Mumbai Home For `A Girls Best Friend'

Diamonds - they say - is a Girl's best friend

Egged on by a Russia smarting under European sanctions, India wants to leverage long term buys of rough diamonds worth billions of dollars from the world’s biggest diamond miners -  Alrosa of Russia – to help turn Mumbai into a rival diamond trading hub to Belgium’s Antwerp.
Prime Minister Narendra Modi has announced that his government has decided to create a special notified zone, to which mining companies can import rough diamonds on a consignment basis and re-export unsold ones. The move, Indian diamtaires said could help turn India's financial capital into Asia's diamond trading bourse.
The Modi announcement came at a joint innauguration of a world diamond conference here with Russian president Vladimir Putin, whose Government owns 44 per cent stake in Alrosa, the mining giant which accounts for 30 per cent of the world’s annual yield of rough diamonds. About half  of its output is now sold to India through diamond bourses in Antwerp and Dubai, a fact which both Russia and India want to change by doing business directly.
“We get better margins and have stabler production regimes  if we can get into long term purchase agreements with Indian diamantaires… we used to have three such deals 4 years back, now this year we are increasing it to 12,” said Andrey Polyakov, vice president of the $ 5 billion mining giant which has since long overshadowed the more famous DeBeers in the diamond market.


Rough Diamonds - India Processes 70 % of Global Production

"We (Indian firms) will be buying diamonds worth $2.1 billion from Alrosa in the next three years," Gems and Jewellery Export Promotion Council Chairman Vipul Shah confirmed.
India sees this as a big opportunity to be grabbed to turn Mumbai into a rival to Antwerp and Dubai. “We are talking to the Government to give us a tax regime for diamond traders similar to Antwerp which has a small presumptive tax on trading profits and allows miners to bring sparklers here, sell whatever they can and take back unsold stones without taxes and hassles,” said Pankaj Parekh, vice chairman of the Gems & Jewelery Export promotion Council.
Russia is not averse to this as US and European sanctions means that it may not be able to sell directly in Antwerp, the largest market for diamonds in the world, and may have to resort to the Cold War period subterfuge of selling its diamonds through DeBeers or some other diamond miner.


The Modi-Putin Diplomatic Tango

At the `World Diamond Conference' here, the `Big Boys’ of the global diamond market – Alrosa, DeBeers, Rio Tinto came to mingle with India’s diamantaires. India already processes some 70 per cent of the world’s diamond roughs into polished diamonds or sets them into jewellery to be sold all over the world.
Forecasts by diamond miners’ associations say that the market for retail or finished diamonds in India and China is rising and taken together could equal that of the US, currently the world’s largest market within the next 6-7 years.
Alrosa’s interest in striking direct deals with Indian firms is but natural says Parekh. Polyakov avers : “We follow the trade.”
Parekh and other GJEPC office bearers have been doing the rounds of North Block and global mining capitals to try get their dreams of Mumbai rivalling Antwerp as a trading centre off the grounds. “Does Mumbai have the potential to be a diamond hub?,” asks Polyakov rhetorically. “I think the answer is – yes – you just need to follow rules  that other hubs do.”
There is of course more than `following the trade’ or `potential’ involved here. Russia is perhaps trying to make a statement to both India and the West. Russian analysts in recent weeks have been at pains to stress that sales of helicopters to Pakistan does not mean that the `special relations’ with India are to be endangered and the high profile visit along with help in transforming Mumbai into a diamond trading hub along with key defence, gas and nuclear deals are expected to be part of that statement.


Mumbai- the New Diamond Capital?

Thumbing Russia's nose at western sanctions is of course something which Putin has been working at for quite some time with gas deals with China and East European nations.  A diamond deal with India could well help him teach the European Union with which Russia is locked in a conflict over Ukraine, that in the resources market, it still counts.
 

Why The BRICS Bank Refused To Take Off

The BRICS grouping’s grand plans for a development Bank to rival the West’s World Bank-IMF combine has managed to get mired in differences over the size of  corpus, which nation will pay how much equity and where the bank will be sited, holding up an announcement on the issue in Durban earlier this week. 

The BRICS Durban Summit 

Top North Block officials said the tussle over stakes and with it control of the new development bank which could rival IMF held up announcement of the start-up at the just concluded Durban summit.  Indian Finance Ministry economists together with Reserve Bank experts will now draw up a draft roadmap which could be informally discussed at the interim summit at St Petersburg in Russia this September and later fleshed out as a full scale plan before the next full BRICS Summit at Brazil in 2014. 

BRICS, an acronym for Brazil, Russia, India, China and South Africa owes its begining to a report in 2001 prepared by Goldman Sachs which coined the term BRIC. The poltico-economic grouping started in 2006 as a club for the four emerging economies to gather and firm up strategies on trade and ecnomy. With the 2008 economic crisis, the grouping which represents 40 per cent of the global population and 20-25 per cent of the world's GDP assumed importance and in 2010 it turned into BRICS with the inclusion of South Africa.

India had floated the idea of starting the bank with an initial capital of $ 50 billion, with each BRICS nation chipping in with $ 10 billion, sometime last year. However, China’s whose economy easily drawfs the rest of the BRICS nation, wanted the corpus jacked up to $ 100 billion, promising to make up for any shortfalls in contribution by members.  Other BRICS nations, who are hard pressed on finances, wanted the plan pared down to $ 10m billion with contributions of $ 2 billion each. 

Russia and India played shy of the bank proposal after it became clear that Brazil and South Africa would not be willing to pay up much of their share of the corpus, and China by default might get the largest equity share in a bank floated at the current juncture.

Indian officials also wanted a window for participation by non-BRICS nations which were keen to join the bank such as  developing world nations like Egypt and Indonesia  as well as developed world participants like Japan and the US. Though none of the member-countries said `No’ to the proposal, China’s offer to underwrite any unsubscribed capital, seems to have sidestepped that part of the deal.

Global economy share

The problem with accepting China’s generous offer was that the BRICS bank would in effect have become a `Chinese Bank’ with China holding a dominant stake. China has already emerged as one of the biggest `donors’ in the developing world, where it has been accused of leveraging its massive $ 3.5 trillion foreign exchange reserves to dole out cheap loans for infrastructure projects in return for generous mineral or oil and gas concessions.   

Officials said the `battle’ over the bank also extended on where to site it. China wants it in Beijing, where some fear it could manipulate staffing to suit itself, whereas South Africa wants it to be in Johannesburg, as Africa has the most underdeveloped nations which would be potential recipients of the bank’s lending. India is not against the bank being headquartered in Africa but would like ground rules cleared about staffing. 

The World Bank-IMF combine have in the past been accused of  being dominated by economic theories thrown up by Western nations’ and staff drawn from or trained in the West, besides being controlled at the board level by Western countries which put in most of the money required for the banks’ start-up. India, South Africa, Brazil and Russia consequently are cautious about how the new BRICS bank is set up and run. 

Kasab and The Terror Trail

Mumbai's Taj Hotel Under Attack  26/11

India has hung the infamous Kasab, sole survivor of a terrorist guerrilla team which attacked and held to ransom two 5-star hotels and a Jewish centre at Mumbai on 26^th November 2008, slaughtering more than 150 Indians and foreigners. Will that act of capital punishment, end terror strikes against India?

Even when the news that Kasab, the symbol of the dastardly attack on one of India’s most lived  and loved mega-cities, was being hung  flashed on television screens, I doubted we would have any  such luck in resolving the terror threat from across the border.

Sure enough, soon afterwards, the Pakistani Taliban and Lashkar-e-Toiba, the terror organisation to which Ajmal Kasab owed  his indoctrination and training vowed to hit India and Indians back.

Pakistan Taliban has spun out of the control of its creator – the Pakistani spy agency – ISI. However, Lashkar and its new avatar Jamat ud Dawa remain tied to the spymasters who see them as valuable assets to be used against India and Afghanistan, two nations, Pakistan has traditionally considered its enemies.   

Though a few liberal newspapers in Pakistan have called out for action against the masterminds behind 26/11, the threats made this week by Pakistani terror groups have not been condoned by the Pakistani state. Which seems to indicate that the threats may have the tacit support of sections of the Pakistani establishment, if not the blessings of the state machinery as a whole.  The logic for this is convulated and hard to understand, but it exists. More on that later.

India’s borders with Pakistan, despite fencing off of large chunks remain porous; Its coasts, vulnerable to landings on lonely beaches by small craft piloted by teams of the kind which attacked Mumbai.

The country’s borders with Nepal are totally open and those with neighbouring Bangladesh far less secure than the western one. The trails which terror sellers could take are many.  Indians could also be targeted abroad or on the high seas. At particular risk, would be Indian investments in Afghanistan, which Pakistan resents intensely as it considers this mountainous highland to be its strategic backyard where it hopes to impose its will in the future.   

Indian strategic thinker and former additional secretary in the cabinet secretariat, B Raman in a clinically analytical blog, too seems to feel that the threat would be highest for Indian establishments in Afghanistan and lists LeT, the Haqqani network, the Taliban and the Hizbe Islami as groups whch have the ground capability to launch those attacks.




US leadership watch live footage from the Osama raid

To deal with such probabilities, the Indian state needs to think out responses which will stifle terror. The American, Israeli and Russian state responses to terror perhaps hold lessons from which could learn.

The policy paradigm for these responses are the same, though the exact modus operandi differs. That policy, simply stated, is to attack and diminish the capability of groups which can threaten the countries concerned. The methods differ –  covert operations in some cases, huge state led responses across borders in others.  

With Pakistan shielding its terror groups by using nuclear blackmail – threatening nuclear strikes if India attacks terror camps in Pakistan, there are just two options. The best option remains covert, deniable attacks to finish off these camps. The other, albeit risky option, is to ignore the nuclear bluff, for it is a bluff, and to go in for limited military operations.

The second kind of operation,  will have to be met by Pakistan with some kind of official retaliation, which could escalate and is hence one which should be taken as a last resort. The first, will be grudged, but can hardly be met by official, overt military retaliation. Pakistan understands this kind of covert response, for it has come up with its own covert war against India and Afghanistan, using home grown terror groups, to avoid direct confrontation by denying all that happened.




Indian soldiers celebrate taking back a hill in Kargil ranges

When Pakistani Frontier corps soldiers dug into India’s then unguarded Kargil hills in 1999 and built bunkers from where they lobbed artillery fire onto a main arterial road connecting Ladakh with the rest of India, Pakistan simply denied they were its men. Indian soldiers eventually stormed those bunkers and killed the Gilgit tribal soldiers manning the `nests’. The bodies with their identity cards were offered to Pakistan, which  refused them, denying responsibility ! Though later, Pakistani leaders and generals gloated on their success in launching the sneak attack. 
   
When Kasab and his mates attacked Mumbai, again Pakistan denied they were Pakistanis. When confronted by telephone taps which showed they were being controlled out of Pakistan by men like LeT chief Hafiz Saeed and ISI officers, Pakistan officially claimed these were non-state actors who acted without the knowledge of the Pakistani state! The logic for such attacks is however, more difficult to understand.

Former Pakistani dictator Gen. Pervez Musharaf was recently in India, to address a gathering organised by a Delhi-based media group. He remained unfazed by questions on Pakistan’s attack on Kargil peaks in Kashmir and seemed to indicate that it was merely a tit for tat response for India’s involvement in the independence of Bangladesh!

What that comment revealed, was the mindset of the Pakistani establishment. It is still seeking revenge against India for perceived insults without either (i) introspection into either their role in Bangladesh or (ii) realisation of the high price being paid for the hatred of India which the Pakistani ruling elite nurses.


Indian troops being welcomed by Bangladeshis

Pakistan as a nation, especially its leadership, suffers from amnesia when it comes to Bangladesh. It forgets that Indian troops were forced to intervene in a messy civil war because Pakistani soldiers carried out one of the biggest genocides in the history of mankind – killing some 2 million of their own citizens and raping 200,000 helpless civilian women. The reign of terror which the army, to which Gen Musharaf belonged,  let loose on the civilian population of what was then East Pakistan, forced some 10 million Pakistani citizens to seek refuge in India. If India had not intervened, more millions would have perished. More millions would have been pushed into India to live as penniless refugees.

Yet, the Pakistani leadership instead of introspecting on its crimes, blames India for its “loss” and still demands revenge. Kargil and Mumbai 26/11 are seen as “revenge”.

Hans Kiessling, German researcher working for the Munich based Hanns-Seidel-Foundation estimates that ISI has an annual budget of about $ 300-400 million. The budget for the entire state of Pakistan is $ 39 billion, nearly $ 6 billion or a sixth of that budget is spent on its armed forces.

This extraordinarily high proportion of budget spent on defence is because Pakistan keeps needling India and Afghanistan with sneak attacks and consequently fears retaliation.
 
Pakistan has since the 1950s also tried to fund and arm small rebel groups such as the Naga within India, at great cost to itself.  Pakistan’s spy agency also spend huge sums to try undermine the Indian economy by pushing narcotics and spurious India currency. This massive spending on trying to undermine the Indian state translates into that much less left for Pakistan to spend on its own citizens.

The costs are obvious – deteriorating law and order has already turned Pakistan’s largest city,  Karachi, once touted along with Beirut as the `Paris of the East’, into being one of the world’s most dangerous cities; lack of investment has made Pakistan the slowest growing nation in South Asia; lack of spending on healthcare, education, sanitation and other civic amenities has meant Pakistan has kept slipping every year on the human development index. With little money to spend on the mainstream regions of Pakistan, marginal areas on the border – Balochistan, Gilgit have received even less funds, leading to a sense of deprivation which has fuelled separatism there.   
    
This brings one to consider whether India’s reaction, covert or overt, will actually bring some kind of closure to Pakistan’s export of terror. It may not, till Pakistan changes fundamentally and starts believing as does a section of its intellectual elite, that peace and friendship with its neighbours is the only way forward.

But in the interim, covert action designed to diminish the capability of Pakistani groups to launch against Indian interests, should deter the Pakistani ruling elite and the terror groups it has spawned. In this world of outsourcing, even covert wars can be outsourced. There are quite a few   groups within Pakistan who are struggling against that nation. India's work could be easily outsourced to them in return for training, arms and funding.

The lesson that has to be driven across is that even covert actions begets retaliatory actions and those with more money and men, which India does have, usually win in the end.   

India, Britain and the Aid Row

Rafale fighter jet

Little noticed, last Thursday, India tried to undo the damage which its order for French made warplanes did to David Cameron’s government in London, with finance minister Pranab Mukerjeree calling UK’s Secretary of State for International Development, Andrew Mitchell to soothe ruffled feathers.

Labour party MPs and London dailies had torn into Cameron’s Conservative party led coalition government attacking it of giving 1.4 billion pounds in aid over 5 years to India while being unable to get an order for fighter aircraft.

What started out as agnst against not getting a lucrative multi-billion dollar aircraft order turned into a media war over why Britain should or should not aid India's impoverished millions. That it has poor millions is of course not in doubt, despite its boast of being the seventh largest economy in the world.

British newspapers pointed out quite appropriately that India has its own aid programme for African and Asian nations which is far larger than what it is recieving from abroad and had on many a occassion made it clear that it did not need aid.

Jingoistic Indian coloumnists also said basically the same thing: "We don't need aid." with many privately and impolitely adding "Britain can stuff its money ...."

Before we review the issue, lets recap for those who came in late on the news as it played out :

• India had preferred the French Rafale jet fighter over Typhoon, manufactured by a British led European consortium in selections made earlier this month. The French aircraft was preferred as it was cheaper and considered more versatile than Typhoon, whose upgrades have been long delayed.
• A London based daily had then highlighted how Mukherjee had in answer to a Parliamentary question said foreign aid was not needed to buttress its case that Britain’s development assistance to India should be discontinued. Others editorialised that the money given to India could have built hospitals in the UK.
• That Mukherjee’s comments in Parliament had been generic and not specifically aimed at British aid was lost in the din of the media battle. What all this did was to make Britain's India engagement politically extremely `hot’ for the Cameron government, which is credited with having brought the two governments closer in economic and strategic terms, after years of bilateral relations being in a state of mild freeze, not improved by Labour's younger Miliband trying to lecture India on Kashmir on one relationship building visit!
• “We felt a call at this juncture was needed to scotch unnecessary and wrong press reports and to undo any damage to our otherwise close bilateral relations,” said North Block officials, explaining Mukherjee's call.

Britain has been continuing the aid programme by arguing at home that it strengthens its influence in India, a key market while also  helping lift people in poorer parts of the country out of poverty.

The problem for Britain is that besides being unable to get the Typhoon order; last year, India pledged $ 5 billion in development assistance to Africa, besides another $ 1 billion in direct aid - $ 700 million in insitution building and $ 300 million in building the Ethiopia-Djibouti railway. A year bafore, India had announced a $ 1 billion aid package for Bangladesh to help build roads, ports and railways. In war-torn Afghanistan India has already spent some $ 1.5 billion in rebuilding roads, power stations, telecom networks, a new Parliament building and last year added a pledge of another half a billion dollars to top it up.

If a country can go around spreading largese to other poor nations, can it also ask for or recieve aid? Thats what the British tax-payer may well ask.

Related to this is the question - Why do countries give aid to each other - simply on humanitarian grounds?

Humanitarian considerations plays a role. Aid flowed to Haiti when disaster struck it. Even though the West supported Pakistan's brutal regime in 1971, individual contributions flowed to refugees from its Eastern wing living in miserable refugee camps in India.

But aid is also a way of winning friends abroad. Which is why the Cameron government is keen to fund drinking water programmes and more in India. Which is why India wants to build railways, ports abroad, supply rice to neighbours even when its own millions have little to go around.

The benefits for those doling out aid or help, are sometimes immediate - China managed to get contracts to gas fields in Africa almost at the same time as it offered roads there. It was almost like a barter deal. Sometimes it takes time, but far outweighs the help recieved in the first place. India has been saying thank you to Russia for standing by it in 1971 for decades, despite the dissolution of Soviet Union. It continued with an artificial rupee-rouble rate to protect Russian interests, even when the rouble had become worth pennies. There is an element of thank you when India orders none too great Russian fighter jets, grossly over-priced aircraft carriers and outdated nuclear power plants.

Its contracts to France - Mirage, again nuclear power plants and Rafale - have similar elements of thank you for the support France gave to India's quest for nuclear parity with China besides other things.

As one former British MP whom I met soon after the aid row surfaced, said: "If you are in it for the long haul, you disregard short term losses." Britain has in the past drawn much benefit from its `special relationship' with India. It sold helicopters in the 1980s which were described by the then Indian Prime Minister as “white elephants”. Earlier in the 1950s, it sold outdated fighter aircraft, whose parts cost more than the aircraft !

Where does that leave the question of whether India should or should not get aid or even more importantly from the Indian point of view - accept or not accept aid? Soon after Pokhran -II, when many countries came rushing with pious condemnation of nuclear India with added threats of withdrawing aid, the Vajpayee government quite rightly told them to a) shut up and b) to keep their aid to themselves.

The Congress government when it came to power, endorsed Vajpayee's or rather his National security advisor Brijesh Mishra's views and continued the aid ban imposed on minor European powers. Quite a few countries whose aid programme were stopped, still regret the loss of what they now see as a lever with a rising power.

Foreign aid is a miniscule fraction of India's GDP or for that matter even of total government sector spending. India as a nation could do without it. But can those dreadfully poor people who are getting something out of it, do without it? Can they wait till New Delhi or lets say in a specific case – Orissa – wait till Bhubaneshwar, finds time to look their way?

To tell those who are benefitting from what little foreign aid is coming in, that the programme is being stopped because some upper middle class urban Indians feel their ego, inflated by India's rising GDP and nuclear power status, has been punctured by news that Mother India still takes aid, may not exactly be acceptable to those poor people.

In any case, like good baniyas, which Indians have been for centuries, our motto on aid should be "let it flow, if it’s without strings attached." Its for those who are buying a good consience or better relations to decide whether their millions should be spent here or somewhere else.

Footnote:

Baniya  : Merchant