Indian Media

Monday, November 13, 2006
BSNL, private operators use toll-free route to fill coffers Rishi Raj

New Delhi, Nov 12  In a move, which will not only open new revenue stream for telecom companies, but also benefit consumers greatly, Bharat Sanchar Nigam Ltd (BSNL) has agreed to provide private operators with interconnection for the 1800 series toll-free number. A toll-free number is used by consumers to call suppliers or service providers, without incurring any charges for such phone calls. Though all operators have toll-free numbers, with its largest telecommunication network in the country, BSNL has an edge over others. Taking the first step in this direction, BSNL has already signed an interconnect pact with Reliance Communications Ltd. Under the agreement, more than 80 million subscribers of BSNL and Reliance will be able to access 1,800 numbers, provided by either operator. The move will pave the way for network-independent access to 1,800 services in the country for the first time.

Industry sources said BSNL was close to signing a similar agreement with Bharti Airtel. Other operators were also in talks with BSNL and soon all of them would have similar pacts with the telecom PSU for sharing 1800 toll-free numbers.

The toll-free number market in India is currently at a nascent stage, and is expected to grow exponentially over the next few years. Such a model of toll-free access from all networks has been a much-awaited concept by all enterprises and consumers.

According to estimates, this service has a potential of becoming a Rs 800-crore activity, once all operators sign similar pacts and can be accessed on one network.

Toll-free number economics works in a manner where a company takes the number from the operator to provide it to consumers to call free of cost. Call charges are paid by the company to the service provider.

With BSNL and Reliance entering into a pact, the two companies will share revenue, depending upon from which network the consumer calls.

With declining tariff and average realisation per user, this is the second instance when telecom companies are sharing synergies to maximise revenues.

The first such example was companies agreeing to share existing as well new cell sites.
 
Chinese President’s visit: India, China to ink investment promotion pact
Press Trust of India
New Delhi, October 29, 2006

In an effort to boost bilateral ties, India and China are expected to sign 12 pacts, including a Bilateral Investment Protection Agreement (BIPA), during President Hu Jintao's visit next month.
An accord for arranging regional trade is also likely to be inked during the four-day visit from November 20, official sources said on Sunday.

Other agreements to be signed include one on student-exchanges and another on holding festivals on a reciprocal basis, they said.

Immense significance is being attached to the visit as it is expected to give a major boost to relations between the world's two fastest growing economies.

During the trip, the two sides are also expected to review progress in their boundary talks amid hopes that momentum would be given to efforts to find an amicable solution to the vexed issue, they said.

Hu's visit comes more than a year after the visit of Chinese Premier Wen Jiabao, which marked a considerable improvement in ties between the two large neighbours.

India-China trade to touch $30 billion by '09: FICCI
Gaurav Choudhury
New Delhi, November 12, 2006

There is a need for India to diversify its export basket to China to tap the benefits of growing bilateral trade, which is poised to reach a level of $30 billion by 2009, says a study carried out by the Federation of Indian Chambers of Commerce and Industry (FICCI).

In a paper on deepening the economic engagement between India and China, FICCI said that while India's exports to China are largely restricted to primary and resource-based products, Chinese exports to India are fairly diversified and include manufactured items as well as low and medium technology products.

India's exports to China are highly concentrated with top three items—ores, slag and ash; iron ore; and plastics—accounting for 71 per cent of the total exports.

On the other hand, India's imports from China present both resource-based and manufactured products including electrical machinery and equipment, nuclear reactors, mineral fuels and products, organic chemicals and silk.

The FICCI paper said that the restructuring of China's textile sector could result in new opportunities to increase export of cotton yarn and fabrics to China.

In addition, FICCI has identified 14 items as focus products to enhance and diversify India's exports to China.

These include automobiles (light commercial vehicles), auto engines and components, electronic components, metals and metal-based products, basic drugs, chemicals and pharmaceuticals, handicrafts, electrical machinery, textile yarns and cotton fabrics, information technology products and services, consumer durables, processed and semi-processed food items, mineral and mineral products (including iron ore), marine food, fruits and vegetables and stones and other construction materials.

"With China's entry into the World Trade Organization (WTO), immense opportunities have also opened for setting up joint ventures and business collaborations between Indian and the Chinese industry," said the FICCI paper.

Though there has not been a significant transfer of technology between the two countries, many Chinese conglomerates are looking keenly at the Indian market as part of the "go out" strategy. Major Chinese companies have set up offices in India in sectors such as machinery, metallurgical equipment, chemicals, automobiles, silk and engineering.

The presence of Indian companies in China has also increased substantially, especially in sectors such as iron and steel, automobile components, pharmaceuticals and information technology, the paper said.

Email gaurav.choudhury@hindustantimes.com

Canadian Media

Finding a passage to India
Jason Kirby, Financial Post
Published: Tuesday, September 26, 2006

It seems everyone wants a piece of India these days. In late August the country's Minister of Commerce, Kamal Nath, attended a meeting of the Association of South East Asian Nations in Malaysia, where he backed a plan by Japan to form a Pan-Asia trade block of 16 nations, including India, China, South Korea and Australia. Before that Mr. Nath was in Washington to discuss an initiative to double trade between India and the U.S. by 2009. Yet while there have been calls for Ottawa to step up economic ties to India -- or even engage in some form of free trade talks -- Canada's trade and investment with India is meager. The Financial Post's Jason Kirby, who recently traveled to India as part of a media fellowship from the Asia Pacific Foundation, spoke with Mr. Nath at his office in Delhi about where Canada fits into India's economic plans.
- - -
Q Canada's foreign direct investment in India is quite small, at about $180-million a year, while the value of trade between the two countries is still just $2-billion [compared with more than $30-billion between Canada and China.] What do you think of this?

A India and Canada's economic engagement, both in terms of trade and investment has a huge untapped potential, even though Canada has done well in exporting to India. Canada's exports to India have increased close to 21%, and we seem to be building up the momentum. The challenge is in sustaining this moment. I believe, in the last 20 months, we've had some very encouraging engagements between India and Canada to push things along.

We've had the visits here of my friend [former Minister of International Trade] Jim Peterson, my friend Jean Charest, and also of former Canadian Prime Minister Paul Martin. Now, with this changing economic architecture, the shift is taking place to economic activity in East Asia. India has huge skilled manpower, and Canada has technology and capital. They form a very good fit.

Q So then what does Canada need to do to make that fit work?

A I think now we've got to see that investment from Canada assumes a different objective, the objective being to utilize India's young demographic, its age profile, which is a win-win for both countries. If you're going to look at the demographics over the next 15 years, you start now and take action now. So where Canada's limited workforce is concerned, versus India's abundant workforce, this is where investment needs to be pushed.

Q But how?

A Both governments need to be stimulating and nudging the Canadian small and medium enterprise sectors into this. It's not just the big corporates, like Bombardier or Nortel, that should be here. It's the smaller ones who need to come into India.

Q You have begun to focus on a Pan-Asia trade deal with other nations in the region, what's driving that?

A What you're talking about is the east Asia common market. There are already similar markets with the NAFTA [North American Free Trade Agreement], SAFTA [South Asian Free Trade Agreement] and the European Union. I don't see why not here. India must also engage in that process in the large economy in East Asia. This only makes sense.


India Inc. gets connected
Discipline and prudence have served Indian companies well as they rise in the global realm of mergers and acquisitions. The risks are high, but for India, it's simply a matter of survival
Jason Kirby, Financial Post
Published: Thursday, September 28, 2006

Indian companies are quickly emerging as powerful players in the international M&A field. Earlier this year VSNL, an Indian telecom giant, finalized a deal to buy the shattered remains of Teleglobe International, the company that brought BCE Inc. to its knees four years ago. Financial Post reporter Jason Kirby recently traveled to India as part of a media fellowship from the Asia Pacific Foundation. He found the Teleglobe deal offers insights into India Inc.'s buyout plans, and a hint of what could be in store for Canadian workers who suddenly find themselves reporting to Mumbai.

Srinivasa Addepalli has been to New York several times. He's gone toe-to-toe with Wall Street bankers and powerful private equity investors. And as head of corporate strategy for Videsh Sanchar Nigam Ltd. (VSNL), an Indian telecommunications company, he's put his signature on acquisitions worth hundreds of millions of dollars. But even now when he goes abroad, he's still floored by the price of a can of cola.

"We're shocked to see how much money gets spent in cabs and on Cokes," he said. "The moment I think of a dollar I think it's 45 times a rupee, and to earn that dollar in India we have to do so much more work. So we are much more conservative when it comes to spending dollars."

Even still India Inc., as the country's business sector is called, has been on a shopping spree lately. While the subcontinent is best known as an outsourcing hub, thanks to its low-cost call centres and cheap software developers, companies from all sectors of the Indian economy are emerging as major players in the global realm of mergers and acquisitions. And Canadian companies are increasingly catching the eye of India's acquisitive business leaders.

There certainly has been no shortage of recent deals. In the first six months of this year Indian companies were involved in 85 foreign buyouts worth US$4-billion, slightly less than the total value of deals in all of 2005 when there were 136 acquisitions, according to reports.

The biggest Indian M&A deal ever came last month when Tata Tea, part of the sprawling Tata Group of companies, plunked down US$677-million for a stake in New York-based Energy Brands Inc.

Closer to home Aditya Birla Group, another large Indian conglomerate, paid US$125-million in June to buy Minacs Worldwide, a Toronto-based call centre operator, after chief executive and controlling shareholder Elaine Minacs died a month earlier. Reichmann Hauer Capital Partners, a Toronto-based investment firm, acted as Birla's financial advisor and took an equity position in the combined company.

Prashant Pathak, a managing partner with RiechmannHauer, said there had been talks with Birla about creating a billion-dollar global outsourcing company even before Minacs was put up for sale. By having the Toronto firm on the ground, he added, Birla didn't have to "stickhandle" the transaction from India, which could have presented delays.

Mr. Pathak said the firm expects to see more Indian companies on the prowl. "In our view, you'll see significantly more deals like this going forward," he said.

James Abraham, vice-president of Boston Consulting Group in New Delhi, said Indian companies are well-positioned to take part in buyouts because of their strong equity positions, having been a favourite of emerging market investors. At the same time he said Indian companies are keenly aware their Western competitors are saddled with underperforming assets and crushing pension plan obligations. "The Indian companies see an opportunity in turning around these players," he said.

In some ways that's what drove Teleglobe International into the arms of VSNL.

For those who have tried to forget, six years ago BCE Inc. forked out nearly $10-billion for control of Teleglobe, which had at one time been Canada's monopoly long-distance carrier. A costly expansion strategy had left Teleglobe bleeding red ink, and two years later BCE cut off funding to the company. BCE eventually sold Teleglobe to Cerberus Capital, a private equity fund, for US$125-million in 2003.

While BCE was grappling with what to do with Teleglobe, on the other side of the world India's state-controlled long-distance carrier VSNL was pushed out of the nest as part of the country's long-awaited economic liberalization program. Tata swept in and bought the unit, knowing full well its revenues and customer base would be gutted by competition. That's exactly what happened.

"Suddenly VSNL saw its entire business slipping away beneath its feet," said Mr. Addepalli, sitting in his sparse office overlooking the Arabian Sea. Global competitors such as AT&T and British Telecom were coming into India, offering extensive voice and data networks that spanned the globe, something VSNL sorely lacked. "We had to go global to protect our Indian market."

The Indian company got that by buying Tyco International's network business, which had spent US$3-billion to lay 60,000 kilometres of underwater cable. VSNL paid just US$130-million for all of it. Despite opposition from several U.S. senators and a campaign by CNN's Lou Dobbs to block the deal on national security grounds, regulators gave their approval.

A little over a year ago, just as it finalized the Tyco deal, VSNL said it would buy Teleglobe for US$239-million as it sought voice and data services to run on its new network. The deal catapulted VSNL to become the world's third largest international voice carrier.

Teleglobe had set itself up to be an international wholesaler of voice and data services, with a network serving more than 240 countries. It's a game of volume. The more you carry, the cheaper the cost and the higher the return. Teleglobe already carried roughly 13-billion minutes a year of voice traffic on its networks. Combined with India's existing voice traffic, that would give VSNL roughly 18-billion minutes.

"It's a scale business and we expect there to be a lot of consolidation in the sector with three or four players left," said Mr. Addepalli. Today there are about 100 international carriers.

In buying Teleglobe, though, VSNL acquired more than just underwater high-speed pipes. Teleglobe had roughly 650 employees, and they weren't sure what to expect from their new bosses.

VSNL had previously hired local sales executives in overseas markets like Canada, so they were helpful ambassadors. And VSNL's promise to invest in the company helped win over skeptics.

"People want to work for a successful company, and here was a company, VSNL, willing to invest in a company that had been languishing," said Mr. Addepalli.

The structure of VSNL has also offered some head-office surprises. For one thing, the company's global voice operations as well as its information technology functions will be overseen from Montreal.

But the deal has also come with painful cuts. Last week VSNL said it would chop around 200 back-office jobs in Montreal and transfer them to India. "A lot of their competitors like France Telecom and BT have done it," said Mark Boutet, a spokesman for the company. "They're in an industry driven by price, so they need to ensure they have an optimal cost structure."

The jobs will be phased out over the next 18 months.

In India, some analysts are beginning to question the valuations that companies are paying for their deals. After all, the rule of thumb that the majority of M&A deals fail to generate a positive return on investment also applies to Indian buyers.

Mr. Addepalli said Indian companies are well aware of how many takeovers fail in the long run.
"We're not doing these M&A deals out of some grand vision driven by the egos of business leaders," he said. "Our transactions are clearly driven by business cases. We're very conservative by nature."

He also said since the Teleglobe deal closed in February, VSNL has conducted regular reviews that show the company is ahead in meeting its revenue and earnings targets.

Indeed, the steep discounts VSNL paid for its Tyco and Teleglobe acquisitions hint at a shrewdness that was lacking when those companies were building out their networks.

But how long can Indian companies maintain their investing discipline? In the past global investment banks would never have thought to approach Indian companies with sizeable buyout deals. Today companies such as the Tata Group are regularly approached with multi-billion-dollar opportunities. The temptation will be there to overspend.

Mr. Addepalli knows the risks. But as India integrates into the global economy, companies can no longer rely on their old business to survive.

"Our home markets are under threat," he said. "We can no longer rest assured the home market will give us sufficient growth. Therefore, you have to look for new markets to achieve the growth you can no longer get in India."

Tourists flock to India for a little body work
Apr. 15, 2006. 01:00 AM
CLEO PASKAL
Toronto Star

NEW DELHI-I am going to tell you a deep dark secret. But first you have to wait for the test results, like I did.

I am in the waiting room of the Sitaram Bhartia Institute of Science and Research in New Delhi, one of the many world-class medical facilities all over India.

I am here because I heard that medical tourism is starting to take off in India. Last year around 100,000 people came for everything from knee replacements to nose jobs, compared to 10,000 five years ago.

The main reason is, of course, price. Exactly how cheap is it? You'll see. But first, come with me while test-drive Indian medical tourism.

There is nothing (medically) wrong with me - I hope - so I'm having the Executive Health Check-up. It's designed for busy professionals on the go (okay, so I'm faking it a bit) and involves several hours of all sorts of tests, and a follow-up session a few days later.

It starts at 8:30 a.m., after 12 hours of fasting. The reception area looks like hotel lobby, in fact the entire place is spic n' span, with lots of natural light, potted plants, marble floors and views of the gardens.

I quickly check-in (no ID required) and am introduced to Mr. Singh, the hospital traffic co-ordinator. He leads me from appointment to appointment, readjusting my schedule depending on line-ups to make sure wait time is minimal.

The near-painless blood-taking is followed by a glass of glucose and the handing over of a cute and discrete little bag containing my sample containers. Then, it's off for a chest X-ray. The room looks like every other X-ray room on the planet, sterile and steely. The gowns aren't exactly award-show great, but they cover all the essential bits with more flair than usual. The radiologist cheerfully chats about Toronto doctors he's worked with as he takes snaps of my inner being.

 From there, Mr. Singh takes me to my electrocardiogram test in the garden-view diagnostic centre. As she wires me up, the nurse tells me it's International Women's Day and that I should do something special with my friends. She is going to the movies later with her pals. She
also administers my pulmonary function test, and cheerleads as I huff and puff, encouraging me to greater windy heights than I thought possible.

Next door is my ultrasound. Another nice gown and clean, professional room. Again the doctor has colleagues in Canada, and we commiserate about the weather as she pokes and prods.
Mr. Singh takes my lunch order and then, in quick succession, I have my bone density tested, a post-glucose blood test, a treadmill test and a meeting with a G.P.

The G.P. answers all my questions with patience - so much so that I start making up problems just to see if he'll kick me out, like my G.P. back home does. He doesn't, he just answers in a relaxed and friendly way, which is why I now know that toenails grow slower than fingernails (seems that circulation is poorer in the feet.) Time well spent, I think.

The same level of professional care holds through my next batch of appointments with the gynecologist, cardiologist, ophthalmologist and physiotherapist. Finally, a break for lunch, a nice light sandwich and juice that I eat in the garden.

Then, more appointments. The ear, nose and throat man discovers my deep (because it is several centimetres inside my head), dark (because, contrary to popular belief, there are no light bulbs in there) secret. Apparently I have slighted retracted eardrums. All the flying, probably. He prescribes some medicine, which I get for a few dollars at the hospital pharmacy. Then more tests. I barely spend any time in the waiting room, but what little I do, I end up next to a couple from Arizona who are on the same check-up circuit. They are more experienced, though.

Having been to India before, they also knew to stock up on cheap medicine, prescription glasses (she got two pairs, including prescription sunglasses, for $40 U.S.) and to see a dentist (he is contemplating nine teeth implants for $2,000 U.S.)

Finally it is all over for the day. I come back a few days later for follow-ups with a few of the doctors and a session with the dietician. End result: seven hours of tests, half a dozen doctor
appointments, physio, a personalized diet plan, all my charts and scans to take back home, a nice lunch and a couple of slightly retracted eardrums. Total cost: $100 (U.S.)

Now I'm off to find a dentist.

Sitaram Bhartia, an excellent non-profit research institute, is a favourite of Indian politicians and bureaucrats, but is less well known by tourists. Email enquiries@sitarambhartia.org. Most tourists end up at for-profit places such as Escorts Heart Institute and Research Centre (http://www.ehirc.com), Apollo Hospitals (http://www.apollohospitals.com) or Wockhardt Hospital and Heart Institute (http://www.whhi.com).

Ontario colleges animate India
Financial Post Published: Monday, October 02, 2006  

Movie studios such as Disney and Lions Gate are turning to Indian animation companies to produce their digital feature films in a bid to slash costs. But they're discovering that finding talented animators isn't easy. Enter Toronto's Centennial College, which has teamed up with India's Maharishi Group to set up an animation school in Delhi. Financial Post reporter Jason Kirby recently travelled to India as part of a media fellowship from the Asia Pacific Foundation of Canada. He found one of the biggest hurdles is convincing parents that sketching Mickey Mouse is a respectable profession.

Growing up in Bhilai, a steel town in central India, Sunny Jain doodled on any scrap of paper he could find. Later, when watching animated Hollywood feature films, he'd study them with a critical eye. But it was only when his father put him to work in the family business, trading agricultural implements, that he had his epiphany.

"That's when I realized I didn't want to do this for my whole life," he said. "I told my dad I wanted to do something creative."

Today Mr. Jain, 24, sits in the Mumbai offices of Crest Animation Studios, one of India's largest production companies focused on the country's burgeoning digital three-dimensional animation sector. And he's here because of a unique Indian school that Toronto-based Centennial College helped set up a year ago.

While Canadian businesses have had limited success extending their reach to India, several Ontario colleges have begun to export their computer animation programs to the subcontinent. Centennial, which offers one of Canada's largest digital animation programs, was one of the first into the country with its Picasso Animation College in Delhi.

The ventures come as big Hollywood studios turn to India as an outsourcing hub to animate their big-budget 3D features. One report by Andersen Consulting estimates the value of the Indian animation sector could reach US$15-billion by 2008, whereas it was pegged at just US$550-million two years ago. Anticipating that kind of growth, plans are underway to roll out more Canadian college campuses across the country.

Picasso College is a joint venture between Centennial and India's Maharishi Group, an organization set up by Maharishi Mahesh Yogi, best known as the erstwhile spiritual leader to the Beatles. In addition to owning a string of export companies, the Maharishi Group operates educational institutions around the world and provided the money, equipment and facilities for the Picasso animation program.

Centennial created a carbon copy of the digital-animation program taught in Toronto and transferred it to India, along with instructors to teach the classes and train other staff. Graduates of the program earn not just a Western-style education, but also a diploma that is valid in Canada.

For the most part, animation hasn't been seen as a legitimate career in India. So it took almost a month for Mr. Jain to convince his father to let him pursue it. (As it turned out, it was his father who saw the Picasso College ad in the newspaper.) It took even longer to win over his mother
Mr. Jain may not have known it at the time, but just weeks before he boarded a train for the 22-hour journey to Delhi, school officials were racing to get everything ready for the first crop of 14 students.

"The building was barren and still smelled of paint fumes, and the computers didn't come until three days before class," said Ben McEvoy, a Victoria-based graphic designer and artist and one of the Canadian instructors hired to teach the animation program. It took Mr. McEvoy, who had never travelled abroad, four days to get to Delhi because of flight delays. Exhausted, he said he spent the first night near tears and wondering what he had gotten himself into.

The next three months were a blur. Not only did the Canadian staff have to adapt to the new culture, but the students had to be introduced to Western teaching methods. Indian post-secondary institutions teach by rote. There's little room for classroom discussion. When staff at Picasso instructed students to "create something interesting," all they got at first were blank stares.

"We would make it work, though, sometimes by the skin of our teeth," Mr. McEvoy said.

There's little hint of those early struggles in the school today. Tucked away at the end of a dusty road, the Picasso Animation College shares a building with one of the Maharishi Group's business schools. In one classroom filled with high-end computers, students bring characters to life on their screens. In another, they sketch still-life drawings of a vase. In the brightly coloured blue-and-yellow halls, students mill about while the animated feature Ice Age plays on a TV nearby.

This isn't Centennial's only overseas campus. It also offers a business school in Chennai. Nor is it alone in bringing animation education to India. Ottawa's Algonquin College has teamed up with Animaster, an institute in Bangalore, to offer animation training. Meanwhile, as of February, Toronto's Seneca College has worked with Whistling Woods International, a Mumbai film school, on an animation program.

As Indian animation schools spring up across the country, it seems there's plenty of demand for their grads. When Mr. Jain and the rest of the first group of grads came out of Picasso, they had little difficulty finding work. After a gruelling interview process, Crest Studios alone snapped up nine students for a preliminary three-month term. The company, which started out doing TV animation work, has invested heavily in its plans to produce feature films. Last fall it signed a deal with Vancouver-based Lions Gate Entertainment Corp. to co-produce three feature-length, computer-animated 3D films, the first being an adaptation of the 1969 children's book Sylvester and the Magic Pebble.

"There's a resource crunch for talented animators in India," said P. Rajasekhar, head of human relations at Crest. "Cartoons and the animation profession are new to the country."

The shortage expected to get worse. Big studios such as Disney are beginning to outsource parts of their movies to Indian animation houses. The budgets for animated films have been creeping up, while the market is getting cluttered with new releases. That's driving companies to look for cheaper production alternatives. A 3D animated feature can be made in India for about 25% to 35% of what it would cost in the United States

"India may offer cheap labour, but the problem has been the lack of talent," Mr. McEvoy said.
To help tackle that problem, Centennial and the Maharishi Group have plans to expand the Delhi campus, while opening locations in other parts of India. According to A.B.R.P. Reddy, the chief executive of Picasso Digital Media Pvt. Ltd., new campuses are planned for Hyderabad and Mumbai. At the same time, Centennial has recently begun to offer a video game development program, and that, too, will be offered at its Indian campuses.

"We've tried to replicate everything that Centennial has without compromising on anything," Mr. Reddy said. "We're not expecting any profits in the first year. Education is a long-term business."
As for Mr. Jain, now that he has landed a job at one of the hottest companies in the animation sector, his parents have come around to his cartoon career.

"My dad used to get irritated by me before," he said. "Now they're both very happy that I've found something that makes me feel happy."

International Media

India's Path to Greatness
by Martin Walker

When the U.S. Air Force sent its proud F-15 fighter pilots against the Indian Air Force in the Cope India war games two years ago, it received a shock. The American pilots found themselves technologically outmatched by nimbler warplanes; tactically outsmarted by the Indian mix of high, low, and converging attack waves; and outfought by the Indians, whose highly trained pilots average more than 180 flying hours a year—roughly the same as their U.S. and Israeli counterparts and slightly more than those of NATO allies such as France and Germany. U.S. general Hal Hornburg said that the results of the exercise, against Indian pilots flying Russian-built Sukhoi Su-30 and French Mirage 2000 fighters, were “a wake-up call.” According to testimony in a House Appropriations Defense Subcommittee hearing, the U.S. F-15s were defeated more than 90 percent of the time in direct combat exercises against the Indians.

But beyond the evidence of India’s military expertise and its possession of state-of-the-art fighter aircraft, the real significance of the Cope India war games is that they demonstrated the extent of the cooperation between the Indian and U.S. militaries. Their mountain troops now train together in the Himalayas and Alaska, and their special forces mount joint exercises in jungle and underwater warfare. Their aircraft carrier task forces have conducted exercises in the Indian Ocean, and joint antipiracy and antisubmarine drills are routine. Indian and U.S. forces are working together with an intimacy once reserved for the closest NATO allies. The goal—that the militaries of the two countries be able to operate in lockstep—would have been inconceivable in the Cold War era, when India, with its Soviet-supplied military, was seen as a virtual client of Moscow.

The foundation of this new relationship was laid before George W. Bush took office in the White House. In the spring of 1999, Bush, then governor of Texas, was briefed for the first time by the team of foreign-policy advisers that became known as the Vulcans, after the Roman god of fire and iron. Bush began with the frank admission that he knew little about foreign policy. The Vulcans, led by Condoleezza Rice—later to be his national security adviser and then secretary of state—delivered a broad-brush survey of the world, its problems, and its prospects, and recommended muscular American leadership in cool-headed pursuit of American interests. When the group finished, Bush had one question: What about India? Another Vulcan team member who was present, future ambassador to India Robert Blackwill, recalled asking Bush why he was so interested in India: “He immediately responded, ‘A billion people in a functioning democracy. Isn’t that something? Isn’t that something?’”

Bush’s curiosity had been stirred by a number of Indian supporters living and prospering in Texas, including some businessmen who helped build the state’s high-tech corridor, dubbed Silicon Canyon. One of those businessmen was Durga Agrawal, born in Lakhanpur, a central Indian village without water or electricity, who had earned a master’s degree at the University of Houston and stayed on to found a highly successful company called Piping Technology & Products and to raise more than $100,000 for the Bush presidential campaign in the local Indian community. After Bush became president, Agrawal was invited to the White House as a guest at the banquet for visiting Indian prime minister Manmohan Singh, where Bush introduced him as “my good friend from Texas.”

Bush’s question to his Vulcans prompted Rice to include a highly significant paragraph in her January 2000 Foreign Affairs essay “Promoting the National Interest,” which was widely studied as the blueprint for a Bush administration foreign policy. She contended that China should be regarded as “a strategic competitor, not the ‘strategic partner’ the Clinton administration once called it,” and suggested that America should redirect its focus. The United States “should pay closer attention to India’s role in the regional balance. There is a strong tendency conceptually to connect India with Pakistan and to think only of Kashmir or the nuclear competition between the two states. But India is an element in China’s calculation, and it should be in America’s, too. India is not a great power yet, but it has the potential to emerge as one.”

The intervening September 11 terrorist attacks and the Iraq war perhaps explain why it took five years for the Bush administration to act formally on that calculus. But on a March 2005 visit to India, Rice told Prime Minister Singh that part of the United States’ foreign policy was to “help India become a major world power in the 21st century.” At a later briefing, U.S. ambassador to India David Mulford described the vision behind a broader strategic relationship with India that would foster cooperation on a number of fronts. “The U.S.-India relationship is based on our shared common values. We are multiethnic democracies committed to the rule of law and freedom of speech and religion,” Mulford said, adding that “there is no fundamental conflict or disagreement between the United States and India on any important regional or global issue.”
A July 2005 visit by Prime Minister Singh to Washington, and President Bush’s trip this year to New Delhi, along with detailed negotiations for nuclear, military, economic, and technological cooperation, have institutionalized that relationship. But, as former deputy secretary of state Strobe Talbott said of his own earlier path-breaking negotiations with foreign minister Jaswant Singh, “What took us so long?”

The short answer is the Cold War. American officials were uncomprehending and resentful of India’s determination to stay neutral as a founder and pillar of the Non-Aligned Movement. By contrast, Pakistan swiftly decided to become an American ally and to buy American weapons. In response, India bought Soviet weapons. Pakistan, with whom India has fought three wars since the two countries simultaneously became independent from Britain in 1947, was also a close ally of China, so the Sino-Soviet split gave Soviet diplomats a strong incentive to cement their ties with India, deepening American suspicions.

India’s explosion of a nuclear device (not a weapon, Indira Gandhi’s government insisted) in 1974 exposed India to various restrictions in obtaining nuclear supplies under the Nuclear Non-Proliferation Treaty, and to some other mildly punitive but symbolic U.S. legislation. After India’s full-scale nuclear weapons tests in 1998 (swiftly followed by rather less impressive tests by Pakistan), the Clinton administration sought engagement through the Talbott-Singh talks and Bill Clinton’s own highly successful visit to India. When Pakistan-backed militants crossed Kashmir’s mountains into the Indian-controlled area of Kargil, Clinton’s intervention prevented the incursion from escalating into a full-scale war.

The Bush administration had to launch another panicked round of diplomacy in early 2002, after an attack on the Indian parliament by Kashmiri terrorists with apparent Pakistani connections. At one critical point, then–U.S. deputy secretary of state Richard Armitage asked his staff, “Who thinks they’re heading for nuclear war?” and everyone except for Armitage reportedly raised a hand. One senior British official who was involved recalls it as the nearest thing to nuclear war since the 1962 Cuban Missile Crisis.

Perhaps these brushes with disaster served as an awful warning to India. Or perhaps its successful market-style economic reforms in the 1990s, along with the palpable weakness of its old friends in Moscow, gave the country’s leaders the spur and the self-confidence to rethink India’s foreign policy. But there was a further goad: India’s nervousness at the rapid growth of its Asian neighbor, China, by whom it had been humiliated in a brief border war in 1962. In May 1998, at the time of India’s nuclear tests, Indian defense minister George Fernandes claimed that China was exploiting Pakistan, Burma, and Tibet in order to “encircle” India. “China has provided Pakistan with both missile as well as nuclear know-how,” Fernandes said, adding, “China has its nuclear weapons stockpiled in Tibet right along our borders.” He concluded that China was India’s most severe threat, and that while India had pledged “no first use” of nuclear weapons, the Indian nuclear arsenal would be targeted appropriately.

With Pakistan to the west and China to the north and east, India has long feared encirclement. Despite soothing diplomatic statements, China has sharpened these fears with an assertive new presence in the Indian Ocean, beginning in the late 1990s with an electronic listening post in Myanmar’s Coco Islands. In 2001, China agreed to help Pakistan build a new port and naval base at Gwadar, close to the Iranian border and the Persian Gulf. China has also pitched in to build a road network from the new port to the Karakoram Highway, a feat of engineering that connects China and Pakistan through the Himalayas.

The Gwadar naval base planned to India’s west is matched by another to the east, where Chinese engineers are building a similar facility on Myanmar’s Arakan coast, connected by a new road and rail link through Myanmar to China’s Yunnan Province. China is also helping Cambodia build a rail link to the sea, and in Thailand, it is proposing to help fund a $20 billion canal across the Kra Isthmus, which would allow ships to bypass the Strait of Malacca. A recent Pentagon report described these new bases as China’s “string of pearls” to secure the sea routes to the vital oil fields of the Persian Gulf.

In a number of off-the-record conversations in New Delhi on the eve of Bush’s visit earlier this year, including extremely rare meetings with senior officials of the secretive Research and Analysis Wing, Indian security and military figures stressed their profound concern at these developments. The degree of alarm is evident in India’s recent flurry of arms purchases, including a $3.5 billion deal to buy six Scorpene “stealth” submarines from France along with the technology to build more.

The Scorpene will augment India’s existing submarine fleet of 16 vessels, mainly Soviet-built Kilo and Foxtrot attack submarines. India was the world’s biggest customer for arms last year, and more deals for advanced aircraft are in the works, which seem likely to include U.S.-made F-16 and F-18 warplanes, even as India builds its own family of nuclear-capable Agni missiles, the latest version of which is designed to reach Shanghai. With almost 1.4 million troops, India’s armed forces are already roughly the same size as those of the United States, and they are increasingly well trained and well armed. India is so far the only Asian country with an aircraft carrier, which can deploy British-built Sea Harrier fighters, vertical-takeoff jets like those used by the U.S. Marines.

The alarm over China’s rise is plain in India’s military and policy debates. An article last year by the Indian Defense Ministry’s Bhartendu Kumar Singh in the journal Peace and Conflict, published by the New Delhi-based Institute of Peace and Conflict Studies, is typical. Singh speculated that China’s military buildup might be explained in part by Taiwan, but that its long-term goal could be to ensure Chinese dominance of the Asia-Pacific region. While Singh doubted that this challenge would result in an all-out war between China and India, India was bound “to feel the effects of Chinese military confidence. . . . Is India prepared? It can wage and win a war against Pakistan under every circumstance, but it is not sure about holding out against China.”

The irony and the danger is that China has similar reasons to feel encircled. The United States has established new military bases in Central Asia since 9/11, adding to existing outposts in Japan and South Korea, and it is expanding its existing facilities at Guam to include a base for submarines and long-range stealth bombers. Now Beijing nervously watches the warming strategic partnership between Washington and New Delhi. Moreover, China’s construction of the “string of pearls” reflects its own deep concern about the security of its oil supplies.

Its tankers must pass through the Indian Ocean, and China’s new pipeline from the Kazakh oil and gas fields of Central Asia will lie within easy cruise missile or air strike distance of India.
The tension between these two rising powers is underscored by their rivalry for essential energy resources. “India, panicked over future oil supply, went after international oil assets competing directly with China,” India Daily reported last year when Subir Raha, chairman of India’s Oil and Natural Gas Corporation, announced that the company was buying a fifth of Iran’s giant Yadavaran oil field and was in the market to buy assets of Yukos, the Russian energy giant. The Indian company had already invested nearly $2 billion to buy a share of the Sakhalin-1 field in Siberia, run by ExxonMobil. India, which imports more than two-thirds of its oil, has since signed a $40 billion deal with Iran to import liquefied natural gas and join in developing three Iranian oil fields.

Energy geopolitics can promote harmony as well as rivalry. Pakistan and Turkmenistan have signed a memorandum of understanding on a multibillion-dollar gas pipeline through Afghanistan that could eventually end as a “Peace Pipeline” in India, in what would be a major breakthrough in Indo-Pakistani relations. Former Indian petroleum minister Mani Shankar Aiyar, a strong advocate for the pipeline, says, “Almost everywhere in the world where an Indian goes in quest of energy, chances are that he will run into a Chinese engaged in the same hunt.” Aiyar proposed that India, China, Japan, and South Korea establish a system of cooperative access to energy supplies. His subsequent demotion to minister for youth and sport was widely perceived in India as reflecting U.S. pressure against the Iran oil deal.

Indian security officials already see themselves fated to play central roles in what Aaron Friedberg, a Princeton scholar now on the White House national security staff, has called “the struggle for mastery in Asia.” That phrase was the title of an essay he published in the neoconservative monthly Commentary when Bush was first elected. Friedberg’s central message was that over the next several decades the United States would likely find itself engaged in an “open and intense geopolitical rivalry” with China. “The combination of growing Chinese power, China’s effort to expand its influence, and the unwillingness of the United States to entirely give way before it are the necessary preconditions of a ‘struggle for mastery,’” he wrote, adding that hostilities or a military confrontation could be slow to develop or could occur as a result of a “single catalytic event, such as a showdown over Taiwan.”
The strategic and energy concerns of the United States, China, and India will be difficult to manage. But Pakistan, Russia, Japan, and North and South Korea all factor into the extraordinarily complex equation of Asian security. (India maintains that Pakistan’s missile technology came from China and North Korea.) And through Pakistan and the terrorist attacks from militants in Kashmir, India also feels itself threatened by Islamic extremism, a matter of grave concern for a country whose population of just over one billion includes 145 million Muslims.

It is in this context that the nuclear dimension of the Bush administration’s embrace of India has aroused so much controversy. The administration seeks to steer India into “compliance” with the Non-Proliferation Treaty and the International Atomic Energy Agency (IAEA) system while leaving India’s nuclear weapons reactors out of the international control regime. This stance has been challenged by critics in the United States for driving a coach and horses through the Non-Proliferation Treaty just as international support for diplomatic pressure on Iran depends on strict compliance with it.

Under the deal, India will separate its civilian from its military nuclear programs, but it has until 2014 to complete this division. New Delhi will declare 14 of an expected total of 22 nuclear reactors to be for civilian use and place them under IAEA controls. But India has managed to keep its new fast-breeder reactors out of the control system, which means that there will be no nuclear fuel shortages to constrain the future manufacture and development of nuclear weapons. Moreover, be­cause India will reserve the right to determine which parts of its nuclear program will be subject to IAEA controls and which will not, it will be able to shield its own nuclear research labs from the IAEA system. New Delhi has also reinterpreted the U.S. insistence that the deal be made “in perpetuity” by making this conditional on continued supplies of enriched uranium, of which India is desperately short, to fuel its reactors.
The main concession India made was cosmetic.

It agreed not to be formally included, in the eyes of the United States and the IAEA, in the category of the five recognized nuclear weapons states (the United States, Russia, Britain, France, and China). The deal is still the subject of hard bargaining in the U.S. Congress, where it has yet to be ratified, despite intense pressure from the Bush administration. But if, as expected, the agreement succeeds, India will become a special case, with a free hand to augment its nuclear weapons systems, and to develop its nuclear power stations with full access to the fuel and technology monopolized by the 45-nation Nuclear Suppliers Group. And India will secure all this with the blessing of the IAEA, thus negating the efforts of the international community since the 1970s to constrain India’s nuclear ambitions by putting sanctions on its access to nuclear fuel and technology.

In India, the agreement has come in for criticism for wedding the country to U.S. strategic interests, to the detriment of India’s relations with China and Iran. The policy is also viewed by some Indians as a lever to steadily increase international control over India’s nuclear assets, and to make it more dependent on the United States as the prime supplier of nuclear fuel.
India long saw itself as neutral and nonaligned, endowed by Gandhi’s nonviolent legacy with a singular innocence of such geopolitical games. It has been thrust with remarkable speed into a prominent strategic role that matches its new economic robustness. But its ability to sustain military power and buy advanced weaponry will clearly depend on its economic growth, which began in earnest 15 years after China launched its own economic reforms. While India 30 years ago enjoyed a slightly higher per capita income than China, today it has an annual per capita income (at purchasing power parity) of $3,300, not quite half of China’s level of $6,800, and less than one-tenth of the $41,800 level of the United States.

India is now playing the tortoise to China’s hare, not only in its rate of growth but also because the Indian and Chinese economies are two very different creatures. China has become the world’s low-cost manufacturing center, making and assembling components that are often designed or developed elsewhere, and relying heavily on foreign investment. India’s boom, by contrast, has so far been largely based on services and software, and it has been self-financing, with about a tenth of China’s level of foreign direct investment. Still, it has produced an Indian middle class—usually defined by the ability to buy a private car—of some 300 million people, a number greater than the entire population of the United States.

One central reason why India has not enjoyed a Chinese-style boom led by manufacturing is the dismal state of so much of the country’s infrastructure. Its ports, railroads, highways, electricity supplies, and grid systems are aged and ramshackle, and traffic jams and power outages are routine, reinforcing each other when the traffic lights blink out. Critical segments of the economy—such as the container transport system, which allows easy shipping of freight by land, sea, and air—have been state monopolies, subject to the usual debilitating problems of the breed. Arriving foreigners receive a startling introduction to the bustle and backwardness of India before they ever reach a hotel. On my most recent trip to New Delhi and Jaipur, the maddening endemic traffic jams included bicycles, flimsy three-wheeled rickshaws, and somnolent cows, whose excrement was swiftly scooped up by hordes of small children and patted into flat, plate-shaped discs, which are dried in the sun and sold for fuel. So to the usual tourist dangers of stomach upsets from eating local foods is added the prospect of respiratory infection from breathing air suffused with fecal matter.

Yet there is no denying the furious commercial energy of a country that is currently signing up five million new mobile phone subscribers each month. Competition has come to the container industry, the airports are being privatized despite labor union opposition, and new highways are being built. The gas and electricity grids are slated for reform next. India has its high-tech centers of Bangalore and Hyderabad, as well as a few new towns such as Gurgaon, just outside Delhi, with a modern automaking plant, high-rise shopping malls, and telemarketing centers. But it can boast nothing like the jaw-dropping array of new skyscrapers that zigzag the skylines of modern Shanghai and Guangdong.

Still, some of the smart money is on the tortoise. The global consultancy firm PWC (still better known by its old name, Price Waterhouse Coopers) produced a report this year forecasting that India would have the fastest growth among all the major economies over the next 50 years, averaging 7.6 percent annually in dollar terms. In 50 years’ time, the Indian and U.S. economies would be roughly equivalent in size. The report also suggested that by 2050 the existing economies of the G-7 group of advanced industrial nations (the United States, Britain, France, Germany, Italy, Japan, and Canada) would be overtaken by the E-7 emergent economies of China, India, Brazil, Russia, Indonesia, Mexico, and Turkey.

The most significant difference between India and China, however, may be how their respective demographic trends and political systems shape their futures. The Chinese leadership is already coming to regret its nearly 30-year-old policy of permitting most couples to have only one child. Now China is rapidly aging and heading for a pensions crisis, as an entire generation of only children grapples with the problem of helping to support two parents and four grandparents.

A recent DeutscheBank survey on China’s pension challenge predicted, “China is going to get old before it gets rich.” The policy has also created a serious gender disparity. The ability to predict the sex of a fetus in a country limited to one child per family has led to a situation in which 120 boys are born for every 100 girls, and President Hu Jintao last year asked a task force of scientists and officials to address the tricky problems posed by an excess of single men. India has a similar sex disparity problem in certain regions, notably those where Sikhs are numerous, but overall, with half of its population below the age of 25, it boasts a far healthier demographic profile.

The contest between the Indian tortoise and the Chinese hare has a political dimension as well. India is a democracy, without an equivalent of China’s ruling Communist Party. Its elections, provincial governments, and free news media give the country great social resilience. China’s breakneck economic growth and social disruption seem likely to have potent consequences as its new middle class finds a political voice .

The Chinese Communist Party is becoming less ideological and far more technocratic in its orientation, but it still can manipulate the most authoritarian levers of state power in aggressive pursuit of economic and strategic goals. Indians are stuck with their messy but comfortable democracy. Montek Singh Ahluwalia, an Oxford-educated economist who is deputy chairman of the national planning commission, says, “The biggest thing about India is that it’s a very participative, very pluralistic, open democracy where even if the top 1,000 people technocratically came to the conclusion something is good, it has to be mediated into a political consensus. And I’m being realistic. I don’t think it’s going to be that easy to put in place everything that from a technocratic point of view everybody knows needs to be done.”

In short, India’s pluralism could be to China’s advantage, although given the track record of bureaucratic technocrats from Moscow to Japan in wasting massive resources to pursue the wrong goals, it may not be that simple. But India has its own special asset, recognized by the American presidential candidate George W. Bush and suggested by the celebrated prediction a century ago by Otto von Bismarck that “the most important fact of the 20th century will be that the English and the Americans speak the same language.” The most important factor in the 21st century may well be that Americans and Indians (and perhaps Britons and Australians and Microsoft employees and global businesspeople) all speak English. This is not simply a matter of a shared language, although that is important; it also encompasses those other aspects of the common heritage that include free speech and free press, trial by jury and an independent judiciary, private property, and individual as well as human rights.

While retaining its rich and historic cultures, India is thoroughly familiar with these core values and determinants of the American civic system. And as a religiously tolerant, multi­ethnic democracy with commercial, legal, and educational systems developed during the British Raj, India is—like the English language itself—familiar and reassuring to Americans.

A decisive factor in the short term may be India’s importance to the United States in the strategic and cultural campaign now being waged against Islamic extremism. This will be a struggle much deeper and longer than the mainly military effort the Bush administration calls GWOT (Global War on Terrorism), as currently being fought in Afghanistan and Iraq. India, itself a regular target, has been from the beginning a firm partner in the war on terrorism, instantly offering flyover and landing rights to U.S. aircraft engaged in the war against the Taliban. But with its 145 million Muslims, India risks becoming embroiled in the tumult now shaking so much of the Islamic world as the faithful try simultaneously to grapple with the cultural, theological, economic, and social revolutions now under way.

Facing the additional problem of militant Hindu nationalism, India has no choice but to stand in the front line against Islamic extremism. India is the great geographic obstruction to an Islamic arc that would stretch from Morocco across Africa and the Middle East all the way to Malaysia, Indonesia, and into the Philippines. Pakistan and Bangladesh are deeply uncomfortable neighbors for India, being Muslim, poor, the scenes of concerted jihadist campaigns, and worrisomely close to becoming failed states. But there is another arc, which stretches from Japan and South Korea through China and the increasingly prosperous countries of the Association of Southeast Asian Nations to India. This swath of rising prosperity and economic growth now includes three billion people—half the world’s population. It is easy to foresee wretched outliers such as North Korea, Myanmar, Bangladesh, and Pakistan being swept up in the wake of this boom, should it continue, but for that to happen, Asia needs stability, peace, and a cessation of arms races.

It is an open question whether the burgeoning new strategic friendship of India and the United States will help this process or derail it. It could do both, deterring China from adventurism or bullying its neighbors, and stabilizing the strategic environment while India and China manage a joint and peaceful rise to wealth and status. But at the same time, the new U.S.-Indian accord could help spur a new nuclear arms race in Asia, where Russia, China, India, Pakistan, and probably North Korea already have the bomb, and Japan, South Korea, and Taiwan have the technological capability to build it quickly.

One wild card is already being played that could bring this about: the prospect of Japan and India sharing in American antimissile technology. If India gains the ability to shoot down incoming missiles, this threatens to negate the deterrent that Pakistan and China thought they possessed against India, with potentially destabilizing results.

Even though India’s prospects now look brighter than they have for a generation, the country faces some sobering challenges, including the accelerating pace of expectations among its own people and their understandable demand that the new wealth be shared quickly, that the poorest villages get schools and electricity. Almost half the population still lives in rural hamlets, and only 44 percent of these rural residents have electricity. Enemies of globalization populate the Indian Left and sit in the current coalition government. India must grapple with the familiar difficulties of Hindu nationalism, inadequate infrastructure, and a large Muslim population, as well as environmental crisis, deep rural poverty, and the caste system.

India finds itself in a delicate position. It must manage and maintain its relationship with China while accommodating American strategists who are relying on its support to keep Asia on the rails of democratic globalization. Americans also regard India as insurance against China’s domination of Asia to the exclusion of the United States. India, on the other hand, wants freedom of action and does not want to serve merely as a tool of American influence.

“We want the United States to remain as the main stabilizer in Asia and the balance against China until such time as India can manage the job on its own,” an influential security adviser to the Indian government said recently, very much on background. What will happen once India believes it can do this alone? I asked. “Well, then we shall see,” he replied. “By then it will be a different Asia, probably a different China, and possibly a different America. It will certainly be a different world, dominated by the Indian, Chinese, and American superpowers.