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India-EU Relations: Background Note
For the Foreign Affairs and Defence Policy Committee, European Parliament
Brussels, January 23, 1999

Honorable Members of Parliament, Ladies and Gentlemen,

1. India, like China, has some economic idiosyncracies which do not fit conventional paradigms. The most important of these is its sheer size, coupled to a continental scale, internal demand driven economy (the latter even more so than China's). Although gaping holes do remain (well known in power, ports and roads, but also existing in areas like food processing), this pattern of development has led to self-sufficiency in numerous sectors as well as world class competitiveness in some. Such factors are now recognized by the World Bank and IMF (and even the CIA), in using purchasing power parity to determine India's GNP (at $1.5 trillion, the world's fifth largest).

Indeed, some years ago, Harvard economics icon John Kenneth Galbraith said the key to understanding India was that it was a very poor, industrialized country.

2. Thus, even while India continues to require foreign aid, this should be now defined in areas where the assistance serves an enabling purpose and adds value to India's own efforts, rather than the classic Band-Aid approach. One has to only consider the huge floods of 1998, the massive earthquake in Madhya Pradesh some years ago, and continuing annual cyclones which wreak havoc in some coastal states; the Indian system - with its 30 million tonne buffer foodgrain stocks, which are larger than the EU's at its peak - copes just fine.

3. Meanwhile, India itself has a large Third World aid program of its own. These are increasingly focused on highly competitive intermediate technologies. Examples from the past two months alone include programs for tech transfer in plastics to Namibia, in agronomy to Ethiopia and metallurgy to Laos. Indian Technical and Economic Programmes (ITEP) have so far provided training in India to over 10,000 personnel from 130 countries, and spent more than $2 billion.

Trade follows aid, even in the Indian context. In sectors ranging from pharmaceuticals to trucks, insurance to mining, Indian companies have in recent years developed a major presence in several other developing countries. If anything, this should be of interest to the EU for political reasons.

4. Then, there are also the minimal skill sets required for functioning adequately in the capitalist world. The OECD is reported to be considering funding Indian experts to train Ukraine in modern accounting practices.

Even at the university level, one good example is the city of Pune, which alone hosts over 7,000 foreign students. Kenya, more than 6,000 of whose students study annually at Indian universities, is now seeking Indian assistance in setting up its own Moi University.

Software training and technical assistance is another area where India's skills capability could be jointly harnessed. India's NIIT and Aptech are now among the world's largest IT training companes; the former, already listed in the Guinness Book for the volume of its students, aims to displace IBM Global in (IT training) earnings early in the next decade. India is also highly active overseas in IT training, especially in the more advanced emerging economies (in Eastern Europe, South Africa, Malaysia etc.). More could well be done elsewhere in Africa, where the cost and competency of Indian IT experts could be harnessed to prevent Africa being left out of the computer age.

Three-way participation between India, the EU, and target countries for EU-Indian training programs is worth looking more seriously at, in certain identified areas like intermediate technology, software and remote sensing space programs, to make assistance packages more meaningful, cost-effective and complementary.

5. A low-cost program which might be considered by the EU would be a register of intermediate technology products and companies, with potential for add-on and complementary development, or even marketing support. Another useful area of involvement (for several other self-evident reasons) would be to monitor moves by India in eastern Europe, Africa and southeast Asia.

6. A more concrete focus is needed for collaboration in high technology. Indeed, one possibility which sounds potentially promising is some sort of framework for collaboration between India and ESPRIT, where a very large number of pre-commercial projects do not get off the ground due to a simple lack of human resources, and economic viability. Two of the software projects we are currently involved with in Belgium are ESPRIT spinoffs.

Other fields could also be easily identified, for example biotechnology. Indeed, an Indian government lab has developed a vaccine against Hepatitis-B, the first genetically engineered vaccine to emerge outside the US and Europe. In a similar vein, Novo Nordisk has licensed diabetes treatment knowhow from an Indian company called Dr. Reddy's. No other emerging market has achieved this level of commercial success or endorsement. One topic within this framework could be some kind of institutional support to encourage cooperation between EU universities and top Indian technical universities (the Indian Institutes of Technology and the Indian Institute of Science) as well as national laboratories. Except for some European companies (e.g Philips, Nokia), this is an area heavily dominated by US firms (such as GE, Monsanto, Intel, Boeing) and US universities. MIT is planning a formal system of collaboration with India, as too is Johns Hopkins. Carnegie-Mellon is involved with the (forthcoming) Indian Institute of Information Technology.

There could be some problems here. The US has identified several such institutes in its hit list for post-nuclear test sanctions. Although the UK has followed suit, I know some of these institutes are looking at the EU for less temperamental partnerships. Another interesting area are the civilian technologies spun off from Ministry of Defence labs, which have developed and patented innovative products ranging from lightweight materials for artificial limbs, through low cost heart valves, to high altitude pressure cookers, software programs for intelligently screening cancer etc.. Some of these are already being sold overseas.

6a. The first high-potential collaboration area would be software. At the top end of IT, for example, India is acknowledged to have overtaken Europe in parallel processing supercomputers. Its PARAM has now been sold to Russia and Singapore.

As 'Business Week' (Dec. 7, 1998) noted, 40% of Silicon Valley start-ups last year were Indian-spawned. 20% of Microsoft's US employees are Indian. As noted by myself in the 'Washington Post' (Jan. 4, 1999), both the Pentium and the Sun SPARC central processors were developed by Indians.

Likewise, at the US Defense Department-funded Software Engineering Institute (arguably the highest quality attainment in software), we find a clutch of Indian companies and Indian subsidiaries of US companies (among them Motorola, Honeywell, Citibank, GE) possessing the highest CMM Level 4 and 5 certifications (which, notably, even the [latter's] US parent companies lack). Not only are European companies largely absent here (though many have sought CMM certification); there is not even one Euro-Indian venture or subsidiary.

At the other end, we have a basic (though still high skilled and extremely strategic area) like IC design. The world's largest IC chip vendor Texas Instrument's latest DSP is called Ankoor (a Hindi word, reflecting its origin); TI's latest MSPs were also designed and released in India.

In between is the commercial opportunity, where small and medium sized European companies do not know how or where to begin using Indian inputs. As the 'Wall Street Journal' noted on November 30, 1998, India is the dominant player in software outsourcing, with revenues three times more than second-ranked Ireland and with per capita value addition 400% more than in Russia.

With six of the top seven (US-based) recruiting companies for computer programmers being Indian, many European SMEs are forced to access such value-adding Indian IT skills via the US. Last year, India accounted for 44% of the 65,000 H-1B visas issued by the US.

This year, after heavy lobbying, the limit is being raised to 115,000. Both Japan and Israel have recognized the strategic necessity of Indian IT inputs, and are fashioning government-backed programs to organize access to them. Unfortunately, neither the EU nor individual European governments have anything similar in place, even at the lower end of the skills spectrum - in spite of the heavy (and acknowledged) Indian inputs for Euro-conversion and the Year 2000 bug.

6b. The second area is in space technology. Although launchers will be controversial (given their military applications, and the GSLV being a competitor to Ariane IV), German (and Korean) research satellites are already booked for launch by the Indian PSLV next year, and will draw attention to Indian capabilities here. (N.B: The ESA has discussed some amount of collaboration with India's ISRO, along the lines of a similar arrangement with China).

In a more benign field, India is recognized as having the world's most technically advanced commercial remote sensing satellite program. Last year, India took a 15% share of the world remote sensing market. The Germans are buying Indian space data but the global marketing rights to this data have been acquired by Eosat, a US consortium.

Three-way collaboration could again be considered. Indeed, the Indians are already providing tech assistance to Indonesia in the field of ground stations. On its part, Africa, I think, does have access to European Spot data. However, some features of the Indian IRS might be harnessed (e.g to monitor deforestation, fishing stocks etc.), especially given the spate of follow-on launches in the IRS series due from next year.

6c. A third area is agronomy and biotechnology. The sister institute to the UN biotech R&D center at Trieste is already up and running in India. While Trieste focuses on human biotech, India was chosen for agro biotechnology due to its considerable expertise in this field.

Belgium's wunderkind company, Plant Genetic Systems, went to India to bring in its head of R&D, although in the usual Belgian way, this was done quietly - very 'discret'.

6d. A fourth area is alternative energies. Now here, while India clearly needs heavy European assistance (at the mid- to upper-end of the tech spectrum), a massive amount of secondary research is being done locally, although in the usual uncoordinated Indian fashion. A formal program of EU assistance, and involving secondary R&D support in intermediate areas for application in the wider Third World, could be interesting.

In fact, such factors have just been highlighted Lester Brown's Worldwatch Institute. "The economic and political centre of gravity could shift from developed countries like the United States and the European Union".... India and China "are especially well-positioned to become leading centres of the next energy system... Which could mean a reversal of the flow of initiative and innovation between east and west. And could perhaps, precipitate a broader shift in the world economies and political centre of gravity back to where it was a millennium ago - Asia." The scale of take-up (and consequent market viability) in India is always potentially impressive to any corporate interests who might be sought for backing (e.g the speed at which India became the world's second largest user of wind power, with 1,000 MW already installed).

7. Finally, I think the European Parliament resolution would be taken more seriously in India (within the kind of new thinking that is now emerging there), if some positive points were introduced for balance (i.e half-full rather than the proverbial half-empty glass). Indeed, it is not just Chris Patten. Even notoriously Amero-centric US organizations like Freedom House, the Bread for World Institute, the National Endowment for Democracy are beginning to see the immense effort required to construct a pluralistic democracy in the face of overwhelming odds. The (Christian) Bread for World Institute noted in November that India had been "remarkably effective" in coping with poverty and famine. Freedom House placed India alongside European countries and the US in being 'free'. The National Endowment of Democracy chose India for its first global Conference in February 1999.

As the 'Washington Times' noted in August, "India's (affirmative action) system was begun shortly after independence in 1947, decades before the United States implemented its own less-extensive system. It was expanded in 1993 and now reserves at least 49.5 percent of university places and government jobs for members of India's lower classes, who make up 75 percent of the population. The quotas extend into virtually every field, including medicine, with the military and the Atomic Energy Commission being among the few exemptions.

Just for the record, within the last three months:
Indian courts did try two ex-Ministers and a Field Marshal, shut down two large chemical companies, as well as one in forestry, forced employers to grant maternity leave, handed down life sentences to errant policemen, refused anticipatory bail in dowry cases
consumer forums fined doctors for negligence
the BJP government invited Bishops from India's secessionist and restive Northeast for regular consultations
a top film star was jailed for shooting a deer in a protected national park
a serving four-star Hindu Admiral's lawyer wife sued a State government on behalf of Muslims
the ruling Communist Party government in West Bengal set up a Web site to attract foreign investors
and the 'Hindu nationalist' or 'Hindu fundamentalist' government continues with a Defence Minister who once studied to become a Jesuit priest.
In the current global and geopolitical pecking order, the danger is that not only will Europe continue to take India 'not too seriously', but that the Indians will also reciprocate. Note that Prime Minister Vajpayee cancelled his recent trip to Germany because the German Ambassador was seen to be interfering in India's internal affairs with his public complaints about India's alleged ill-treatment of Christian minorities.

After southeast Asia, Russia and Brazil, India's economic potential and durability are fast becoming self-evident to Indian planners. And what about China ? Standard & Poor's, not one of India's best friends, noted this last week,

"Governments in both countries, but more so in China, are under political pressure to maintain high growth rates, as fundamental weaknesses in public finances and in the financial system, will only worsen as GDP growth decelerates," S&P said. "Corporate distress will place additional pressure on asset quality in the financial systems of both countries, but the impact is likely to be greater in China because of its higher levels of non-performing assets and its narrow financial markets. In China, banks account for around 90% of all financial intermediation, compared with India, where funding through capital markets and other institutions is more developed," S&P said.

8. There is generally a widespread lack of information and awareness in Europe about the changes in India, their strengthening irreversibility, their context within the changing world order, and the huge medium-term opportunity which all this would entail. Maybe, one point the resolution might urge would be an assessment of EU efforts to date in this regard and ways to develop stronger, more well-informed and meaningful relations with India across the board.

Thank you for your attention.

Ashutosh Sheshabalaya, Brussels, January 23, 1999

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