we need incentive structure. Now the big debate is whether you follow stick approach or a carrot approach.

Arora: In our country pressures and dilemmas are completely different at the moment. I don’t think we can say that this is the only route by which we will get the results we really want. Also, culture has to play a major role here in a way we change the behaviour and the way industry responds to certain things. There is certainly a case in providing some kind of incentives for good performances. They could be different types of incentives, market-based incentives, financial incentives or recognitional incentives, we can start and experiment with. The important point is the entire ecosystem at this moment is rewarding corporate performance on quarterly performance. If that is going to be the main metrics, then obviously the ecosystem is not rewarding anything else the corporates do in terms of value creation on sustainability. So, the system has to work together to make that happen. We need to bring consumers on to the table. We need to have mix of incentives and gradually move to disincentives. But we are not mature enough to start immediately with it.

Ravi: Can we ask every institutional investors to put out in public domain what their assessment is for each corporate they have invested in, on their ESG (Environment, Social and Corporate) view, ESG action and sustainability.

Padmanabhan: Raman, as a regulator, can the disclosure be expanded to include these?

Raman: Most certainly. The facts is the initiative of ministry of corporate affairs has given the way forward for regulators like us. And it is something that is probably going to come out soon on how to get companies to make better disclosures. It is active work in progress, be it a listing agreement or any other form, the companies will be bound legally to bring out disclosure with regards to ESG.

Padmanabhan: What can be the collaborative mechanism that can be put in place, which will incentivise whether through carrot or stick, or its combination.

Rajat: It can’t be either carrot or stick approach. It has to be both. What works better is a carrot approach. A stick approach would work well in trying to establish culture of compliance if you have credible enforcement. Unless you are going to be able to enforce standards on whether environment or carbon, the stick approach is going to be difficult. But it can’t be either-or approach. Some good case studies show that carrot approach is a good approach, but a stick, enforcement and penalizing the non compliers is going to create compliance culture in the future.

moulishree.s@livemint.com

Column in DNA INDIA: “Climate change meets global hypocrisy”

by Samir Saran and Vivan Sharan
Mumbai, 2nd of July 2012
Please find here the link to the original article

And so the saga concludes. A tired, weather-beaten group of States have retreated from Rio de Janeiro after a half-hearted attempt to rescue the world from a host of unsolved problems including climate change and unsustainable development. What unfolded was largely predictable. The Rio+20 declaration, ‘The Future We Want,’ is punctuated with old rhetoric around action and responsibility, laden with sweet murmurings on change, some affectionate recognition of imminent apocalypse and defined by absence of commitment.

The highly contested Kyoto Protocol remains the last substantial effort at the global level on environment. With developed countries lacking resolve to agree and/or act to achieve the set of common goals at the recent Durban Summit, and now, at Rio+20, it is becoming clear that global action is illusory, utopian and certainly less efficient.

It is ironic that at the same time as we dither on committing finance and technology to save the Earth, nations have, with great alacrity and commitment, pumped in trillions of dollars in concert to save wanton banks and financial entities that have failed to meet even basic regulatory and supervisory norms. The US alone has doled out $1.5 trillion to save its financial institutions following the financial crisis created by the same entities, while the developed world collectively put forth around $3 trillion for the same.

In stark contrast, the mightiest leaders of the world gathered at Copenhagen nearly three years ago and pledged, very proudly, a meagre $100 billion a year from 2020 as a collective financial response to climate change. A commitment to provide ‘new and additional’ resources approaching $30 billion for 2010-2012 was also made as part of a ‘fast start’ process. As of now, the fund has still not been capitalised and even the physical location where the fund will be hosted remains uncertain.

The message for Joe the plumber and the aam admi is unambiguous. Saving the banks is a multi-trillion dollar effort requiring action today. Saving the planet will cost only a fraction and can wait for 10 years. So it is hardly surprising when surveys reveal significant decline in interest on matters climate.

And the hypocrisy continues. Most recently, at the G20 Summit at Mexico, BRICS nations, including India, collectively pledged $75 billion through the IMF, to save the failing Eurozone economy from imminent collapse. That developing nations’ policymakers and economists rely on the unsustainable consumption of the western economies for their own obsession with perverse growth makes us willing accomplices. India, Russia, Brazil, South Africa, China are no victims, they just seem eager to sustain the lifestyles of the rich. Lifestyle emissions today account for nearly two thirds of total emissions.

According to the seminal Stern Review on ‘The Economics of Climate Change,’ global atmospheric levels of carbon dioxide equivalent gases must stabilise in the range 450-550 parts per million (ppm) by 2050. Anything higher would ‘substantially increase risks of very harmful impacts.’ Arctic monitoring stations reported this year that the concentration of these gases has already reached 400 ppm and the global average is predicted to reach this level in a few years (2016).

Developed countries currently occupy approximately 80% of the greenhouse gas (carbon) stocks. Developing countries like India need room to grow and per capita energy consumption will have to rise to enable this economic growth and development. Even to rise above the energy poverty level prescribed by the UN, India and Africa will need to increase their energy production by at least three times.

Carbon space will be a natural requirement. This space is now being denied. Hypocrisy becomes malafide now.
The alchemists of capitalism have turned the sparse carbon into ‘carbon real estate,’ available for sale to the highest bidder. The weak and poor have been priced out. And at the G20, we have just offered to subsidise the rich to buy more.
The core issue of equity still eludes all debates and was missing at Rio+20 as well. Mitigation commitments being discussed are just not enough; they are deceitful as they undermine the sovereign rights of other nations. Developed countries will need to vacate their holding of carbon stocks.

One sixth of humanity cannot continue to hold 80% of the total carbon space that is available if western science is to be believed. This is what needs to be negotiated. The time lines and specific action by which these countries have carbon negative footprints must be sought.

It is unfortunate at the very least, if not downright conspiratorial, that countries like China and India have not been able to see through the haze created by the multilateral discourse and identify the real priority: to evict the developed countries who are squatting on carbon real estate that does not belong to them rather than negotiating the partaking of what is left.

Samir Saran is a vice president and Vivan Sharan an associate fellow at the Observer Research Foundation, New Delhi.

Samir responds to the The Hindu “Who governs the high sea?”

by Samir Saran
July 2nd 2012, New Delhi
Please find here the original link to the article.
Please find here the original link to the article, Samir responded to.

At the outset it is misplaced to suggest the original opinion in any way lauded the use of firearms or the actions of the Italian Marines. It expresses apprehension that such incidents are likely to recur as armed response to threats on the high seas is seen as a viable one.

The reference to SUA is entirely misplaced. SUA was enacted pursuant to a U.N. Convention to contain acts of terrorism. The application of SUA requires sanction of the Union government. The Kerala government has for this reason made a statement in the Kerala High Court that it will withdraw the charges of SUA against the Marines.

However, one fact may clear the air further and that is the reality that St. Antony (the vessel from Kerala) is a fishing vessel and Enrica Lexie is a merchant vessel with Military Vessel Protection Detachments deployed to protect against piracy in accordance with U.N. Conventions and other laws.

“Incidents of navigation”, should not be misread as the term is interpreted in accordance with the scheme of UNCLOS, especially Article 94(7) which describes various “incidents of navigation” and includes within its fold instances such as the present one. While Article 97 applies to the High seas, Article 58(2) of UNCLOS pertaining to the EEZ specifically incorporates and extends Article 97 and others to the EEZ.

The flag state jurisdiction under UNCLOS is based on the floating territory principle viz., a ship under the flag of a state is under the protection of that state and is subject to the laws of that state. The Indian Merchant Shipping Act excludes fishing vessels from flying the Indian flag. St. Antony is not registered under the Merchant Shipping Act and was not flying the Indian flag. St. Anthony in fact is registered as a mechanised fishing boat and was authorised to ply only within Indian territorial waters, i.e. within 12 nautical miles. Thus the fact that the incident occurred outside Indian territorial waters is not in dispute. Thus there is absolutely no dispute about the jurisdiction of the flag state.

The reliance on the Lotus case is erroneous. The evolution of international law after the 1927 Lotus case has eluded the authors and UNCLOS, 1982 specifically derogated from the principles laid down in the Lotus case and gives exclusive jurisdiction to the flag state (Italy).

Italy is on thin ground on the high seas

Please find here the original link to the article.

Samir Saran and Samya Chatterjee have argued in their article “Who governs the high seas?” (June 26) that India is wrong in prosecuting the two Italian marines aboard the tanker Enrica Lexie for shooting two Indian fishermen. Italy’s contention — which Saran and Chatterjee have echoed — is that Enrica Lexie was under its flag. Hence, in accordance with the U.N. Convention of Law of Seas (UNCLOS), Italy should try the two marines. India’s position is that St. Anthony, the fishing vessel aboard which the two fishermen were killed, was an Indian vessel; and under Indian law and the Convention for the Suppression of Unlawful Acts of Violence Against the Safety of Maritime Navigation (SUA Convention), India has jurisdiction. India and Italy are signatories to both these conventions. But while Italy needs to show exclusive jurisdiction, India only needs to show that it also has jurisdiction.

Saran and Chatterjee do not discuss a larger question that provides a context to this case. This is the issue of Somali piracy and the danger of putting armed guards on board merchant vessels. In their view, the Italian marines were doing something laudable — controlling Somali piracy. What they overlook is the complaint of Somali fishermen that trigger-happy armed guards have been preventing them from fishing.

The collapse of the Somalian state meant that it was no longer able to protect its waters. To a great extent, the present problem of piracy has its origins in the complete collapse of the fishing industry. This collapse can be clearly linked to illegal fishing in Somali waters by foreign fleets and the dumping of toxic wastes.

For the rest of the world, the collapse gained importance only because the consequence — Somali piracy — threatens the trillion-dollar maritime industry. International piracy caused an estimated loss of about $7 billion in 2011 globally. As against this, the total annual illegal fishing losses worldwide is between $10 billion and $23.5 billion. This is the other “piracy” to which the international community is turning a blind eye.

The trial question

In the Enrica Lexie imbroglio, the controversy is not about the facts of the case, but about the question of who has the right to try the two Italian marines. The Italian side — which Saran and Chatterjee endorse — has invoked UNCLOS to assert its jurisdiction. Article 97 of UNCLOS, which Saran and Chatterjee quote, refers to a “collision or incident arising out of navigation” on the “high seas”. The shooting of Indian fishermen was not a collision; nor was it an incident arising out of navigation. It also did not take place on the high seas. At best it took place in India’s economic zone, which under UNCLOS is not defined as “high seas”. Italy is on thin ground here. Even if UNCLOS were applicable, the question of which is the flag state under UNCLOS remains. This requires a legal examination of where the “incident” occurred — on the Enrica Lexie or on the St. Anthony.

A case similar to the Enrica Lexie one was previously adjudicated by the Permanent Court of International Justice in 1927. In this case, a French steamer, the Lotus, collided with a Turkish vessel, the Boz-Kourt, on the high seas, killing eight of her crew and passengers. Upon the French vessel’s arrival in Istanbul, the French crew was tried by the Turkish authorities. France adopted arguments similar to those used by Italy in the present matter.

Holding against the French, the court, inter alia, observed that:

“What occurs on board a vessel on the high seas must be regarded as if it occurred on the territory of the State whose flag the ship flies. If, therefore, a guilty act committed on the high seas produces its effects on a vessel flying another flag or in foreign territory, the same principles must be applied as if the territories of two different States were concerned, and the conclusion must therefore be drawn that there is no rule of international law prohibiting the State to which the ship on which the effects of the offence have taken place belongs, from regarding the offence as having been committed in its territory and prosecuting, accordingly, the delinquent” (Emphases added).

India has also claimed its jurisdiction under the SUA Convention. Dennis Hollis, who writes a well-known legal blog Opinio Juris, writes that under Article 6 read with 3 of SUA, India can claim jurisdiction — an opinion also endorsed by a number of experts in international maritime law.

What remains of Saran and Chatterjee’s argument is that the Italian marines are in the service of the Italian state and so have “sovereign immunity”. If we accept that Indian courts have jurisdiction over the matter, then we should leave it to the courts to decide on this claim.

Prabir Purkayastha is with the Delhi Science Forum. Rishab Bailey is a lawyer.

Column in The Hindu: “Who governs the high seas?”

by Samir Saran and Samya Chatterjee
New Delhi, 26th of June 2012
Please find here the link to the original article.
Please find here the same article published in The Gulf Today.

The civilian trial of the Italian marines is affecting India’s reputation as an upholder of international law.

The International Maritime Bureau (IMB) — the anti-maritime crimes arm of the International Chambers of Commerce in its 2011 piracy report documented that there were 439 reported incidents of piracy worldwide, slightly better than 2010 during which 445 such incidents were reported. The number of such incidents is an indicator of the seriousness of this issue. Nations are responding collectively and individually. While there are macro discussions on collective action, armed escorts, insurance surcharge, armed private security personnel are already deployed by the shipping sector.

India’s growing energy and commodity needs depend on transport through sea routes with high levels of piracy, especially in the Horn of Africa. India will need to devise its own response to this challenge. Are government security personnel, say from the CISF, on board commercial vessels the answer? Or will private security deployment find greater resonance?

Larger issue

Keeping the above in mind, the recent incident of Italian marines shooting two Indian fishermen on February 15 — in what was clearly a case of response based on bad judgment against a perceived act of piracy — ought not to be viewed in an isolated manner. It should instead provoke a more considered discussion on the larger issue of increasing piracy threats, the response by states and shipping sector to piracy and other concomitant legal issues including freedom of navigation. This is important as such incidents are only likely to increase in frequency as armed response to piracy by state and private actors becomes more universal.

At the very outset two questions are important if one is to have any view on this incident. First, did the Italian marines in question act with authority, if so, whose? Second, even if they did, in whose territory does the enforcement of the allegation that they used excessive force lie: Is it the Indian Penal Code (IPC), or is it an international regime that India ratified and accepts?

The position on authority and status of the individuals, i.e. the two Italian marines, flows from an Act of Parliament of Italy, Law Decree no.107 dated July 12, 2007 converted into Law No.130 on August 2, 2011. This was enacted pursuant to the commitment of Italy to fight piracy under the United Nations Convention on the Law of the Sea (“UNCLOS”), pursuant to the U.N. Security Council Resolution 1816. Under this Act, there is the sanctioned presence of military navy detachment on board commercial vessels flying the Italian Flag. The accused were therefore not ex-servicemen, or hired guns, but serving marines deployed on the Italian ship MT Enrica Lexie.

The second critical issue is whether the Kerala police and courts are right in asserting the jurisdiction of the Union of India and hauling serving defence personnel of a foreign military through a civilian process to a local jail. Before we get into settled and accepted principles of international law, another side note must be discussed. There exists a defence cooperation agreement between India and Italy, operational since February 3, 2003. Both the nations have entered into this agreement with a desire to enhance cooperation as they were convinced that such engagement will contribute to better understanding of each other’s security concerns and consolidate their respective defence capabilities. Considering this stated intention to understand, appreciate and cooperate with each other, should the Italian marines not be recognised as military officers at the very least and thereafter given equal treatment to what would have been expected to be served to their Indian counterparts in a similar situation?

Kerala is trying in a civilian court two serving military men for actions they took in defence of their territories (floating), howsoever disproportionate the act appears post facto. Imagine trying a serving Indian soldier in an Indian civil court for an incident resulting from discharge of duty in naxal-infested areas, the northeast or Kashmir which is not deliberately criminal in construct. Section 104 of our Army Act enshrines that any such person accused of an offence must be given over to military custody.

Question of territory

Finally, what of Kerala’s assertion of territory? In the FIR and Remand Report filed by the circle inspector of police, including the report of the Coast Guard, it has been recorded that the incident took place outside the territory of India. After various iterations the Coast Guard finally confirmed that the alleged incident took place at 20.5 nautical miles from the coast line, a location outside the territory of India. The territorial jurisdiction extends to territorial water up to 12 nautical miles from the nearest point of the baseline; beyond territorial waters is the Contiguous Zone extending up to 24 nautical miles; and beyond that up to 200 nautical miles is the Exclusive Economic Zone of India. This is attested to by a reading of Article 3 of UNCLOS to which both India and Italy are signatories as well as the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (“Territorial Waters Act”).

The jurisdiction of criminal courts in India is governed by the provisions of the Criminal Procedure Code as well as the IPC which, inter alia, define the territory of India. The IPC has to be read with the international obligations of India in UNCLOS. Article 97 read with Article 58 (2) states that the courts in Italy have the sole and exclusive jurisdiction in the matter. Article 97 of the UNCLOS clearly states that penal jurisdiction in matters of collision or any other incident of navigation involving penal or disciplinary responsibility lies either with the flag state or the state of which such person is a national. Furthermore, the Act specifically states that no arrest or detention of the ship even in the course of an investigation can be ordered by any authority other than that of the flag state. The Republic of Italy will have jurisdiction under both the above-mentioned provisions.

However, in this instance, it needs to be mentioned that there is a case being built that the Italian marines failed to observe certain standard procedures laid out for countering attempted piracy attacks. The procedure includes promptly informing the IMB reporting centre about the incident, undertaking the best management practices to dissuade suspected pirates and adhering to the principle of “graduated use of force” instead of indiscriminate firing. The lack of adherence to such processes has muddled the waters in a manner of speaking. Nevertheless, this incident, even when seen as a misplaced case of piracy, will certainly be construed as a case of navigation incident leading to an offence unless other mala fide is demonstrated or alleged.

The Supreme Court of India, now apprised of this case, needs to clarify whether civilian courts in India have jurisdiction in such cases. There is an urgent need for a reasoned decision in this case based on international and other precedents keeping in mind India’s maritime interests in the South China Sea and the Horn of Africa. Additional Solicitor-General Harin Raval confirmed in open court that Kerala as well as the Union of India, indeed, did not have jurisdiction. Not surprisingly, ASG Raval was promptly removed from the case as provincial impulse took over. Most coastal states are ruled by a political dispensation different to the one at the Centre and hence domestic politics would plague such incidents in the future as well. An unambiguous interpretation from the Supreme Court is paramount, else India’s reputation as an upholder of international law will be undermined.

Samir Saran is Vice-President and Samya Chatterjee is Research Assistant at the Observer Research Foundation. Views are personal.

Identity and Energy Access in India – Setting contexts for Rio+20

by Samir Saran and Vivan Sharan

Please find here the original article as pdf file (starting from page 14): TERI Energy Security Insights.

In the two decades following the Rio Earth Summit of 1992, India has changed dramatically. It has transformed from a closed economy with empty coffers to one that is now far more integrated with the world and is widely viewed as one of the most important ’emerging economies’ that are shaping the 21st century. This year in June, stakeholders from across the globe will convene in Rio once again to discuss what is destined to be amongst the most important contemporary theme-sustainable development. The Rio+20 Summit, otherwise known as the United Nations Conference on Sustainable Development (UNCSD), will serve as an introspective pause, a chance to review development trajectories, and to realign priorities with reality and ambitions. India will find itself in the uncomfortable position of demanding greater development space and equity as a nation from the developed world, while having to reconcile stark domestic inequities amongst different social groups and income classes.
India’s views on the priorities outlined by the UNCSD were communicated in an official submission sent to the UNCSD Secretariat on 28th October, 2011. According to the document, India views universal access to modern energy1 as “essential for improving the quality of life of the poor”. Yet the nation’s achievements in building capacities to generate or distribute energy in its various forms have been far from remarkable, and indeed far from what is needed to ensure universal access.

India produced around 811 billion units of electricity in 2010-2011,2 with about 300 million people with no access to electricity3 and many more with only notional access. The per capita energy consumption in the country remained around 500 kilograms of oil equivalent, compared with a global average of 1800 (MoEF 2007).

India’s National Electricity Policy, which was notified in 2005, outlined the objective of ensuring “power for all” by 2012, an ambition which still remains far from fulfilled. The fact that only about half of the planned 78,577 megawatts of capacity additions took place over the course of the 11th Five Year Plan,4 exemplified an abject failure in implementation of transformational energy sector projects.

Such failures in implementing capacity-addition programmes, alongside attracting sufficient domestic and foreign private sector investments in the energy sector, are indicative of a larger political failure. The policy deadlocks that result in the lack of progressive reforms on land use and acquisition, foreign capital flows, and environmental norms have created an uncertainty that adversely affects investment decisions. This uncertainty, coupled with bureaucratic hurdles and the threat of disruptive regulatory and tariff policies, has managed to keep both local and international investors away from large scale, capitalintensive energy projects. This economic environment is also keeping away investments into smaller, off-grid solutions, which already suffer from an inherent lack of scalability and from the weak absorptive capacities within local communities.

This capability gap (in execution), due to a variety of reasons, is also why India is unable to commit to timelines and sought development space (read ‘time’) at the most recent international forum. The virtual deadlock at the Durban Climate Change Conference5 is, in part, a result of the inability of India to commit (or even envision) timelines to peak energy emissions, even for achieving global energy poverty thresholds.6 This is the real and hidden story of ‘Emerging India’. Perhaps it is time that this is placed on the table at Rio+20 and beyond, and that Indian positions on mitigation and capping of emissions are understood in this light.

The emphasis on universal access to ‘modern energy’ is an important aspect of the Rio+20 agenda, and it may be useful to understand the Indian landscape. According to 2009-10 Indian National Sample Survey (NSS) data from households, 75 per cent of rural India still relies on traditional energy, such as firewood, for cooking fuel; while over 33 per cent in the same category rely on kerosene for lighting (as a substitute for electricity).7

Over the period 2004-05 to 2009-10, as a result of focused rural electrification programmes such as the Rajiv Gandhi Vidyutikaran Yojna, access to electricity in rural areas did increase by over 10 per cent; and over the same period, access to LPG (for cooking) in urban areas has also shown significant improvement.8

While such numbers indicate that efforts to transform the energy demography have not completely stalled, the dependence on traditional and inefficient forms of fuels has not shown substantial decline. A case in point is the minimal 1.85 per cent decrease in dependence on firewood for cooking across India over the five-year period as shown in Table 1.

Yet these numbers only convey a macro position on energy access. Even cursory examinations of some of the surveys and reports suggest that there are deep and complex socio-economic issues at play that must be addressed and resolved by the policymaking apparatus in order to achieve real progress.

Identity and Access

India is a diverse country, with multiple identities gleaned through the prisms of religion, social groups, regions, language, ethnicity, economic capability, and many more. For the purpose of this paper, it is our intention to examine the state of energy access across social groups and economic classes: the two most prominent identities of modern India.

Even as India aspires to work within a more balanced and stable multilateral framework, and seeks the enhancement of local institutional capacities and capabilities, these alone are unlikely to address the fundamental causes of lack of energy access, and will require substantial levels of organic social transformation through local and national programs. These would need to focus on means of delinking energy access from income class so as to offer a modest quantum of modern energy as a universal right alongside food and education. This may allow certain transformations in the causal relationship that exists today between social groups and income classes (Table 2) and could potentially assist in bridging the socio-economic wedge between marginalized groups and the rest.

On studying the patterns of energy access in Table 3, it is quite apparent that Scheduled Castes (SCs), Scheduled Tribes (STs), and Other Ba ckward Classes (OBCs)10 in rural areas are more reliant on firewood-a traditional cooking fuel, than ‘other’ social groups who increasingly use modern fuels such as LPG. Firewood has low cooking efficiency, and its use has detrimental effects on health (due to the proximate smoke that is generated) and environment (owing to deforestation and greenhouse gas emissions). The average dependency on firewood is between 76 and 88 per cent across the aforementioned disadvantaged groups, compared to close to 66 per cent for all ‘other’ groups11 in rural areas. The data shows (Table 3) that the dependency on firewood has only increased over time12 (between 2004-05 and 2009-10) in rural areas amongst the disadvantaged groups, while it has simultaneously shown a marginal decrease for ‘other’ groups.

Alongside the divergences amongst social groups, the difference in energy access across income groups also becomes instructive. The lowest income class is as reliant on firewood in urban areas as it is in rural areas. The startling fact is that the inequity in the urban areas has become more pronounced over the five-year period for the lowest income group shown in Table 4, with reliance on firewood increasing from around 69 per cent to around 76 per cent, and access to LPG decreasing from 5.8 to 1.83 per cent. Although absolute numbers in the lowest income groups have decreased significantly,13 affordability is still a key challenge.

Asymmetric patterns of access to electricity are also prevalent in the country. The percentage of households still using kerosene for lighting in rural areas averages between 30 to 40 per cent for disadvantaged groups-a striking figure considering that typical kerosene lamps deliver between 1 and 6 lumens per square meter (lux) of useful light, as opposed to typical western standards of 300 lux for basic tasks such as reading (Mills 2003).

A pronounced inequity of access among social groups is also observable across rural-urban areas in Table

5. While approximately 60 per cent of STs have access to electricity in rural areas (lower than the rural average as given in Table 1), around 87 per cent within the same social group have access to electricity in urban areas. The electricity access divide between the SCs, which are a significant social group in terms of urban population (Table 2), and the ‘others’ is around 9 per cent.

It is interesting to note that the level of access to electricity for SCs in urban areas is roughly equivalent to level of access for urban citizens in the MPCE bracket of INR 675 – INR 790 per month (Table 6), which is representative of a level much below even the conservative World Bank extreme poverty threshold (defined at US$ 1.25 a day).

In terms of energy access, the statistics suggest that SCs are pegged at a level of access for income classes below the average income of this social group. The share of kerosene for lighting has reduced significantly amongst the lowest income classes in rural areas over 2004-05 to 2009-10 (Table 6).

Meanwhile this trend is not witnessed in urban areas, where the inequity is starker over the same period with an increase in dependency on this fuel by 16.32 percentage points. Access to electricity for the lowest income class in urban areas has decreased from 62.1 to 44.56 per cent. This mirrors the trends in cooking fuels and is indicative of inherent inequities in the provision of access to modern energy in urban areas, alongside the implications of price rise and inflation.

While rural areas tend to suffer from an overall lack of access to modern energy, poor inhabitants in urban areas experience discriminatory barriers usually based on economic capacity. Such trends would challenge policies in the context of a sustainable development agenda, as India is likely to witness sustained and rapid urbanization in this current decade and beyond.

According to the provisional numbers released by the Census of India last year, 90,986,070 people were added to the urban population of the country,14 more than the number added to the rural population. The pace of movement to cities in India is unprecedented, and is on a scale that, outside of China, is unparalleled; with over 30 per cent of the total population already living in urban agglomerations. Our estimates suggest that around 44.5 per cent of the total decadal increase in urban population was a result of migration.15

Urban centres in India are veritable microcosms of the entire country-with a diverse mix of communities, cultures, and income classes ranging from the marginalized, disadvantaged classes to the expanding middle class-which is the primary driver of consumption and economic growth. Table 7 suggests that the share of OBCs in the overall urban population mix has increased substantially over the previous decade, while the proportions of the rest of the disadvantaged groups has almost remained the same, and ‘others’ have shown a marked decrease.16 The way that the various sections of society interact with each other, and perceive each other’s spaces and priorities would be an essential ingredient in India’s growth story going forward.

Conclusion

The trends highlighted in this paper demonstrate that existing inequities in access to modern energy amongst the lowest income classes and the disadvantaged groups tend to reinforce each other. The causal relationship between income classes and social groups acts as a self-fulfilling spiral, breeding inter-generational infirmities. Our analysis suggests that this is particularly true in urban areas. Given the fact that India will add over 200 million urban citizens over the next twenty years,17 increased policy emphasis must be given to urban areas by creating new ways to allow access to energy, especially for those who cannot afford it. The Rio Earth Summit of 1992 coincided with the beginning of India’s increased engagements with the international community. This current decade is likely to determine whether or not the country will succeed in narrowing income gaps, overcoming socio-economic inequities, and reducing poverty through decisive domestic actions. An economy and country which uses a majority of its scarce resources and limited infrastructure to serve only a minority of its people will find it increasingly hard to deflect arguments which suggest that its elite hide behind its poverty. India’s macro position on equity at international fora such as Rio +20 must be reflected in its domestic resolve to offer energy equitably to its diverse population. The imperatives of creating a ‘green economy’ must only follow and complement such efforts.

References

MoEF (2007) India: addressing energy security and climate change. Available at
http://www.moef.nic.in/divisions/ccd/

Addressing_CC_09-10-07.pdf.

IEA (2010) World Energy Outlook, Paris: International Energy Agency. Mills E (2003) Technical and Economic Performance Analysis of Kerosene Lamps and Alternative Approaches to Illumination in Developing Countries, California: Lawrence Berkley National Laboratory.

(Samir Saran is a Vice President and Vivan Sharan an Associate Fellow at Observer Research Foundation)

Courtesy: Energy Security Insights, TERI (January-March 2012)


1 The International Energy Agency describes modern energy access as “a household having reliable and affordable access to clean cooking facilities, a first connection to electricity and then an increasing level of electricity consumption over time to reach the regional average”. The initial threshold level of electricity for rural households is assumed to be 250 kWh, while urban households are assumed to use 500 kWh per year on average. For more information, see
http://www.iea.org/papers/2011/weo2011_energy_for_all.pdf

2 According to the Central Electricity Authority:
http://www.cea.nic.in/reports/yearly/energy_generation_10_11.pdf

3 The latest figure for the number of people without access to electricity is 272 million. This is calculated from the 66th round of the National Sample Survey.

4 34,462 megawatts were added by the end of FY 2011.

5 The 17th Conference of Parties held in November, 2011, in Durban, South Africa.

6 The 2010 edition of the “World Energy Outlook” published by the International Energy Agency assesses two primary indicators of energy poverty at the household level-the lack of access to electricity and the reliance on the traditional use of biomass for cooking. As is highlighted in this report, India fares badly across both the indicators.

7 Data obtained from ‘India Data Labs’ at the Observer Research Foundation.

8 Throughout the paper we make the assumption that electrification is the closest available proxy for access to electricity and we acknowledge that access to the grid may not necessarily imply access to energy. In this context, we make conservative estimates of the overall lack of access to electricity.

9 The Government of India uses MPCE as proxy for income for households to identify the poor (who tend to have minimal savings).The proxy works well given that expenditure= income – savings. Similarly, we use MPCE throughout this paper to define income classes.

10 To be referred to as “disadvantaged groups” henceforth.

11 2010 Data obtained from ‘India Data Labs’ at the Observer Research Foundation

12 Given that LPG use has increased in rural and urban areas, the simultaneous increase in the use of firewood can also be attributed to the substitution of other low efficiency cooking fuels such as dung cake. It is instructive to note that according to NSS data, the use of dung cake for cooking (all India) has decreased significantly over the discussed five year period amongst SCs and OBCs showing a 3.1 per cent and 5.51 per cent decline in each of the respective social groups.

13 According to NSS data

14 Provisional Population Tools, Census of India
http://censusindia.gov.in/2011census/censusinfodashboard/index.html

15 According to Census 2011, total decadal growth rate of population is 17.64 per cent. Using this conservative benchmark (urban decadal growth rate is 31.8 per cent); the total population increase in urban areas should have equalled 50,471,513, whereas the figure stands at 90,986,071.

16 It is important to note the caveat that the NSS relies on self-reporting of people about their Other Backward Classes (OBC).

17 According to the United Nation’s World Urbanization Prospects, 2009.

Samir featured in the Financial Express: “Watch the Green Ticker”

New Delhi, 29th of May 2012
Please find here the link to the original article and the website of g-Trade.

When you are investing in a company next time, just do not go for cash-rich companies. Rather choose the corporates that are ‘green’ efficient. And there is help too, to guide you make this decision. Three months back, Bombay Stock Exchange(BSE) along with g-Trade, a privately held company in India, had come up with a Green Index called Greenex. This is India’s first carbon-efficient live index listing the top 20 companies which are carbon efficient. As of now, only the carbon emission of top 100 BSE companies is assessed by this partnership and the index is created. But the aspirations of Samir Saran, founder and CEO, g-Trade are high. “We are in the process of creating a similar index across BSE 500 companies in the next six months,” he says.

The idea of creating something like Greenex came to Saran while he was studying in Cambridge and working on a project on energy efficiency. “I knew that we needed to reduce carbon emission intensity in our country and corporates will have to do this first. Thus, this was the best way to measure how environmentally efficient companies are and how they can improve themselves,” he says.

Now, the fact sheet: India is fourth largest carbon emitter in the world, behind China, USA and Russia. The European Union put together would be above Russia. Japan is after India. And to add on, Indian corporates (business and industry as a whole) contribute almost two-thirds of carbon emissions, other major contributors are transport, agriculture and waste sectors.

Saran spent 16 years in the energy sector. For a long time, he was working with Reliance Industries in the policy space especially with oil and gas and petrochemical sector. He feels that the corporate behaviour towards climate and environment of top corporates needs to be checked. “The main issue is that we need to manage emissions. Emission efficient and carbon efficient companies will manage the growth of our economy. And investment towards these companies should be encouraged. They should be given priority over companies that are less efficient by investors.” Even the government has committed voluntarily to improve the emission intensity of the country’s economy (GHG emissions/GDP) by 20-25% during 2005-2020.

Usually large companies come out with reports of disclosure of their carbon emissions under Form A of The Companies Act. The Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 mandates a company to disclose, in its Director’s report, the energy conservation, technology absorption, foreign exchange earnings and outgo.

Form A does not include sectors like retail and supply chain. The government has identified the high energy industries and included it for disclosures by companies. It does not include new industries which have come up.

It also does not include all energy intensive sectors like electric utilities and oil and gas exploration and production firms. Saran says, “To derive a meaningful emission, we have derived our index by giving 50% weight-age to emission intensity and 50% to financial performance.”

Green effect on the balance sheet

Companies that are low on emission intensity (GHG/revenue) also generally perform well on financials—mainly due to their lower energy costs, better operational controls, better resource management, better general sensitivity, and better market image. This is a global trend. “Companies that have less carbon emissions are more efficient and are likely to succeed in the future,” says Saran.

Sample this: IDFC, a financial services company, being least efficient in the low emission intensity group, has underperformed the BSE Sensex by 31% between January 2010 and January 2012. The Green Index does not include big names like Reliance Industries, Oil and Natural Gas Corporation (ONGC), cigarette maker ITC and even IT companies like Wipro and Infosys. However, the names topped in the list are BHEL, GAIL, DLF and L&T.

Companies must realise that there are many benefits to be on the Green Index. Saran says that based on this index, banks would lend to green efficient companies on better interest rates. It would also help the insurance sector in giving pension funds. In the west, insurance funds and pension funds usually invest in green stocks only. This trend could also be followed in India. And in Europe, this kind of an index was developed 11 years ago called FTSE4good. This means that our country still has a lot to catch up!

But, what would make revenues for g-Trade? Saran is clear on this front too. “Some companies want us to create a customised index for them so that they know where can they invest. We also come out with exhaustive reports where we inform lenders and investors that where should they invest in India. This will help in foreign investment in India. We create structured products for big hedge funds etc who want to invest in different countries.”

Let us hope the Indian companies get green rich and realise that they will be incentivised on their efforts to reduce carbon emissions.

Article in “Russia & India Report”: Putin 3.0: Creating hedges for the next decade?

Is Putin going to lessen the Russian dependence on stagnant European demand for oil and gas despite the favourable terms of trade and rely on the hard-bargaining China?

May 17th 2012, New Delhi
Please find here the link to the original publication

The Kremlin has recently announced that Vladimir Putin will be skipping the upcoming G8 meeting in the US sighting domestic concerns and will be visiting China on June 5-7 as his first foreign trip since being inaugurated as President. It is clear that Putin views Chinese demand for Russian oil and gas as a hedge against stagnant Western demand, particularly European demand for Russian exports which showed a huge 47% negative year on year variation in 2009 and is unlikely to grow at rates that will sustain the Russian economy for too long. However, China drives a hard bargain and its quest for energy security through import diversification and oil equity means that it will not accommodate for more than a minimum amount of dependence on Russian raw material linkages.

While his predecessor and protégé Dmitry Medvedev repeatedly emphasised the need for Russia to diversify away from its “primitive” focus on the oil and gas sector, Putin seems to be doggedly set on continuing his outlined profit maximisation doctrine by largely relying on the sector to fulfil social spending promises made during his election campaign. Russia recently surpassed Saudi Arabia as the largest producer of crude oil, and holds the world’s largest natural gas reserves.  Approximately 40 percent of the Russian Government’s tax comes from oil and gas related businesses. While Putin has been able to successfully leverage Russia’s natural resource endowments in the past, he is now faced with burgeoning structural problems including huge manufacturing sector inefficiencies, negative demographic trends, deepened socio-economic inequities and populist rebuttals to alleged systemic corruption under his oversight.

The European Union (EU) is Russia’s biggest market and the EU also accounts for around 75 percent of FDI into Russia. According to the European Commission, Russia accounted for 47 percent of overall trade turnover in 2010; a trend which has normalised after the brief disruptions caused by the global financial crisis. However Russia’s competitive advantage with the EU is largely restricted to the trade of fuels and minerals. Even with its massive oil reserves, Russia has lagged behind in the production of petrochemicals and refined oil. While the margins earned on refined oil based products in a globally integrated oil market may not justify expansion of production facilities and there is a distinct competitive advantage in favour of the “Global South” in terms of labour costs and environmental tariffs there are few explanations for the lack of emphasis on developing a profitable export oriented petrochemicals sector in the country. It doesn’t help that the recent socio-political turmoil adds to the disincentives created for any FDI investment flowing into the country.

Indeed Russia exhibits many of the symptoms of the “Dutch Disease”, a term that broadly refers to the deleterious effects of large asymmetric increases in a country’s income, most commonly associated with discovery of natural resources such as crude oil. While there is no consensus about whether the country suffers this affliction and indeed there have been significant per capita income gains as a result of exploitation of raw material wealth, there are real and palpable threats to sustained growth that need to be proactively mitigated by the establishment. A 2007 IMF Working Paper found that some of the exhibited symptoms included a slowdown in the manufacturing sector, an expansion of the services sector and high real wage growth in all sectors. Simultaneously, oil exports have increased by close to 70 percent over the last decade and the value of exports has gone up by around 620 percent during the same time span. Russian crude oil production recently hit an all time high, and Putin is determined to maintain production levels above 10 million barrels per day (about a third of OPEC’s total production) for a “fairly long time”.

In many ways, resource based linkages have guided and defined Russian foreign policy since the disintegration of the Soviet Union. Resources have also dictated Russia’s economic fortunes, which have traditionally fluctuated with the price of crude oil. Crude oil has quadrupled in value since the early 2000s, and at the same time, Russia has transitioned into becoming a Middle Income Economy with an incredible number of superrich. It is interesting to note however, that despite the asymmetric dependence on raw material exports, Russia’s currency has been depreciating. Due to the underinvestment in the manufacturing sector and the overall lack of competitiveness of the domestic goods, import growth has tended to outpace export growth. The current account balance as a percentage of GDP has declined substantially since the mid 2000s and with structural production ceilings being hit in the oil and gas industry, there is uncertainty about where the additional export growth is going to be generated. Putin seems certain that recently announced tax breaks for upstream oil and gas exploration projects and fiscal incentives for M&A activities will help fuel this production growth. Tax breaks have been provided for offshore energy projects with Western companies including Exxon Mobil Corp., Eni SpA and Statoil ASA.  Simultaneously he also plans to raise extra revenues from the resources sector to pacify some of the populist anger that is brewing through increased government spending, in particular by significantly increase extraction tax on gas suppliers.

Putin has an uphill task, to reassure foreign institutional investors of the legitimacy and stability of his political apparatus. In order to achieve competitive advantage in the export of petroleum related products, the Russian Government has ambitious goals to create six regional clusters of world class ethylene (the world’s most widely produced organic compound) production facilities and expects production capacity to reach 11.5 million tonnes per annum by 2030. This projection assumes a fundamental amount of investments and supporting infrastructure capacity building in the form of product pipelines, road and rail links. Distribution and feedstock concerns already plague the industry.

The seemingly irreversible economic meltdown in Europe must act as a trigger to stimulate new ideas and a break out of the traditional resource centric growth mindset in the Kremlin. Developing and emerging countries account for around 50 percent of global GDP in purchasing power parity terms and Russia must look to deepen integration through trade with these markets. China is but one of these and its sino-centric economic startegy may soon be an albatross around its neck. Moreover trade must be on the basis of a diversified basket of products on offer with emphasis on value addition.

The East Siberia-Pacific Ocean (ESPO) oil pipeline which is now operational has enabled Russia to bring oil to its remote eastern coast, from where it supplies to China, Japan and South Korea. The Chinese have been actively lobbying to get all of the oil transported through the ESPO, but Russian oil companies are naturally hesitant as they are unwilling to forgo the higher margins they receive by selling to Western countries. The Russian experience with the hard bargaining Chinese must not colour their prospective engagements with other emerging and developing countries. In the next few decades, global growth will be a function of how such economies in Asia and Africa perform, and in turn, so will Russia’s economic fortunes. Putin would do well to hedge away from dependence on European demand even though terms of trade may be favourable and fall in the comforting squeeze of the Chinese option.

Samir Saran is Vice-President and Vivan Sharan an Associate Fellow at the Observer Research Foundation, New Delhi.