is the U.S.

military-industrial complex that has gained the most from President Barack Obamas
visit. India is closer to becoming a member of a quadrilateral military axis involving the U.S., and a
number of deals have been inked that may make India dependent on U.S. military technology in the
long run. By JOHN CHERIAN
United States President Barack Obama seems to be a man in a hurry in his final two years in office. His critics, on the other hand, say
that lame-duck Presidents usually spend their last two years in office visiting foreign climes. Though Obamas visit to India from
January 25 to 27 was big news here, it did not get as much traction back home in the U.S. The U.S. media were more focussed on the
Indian Prime Ministers sartorial tastes and his propensity to address key Western leaders by their first names. Narendra Modi tried
to convert the Obama visit into an Indo-U.S. love fest. Before the U.S. Presidents visit, the Indian government asked Indian private
companies to cut imports of oil from Iran. Industry experts in Dubai said that India was bowing to U.S. pressure. India does not
want the Obama visit to be overshadowed by some dispute over (American) sanctions on Iran, Robin Mills, an oil consultant based
in Dubai, told Reuters. To sanitise the capital before the arrival of the U.S. President, the government deployed over 50,000 security
personnel and installed an additional 15,000 CCTV cameras.
In the last months of the United Progressive Alliance (UPA) government, relations between Washington and New Delhi had become
slightly frosty in the wake of the Devyani Khobragade incident. The U.S. Ambassador, Nancy Powell, had to leave New Delhi without
completing her term. Besides the Devyani Khobragade incident, Nancy Powells initial reluctance to meet a politically ascendant
Modi, who was denied a U.S. visa at the time, was a factor that could have hastened her exit from India after the Bharatiya Janata
Partys (BJP) victory in the Lok Sabha elections. Now, with both the Indian Prime Ministers Office (PMO) and the Foreign Office
deciding to put the Devyani Khobragade incident on the back burner and Washington wholeheartedly embracing Modi, relations are
firmly back on track. Many pro-establishment commentators are even saying that if Modi and his close advisers have their way,
India will soon end up as one of the closest allies of the U.S. in the region, junking time-tested foreign policy principles like nonalignment and strategic autonomy along the way.
Brajesh Mishra, National Security Adviser in the first National Democratic Alliance (NDA) government, had talked about a
Washington-Tel Aviv-New Delhi axis emerging. Under Modi, a much wider axis extending all the way to Tokyo could become a
reality. There are reports that the Indian side is even willing to partner the U.S. in counterterrorism in West Asia and Africa.
Americas war on terrorism has led to much greater instability in Indias neighbourhood and many other parts of the world. It has
led to the emergence of more potent terror groups like the Islamic State (I.S.). Countries which have joined the U.S. in the so-called
war on terror have had to pay a heavy price.
The Indian Prime Minister broke with established protocol and went to the airport to receive the U.S. President. He promptly
greeted Obama with a hug, like a long-lost friend. Many more hugs were exchanged between the two leaders before Obama left
Delhi. When the Chinese and Russian Presidents were in New Delhi, they were received as per protocol. There was only a formal
shaking of hands. The Indian Prime Minister has reserved his hugging so far only to two other leaders, the Prime Ministers of
Japan and Australia, Shinzo Abe and Tony Abbot respectively. As The New York Times reported, Modis action symbolised a
quadrilateral hug.
India, the U.S., Japan and Australia conducted quadrilateral military exercises in the Indian Ocean in the last decade after signing
up for a quadrilateral military dialogue in 2006. That dialogue process has since lapsed after a previous Australian government
opted out of it. India, under the UPA government, was wary about the quadrilateral axis emerging against China in the region. But
now, Abe is back and Australia has a hawkish Prime Minster in Abbot. It has been reported in the U.S. media that it was the Indian
Prime Minster who was very keen during his talks with President Obama to revive the quadrilateral security network. Abe and Abbot
have been urging more intense defence and security cooperation between the four countries since last year.
Town hall speech
Modi and Obama also jointly recorded a radio programme, Mann ki Baat, in which the Indian Prime Minister waxed eloquent
about his friendship with Barack Obama. It was only on the last day of his visit that Obama addressed the question which has been
worrying civil society in India and human rights groups internationally. In his carefully choreographed town hall speech, the U.S.
President, in a none-too-subtle message to the Modi administration, said that it was important for the Indian government and
people to ensure the sanctity of Section 25 of the Indian Constitution, which guarantees the freedom of religion. Obama warned
against the dangers of dividing society on sectarian lines. Every person has the right to practise his faith without any persecution,
fear or discrimination. India will succeed so long as it is not splintered on religious lines, Obama told his audience, comprising
mainly young university students. The increasing number of atrocities and the rise of religious fundamentalism in the wake of the
BJP coming to power have not gone unnoticed in the wider world.
One of the Obama administrations major initiatives is the U.S. militarys pivot to the East. American policymakers have calculated
that a rising China can only be effectively contained if major countries like India lend a helping hand to the project. It is no surprise
that during talks in New Delhi with the Indian Prime Minister, the subject of more military cooperation between the two countries
was one of the key issues that came up for discussion. The U.S. has been working overtime to ensure that India ends up as the
southern anchor in its pivot to Asia.
The other important issue that the U.S. President had on his agenda was to persuade the Indian government to relax provisions
relating to the nuclear liability Bill so that U.S. companies could start building civilian nuclear reactors in the country. Big U.S.
companies like Westinghouse and General Electric had serious reservations about Indias nuclear liability law and have so far
refused to go ahead with projects in India. President Obamas decision to make a second visit to India and agree to be the chief guest
at the Republic Day celebrations at short notice indicated that the Indian government had signalled that it would be giving
concessions to the U.S. on some key issues that have been irritants in the bilateral relations between the two countries.

After talks with the Indian Prime Minister, Obama announced that a breakthrough had been achieved on the implementation of the
nuclear deal and that the U.S. would be committed to its full implementation. The George W. Bush administration had lifted its
moratorium on the sales of nuclear fuel and reactor components to India in 2006 after the nuclear deal was signed between the two
countries. Both sides have not been forthcoming about the details of the current deal. In fact, there was no mention of the
breakthrough figures in the joint statement released after the bilateral talks. The Indian side has not formally diluted the nuclear
liability law as initially demanded by the big American companies. According to American officials, the Indian government will
provide extra security to foreign companies involved in the construction of nuclear reactors. Under the nuclear liability law,
foreign companies would have had to pay hefty compensation in case of accidents.
Indian officials have said that the government will help set up an insurance pool that will considerably minimise the compensation
to be paid by American companies in case of an accident. According to reports, the secretive deal to override the nuclear liability
clause involves Indian taxpayers and Indian insurance companies picking up the bulk of the tab in case of a nuclear accident. The
Bhopal gas tragedy is still fresh in the minds of the Indian public. The Fukushima nuclear disaster two years ago has cost the
Japanese government more than $20 billion. GE Hitachi, the American-Japanese company bidding for a contract in India, has
signalled that it will only start work after the Indian government is in compliance with the international Convention of
Supplementary Compensation, a global liability accord. In response to India diluting its stance on the nuclear liability issue, the
U.S. government has given up its claim to exercise control in perpetuity over all nuclear equipment and parts supplied by U.S.
companies. The Obama administration agreed with the Indian viewpoint that the International Atomic Energy Agencys (IAEA)
supervision would suffice.
As expected, the two countries agreed to renew their defence framework agreement for another 10 years. The two governments
agreed to further step up cooperation between their militaries. The agreement will provide for more joint military exercises, with
particular focus on naval exercises to enhance maritime security in the Asia-Pacific region. The maximum number of joint military
exercises India holds annually is with the U.S. The two countries have laid out a vision document that spells out the contours of a
new alliance.
As leaders of the worlds two largest democracies that bridge the Asia-Pacific and the Indian Ocean region and reflecting our
agreement that a closer partnership between the United States and India is indispensable to promoting peace, prosperity and
stability in those regions, we have agreed on a Joint Strategic Vision for the region, the joint statement said. The statement
explicitly affirmed the importance of safeguarding maritime security and ensuring freedom of navigation and over-flight
throughout the region, especially the South China Sea. The joint statement reflected the U.S. world view on most of the other
contentious international issues, including Iran and North Korea. North Koreas ballistic missile programme was criticised. The joint
statement said that it was up to Iran to prove that its nuclear programme was exclusively peaceful.
The joint statement called on parties (read China) to avoid the threat or use of force and to pursue the resolution of maritime
disputes through peaceful means. Reports in the U.S. media said that Obama and Modi spent a substantial amount of time
discussing China during their talks. American officials were quoted as saying that with India now officially coming on board, the two
countries can do much more to restrain Chinas ambitions and preserve the post-war order in the region. As a quid pro quo for
Indias open support for the U.S. rebalancing in East Asia, the Obama administration has, in the joint statement, announced
support for Indias bid to join the Asia-Pacific Economic Forum. President Obama also assured India of the U.S. support in its bid to
join the Nuclear Suppliers Group (NSG). Key members of the NSG remain opposed to Indias membership. All members of the 48nation group are signatories to the nuclear Non-Proliferation Treaty (NPT).
The U.S. Deputy National Security Adviser, Ben Rhodes, told the American media in New Delhi that the Obama visit would send a
message to the world that India and the U.S. were going to be closer partners going forward and that the new partnership was
consistent with the Presidents focus on the India-Pacific region. Both sides have indicated that the number of joint military
exercises to be held annually will go up significantly. Under the Defence Trade and Technology Initiative (DTTI), the U.S. plans to
sell to India transformative technology to co-produce military hardware like the Javelin anti-tank guided missiles and MH-60
helicopters. The man credited with creating the DTTI is Ashton Carter, who will soon be taking over as the U.S. Defence Secretary.
In the coming two years, India has indicated that it wants to buy 22 Apache helicopters, 15 Chinook helicopters, four P-81 maritime
patrol planes, six C-17 Globemaster III aircraft and other high-tech equipment. The combined price tag would exceed $8 billion. The
long-term goal of the American arms manufacturers is to overtake Russia as the biggest weapons supplier to India.
The U.S. military-industrial complex will have sufficient reasons to be happy. Unlike the Russians, the Americans are reluctant to
make in India and part with their advanced technology. Agreement has been reached only to co-produce relatively unsophisticated
Raven drones, surveillance systems for Lockheed C-130 planes and jet engine technology. There are fears that under the DTTI
signed in 2012, India will become increasingly dependent on American military technology. The Americans have indicated that
meaningful transfer of technology will only happen if India signs the Logistics Support Agreement (LSA). The LSA will give the
American military access to lily pad bases on Indian soil. The previous Indian government was of the view that the LSA would
impinge adversely on Indias strategic autonomy. The Modi government does not seem to have any such inhibitions as it has signed
on to Americas strategic designs in the Asia-Pacific region.

HURDELS
AN impasse in India expanding its nuclear power programme following the deal with the U.S., which
came into force in 2008, has been resolved thanks mainly to the creation of an insurance pool to cover
liability, but there still remains a big gap between the cup and the lip. By R. RAMACHANDRAN

The most important outcome of President Barack Obamas visit to India was the breaking of the
logjam in the implementation of the civil nuclear cooperation agreement (or 123 Agreement)
between India and the United States, which came into force on December 6, 2008. The
agreement was in limbo following the provisions of supplier liability in the Indian Civil Liability
for Nuclear Damage Act (CLNDA) of 2010.
The CLNDA allows the operator of a nuclear power plant (NPP) to channel the operators legal
liability in case of a nuclear accident to supplier(s) of nuclear equipment, goods and services
partly or whollythrough its Right of Recourse (ROR) provision (Article 17; see box) under
some conditions. However, the international norm as codified in the three conventions, two
operational and one yet to come into forceis of strict and absolute liability of the operator
alone, irrespective of the cause of the accident, and thus the suppliers stand totally indemnified.
These provisions of the CLNDA apply equally to both domestic and foreign suppliers. In the
Indian context, there is only one NPP operator as of nowNuclear Power Corporation of India
Ltd (NPCIL), a public sector undertaking (PSU) under the Department of Atomic Energy.
Domestic suppliers, such as L&T and Walchandnagar Industries, had all along enjoyed
indemnity against nuclear liability under the provisions of the General Conditions of Contract of
NPCIL before the CLNDA was passed (Frontline, December 16, 2011).
The entry of foreign nuclear suppliers to NPCIL is, however, new. This has happened pursuant to
the India-specific waiver given by the Nuclear Suppliers Group (NSG) for nuclear supplier
countries to engage in nuclear trade with India even though India does not wish to have full
scope or comprehensive safeguards of the International Atomic Energy Agency (IAEA) on its
soil. At present, the foreign suppliers include Rosatom (Russia), Areva (France) and
Westinghouse and General Electric (U.S.). They have been allocated specific sites to build NPPs.
According to Article 6 of the CLNDA, the maximum amount of liability for any nuclear incident
is the rupee equivalent of 300 million SDRs (whose current value is about Rs.2,600 crore) and
the maximum liability for the operator of an NPP is Rs.1,500 crore. The chief concern of these
suppliers was that the provisions of Article 17 were open-ended and they could be vulnerable to
unlimited liability over an unlimited period. Another issue of their concern was Article 46 (see
box), which allows for initiation of tort and other criminal proceedings against the operator under
other Indian laws independent of the operators liability under the CLNDA. The suppliers felt
that rulings under these could also have a bearing on them. The suppliers had, therefore, wanted
clarity on these issues and sought appropriate cover for the risk they entailed before they could
ink any commercial contract with NPCIL. Even domestic suppliers were not ready to supply
items for the upcoming indigenous Pressurised Heavy Water Reactors (PHWRs) unless the issues
were clarified properly.
International conventions have the ROR provision but only under the extraordinary
circumstances of demonstrable act with intent to cause damage by the supplier. The Indian Act,

however, goes beyond the international practice (operationalised either through the conventions
or through enacted domestic laws of countries) and provides for ROR in any nuclear accident,
provided the operator can prove in a court of law that the accident was caused by the latent and
patent defect(s) (Article 17 (b)) in the suppliers equipment.
India is not a party to the two conventions in forcethe Paris Convention of 1960 and the
Vienna Convention of 1977but is a signatory to the Convention on Supplementary
Compensation (CSC) of 1997, which is promoted by the IAEA. Article 10 of the CSC provides
for ROR when it is expressly provided for in the [operator-supplier commercial] contract or if
the nuclear incident results from an act or omission done with the intent to cause damage.
The CSC requires that the domestic nuclear liability law of a country that is not a party to the
Paris Convention of 1960 or the Vienna Convention of 1977 should be consistent with certain
provisions laid down in the Annex of the CSC, which include the operators right of recourse
(Article 10). Given the CLNDAs Article 17, the Indian Act would seem to be not in conformity
with the international nuclear liability regime, either the CSC or the other conventions.
The rules for the implementation of the Act (CLND Rules), which would form the basis for how
the law would be interpreted and enforced, were notified on November 11, 2011, with which the
Act too became operational (Frontline, December 16, 2011) effective that date. Most
significantly, the Rules clarify that question of open-endedness of supplier liability. They limit
both the time period for which ROR can be exercised and the extent of the suppliers liability.
The latter is capped below the operators liability, which, according to Article 6(2) of the Act, is
Rs.1,500 crore, and the value of the contract. That is, if the value of the contract is more than
Rs.1,500 crore, the suppliers liability will be capped at Rs.1,500 crore and if it is less the
suppliers exposure will only be equal to the value of the contract. In the case of the former, ROR
can be exercised only until the initial licence period or the product liability period, whichever is
longer. The licence period, according to the Atomic Energy (Radiation Protection) Rules, 2004,
is, unless otherwise specified, five years from the date of issue of such licence. The product
liability period is the period for which the supplier has undertaken liability under a contract for
patent or latent defects or substandard services.
However, despite the explanations offered in the Rules, some of the issues have remained
somewhat vague, leaving room for continued misgivings among the suppliers. For instance, in
Article 17, with appropriate articles of conjunction (andor) missing, it is not clear if the
subclauses (a), (b) and (c) are to be taken together, or are applicable separately, or (a) is
mandatory and would go with either (b) or (c). If they are applicable separately, then, since the
Rule does not refer specifically to the contentious Article 17(b), the caps on the extent of liability
and the extinction period mentioned above become somewhat ambiguous.

Similarly, while Rule 24 does define a supplier, which the Act did not, the way this rule has
been constructed still leaves room for ambiguity. Only recently it has been clarified that domestic
companies supplying nuclear equipment for the NPPs are not suppliers as per this definition,
something which was not obvious even to the domestic companies, let alone commentators or
the public. They are vendors who are distinct from suppliers.
Rule 24 (b) says:
supplier shall include a person who
(i) manufactures and supplies, either directly or through an agent, a system, equipment or
component, or builds a structure on the basis of functional specification; or
(ii) provides build to print or detailed design specifications to a vendor for manufacturing a
system, equipment or component or building a structure and, is responsible to the operator for
design and quality assurance; or
(iii) provides quality assurance or design services (emphasis added).
Since, in the Indian context it is NPCIL which provides build to print or detailed design
specifications to domestic companies, it is both the operator and the supplier and Indian
companies are vendors. Given this explanation, domestic companies will not be subject to the
operators ROR through Article 17(b&c) and will not have any liability in case of a nuclear
incident, unless they too begin to evolve functional specifications and develop their own designs.
This could happen in the future, and L&T, according to a company official, is already beginning
to do so. This would mean that L&T (or any other company) could graduate from vendor status
to supplier status, and would have to take an appropriate insurance cover from the Indian
insurance pool.
Interestingly, as pointed out by an official of L&T, a recent tender issued by NPCIL for the
proposed 700 MWe PHWR units in Haryana, shows that despite all these clarifications through
Rules and other means, the tender uses the term Contractorneither supplier nor vendor for
a firm/company/ joint venture/ consortium with whom or with which the purchase order for the
supply of Stores is placed [by NPCIL]. The tender also states, Purchaser shall have a right of
recourse against the Contractor in accordance with the provisions contained in The Civil
Liability for Nuclear Damage Act, 2010 (38 of 2010) and The Civil Liability for Nuclear
Damage Rules, 2011, as may be amended from time to time. This has led to a lot of confusion
among Indian companies wanting to bid for the contract. It is not clear whether, despite being
termed as vendors via Rule 24, Indian companies are exposed to liability through ROR or not.
This matter is yet to be sorted out and there could be other such blunders in other NPCIL tenders,

which have prevented Indian companies from bidding for selling goods and services for
forthcoming NPPs.
Article 8(1) mandates that the operator, before beginning the operation of a nuclear installation,
take appropriate insurance cover or financial security. Article 8(3) says that 8(1) is not applicable
to nuclear installations owned by the Central government. Commentators have always
understood this to mean that NPCIL, being a PSU, will fall under this category and will not
require any insurance cover. But it was recently clarified that NPCIL, according to the Law
Ministry, does not fall under this category and will require an insurance cover against the
stipulated Rs.1,500 crore liability. The Rules too do not state this explicitly.
As regards the other contentious issue concerning Article 46, while the word supplier is not
mentioned anywhere in it, an explicit clarification under the Rules on its applicability or not to
suppliers was lacking. Clarification in this regard actually comes from a reading of the dissent
note of Saman Pathak (of the Communist Party of India) in the Rajya Sabha Parliamentary
Standing Committee Report on the CLND Bill (No. 212 of August 18, 2010). In his note, Pathak
stated that he proposed an amendment to Article 46 to specifically include the supplier also in the
ambit of possible tort proceedings under other Acts, but the committee did not accept it. Given
the fact that the final Act does not mention supplier, the implication of Pathaks note is that the
legislature specifically intended that the supplier be excluded from the applicability of Article 46.
Nuclear Liability Issue
Besides the nuclear liability issue, the other outstanding issue was the administrative
arrangement with regard to implementing the Agreement and Procedures agreed to by the two
countries with regard to reprocessing of spent fuel in March 2010. Fuel in U.S.-built reactors, by
U.S. law, becomes obligated to the U.S. irrespective of where it was sourced from. The U.S. had,
therefore, demanded that it be allowed to track the movement of reprocessed U.S.-obligated fuel
even if the plants were under IAEA safeguards. This was not acceptable to India, which had
argued that the IAEA regime of safeguards were adequate and that should be sufficient to assure
the U.S. of its non-diversion. This administrative arrangement also seems to have been
favourably concluded now.
As regards nuclear liability, one could ask how it was sorted out between India and Russia with
regard to Kudankulam (KK) NPP units 3&4 during the visit of Russian President Vladimir Putin
in December 2014 when a commercial contract between NPCIL and Rosatom was signed for
KK-3&4.
The Indo-Russian inter-governmental agreement (IGA), which covers KK-3&4 as well as other
reactors to be supplied by Russia at KK or any other site in the country, was signed on December
5, 2008, two years before the CLNDA was put in place. Thus, the implications of the CLNDA

(on supplier liability) are not strictly applicable in the Russian case. Even if India decided to
terminate this agreement now in the light of the CLNDA, it had been agreed in the IGA of 2008
that its applicability to KK-Units 3-6 cannot be annulled.
Insurance pool
Key to the resolution of the impasse over nuclear liability in the Indo-U.S. deal has been the
coming together of the four big Indian insurance companies to create an insurance pool as a
consortium, which will provide the necessary cover to both the operator and the suppliers
(domestic and foreign). This is the kind of system that operates in major nuclear powerproducing countries such as the U.S., France, Russia and Japan.
As G. Balachandran of the Institute for Defence Studies and Analyses (IDSA) points out, given
the fact that nuclear accidents have been rare, insuring the nuclear industry is a profitable
business for insurance companies. For instance, in the U.S., where civil nuclear liability is
governed by the Price-Anderson Act of 1957, the consortium of American Nuclear Insurers
(ANI), which operates the nuclear insurance pool, has to date only about $304 million
[indemnity claims (chiefly towards the TMI accident) = $64.4 + litigation expenses = $243],
while all NPP operators of the 104 reactors in operation pay a total of about $100 m a year
towards an insurance cover of $375 m for each NPP site. Similarly in France, where there has
been no nuclear accident of level 5 or more, which would call for claims of civil nuclear damage,
the nuclear operator EDF has been paying an annual insurance premium of 6.4 m per unit for all
59 operating NPPs while the insurance pool has not had to pay towards any liability claims to
date.
Keen on implementing the Indo-U.S. nuclear deal fully, Prime Minister Narendra Modi and
President Obama established a contact group to sort out the vexing issues during the formers
visit to the U.S. in September 2014. In fact, according to sources in the Ministry of External
Affairs (MEA), about 15 days before the visit, informal negotiations to resolve the liability
conundrum began between U.S. and Indian officials. According to Sujatha Singh, who was the
Foreign Secretary during Obamas visit to India, based on three rounds of discussions (in New
Delhi, Vienna and finally in London) in the Contact Group during the past three months, the two
sides reached an understanding on both the outstanding issues, namely, the civil nuclear liability
and the administrative arrangements for implementing the 123 agreement.
Let me underline, she said in her post-Obama visit media briefing, we have reached an
understanding. The deal is done. Both these understandings are squarely within our law, our
international legal obligations, and our practice.
As part of the negotiations, the idea of the India Nuclear Insurance Pool (INIP) for providing
cover against the liability exposure of U.S. suppliers was also presented, which has apparently

convinced the U.S. side. There is a general bilateral understanding that our law is compatible
with the CSC, Sujatha Singh said. Given the clear non-conformity of our law with the CSC, this
statement should actually be read to mean that the U.S. will not raise any objection to the Indian
law with the CSC Secretariat now that its suppliers have been provided the necessary cover
against potential liability claims in the event of an accident. Also, as one analyst pointed out, the
U.S. would be keen to have South Korea, whose liability law also has an ROR provision, join the
CSC following the Indian precedent. It is learnt from MEA sources that India will soon be
ratifying the CSC as well. According to Sujatha Singh, the administrative arrangements for
implementing the agreement on reprocessing of spent fuel have also been finalised and they,
she said, conform to our bilateral legal arrangements as well as our practice on IAEA
safeguards. One would, therefore, naturally ask why this idea of an insurance pool for the
nuclear industry was not put in place three years ago once the CLND Rules were notified,
especially when a similar insurance pool against terrorism has been in place since 2002 with the
current exposure limited to Rs.1,500 crore. First, nuclear insurance is an entirely new area of
business that Indian insurance companies have no experience or familiarity with. Two, even their
combined capacities is not adequate to cater to the minimum insurance cover equal to the
maximum operator liability (of Rs.1,500 crore) mandated under the CLNDA due to regulatory
issues that prevent a higher risk exposure of these companies.
Since foreign insurance companies, on the other hand, are not allowed majority stake in the
Indian insurance industry, companies with experience in the field will not be willing to invest in
India. Reinsurance with foreign companies is also not possible because the Indian government
prohibits foreign companies from inspecting and rating the Indian NPPs for the purpose of
evaluating the premium that the operator would be required to pay. Resolution of these various
issues, coupled with events during the last couple of years that had slowed down the working of
the government system in general, resulted in this inordinate delay, said a former NPCIL official
who is now working with the insurance industry to finalise the insurance product that will be on
offer to the nuclear industry. According to MEA sources, the government is currently in the
process of dotting the is and crossing the ts so that a formal memorandum, giving details of the
working of the nuclear insurance pool, can be given to the U.S. government. It is also learnt that
the Russian government has been urged to take advantage of this insurance pool for its nuclear
plants construction activities in the future.
According to media reports, given the constraints imposed by the Insurance Regulatory and
Development Authority (IRDA), at present the combined capacities of the four insurance
companies for the purpose of the INIP stands at Rs.750 crore. What remains of the Rs.1,500
crore liability will be made good from a consolidated fund of India. But this government
contribution is expected to come down as the capacities of the companies grow over time.
Already, there are indications from the insurance companies that their contribution to the INIP
could be raised to Rs.900 crore. It is learnt that with its largest contribution to the INIP, the
consortium will be led by the General Insurance Company (GIC) of India. Of course, both the

INIP and the government will first have to arrive at suitable annual premium rates at which the
operator and suppliers will take their insurance cover policies with the INIP. A rough idea of
what the premium rates could be, and their impact on the nuclear power tariff, can be judged
from the following.
If a supplier, foreign or Indian, takes an insurance policy with the INIP for Rs.1,500 crore
liability, an annual insurance premium, say 0.1 per cent or 0.2 per cent, would be Rs.1.5 crore or
Rs.3.0 crore respectively. Given the current capital cost of a PHWR at about Rs.8 crore per
MWe, NPCIL can easily afford to pay Rs.1.5 crore for a (700 MWe) plant costing about Rs.6,000
crore. Similarly, a foreign supplier building a 1,000 MWe NPP costing about $1.5 b can easily
pay an annual premium of less than $0.5 million. The premium that the supplier will pay over the
reactor lifetime will naturally get front-loaded into the NPP costs.
The impact of that on power tariff will be insignificant given the current nuclear tariff of around
Rs.4/unit. NPCIL can also shore up its own financial resources towards meeting its operators
liability. For example, a 1,000 MWe NPP, operating for about 300 days, will produce about 720
units of electricity. A Re.0.05-surcharge/unit will generate Rs.36 crore a year. Given the current
total installed capacity of about 6,000 MWe, it will be able to generate about Rs.200 crore a year
towards a liability fund.
While the vexing issues that had led to an impasse in India expanding its nuclear power
programme following the Indo-U.S. nuclear deal, and the other developments that would allow
India to engage in global nuclear trade fully, now seem to be resolved, there still remains a good
gap between the cup and the lip. First, the mechanism of how the INIP will operate needs to be
spelt out in a White Paper or an FAQ document. Also, given the lingering confusions among both
the foreign and domestic suppliers/vendors, the government would do well to clarify the various
terms and explanations used in the Act and the Rules through a public explanatory document.
And then there are also public interest litigation (PIL) petitions pending in Indian courts, one of
them questioning the very constitutional validity of the CLND Rules, which need to be disposed
of before nuclear commerce that can help to significantly expand the Indian nuclear programme
can begin.

Provisions of the Act

Provisions of Concern to suppliers in the Civil Liability for Nuclear Damage Act (2010).
Article 17: The operator of the nuclear installation, after paying for the compensation for nuclear damage, shall have a right of
recourse where:
(a) such right is expressly provided for in a contract in writing;
(b) the nuclear incident has resulted as a consequence of an act of supplier or his employee, which includes supply of equipment or
material with patent or latent defects or substandard services;

(c) the nuclear incident has resulted from the act of commission or omission of an individual done with the intent to cause nuclear
damage.
Article 46: The provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being in force, and
nothing contained herein shall exempt the operator from any proceeding which might, apart from this Act, be instituted against such
operator.

Bending it for investors?

e Obama visit has fuelled the governments deep desire to woo foreign investors with major
concessions, possibly in bilateral investment treaties. Probably an indication of this is the decision not
to challenge the Vodafone judgment by the Bombay High Court on the claim made by the tax
department in the transfer of shares case. By C.P. CHANDRASEKHAR

President Barack Obama has returned to the United States after his whirlwind visit to New Delhi.
As the media and analysts pick up the pieces of real information concealed in the officialese in
which the joint and separate statements released after the visit are written, the picture that
emerges is one of a desire for a new strategic partnership that is still in the making. Even the
joint statement described it as a Joint Strategic Vision. This is true in the economic sphere as
well. The promise held out by the joint statement is to advance ongoing and often stalled
negotiations on trade and investment, besides other important areas such as intellectual property
and the digital space. No major deals have been struck.
There are two factors that would help this new effort at strengthening a tenuous alliance. One is
the Narendra Modi governments commitment to wooing American and foreign business. The
second is the desire of both the U.S. and Indian governments to limit Chinas growing influence
over the region and elsewhere in the world. The thrust, therefore, is to project India as an
alternative force in the region, with India expressing an interest in joining the Asia Pacific
Economic Cooperation (APEC) forum and the U.S. welcoming that initiative, as well as to play
on tensions between China and other countries in the region. India seems pleased, even though
few deny that there are no equal alliances in a world with wide variations in economic, political
and military might. India can serve at most as a junior partner.
As of now, assessed in trade terms, India needs the U.S. more than the latter needs India. U.S.
exports to India in 2013 were at $35.7 billion, and imports from India stood at $61 billion. The
implied $25.4 billion trade deficit reflected a steep rise from $6.3 billion in 2003. Moreover,
Indias services exports to the U.S. rose from $2 billion to $19 billion over this period, whereas
Indias imports of services from the U.S. had risen from $3.7 billion to $13.5 billion. In the
event, the U.S. recorded a deficit in its services trade with India as well, even though it had a
surplus in that area vis--vis the rest of the world. In 2013, India ranked a low 18th as a market
for U.S. goods, and U.S. trade with China was nine times as large as that with India.

Thus, the American plea for more market access in India seems to be strengthened by the figures.
This matters because for both leaders, strengthening a relationship, even if with strategic
objectives, requires winning sanction from their domestic constituencies. The difficulty is that
one set of forces, business in the U.S., is looking for new opportunities, markets and lucrative
avenues for investment and growth, just as Indias business interests are. Those interests would
be looking to see what they would gain from the quid pro quo that any restructuring of a
relationship involves.
In his State of the Union address just before he left for India, Obama made clear what he expects
from Asia in general and India in particular. When ninety-eight per cent of our exporters are
small businesses, new trade partnerships with Europe and the Asia-Pacific will help them create
more jobs. We need to work together on tools like a bipartisan trade promotion authority to
protect our workers, protect our environment, and open new markets to new goods stamped
Made in the USA. China and Europe arent standing on the sidelines. Neither should we. The
United States rather than China should write trade rules for Asia, he added.
Yet, there is a problem here because the main plank of Prime Minister Narendra Modis effort to
accelerate lagging Indian industrial growth by making India a manufacturing hub is to urge
foreign (besides domestic) industrialists to Make In India for export to international markets.
The only way to reconcile this apparent conflict of interests would be to open Indias markets to
U.S. business and provide investment opportunities to U.S. capital. Not surprisingly, besides
demands for greater trade liberalisation, there is an effort at reviving negotiations on a bilateral
investment treaty that began in 2008 but have not proceeded very far.
According to an official press release in New Delhi, the President (of the U.S.) and the Prime
Minister (of India) affirmed their shared commitment to facilitating increased bilateral
investment flows and fostering an open and predictable climate for investment. To this end, the
leaders instructed their officials to assess the prospects for moving forward with high-standard
bilateral investment treaty discussions given their respective approaches.
Bilateral treaties
Herein lies an area, besides others like intellectual property, in which the Indian government
would be under pressure to offer major concessions. Bilateral investment treaties have been seen
as substitutes for the Mulitlateral Agreement on Investment that failed to get off the ground in the
late 1990s. A subsequent effort on the part of the U.S. and the European Union to include it in the
World Trade Organisation (WTO) agreement was also stalled, with India playing an important
role in the process. The strategy since then has been to sign bilateral investment treaties (BITs),
with more than 2,000 reportedly in place. These treaties seek to define what is considered foreign
investment and include provisions for national and most favoured nation status to the signatories;
the assurance of fair and equitable treatment; promises to compensate in case of expropriation;

guarantees for repatriation of incomes and capital gains from sale of assets; and dispute
settlement measures in case of any conflict between the investor and the host state.
Since these agreements are bilaterally negotiated, there are differences across agreements
between different pairs of nations. But the tendency is for parties to define for themselves
templates with which they approach each individual negotiation. As is to be expected, developed
and predominantly investor nations try to win for themselves significant concessions and
important guarantees that implicitly privilege foreign investors over local ones.
One of the reasons why BITs have become controversial is that they are used as weapons to
oppose various industrial and tax policies adopted by host governments and to demand large
compensation on the grounds of violation of different clauses when such policies are
implemented. When this occurs, the difficulty is that BITs often include clauses that allow for
arbitration under an investor-state dispute settlement (ISDS) system, where the dispute can be
referred to an independent international arbitrator such as the International Centre for Settlement
of Investment Disputes (ICSID) or the United Nations Commission on International Trade Law
(UNCITRAL) or arbitration bodies run by private industry organisations. The experience from a
large number of countries is that the system tends to be unduly biased in favour of the investor
rather than the host state.
Cochabamba protests
Among the most infamous of them is the case in which the water multinational AdT (formed by
Bechtel and a consortium of investors) demanded $50 million as compensation from the Bolivian
government in a case filed with ICSID, based on a BIT between Bolivia and Holland, where
Bechtel had a paper-only registered office. The demand arose when the Bolivian government was
forced to reverse the privatisation of water supply in Cochabamba municipality in the aftermath
of protests triggered by hikes in water rates that led to large sections of the population being
deprived of access to water. The protests that followed worldwide finally forced Bechtel and its
investor allies to settle for a token payment of around 30 cents.
Such incidents have made some governments wary. Thus, a positive feature in the case of a
potential U.S.-India BIT is that in 2012 India developed a template for treaties it would
negotiate, which sought to address the problems that arose with an earlier template, the use of
which led to a series of arbitration notices and demands for compensation from companies such
as Vodafone. Not surprisingly, Indias current template differs significantly from the model treaty
favoured by the U.S.
In a guest post on Financial Times Beyondbrics blog, Kavaljit Singh has detailed these large
differences. They begin at the level of definition of investment, with the U.S. model favouring an
asset-based definition (that includes besides enterprises, financial instruments, real assets, and

even intellectual property rights). That allows a variety of policies to be challenged in the name
of BIT violation. The Indian template, therefore, focusses on investment by an enterprise with
substantial and long-term commitment of capital (which is supposed to be the vehicle for stable,
foreign direct investment).
Moreover, the U.S. template provides for pre-establishment national treatment, which precludes
full scrutiny of foreign investors and their intentions, and for most-favoured nation status, both of
which are not included in the Indian template. Finally, the ISDS in the Indian template can be
resorted to after all domestic measures of recourse have been exhausted with the foreign investor
barred from demanding arbitration if the domestic judicial system has ruled in favour of the host
government.
On the surface these seem to protect India against predatory foreign investment. These are all
only differences in the template and can be modified in the course of negotiations. It helps that
the details of those negotiations are not subject to parliamentary or public scrutiny. Given the
Modi governments desire to accelerate neoliberal reform and clearly align with the U.S. to
further its external economic and political goals, those concessions, like ordinances, could be
pushed through despite domestic opposition. The government has shown no reticence in revising
policies adopted by the United Progressive Alliance (UPA). The changed and ambiguous stand of
the National Democratic Alliance (NDA) after coming to power with regard to the civil liability
of equipment suppliers in case of a nuclear accident illustrates its willingness to go back on its
own positions. And the decision of the government not to challenge the Vodafone judgment by
the Bombay High Court on the claim made by the tax department in the transfer of shares case
points to its deep desire to woo foreign investors with major concessions. Tampering with an
investment treaty template, which can be done by the executive bypassing Parliament, is no
major challenge.

Behind the scenes

ck of definition and of transparency governed the entire trip. Deals were struck behind closed doors,
often to set aside parliamentary laws. By VIJAY PRASHAD

EMBLEMATIC of the visit of United States President Barack Obama to India was the single-file
queue of major Indian CEOs waiting to shake hands with Obama. There they were: the Ambani
brothers, Gautam Adani, Sunil Mittal, Ratan Tata, men whose names are embossed in gold. Not
often do these CEOs wait their turn. They are known to seize the moment. The concept of the
VVIPan extra V to enhance Veryis essentially an Indian term. It is a child of the
liberalisation era. These are VVIPs. But in the presence of Obama, they stood patiently in the
most orderly queue seen that evening in India.

The bonhomie between Obama and Prime Minister Narendra Modi set the terms for the media
coverage of the visit. This is a crucial aspect of contemporary public relations managers for
senior political figures. When Modi went to Australia, he was said to be best buddies with
Premier Tony Abbott (the Australian said that Modi is like a brother). Personal connections are
essential to highlight. Hugs and smiles, easy gestures and affection for each other on Twitter: this
sets the mood for the visit and governs the superficial media attention.
Behind the scenes, in the U.S.-India CEO forum and in the negotiations between the bureaucrats,
the real business of these trips is worked out. The CEOs complained about Indias loose
adherence to intellectual property laws and worried about too much regulation in Indian
industrial and financial law. They longed for a looser regime so that they can, in Modis tortured
phrase, Make in India. The government is taking initiatives to ensure ease of doing business,
promised Modi. His Niti Aayog chief, Arvind Panagariya, had written in Foreign Policy (the
journal of the U.S.-based Council on Foreign Relations) that Indian labour laws would be the
first to be reformed. Highly rigid labour laws, he wrote last June, have made entrepreneurs
terrified of hiring workers. Modi now promises these CEOs that he would lessen their terror.
Soon, labour laws will be eviscerated and investment will be able to operate untrammelled.
Obama agreed, Modi and I are interested in smart regulation. Smart regulation was left
undefined.
The lack of definition and of transparency governed the entire trip. Deals were struck behind
closed doors, often to set aside parliamentary laws. In 2010, the Indian Parliament passed the
Civil Liability for Nuclear Damage Act, which ensured that in the event of any nuclear accident
the liability vested with the suppliers. A year later, a terrible nuclear accident at Fukushima,
Japan, underlined the wisdom of such a law. Not only was public confidence shaken by the
Fukushima accident, but also public dismay was raised to fever pitch when the insurers refused
to cover the damages. Inoculation for private capital in the event of financial or industrial
disasters has become commonthis is what often passes by the name of reform. Profits from
these massive investments are guaranteed, but losses are to be borne by the public exchequer.
The deal is done, announced Foreign Secretary Sujatha Singh, indicating that the Modi
government has been willing to set aside the 2010 Act. U.S. firms General Electric and
Westinghouse can comfortably enter, respectively, Kovada (Andhra Pradesh) and Mithi Virdi
(Gujarat) without worry. The India-Nuclear Insurance Pool, a vague mechanism in case of an
accident, should not provide comfort to those worried about a disaster.
The Modi government put the word about that the liability arrangement would put India in
conformity with the Convention on Supplementary Compensation for Nuclear Damage (CSC),
a 1997 IAEA (International Atomic Energy Agency) framework that essentially shelters suppliers
from liability. Only a handful of states have signed on to the CSC, whose payout in the event of a
disaster is far less than promised by the IAEAs Vienna Convention of 1963. The U.S., one of the
signatories to the CSC, has made it clear that it would not be bound by its dispute resolution

mechanism. This being the 30th anniversary of the Bhopal disaster, it is correct to be watchful
about the promises of the U.S. government and multinational industrial firms, both of whom
joined the Indian government to let down the victims of the 1984 Union Carbide gas leak. Down
the hall from the pomp of the dinners and the hushed debates around Contracting Parties and
Public International Law, sat the merchants of defence and the architects of geostrategy. They
had two things before themthe push by the U.S. to draw India into its view of international
affairs, and the push to encourage India to buy U.S. weaponry. Hardeep Singh Puri, Indias
former ambassador to the United Nations and an adviser to the Bharatiya Janata Party (BJP),
wrote that the discussions sought convergence related to stability and security in the AsiaPacific and Indian Ocean regions. The undercurrent here is to suborn India into the narrative of
U.S. policyto Pivot to Asia, which is a polite way of saying to Encircle China. Modi and
Obama released a Joint Strategic Vision for the Asia Pacific and Indian Ocean, which poked a
finger in Beijings eyes. In the anodyne language of such statements, it called for maritime
security and respect for the U.N. Convention on the Laws of the Sea.
What is fascinating about this is that the U.S. objects to the Convention on the Laws of the Sea
on the grounds that the protection of seabed exploration and mining impinges on U.S. strategic
interests. Nonetheless, the Joint Strategic Vision refers to this Convention to assert the need for
peaceful waters, especially in the South China Sea. This is a direct challenge to Beijing. Visits
by Modi to Australia and Japantwo other pillars of the U.S. strategy to build a ring around
Chinaindicate that India has now drifted into a U.S. vision of Asian relations.
China reacted as it would. The Chinese Foreign Ministry suggested that such mention of the
South China Sea was a provocation. As an influential member of the Nuclear Suppliers Group,
China has indicated that it might block Indias membership. The NSG, which controls the
disbursement of nuclear material, was founded in 1974 in reaction to Indias test of a nuclear
weapon. Allowing India into this group would not only ease access to nuclear materials, but also
signal Indias removal from the nuclear pariah list. In aggravating China to please the U.S., Modi
went some way to undermine his own objectivesnamely to move India into the nuclear power
club.
India currently straddles two major international blocsthe U.S.-led alliance and the BRICS
community. It is not going to be easy for the Modi government to balance the two, especially if
the U.S.demands that India make inflammatory statements to affirm the U.S. position on world
affairs (namely on China, Israel and Iran). Despite all the excitement about economic deals, the
U.S. offers little to India apart from the import of U.S.-made goods into the Indian market. The
BRICS bloc offers far more, including energy security and mutually beneficial trade. It will not
be easy for the Modi government to navigate these waters, as the Chinese reaction to the Joint
Statement indicates. More caution in foreign policy should be the watchword.