Episode 136      30 min 51 sec
India's ambitions: Pathways and pitfalls to greatness

Veteran Indian journalist and commentator Pramit Pal Chaudhuri discusses what India needs to do -- and to overcome -- if it's to rise to the status of a great global power. Presented by Eric van Bemmel.

"In aerospace, space, all of the highest precision engineering areas, we're starting to see an explosion of Indian manufactured exports and it's an area where the Chinese simply don't exist." -- Pramit Pal Chaudhuri




           



Pramit Pal Chaudhuri
Pramit Pal Chaudhuri

Pramit Pal Chaudhuri is currently the Foreign Editor of The Hindustan Times and was previously the paper’s US correspondent following roles as editorial writer for The Telegraph and The Statesman of Calcutta. He specializes in India’s international security and economic policy.  Over the past several years he has been a Hubert H. Humphrey Fellow at the University of Maryland – College Park; media fellow at the Fletcher School of Law and Diplomacy; South Asia fellow at the Henry Stimson Centre in Washington DC, and a Visiting Fellow at Cornell University’s South Asia department.

Pramit is a member of the Mont Pelerin Society, the Liberty Institute of New Delhi, the International Institute for Strategic Studies UK, the Asia Society Global Council and the Aspen Institute Italia.  Pramit is an Indian delegate to the Confederation of Indian Industries' Indo-US Strategic Dialogue and Indo-Japan-US Strategic Dialogue. He also serves as a Senior Associate for the Rhodium Group, is a member of the Council of Emerging Markets and was recently the 2006-7 Bernard Schwartz Fellow at the Asia Society New York. He has a BA in history from Cornell University, has visited over 40 countries, and was born in Calcutta in 1964.

Credits

Presenter: Eric van Bemmel
Producers: Kelvin Param, Eric van Bemmel
Audio Engineer: Gavin Nebauer
Voiceover: Nerissa Hannink
Series Creators: Eric van Bemmel and Kelvin Param

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VOICEOVER
Welcome to Up Close, the research, opinion and analysis podcast from the University of Melbourne, Australia.

ERIC VAN BEMMEL
I'm Eric van Bemmel.  Thanks for joining us.  Just how inevitable is the rise of India to the status of a major global power.  Often mentioned alongside that of China, India's impressive economic growth, surging middle class and heightened sense of national pride of recent years seems like a narrative set to continue and that greatness, economically, technologically and militarily is, given time, a fait accompli but our guest on Up Close today, senior Indian journalist, Pramit Pal Chaudhuri believes India has its work cut out for it if it is indeed to become a $5 trillion economy by 2020 as some analysts believe or to fulfil its defence ambitions of being the pre-eminent force in the Indian Ocean.
It's one thing to build capacity by spending large on the likes of aircraft carriers and nuclear power plants but the less sexy business of building political and bureaucratic cultures and processes that can ensure coherent policy making and policy implementation is the hard part.  In areas ranging from diplomacy to security, from energy to industry, how can India become the great power it aspires to be?  Pramit Pal Chaudhuri is Foreign Editor of The Hindustan Times, one of India's major English language national daily newspapers, based in New Delhi and online at hindustantimes.com.  Pramit is a regular commentator on India's international security and economic policy and is in Melbourne as a guest of the Centre for Advanced Journalism.  We're pleased he's joining us today.  Welcome, Pramit.

PRAMIT PAL CHAUDURI
Thank you.

ERIC VAN BEMMEL
Now Pramit you claim that for all the talk of national interest in India, and all countries have national interest of course, but in India's case there remains little institutional ability to even define what that means for the country.  Can you elaborate on that?

PRAMIT PAL CHAUDURI
Well, India for example, despite its size and its aspirations, does not even have a national security doctrine.  Australia has one, they produce one every year and they ship a copy to me but India doesn't have one.  It still hasn't produced one, it's been struggling.  India is essentially an isolationist power.  It's been coming out of isolation over the past 10 years and it doesn't really have the institutional framework to think beyond isolation.  For example, its foreign ministry is only 900 people.  That's half the size of Australia's foreign ministry and it's about the size of Finland's which is about five million people and this is replicated across the board.  It has actually a very small state structure.  It has very few think tanks.  A joke is we have a huge army of soldiers on the ground, we have very few officers who are allowed to think strategically.  They only focus on operations. 
This goes across the board and it's one of the big challenges that India faces, is to build such an infrastructure very rapidly.  Most other countries have about 50 to 100 years to do it, we have probably about 10.

ERIC VAN BEMMEL
Can this be done also through universities, think tanks, things like that?

PRAMIT PAL CHAUDURI
Well the think tanks have been slowly set up.  I think the real group that is now pushing the hardest on this is actually private corporations.  Private corporations in India have really been a big boom story in India.  They're the driving force for much of what is happening today in the economy and they're the ones who are pushing the Government.  The Government itself is actually still quite somnolescent about this saying that because we're going overseas you need to start thinking on this and they're now financing a lot of this. 
Indian universities have traditionally not focused really on foreign policy.  I think there's only four departments of international relations in the entire country.  It's again a country that has looked inwards for such a long time that it's the idea that we should be looking at ourselves as a global player and not just as an observer is something that's still very new, but as I said the change is starting to happen, the question really is how fast can we ramp it up.

ERIC VAN BEMMEL
Now India believes it should hold a permanent seat on the United Nations Security Council and for some time it's been in the process of garnering support from other countries towards that end, yet there are claims by some that India is not ready, that it hasn't acted like the great power it has ambitions to become.  The Los Angeles Times for example, has written that, India's trade ties with the brutal regime in Myanmar or Burma and it's silence on human rights abuses there and elsewhere around the world don't recommend it for greater influence in the United Nations.  Now India began a non-permanent two year stint on the security council in 2011 but how can India show the world it deserves a permanent seat at the table?

PRAMIT PAL CHAUDURI
Well one of the arguments that India makes to other countries which has basically been that if you want us to be a global player you've got to throw us in the deep end of the pool.  Countries don't do this automatically.  The perfect example is the United States itself.  It took two world wars before America, with great reluctance, said okay, we have to play a role, Britain can't do it any more, it's us and it took two extreme political traumas before the United States agreed to do this.  The same is basically going to be true with India and it's an argument that we've made, you make us a member of the security council and then we will be forced to become a responsible global player and that's an argument that's actually been accepted.
For example, of the five permanent members now, other than China which at least is silent on the issue, all of the other four have now endorsed India for that position with Barack Obama last year coming to India and announcing America's endorsement of India for that position.  Australia has endorsed us as well and the argument that they all make is the same, we've seen your actions so far and you've been extremely responsible.  Therefore, we figure that if we can get you into the system you will grow up or mature as you basically are forced to become a player and that effectively is what even our Prime Minister argues - Manmohan Singh argues with his own country, because there's still a lot of scepticism even within India whether we should hold a permanent seat in the United Nations and his argument has been to his own ministers and privately to all of his aides, we have to do this because that's the only way we're ever going to learn how to be a global player.

ERIC VAN BEMMEL
Ultimately it's not how India votes in the UN, it's how it tackles these diplomatic issues?

PRAMIT PAL CHAUDURI
Exactly.  When I've talked to our own UN officials they say nobody really cares what you vote, the issue is how constructive are you in your diplomacy.  Are you the guy who can put the coalition together to get a vote through?  To get things through the UN is incredibly difficult.  So can you, as a country, function?  Can you get other countries to come together on a certain issue?  Do you have the goodwill, do you have the diplomatic skills?  That's what really matters in the United Nations, not what you vote.  Everybody votes on something that nobody else likes. And, in fact, one of the things that we've discovered, and in fact it was the Americans who pointed this out to us first, is that we have incredible goodwill across the world, which India didn't realise it had.
A simple example is Afghanistan where there was polls done by the BBC and Deutsche Welle and they found that over 40% of Afghans rated India as their number one friend.  This was like bigger than the next four of five countries put together and Indians had no idea.

ERIC VAN BEMMEL
Now India has a role in Afghanistan for a number of years now.  It's a bit of a silent one in terms of what the press talks about.

PRAMIT PAL CHAUDURI
Right.  Yes.  Out biggest aid program is there and to defend the aid program we have over 4000 soldiers but because of Pakistan's allergy to what we do there it's been, as you said, extremely quiet and we have essentially calibrated whatever we do in response to American requests as to how far they want us to have a profile there. But Hamid Karzai was educated in India, the entire Afghan leadership in Kabul keeps their families in Delhi, they all live there.  Almost 70,000 Afghan families are there who are members of the Afghan elite.  They see India as their country that they can go to as a safe haven.
This is true now even in Africa.  When we go to Africa we find Africans saying, why aren't you here?  We desperately want you to come to our place because we're worried about the Chinese, we don't trust the west, you're a country that's been with us.

ERIC VAN BEMMEL
You mentioned Pakistan a moment ago and inevitably the conversation has to turn to India's neighbour, Pakistan.  If India even gets everything else right in its ambitions to greatness, there's no guarantee of success if it doesn't somehow get to grips with the question of Pakistan.  Strategically, can India even contemplate its global hopes given the security and political situation next door?

PRAMIT PAL CHAUDURI
Well absolutely not. I think the Prime Minister, Manmohan Singh in fact has always said there are three key barriers to India's rise, energy, education, which are effectively domestic concerns and Pakistan and his arguments are two fold.  One, Pakistan – this is a country whose population is roughly the size of Russia, this is not a small country.  It looks small only because it happens to be next to India and China on the map and his argument is that one, Pakistan lowers India's strategic horizon.  Indians domestically focus on Pakistan because it's obviously of key concern for them and it forces them to stay away from looking at global issues and second, Pakistan's own growing instability, the country that will be most threatened by this, would be India.  We've found under the last Pakistani president, Pervez Musharraf, he came in as a general who was dedicated to fighting India, by the time he left office or was thrown out of office, he had concluded that the policy of hostility to India was proving to be so damaging to Pakistan internally that it wasn't worth it and he effectively went to two Indian prime ministers, Atal Bihari Vajpayee and then Manmohan Singh and said give me a deal so that I can go back to my people and say that all of our 15 years of yelling and shouting in India have not been in vain, give me something and that's all I want.

ERIC VAN BEMMEL
A deal of Kashmir?

PRAMIT PAL CHAUDURI
A deal in Kashmir.  A deal somehow that I can go back and say that it wasn't a waste.  We got some sort of face saving solution from India and both Prime Ministers were willing to do so.  The problem is that Musharraf fell before we could conclude a lot of what happened.  So now the problem in India really has been that who exactly do we talk to in Pakistan because you have an all powerful military and you have a shadow of a civilian government but in theory the civilian Government is in charge.
So this process of attempting to get the Pakistan leadership to accept that there's a cost benefit analysis here now that is violently against Pakistan, and second finding a means then to give them a way to implement this on a policy level without having them being completely humiliated back at home, have been the two big challenges.  The third issue actually I would argue about Pakistan and when I go to Pakistan and I talk to Pakistanis is that anti-western sentiment now is so extreme in Pakistan that India is almost now seen as a friend.  We've actually had extremist Muslim leaders from Pakistan visit India and basically tell mosques across India, forget about Kashmir, it's not worth it but join us in our battle against the west, that's all we ask.

ERIC VAN BEMMEL
You've written that defence related procurement happens at an excruciatingly slow pace in India.  Why is that the case and what are the implications strategically?

PRAMIT PAL CHAUDURI
Well the big reason is the so-called Bofors arms scandal during the Rajiv Gandhi prime ministership.  Purchase of a Bofors gun resulted in an enormous scandal over kick backs and so on that destroyed Rajiv Gandhi's prime ministership and has scared the Indian political system ever since.  Sonia Gandhi, who is now the present head of the Congress party which rules India today, because Rajiv was her husband she continues to see that as the great political trauma of her life and is so determined never to have that experience again that she will prefer to not buy any weapons rather than have a scandal on this front.
So as a consequence we have an arms procurement system that is excruciatingly difficult because the Government is perpetually terrified.  It takes literally one editorial from one newspaper in India to say, we smell a rat in all of this, in the purchase of paper clips by the army, and bang your army gets no paper clips for the next four years.  So our airforce has actually been shrinking over the past 10 years, just the normal attrition rate but airplanes are not being replaced.  The same is true with our tanks and so on.  We have a bizarre situation where almost 50% of the capital expenditure in the defence budget that is allocated by Parliament is never spent.
As much as something on the lines of about four billion rupees is given back to the Government every year by the Ministry of Defence unspent because they say we can't spend it because the procurement system doesn’t allow us to.

ERIC VAN BEMMEL
What do the military chiefs have to say about this?

PRAMIT PAL CHAUDURI
They're furious.  They weep and rage and shout and scream but the minister is the one who makes the call.  So the Government has been struggling and in fact has negotiated with arms companies from around the world, how exactly can we produce a procurement system that is completely transparent? 

ERIC VAN BEMMEL
It seems like military procurement tends to attract scandal.

PRAMIT PAL CHAUDURI
Yes.

ERIC VAN BEMMEL
Are there examples out there internationally of clean processes?

PRAMIT PAL CHAUDURI
Well one of the things we've been looking at is Australia.  Australia buys 70% of its weapons from the United States through the so-called foreign military sales program, FMS program, which is the Americans have and it is effectively a government to government transaction.  It is not a private company to government transaction. And it is like a Sears catalogue where the price of everything is fixed in the catalogue and you basically say I want this, this and this and there's no bargaining, no nothing.  The price that is there in the catalogue is what you pay.  So in effect you probably pay a little more than you need to, you won't get the discounts but politically its easy for you to say look, we just went by the book, there's nothing, absolutely nothing, extra, additional, that is not carefully listed in this. 
So India's been investigating whether the FMS program that the US has is something that can be applied across the board to what its purchases are everywhere in the world.

ERIC VAN BEMMEL
We are speaking about pathways and impediments to greatness for India on this episode of Up Close coming to you from the University of Melbourne, Australia.  Our guest is foreign editor of The Hindustan Times, Pramit Pal Chaudhuri.  I'm Eric van Bemmel.  Now Pramit, India's rise is going to need massive inputs of energy but you've written that simply buying more reactors, developing more oil and gas fields, is not the solution, at least not in a strategic sense.  So what has to happen?

PRAMIT PAL CHAUDURI
Well the big change in India's energy policy has to be domestic and it has to be driven by the need to get our pricing right.  We have very large subsidy structure for kerosene for example and diesel.  This results in enormous wastage of both diesel and kerosene in the country.  We need to get natural gas pricing correct.  At present there's a huge battle because farmers want to take a lot of the gas to produce urea in fertiliser which then they demand should be below market rates and they have enough votes to make this happen.  This results in a stunted natural gas industry because there's no money to invest in infrastructure. And an unwillingness to set up the huge capital expenditure required for natural gas development. 
The coal industry of India is nationalised.  The bulk of it is nationalised in one company called Coal India which I would argue is probably the most inefficient coal company in the world.  It's reluctant to mine below 150 metres, it stops.  It's just strip mining.  It wastes a lot of coal.  It's riddled with corruption and the Government has been trying to figure out how to privatise coal now for almost 20 years and has faced enormous union resistance in particular.  So these three largest energy sectors of the country, petrochem, natural gas, coal, have to be changed dramatically internally for us to be even able to use the stuff efficiently and as long as we use it inefficiently we will 1), use more than we need to, we will 2), us it in ways that probably don't help our economy in the long run and for which there are other alternatives, and 3), it forces our companies in particular to go overseas looking for assets in coal, for example, and petroleum to a lesser extent which probably they don't need to.
So on all these fronts we need to get these right but the core of the problem is domestic, it's not an overseas issue.

ERIC VAN BEMMEL
Now moving on to matters industrial. If we speak these days about large corporations as mini states of a sort in their own right, then it's not really a stretch to say firms in the private sector formulate their own foreign policies and you mentioned earlier in this conversation about the influence of private firms on non-foreign policy in India.  Can you tell us about the foreign policies of India's more dynamic companies and how this can help drive India's strategic interest?

PRAMIT PAL CHAUDURI
Well let's go look at a couple of these big companies.  The most famous group is the Tata Group which controls Corus steel or what used to be called British steel in England, Tetley Tea, produced the world's cheapest car, the Nano, very recently and also owns India's biggest software company, TCS.  The Tata Group is highly diversified.  It's got a finger in almost every pie but it's been very focused on technology and when it goes overseas to purchase companies it purchases largely in western, Anglo-Saxon nations and this has actually been a pattern that is now followed by most Indian companies when they go overseas.
They do a fair amount of acquisition but their preference is for countries which have Anglo-Saxon legal systems.  They don't buy very many companies in Japan, they buy absolutely nothing in China and this is an obvious consequence of the fact that our own corporate structure is effectively an Anglo-Saxon one, it's based on a British model and most of our premier executives are trained in business schools in the west.  So therefore they will tend to prefer something like that but the Tata have gone to - for example, England has been their country of primary focus.  They bought Jaguar, Land Rover, British Steel, Tetley Tea.  Tata is now the biggest single private employer in England.  It's bigger than any other British company which is a bit strange because now as Tata executives say when we now go to other countries and we bring along the Indian High Commissioner and the British High Commissioner because his job is now to support us as well.  So Tata in many ways is now becoming almost an Indo-British company to some extent but it's achieved a very good reputation because it's already converted - almost all of its shareholdings are held by a charitable foundation, the Tata Foundation.  Seventy per cent of the company has effectively already become a giant philanthropy. 
The second biggest company in India is Reliance Corporation.  This is our petrochemical giant and it's one that is probably the most politically savvy among all of the companies.  Now it's very interesting because Reliance Corporation has focused very much on technology and software in oil and gas, rather than the ownership of oil and gas fields.  They own almost none.  They have a few gas fields in India, they own very few overseas but what they are very good at is refining.  They have mastered heavy crude refinery technology.  They have the world's biggest refineries in this area.  They have software driven exploration technology.  They have brilliant forward trading software capability in terms of spot market buying and selling. When I talk to Reliance executives they say we don't go in the business of buying oil and gas fields because it's not commercially viable, it doesn't give you a very high return on profit.
The result of this is interesting, India, unlike China, doesn't go out and buy oil and gas.  It has bought almost a fraction, almost less than 1% of the oil and gas fields that China has bought overseas, because our companies don't believe it's worthwhile.  They see that as basically a supply and demand issue, let somebody else extract the oil, the real money lies in actually developing the oil, selling the oil, trading the oil later on and the result is a completely different energy model overseas. And I actually once was speaking to the Saudi oil minister, Sheikh Naimi and I was asking him about this and he said yes, your country's companies are so resistant to the idea we actually offered them gas fields at virtually no price. We just said come and take it because we want India to be more involved in Saudi Arabian oil.  They came and they looked at the fields and they said, we're not interested.
They said give it to somebody else and we will buy that gas from that other company and then we will do something with it but the gas field itself we don't enter that business.  So the model is completely different and it's also curious because it's a non-threatening way to go about your business overseas.  Governments are scared when people come and say I want to buy everything in your soil.  They're not so scared when they say you take it out any way you want, we'll take it and we'll do software with it.

ERIC VAN BEMMEL
I was going to ask you originally what can India learn from the Chinese example but I think it's more about what the Chinese can learn from India the way you make it sound.

PRAMIT PAL CHAUDURI
Yeah, the Singaporean former Prime Minister, now Minister Mentor, Lee Kuan Yew once told my Prime Minister, Manmohan Singh, at one of the east Asia summits, he says the interesting difference between you and China is that the rise of China, despite their proclamations that it is quiet and peaceful, scares everybody.  The rise of India, despite the fact that you say absolutely nothing about it, doesn't scare anybody and he asked what's the secret and Manmohan Singh said, I have absolutely no idea and I think the difference ultimately when you go to places like Africa, the Middle East or Central Asia and definitely with the Americans has been that the rise of India is about the rise of Indian civil society, it's about the rise of corporate India, NGOs in India, which there are now about five million.
It's the rise of a free press.  We have 70,000 newspapers and magazines in India last I checked.  It's the rise about everything except the Indian state which continues to be highly dysfunctional and small and shrivelled and does not know how to operate very wel. And it's of course the rise of a democratic structure.  There are now five million elected officials in India and about 600,000 million people cast their votes.  The Chinese rise is about the Chinese state.  In fact, the Chinese state tends to crowd out almost everything else in China, it's so wary about allowing a degree of civil society.  States will think automatically strategically.  Civil society doesn't think strategic, or very rarely strategic.  So governments that deal with India end up dealing not with the Indian Government, that tends to be the last thing they deal with, it's really Indian corporations, Indian NGOs, Indian academics, Indian media and the last step is the Indian state which they come along and they say, well you're actually quite irrelevant to all of this, aren't you, you just facilitate, that's about as far as you can do. And this doesn't scare anybody.
Why should it scare anybody because these companies and so on are far too small for a state to be worried about and in fact I was once talking to Nick Byrnes, who was at that point a number three in the US Department of State during the Bush administration and I was asking him, I said, why is America prepared to invest so much in India diplomatically and otherwise, given that we're not even an ally, we're not a treaty ally, and who knows one day we may become an enemy of yours?  He said to me, he said, look in 50 years from now whatever you may be, you may or may not be a super power, I'm not going to go into that, but you'll still be a democracy and nobody in the United States believes a democracy can ever be an enemy of the United States.  In fact, nobody really believes a democracy can really be very threatening to anybody because democracies are so focused on their own internal issues.
Fifty years from now nobody in China knows what China is going to be.  The Chinese definitely don't know.  We've asked them, they said we have no idea what we'll be in 50 years.  They could be something wonderful or they could be something really terrible but we have to hedge.  Everybody has to hedge against China because they don't know where it's going.  Everybody knows where you're going, so therefore nobody is really particularly bothered.


ERIC VAN BEMMEL
Pramit, India's ambitions depends most of all on economic growth of course and as China did before it India needs to focus on export led growth.  India's already made a name for itself in services exports but goods manufacturers almost inevitably – well, it's going to have a play a major role.  So how India ensure it can get its manufacturing act together and where does domestic consumption fit into the medium to long term?


PRAMIT PAL CHAUDURI
Well the four drivers by which economists calculate GDP growth is government, consumption, investment and exports.  Now in China it's been investment and exports that have dominated the drivers of the growth, hence the enormous investment in infrastructure for example that we see in China.  In India it's been government and consumption, particularly consumption, that has been the driving force of India's economic growth.  Now in the past 10 years the reason why India's economic growth has gone up from about 6.5 to what it is now, roughly 8% to 9% growth, has been that investment has now taken off.  Investment has risen to about 33% of GDP.  So in fact we now have two engines on the economy.  Government expenditure has been roughly flat but it's been consumption and investment that are now driving the economy. 
Now the question is exports.  Now there are two points.  What we do export very well is services, that's with our software, medical, tourism, pharmaceuticals, engineering services, we're a huge exporter of services, one of the biggest in the world. Manufacturing is something we are looking at.  It's not something we're very good at because of the infrastructure problems but as the investment builds up infrastructure is improving and as a consequence we're starting to see manufactured goods take off, as an export area.  It's tough to compete with China but what is interesting in India, and this was something that I think the Indian Government didn't notice, it was in fact the Japanese and the Germans who came to us and pointed this out, they said what is interesting for us is that in precision engineering products India is becoming a world beater.
The Japanese have a prize called the Deming Prize which is given for total quality manufacturing, this was supposedly the great secret that led to the rise of Japan as a great manufacturing power.  The Japanese give the Deming Prize to the best total quality manufacturing companies in the world every year.  Ninety per cent traditionally all of these prizes have gone to Japan.  Germany gets a few, Koreans get a few, nobody else really.  The Japanese came in and said to us a few years ago, they said quietly, without the Indian Government noticing, Indian companies have been winning Deming prizes.  So many that in fact as of now after Japan the second largest holder of Deming prizes in the world is the Indian private sector.
Indian companies are beating Japanese and German companies in precision auto components.  This has been a shock to both Germany and Japan and they have basically now come to India and are beginning to invest and move their factories here because they said, not only are you beating us in certain precision engineering, you're doing it at one tenth the labour cost, which means you'll have us for breakfast in 20 or 30 years.  This is classically Indian.  This is something that has taken place without the Indian Government having any idea or doing anything about it.  It's just been the private corporate sector, Indian entrepreneurs and Indian software engineers combining their forces all on their own and deciding how to do this.
The result now, the Americans tell me, is that in aerospace, space, all of the highest precision engineering areas, we're starting to see an explosion of Indian manufactured exports and it's an area where the Chinese simply don't exist.  I've asked the Japanese.  I said, well what about China?  They said, China doesn't have software capability, they'll never develop this or if they develop it, it will be so far in the future we're not really thinking about it.  So manufactured exports is going to be I think the big story in about 10 or 15 years from India once this develops sufficient momentum but it's going to be in a very different area of manufacturing from what China does.


ERIC VAN BEMMEL
Probably finally and briefly, we hear a lot about the power and influence of sovereign wealth funds as a driver of power and status on the global stage.  Shouldn't the creation of a sovereign wealth fund by a proactive step for India as well?

PRAMIT PAL CHAUDURI
Well, yes it's been debated intensely in India and I think the main reason why it hasn't taken place is because we have an independent central bank and they control the foreign exchange reserves of India and they have basically said they've done their studies and they've come in and they've said we think sovereign wealth funds are a total waste of money.  They're saying that if you have excess capital it's better to give it to the private sector and let them invest it.  Second, who exactly is going to control and manage a sovereign wealth fund because the Central Bank doesn't want to manage this, we don't have a Goldman Sachs branch because we think it's a conflict of interest and we don't want the Indian finance ministry handling it because they have no idea how to do this either. 
So the end result is that nobody wanted to ended the sovereign wealth fund of India.  It was proposed, it was shot down by the Central Bank, the Government of India was not so excited.  Eventually I think in the media we concluded the only reason there was even a debate was that because everybody else had a sovereign wealth fund so therefore India should have one.  In 2010 it was actually raised in Parliament.  Parliament pushed a recommendation for a sovereign wealth fund.  By the time the recommendation was finalised it had been whittled down to all of $20 billion which as the Central Bank pointed was so small it was hardly worth wasting any time to set up so it died again and it has now almost given up.  The Government finance minister actually announced some time ago, he said India is not in the business of sovereign wealth funds.  We don't actually think it's compatible with a liberal democracy and definitely we can't fight the Central Bank and they're dead against it.  So it's died repeatedly and I think now it's pretty much buried.

ERIC VAN BEMMEL
Our guest this episode of Up Close has been Pramit Pal Chaudhuri, foreign editor of The Hindustan Times, a major English language national daily newspaper based in New Delhi.  Listeners can also find Pramit's columns in The Hindustan Times online at hindustantimes.com.  Pramit, thank you very much for being our guest today on Up Close.

PRAMIT PAL CHAUDURI
It's been a pleasure.

ERIC VAN BEMMEL
This episode of Up Close is supported by the Melbourne Festival of Ideas 2011.  For more information on the festival please visit ideas.unimelb.edu.au.  Relevant links, a full transcript and more info on this episode can be found at our website at upclose.unimelb.edu.au.  Up Close is a production of the University of Melbourne Australia.  This episode was recorded on 9 March 2011 and produced by Kelvin Param and me, Eric van Bemmel.  Audio engineering by Gavin Nebauer.  Up Close is created by me and Kelvin Param.  Thanks for listening.  Until next time, goodbye.


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