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The visible hand

Having spent much time the last few weeks studying the 123 Agreement for nuclear cooperation between India and the US, I now believe that it will be a grave mistake for India to turn down the agreement.

columns Updated: Oct 09, 2009 13:22 IST

Having spent much time the last few weeks studying the 123 Agreement for nuclear cooperation between India and the US, I now believe that it will be a grave mistake for India to turn down the agreement.

India’s crude oil and petroleum imports guzzle up one-third of the country’s entire export earnings, thereby elbowing out the purchase of many other vital products. India’s coal reserves are expected to run out in a few decades. Environment-friendly energy sources, such as the sun and wind, are potentially important but we do not yet have the technology for large-scale production. Under the circumstances it is imperative for India to plan on energy alternatives that will not destroy our environment.

Nuclear energy fits that description; but our ability to produce this has been seriously hobbled since 1974, when India first tested a nuclear device and the US and other countries ceased selling us technology and fuel for nuclear power generation.

The reason why 123 is important is because it will break this impasse, allow us to produce our own energy and free India, in the long run, from the crippling need to rely on imported oil and petroleum.

On many policy matters, I find the Indian Left to be a valuable voice against the popular grain. But I am disappointed by the Left’s objections to the nuclear agreement. It has raised basically two objections — that this will take away from us the right to test another nuclear weapon and it will compel India to align its foreign policy with that of the US.

There has been a lot of debate on both these counts. Some have argued that there will not be any US reprisal against India if India tests another bomb and President Bush assured us that a section of the agreement, which talks of the need to contain Iran, is not binding but "advisory."

These arguments have been countered by observing that the US signed the 123 agreement in its own interest (it is even named after section 123 of the US Atomic Energy Act, 1954), and that its Hyde Act ensures punitive action will be taken should India test another nuclear bomb.

These are valid observations, but they do not constitute an argument against the agreement. For that the only relevant question is: will these matters be made worse by virtue of this agreement?

And the answer is no. If India tests a nuclear weapon or takes a foreign policy line which is at variance from the American one, it is likely that there will be a negative US response. But this will be true whether or not we have the nuclear agreement. It is also likely that the US will take back the equipment and fuel that we would have received as part of this deal. But if that happens, India will simply be back to where she was without this agreement. So the agreement cannot hurt.

There are two further points to be kept in mind. The first concerns the Nuclear Suppliers Group. The NSG, consisting of 45 nations, was set up in response to India’s 1974 nuclear test to prevent the export of nuclear material to nations, like India, that have not signed the NPT.

Once 123 is signed, the US will persuade these nations to remove the embargo. This will then create such huge vested trading interests for these nations that, if at a later date India’s relation with the US sours, it will be unlikely that the tap can be switched off again.

Second, the apprehension that India will be pushed around shows a lack of self-confidence. This may have been true fifteen years ago; but no longer.

India is today a large and growing economic force in the world. We are in a position to hold our own line in foreign policy whether or not we have an agreement with the US.

And for that reason it will be foolish not to have it.

Kaushik Basu is Professor of Economics and Director, Center for Analytic Economics, Cornell University.