Sunday, March 04, 2007

Indo-US Nuclear Deal: Energy Security vs Nuclear Deterrance

Rambo,
I have written an article on Indo US Nuclear deal, which is yet unpublished. I am sending it. If you wish you may circulate it. It won concurrence from Prof. M Anandakrishnan, Chairman IIT and MIDS.
Ranga.
IITM 1969 Batch
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Indo-US Nuclear Deal: Energy Security vs Nuclear Deterrance
by
V. Ranganathan
RBI Chair Professor
Indian Institute of Management, Bangalore

India’s current engagement with the US in dismantling the Nuclear apartheid is hailed by the Indian government and the foreign policy establishment as a sign of India’s growing economic strength as well as recognition by the incumbent Nuclear Club, of the fact that India too has arrived. There are others—particularly the left—who see this as a needless kowtowing to the uni-polar super power US, sacrificing national sovereignty and the lofty Nehruvian ideals of Non-alignment. The truth however seems to lie elsewhere.

It is to be noted that in the Indo US Nuclear agreement-in-the-making, the US Congress, through the Hyde Act, has made important exceptions to its general policy to enable India secure both technology and nuclear fuel. These include applying a waiver to the realities that India has conducted nuclear tests through the peaceful nuclear explosion route, that it is still having a weapons program called the strategic programme, and the fact that India will not sign the Comprehensive Test Ban Treaty (CTBT) and is also not a signatory to the Nuclear Nonproliferation Treaty (NPT). The US and UK themselves have signed but not ratified CTBT. It has also agreed to India’s condition that only its civilian programme would be open to Full Scope Safeguards, i.e. inspection by International Atomic Energy Agency, but not its strategic (i.e. weapons) programme. The benefit to India is expected to be the access to Nuclear technology as well as Nuclear Fuel by lifting the ban on the sale of nuclear fuel to India by the Nuclear Supply Group.
On both sides there is rhetoric and a different reality. On the US side, the rhetoric is that India’s energy consumption is bound to increase, and the Nuclear Agreement will divert India to source a significant chunk of its energy needs from this, putting less pressure on oil price which is of interest to the American consumers. This is a bit na├»ve, for India does not use much oil for its electricity generation—except in captive power plants—and there is no great substitutability of electricity with oil in end use, save in railway traction. The reality is that India’s advancement in the strategic sector to match China’s nuclear arsenal and acting as a countervail to China, would indeed suit the US in maintaining a control on China and curtailing its growing influence in the Asian region. After all, just as recently as January of this year, China reportedly tested Anti-Satellite weapon, and the US also has been carrying out Ballistic Missile Defence system in East Asia ostensibly to constrain North Korea and possibly even China.

On the economic front, it revives the nuclear power equipment manufacturing industry in the US, which has been languishing for the last 20 odd years with no orders ever since there has been a ban on expansion of nuclear electricity in the US. With lower value added jobs migrating to India through the outsourcing route, and the US labour productivity growth reaching an all time low of 1.6% last year, revival of the nuclear and weapons industry is just the high value added replacement that it would be looking for.
Now what is in the deal for India? Contrary to the popular perception and rhetoric that it would be a boost to the civilian nuclear program, i.e. electricity generation, the economics is against it. A study done by this author for the Department of Atomic Energy about 34 years ago found that nuclear electricity is about twice as costly as coal based thermal electricity. That conclusion even now stands, by and large, except when you switch to much higher capacity plants like 1600 MW, from the present 220 MW units, bringing with it economies of scale. Even then the global nuclear equipment industry is quite a bit oligopolistic and India is unlikely to get the plants at competitive prices. On the technology side, what India needs really is the Fast Breeder technology using the Thorium fuel cycle, for which the raw material Thorium is abundantly available in the sands of Kerala, in South India, but no one in the World has this technology at a commercial scale, nor is it in their interest to develop it, because the other countries are not rich in Thorium. So, India alone is placed in the best position to develop the FBR technology, but alas, it has not developed it so far, in spite of our attempt for the last more than 30 years. India has a successful Fast Breeder Test Reactor but has not succeeded in making commercial reactors. The guess is, the material science technology required using sodium coolant and ensuring the stability of metals at very high temperatures is not yet in place.
So it is clear that what India needs is Uranium fuel and not the technology or the equipment, so much. Besides, it needs the fuel more for its strategic program than for the civilian program, for it has some 300 billion tones of coal and plenty of hydro on its own soil and abundant gas in the neighboring countries of Nepal, Bangladesh, Myanmar and CIS countries. Fuel for the civilian purposes will only help India retain an option on nuclear electricity, without necessarily using it, unless the other sources like coal become uneconomical through greenhouse gas limiting regimes. So the key question is how the 1-2-3 Agreement which will give the flesh and blood to the Hyde Act, will enable India secure the fuel for its strategic purposes. Since every gram of fuel for civilian purposes will be monitored and accounted for by intrusive inspections, it will have no use in the strategic program, unless the fuel reprocessing is put beyond the purview of inspection, which is the case for the strategic programme.
Besides, with the onset of globalization India has been particularly hard put to attract the best and the brightest of talents in the areas science in general, and in Atomic Energy and Space Research, in particular. The best engineering graduates have been sucked into either pursuit of higher technical education abroad or management education in India leading to careers in investment banking and management consulting with the multinationals. There has been virtually no innovation in these once prestigious institutions like Bhabha Atomic Research Centre or Indian Space research Organization, notwithstanding the hype of ISRO in launching satellites. With the depleted skill set it is highly doubtful that India will be able to successfully pursue its strategic defense programs in atomic energy and space, unless the prices (for scientific talent) are set right.
Thus the attractiveness of the Indo-US nuclear deal should not be seen in the narrow perspective of the gains the deal per se brings to both countries, but rather as a step in the long march of the world’s most powerful democracy in step with world’s largest democracy, establishing shared values and aspirations.