U.S. - INDIA NUCLEAR DEAL - The ABC of the logjam of 123. It is the economics, not politics.

That there is an impasse in defining the contours of U.S. India civil nuclear cooperation is evident to any lay observer – though cautious optimism is still in abundance. Let it be said upfront, this article argues that the current impasse in the U.S. – India civil nuclear deal is due to factors which are economic, and not political.

In analyzing, designing, and implementing the strategies that could break this impasse, many good folks both in the governmental and public spheres are looking at a political solution – assuming that a bold stroke at the highest political levels will cut this Gordian knot. This article is a call to pause and urgently consider not only the political economy of U.S. – India relations, but to consider the underlying economics in each country. The underlying economic will in the U.S. is no doubt pushing for the nuke deal; however the same cannot be said of the Indian side.

In India, as in the U.S., the political will is subservient to the economic will, and the foot–dragging that we see from the Indian political establishment is a reflection of the tensions that are bubbling over from the underlying economics of India’s nuclear policies ever since independence. Thus, the biggest challenge to the consummation of the 123 agreement is from the economics of nuclear policies that India is pursuing – contrary to the opinion gaining ground in many quarters that the current logjam is due to political differences between the U.S. and India.

This distinction – economic versus political – is extremely important to identify so that the negotiators and well-wishers in both countries address the right issues and are not misled into investing their energies up the wrong path. Signals and statements coming from U.S. lawmakers and then from M/s Burns, Boucher, Stratford since January indicate that they expect a political breakthrough will help resolve the contentious issues in the last mile of this agreement. Unfortunately even the public and corporate lobbyists, who might have been expected to have a deeper understanding of the ground situation in India, have also chosen to assume that now it is up to India to step up to the plate, if need be at the highest political levels. This is an erroneous and premature position to hold.

The ABC of India’s nuclear economics

The current stalemate in the negotiations is due to the fact that some clauses of the proposed nuke deal have run head-on against established Indian planning about its civil nuclear program. The established Indian paradigm – a framework developed over 50 years – has some key economic considerations which Indian technocrats are loath to cast aside, and which merit a cold analysis. The foremost variable in this economics is re-processing, and here is how re-processing is vital to the value-chain of India’s nuclear economics:

A.) Thorium is a lower cost per unit source of nuclear energy, albeit the technology is still in its infancy, yet India is a world leader in exploiting this technology

B.) In order to generate nuclear energy from thorium, the thorium cycle needs to have as its input the byproduct which is coming out from the uranium cycle. That is, energy is first generated from the uranium, and then the byproduct from the uranium cycle is fed into a thorium cycle, which then fires a release of energy using thorium as raw material.

C.) India has the world’s second largest reserves of thorium, over 30%, as against only about 0.7% of uranium reserves, and seemingly it is better economics to exploit energy from a resource which is in abundance at home, and much lower in unit costs, (i.e. thorium), rather than from a strategic material that is imported, and higher in unit costs (i.e. uranium).

The above paradigm of Indian nuclear economics, however, needs to co-exist with a uranium-fed energy cycle, since India cannot fully utilize its thorium raw resource unless it has at least some reactors working on the uranium cycle, so that those reactors generate just enough amounts of the byproduct which can then be fed into thorium cycle to generate energy.

Thus, economics would dictate that India should use just the right and minimal number of reactors powered by uranium, so that enough byproduct is available from these uranium cycles, which can then be fed into as many thorium reactors as possible or needed. And this is where the rub lies.

So, where is the ball?

If an interpretation of the Hyde Act of 2006 leaves no scope for the re-processing of imported uranium, then the above ABC of India’s nuclear economics goes for a toss – and that is the challenge which all parties are facing, and that is where the 123 logjam is located.

In our search for the proverbial ball, may it be humbly submitted that the ball is in everyone’s court.

· Indian Technocrats - The challenge for the technocrats in India’s nuclear establishment is how to reconcile the above said economics with what is on offer, plus at the same time offer a credible roadmap for generating the targeted levels of energy from nuclear resources.

· Indian Government - The dilemma for the Indian governmental leadership is to square the circle which it drew when PM Manmohan Singh gave the speech at the Indian parliament on August 17, 2006 – assuring his detractors that India’s supreme national interest would be the determinant while inking the 123 deal. The political will cannot go against the economic determinism served up by the technocrats.

· U.S. Government - The constraints for the U.S. administration are laid out in the Hyde Act – and the executive cannot stretch the envelope beyond a certain shape. Yet, maybe the most creative solution can come from them since they are the best placed to know of the constraints and deal-making possibilities that this path-shattering deal can open up.

· U.S. Congress – Not much unlike a Pandora’s Box, the nuke deal has opened up possibilities in the gestalt of U.S.-India relations, and global political economy, which will have repercussions well into the foreseeable future. U.S. lawmakers face the daunting task of reconciling these potential trajectories in the gestalt versus their own political, ideological, and economic analysis.

· The Lobbyists – The readying of champagne bottles aside, corporate and public lobbyists for the nuke deal need to take a large dose of the energy drink Red Bull, spend immediate and urgent time in understanding the ABC of India’s nuclear economics, and jump back in the process to educate and build a commonality of views on the banks of the Potomac and the Yamuna. The simple fact is that the job is no where done yet – and energies need to be invested. Big time.

How to cut the Gordian knot?

Reconcile the economics – politics will follow.

The first and foremost is that all parties should focus and fully analyze India’s nuclear economics. Secondly, the stakeholders should not worry where the ball is – it is in each one of our courts. Thirdly, all parties need to proactively and urgently support the governmental interlocutors who are deep in the trenches, and assist them with facts and any such inputs that could help them to be creative in solutioneering a way out of the current status quo. This article itself is an attempt in that direction.

Each of the above mentioned parties needs to introspect, juggle its techno-economic and strategic frameworks, and then engage in a clinical dialogue within their governments, lawmakers, and constituencies. It is highly improbable now for the Indian establishment to meander beyond the scope of the August 17 2006 speech of PM Manmohan Singh, and none can afford to side-step the economics of civil nuclear energy atypical to India – this neglect has been building up since July 18 2005, and may now come home to roost.

There are urgency, fatigue, and frustration setting in and the chips are going to fall pretty soon – do we heave ho, and give one last chance to economics, or do we lay our bet with politics? I will go with economics.