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India-Pakistan tensions hot up

India Budget gives foreign investors greater access

India and China seal bilateral trade pact

India raises defence budget by hefty 28%

India's indulgence

New Delhi reaps benefits from IT brain drain

India may shoot for the moon

India goes Italian

China-India ties 'a lot better now'

India and China begin first security dialogue

India-Pakistan tensions hot up

By DAVID GARDNER

FINANCIAL TIMES

A YEAR ago this week, Mr Atal Behari Vajpayee, the Indian Prime Minister, took a bus across the Pakistani border to meet his counterpart, Mr Nawaz Sharif.

Out of that emotional encounter came the Lahore Declaration, raising hopes that the two newly nuclear-armed enemies might settle half a century of dispute over the Himalayan state of Kashmir. How misplaced that optimism seems now.

One year on, New Delhi and Islamabad have begun a chilling escalation of rhetoric, with both capitals openly discussing the possibility of their fourth war since 1947. The sense of drama has been heightened by American alarm, ahead of President Bill Clinton's visit to India next month.

The deterioration in relations between the Indian subcontinent's Hindu and Muslim cousins over the past year can be traced back to last summer's prolonged conflict in the Kashmiri mountains, after a Pakistan-backed incursion near Kargil, across the Line of Control that divides the disputed territory.

Then, in October, Pakistan's military ousted Mr Nawaz Sharif in a coup led by General Pervez Musharraf, the man Delhi holds responsible for Kargil.

By then, the Pakistan-supported insurgency of the predominantly-Muslim people of Kashmir had risen to a new peak. Separatist militants started carrying the fight into Indian army headquarters in Srinagar, the Kashmiri capital.

To cap it all, at Christmas, an Indian Airlines flight was hijacked to Kandahar in Afghanistan, where the ruling Taleban practises its neo-mediaeval version of Islamist government under the sole remaining sponsorship of Pakistan. Delhi was forced to free three Kashmiri militants in exchange for the airliner's passengers and crew.

It came as little surprise when clashes resumed shortly afterwards between the Pakistani and Indian armies, or when both sides this month restated their claims to all of Kashmir.

As if this territorial dispute was not enough, the two leaders warned each other that they would use nuclear weapons if they felt sufficiently threatened.

"We are being threatened with a nuclear attack. Do they (the Pakistanis) understand what this means?" Mr Vajpayee asked. "If they think we will wait for them to drop a bomb or face destruction, they are mistaken."

Gen Musharraf, in an interview on Indian state television, conspicuously dodged giving any commitment to "no first use" of nuclear weapons. "I have said very clearly that nuclear weapons should not be used," the general said.

"However, when our national integrity is threatened, then we will take a decision at that time. We will decide when the occasion arises."

Small wonder then that Mr Clinton's response has been to remind the two nuclear rivals that their enmity has become a global issue.

"I want to make a trip which maximises the possibilities not only for constructive partnership for the US in the years ahead," the President said, "but even more urgently for peace in that troubled part of the world".

However, India does not agree with Pakistan on inviting Washington in as a mediator. Delhi's long-standing position is that Kashmir can be resolved only in bilateral talks with Pakistan, whereas Islamabad, Washington's ally throughout the Cold War, has always tried to enhance its claim to the territory by internationalising the dispute.

Once the Pakistan military seized power in October, the US -- alarmed at the turn of events -- began to intensify pressure on India to "engage" its neighbour.

More recently, although the White House has made plans for Mr Clinton to visit only India and Bangladesh next month, it refuses to rule out the possibility of him stopping over in Pakistan.

To Indians across the political spectrum, all this seems unjust, and tends to strengthen the harder-line constituency behind the ruling Hindu-revivalist Bharatiya Janata party (BJP). Mr Vajpayee's advisers say it is almost impossible for him to make a gesture of reconciliation.

This is not because Pakistan is under military rule. Mr Vajpayee himself, as foreign minister in the 1977 Janata Dal government, went to Pakistan for talks with General Zia ul-Haq, the late military dictator.

The point now, in Indian eyes, is Islamabad's belligerent intentions and terrorist connections. India, moreover, regards the US analysis of the situation in Pakistan as misguided and redolent of Pakistani influence.

Washington has been telling Delhi that the Pakistani armed forces are the last bulwark against Taleban-influenced Islamic fundamentalists coming to power, which would not only endanger India and South Asia but complicate security in the Middle East and central Asia too.

Officials in Delhi respond to this in two, sometimes contradictory, ways.

On the one hand, they want to take advantage of America's obsession with the terror network of Osama bin Laden, the Saudi holy warrior being sheltered by the Taleban, whom Washington blames for the 1998 bombings of the US embassies in Kenya and Tanzania. But at the same time, India inverts the US analysis, arguing that Islamist power has grown out of proportion to its influence in Pakistan precisely because of army- and intelligence-services patronage. "The only way the Islamists gain influence is when the military is in power," says an Indian official. "The three props of dictatorship in Pakistan are the mullahs, the army and the Americans."

The "mullahs with nukes" scenario, that so horrifies the US, cuts little ice in India.

As Mr Bharat Karnad of New Delhi's Centre for Policy Research and the government's National Security Advisory Board puts it:

"The Pakistanis have always argued that they are near the brink -- like a man on a ledge threatening to take you with him.

"But the question is: How will talking to Pakistan influence the powers in Islamabad, without convincing them of the efficacy of their present policies?"

India, nevertheless, feels its position is strong. Its restraint last summer during Kargil -- resisting the urge to cross over into Pakistani Kashmir -- was internationally applauded.

Ten rounds of "strategic dialogue" between Mr Strobe Talbott, the US Assistant Secretary of State, and Mr Jaswant Singh, Indian Foreign Minister, have brought the two democracies probably closer than at any time in India's independent history. It is hard to dispute that nuclear status has bought India, what Mr Singh calls, "the currency of power".

What India fails to acknowledge is how the nuclear stand-off simultaneously weakened its position. Pakistan, the lesser power until the reciprocal nuclear tests, suddenly won an equality it had never enjoyed on the ground. Second, Islamabad acquired an incentive to keep raising the military stakes in Kashmir: It knows that pushing the Kashmiri button will bring the US running.

"Clearly the stakes are being raised," says Mr Raja Mohan, a leading strategic-affairs analyst.

At one level, this is "puzzling, because we don't want the Americans to poke their noses into it (Kashmir)". But at another level, Mr Mohan thinks, India is "challenging the US to do something about Pakistan".

What India is saying, Mr Mohan argues, is essentially this: We took the peace initiative at Lahore and, in return, we got Kargil, Kashmir and Kandahar.

"Tell your friends (in Pakistan) to cease supporting terrorism, because we are not going to be immobilised by the nuclear factor."

This analysis would explain renewed attempts by Mr George Fernandes, the Indian Defence Minister, to define a doctrine of "limited war" -- the idea that seasonal skirmishes in the Himalayas and, indeed, full-scale conventional war, are still possible despite India and Pakistan's nuclear capability.

It is the scope for escalation in this still half-baked idea -- more than the rhetorical escalation of recent weeks -- that may turn out to be the truly scary aspect of the stand-off in South Asia.

Escalation of rhetoric

ONE year on, New Delhi and Islamabad have begun a chilling escalation of rhetoric, with both capitals openly discussing the possibility of their fourth war since 1947.

The sense of drama has been heightened by American alarm, ahead of President Bill Clinton's visit to India next month. The deterioration in relations over the past year can be traced back to last summer's prolonged conflict in the Kashmiri mountains.

India Budget gives foreign investors greater access

NEW DELHI -- India will increase the amount of shares that foreign investors can own in local companies, and reduce its stake in state-controlled banks, Finance Minister Yashwant Sinha said yesterday in his Budget for 2000/2001.

Foreigners will be able to own as much as 40 per cent of a publicly-traded Indian company, compared with a 30 per cent limit now. The government will also cut its stake in state banks to 33 per cent.

"What we're seeing now is the beginning of the first real privatisation in India's history," said Mr Arjuna Mahendran, senior regional economist at SG Securities in Singapore. "This will definitely make India a more attractive place for foreign investors."

India's government also announced the biggest defence spending increase ever in its US$77.8 billion (S$132 billion) budget, which includes tax increases and a higher than expected deficit.

Bombay's main stock market index fell 300 points or 5.2 per cent from Monday's close of 5737.13 points in what brokers said was a reaction to the tax hike on business dividends from 10 to 20 per cent.

However, Mr Sinha also unveiled series of slashed customs duties on high-technology imports from cell phones to computer parts in an effort to encourage India's information and software industry.

"If you're looking for a leaner, harder government, it's not there," said economist T N Ninan, editor of the Business Standard newspaper. "You don't see much stimulus to industry."

He noted that Mr Sinha had announced no programme to tackle the national debt, whose interest payments are the single biggest item in the deficit, and consume 48 per cent of tax revenues.

The deficit in the fiscal year to March 31 will soar to 5.6 per cent of gross domestic product, while the government had been aiming at 4 per cent.

On defence, Prime Minister Atal Bihari Vajpayee said: "The security environment has deteriorated since the Kargil war. India has to prepare militarily." -- Bloomberg, AP

India and China seal bilateral trade pact

The accord which boosts Sino-Indian relations also smoothens China's entry to the WTO. Meanwhile China and the EU hold hush-hush talks

BEIJING -- India and China have agreed on a bilateral trade deal, removing one more barrier to Beijing's entry into the World Trade Organisation (WTO), the Indian Embassy here said yesterday.

Indian Commerce and Industry Minister Murasoli Maran and Chinese Minister of Foreign Trade and Economic Cooperation (Moftec) Shi Guangsheng signed the document in front of journalists in Beijing.

The two ministers declined to give details of the accord, but hailed the agreement as a boost to Sino-Indian relations and another important step for China's WTO membership.

"The agreement embodies the spirit of cooperation between China and India, both developing countries, towards the multilateral trading system," said Mr Shi in a joint written statement.

It said India gave full support to China's entry into the global trading body and would work with China to develop trade ties.

"It is a significant step forward in bilateral trade relations," Mr Maran told reporters, adding that it would be of "mutual benefit".

An Indian diplomat said China had agreed to a series of tariff reductions on Indian exports.

"China has agreed to lower general tariff rates for a range of agricultural, industrial and marine products from about 20 per cent to 10 per cent," he said, asking to remain anonymous.

He added that the agreement was sealed on Monday after several days of talks since Mr Maran arrived on Thursday.

The accord comes as a visiting European Union (EU) trade delegation is engaged in highly-secretive talks with Chinese trade officials to seal a bilateral deal.

The EU is by far the biggest of China's 13 trading partners which have yet to finalise the bilateral deals necessary for Beijing to end its long crusade to join the WTO this year.

The European delegation, led by the commission's Director-General of Trade Hans-Friedrich Beseler, began a second day of talks at Moftec in Beijing yesterday.

Both China and the EU have declined to give any details about the negotiations, fearful that publicity could derail the discussions. -- AFP, Reuters

India raises defence budget by hefty 28%

Hike comes after years of defence cutbacks caught country napping in the Kargil war and amid mounting concern over national security

By NIRMAL GHOSH
INDIA CORRESPONDENT

INDIA yesterday hiked its defence budget by some 28 per cent -- the single biggest increase for the world's fourth largest military.

The Rs 130 billion (S$5.3 billion) hike came after years of defence cutbacks caught India ill-prepared for last year's Kargil war and amid mounting concern over national security in the context of the sharp deterioration of ties with Pakistan.

"This was required in the wake of the deteriorating security environment," Prime Minister Atal Behari Vajpayee told reporters.

"After the Kargil war, India has to gear itself up. I am fully confident the people will understand the country's defence needs."

India and Pakistan came close to their fourth war last year after hundreds of heavily armed men crossed the ceasefire line into the Kargil sector of northern Kashmir, prompting a huge military offensive.

The conflict exposed gaps in New Delhi's preparedness and military officers had complained about being ill-equipped and short on communications and intelligence during the 10-week campaign.

Last week, a high-powered committee on the Kargil conflict pointed the finger at intelligence agencies, admitting that the country was caught napping in the face of intrusions.

The reaction of industry and the markets to other measures in the Budget was mixed and largely sceptical.

Share prices on the Bombay Stock Exchange fell more than 5 per cent despite promises from Finance Minister Yashwant Sinha that the Budget would spur economic growth of over 7 per cent.

Analysts said the Budget while tough in some respects had fallen short of expectations in terms of the promised "harsh" measures to curb the fiscal deficit.

Mr Sinha for the first time cut back on aid to the politically sensitive farm sector, saving a projected Rs 20 billion from fertiliser subsidy cutbacks.

He gave incentives to the telecom and IT industries, exempted venture capital from taxes, and simplified India's cumbersome excise tax system.

But he did not send any strong signals on the need to cut expenditure.

The fiscal deficit is currently around 5.6 per cent of gross domestic product (GDP); Mr Sinha's Budget envisages a deficit of 5.1 per cent of GDP.

"I have had to balance fiscal conservation with the need to nurture the economic recovery," he told Parliament.

Mr G. P. Goenka, president of the Federation of Chambers of Commerce and Industry, said: "It is an extremely positive, strong, balanced and modern-looking Budget. Special announcements for venture capital funding, the infotech sector and infrastructure will boost the economy."

But Confederation of Indian Industry (CII) chairman Rahul Bajaj said in a televised analysis of the Budget: "I'm not positive enough; there were opportunities for doing lots more."

Economic analyst T. N. Ninan said: "It's tough on revenue but not tough on expenditure."

Opposition politicians were highly critical.

Congress stalwart and former Cabinet minister Madhavrao Scindia said: "This is stagnation, it's just marking time. It's very distressing to see the fiscal deficit wholly out of control."

The telecom sector welcomed the cutback in customs duty rates for mobile phones.

AT & T managing director Virat Bhatia said the measure was a significant opportunity for the cellular telephone industry, which could expand from its current level of about 1.5 million users today to achieve greater penetration and take the burden off land line providers.

Mr N. R. Narayanamurthy, chairman of Infosys Technologies, said, however, that despite the incentives to knowledge-based industries, the Budget had given no impetus to the growth of local businesses or to the movement towards globalisation.

BUDGET: Highlights

DEFENCE expenditure raised 28 per cent.
Fertiliser subsidies to be cut back, saving some Rs 20 billion.
Unviable public sector units to be closed
Viable public sector units to be restructured; government equity in public sector units to be brought down to 26 per cent.
No public-sector banks will be closed; instead, they will be restructured and recapitalised.
Cigarettes to be taxed an additional 5 per cent.
Customs duties on mobile phones, computers reduced; breaks given to biotechnology and pharmaceuticals.
Venture capital liberalised; knowledge-based industries given breaks.
Rural Infrastructure Development Fund enhanced from Rs 35 billion to Rs 45 billion, interest rates reduced by half per cent.
More credit for farmers; rural housing push enhanced; cheap insurance for the poor.
Ports and airports to be privatised to remove infrastructure bottlenecks.
Traditional industries such as textiles, agro-processing, leather and the small-scale sector to be modernised.
Tax breaks for women; 2001 to be Women's Empowerment Year; higher allocations to literacy, primary education and health services.
Allocation for reproductive and child health programme increased to Rs 10.51 billion from existing Rs 6.77 billion.
Excise duty structure and system simplified.
Copyright © 2000 Singapore Press Holdings Ltd. All rights reserved.

MAY 3 1999

India's indulgence

INDIA, the world's largest democracy, is preparing for elections yet again, the third time in three years, following the defeat of Prime Minister Atal Behari Vajpayee's government by one vote in Parliament. The Hindu-nationalist Bharatiya Janata Party (BJP) and its 17 coalition partners have been in power for only 13 months. The score for India: five governments in three years. Such a record bespeaks the fractious state of Indian politics. Seen in this light, the elections are less a celebration of democracy and more a reflection of a negative trend that ought to be checked, for India's own good. The big parties, through corruption and ineptitude, are no longer able to win a majority in the polls, thus forcing them into backroom deals with the smaller parties to take power. The inevitable result is weak, if not unstable, governments. Ever since the defeat of the once-mighty Congress Party, which may never regain the dominance it used to enjoy with its overwhelming electoral support, India has moved inexorably towards coalition politics, and this looks like the way of the future.

Of India's 600 million voters, surveys have shown that growing hordes of the oppressed classes have been swarming to the parties which profess to represent their interests. According to one survey by India's Centre for the Study of Developing Societies, these are the low-caste, the poor and illiterate masses who have boosted the voter turnout and swelled the ranks of political parties in recent years. The poorest Indians are more likely to vote than the richest ones these days. The number of people from the untouchable caste who joined political parties rose from 13 per cent in 1971 to 19 per cent in 1996. In contrast, those in the upper castes who belonged to parties fell from 36 per cent to 28 per cent. The very poor who believed that voting made a difference rose from 38 per cent in 1971 to 51 per cent in 1996, and in the case of the low-caste people, it rose from 42 per cent to 60 per cent. All this provides happy hunting grounds for the mass-based regional parties, which now can win enough votes to make or break governments.

In theory, India's elections once every five years are supposed to yield a crop of representatives to work for the people's interests. In practice, the elections have degenerated into the politics of caste, communal hatred, regional rivalry, single causes and personalities. To be honest, none of the parties have not sinned in their quest for votes. The BJP's hope this time is to win the sympathy of voters, and it is prodding them to punish the Congress Party and its allies for toppling a government that was doing its job. The same parties which had worked with Congress to engineer the fall of Mr Vajpayee's government have failed to agree on a new one to replace him. It shows just how badly at odds they are with each other beyond bringing down the BJP. If Congress wins enough votes to form the next government, Mrs Sonia Gandhi could well become India's first non-Indian Prime Minister, a possibility that has irked some Indians. A political novice, the Italian-born Congress leader is an unknown quantity whose claim to office is that she is the wife of Rajiv Gandhi, the prime minister who was assassinated in 1991. India, of course, is big enough to survive more political uncertainties and weak governments. But that is not the point. The pertinent question, really, is this: If Indian democracy is defective, is it time that it considered swapping the Westminster model for America's presidential system to avoid frequent government changes?

New Delhi reaps benefits from IT brain drain

As hordes of new recruits head abroad, India fears a brain drain, but many who get wealthy plough their cash back into ventures at home

By NIRMAL GHOSH
INDIA CORRESPONDENT NEW DELHI -- Indian Institute of Technology (IIT) Mumbai graduate Rakesh Mathur founded junglee.com with three other Indians and sold it to Amazon.com in 1998. He made US$90 million (S$153 million) from the deal.

Mr Mathur gave US$1 million to his alma mater recently and started a new company called purpleyogi.com with offices in Mountain View, California -- and Bangalore, India.

He also bought a house in the city of Pune in the west of India and recently took a 25 per cent stake in a dot.com start-up, working out of a new incubator facility at IIT Mumbai.

Mr Mathur is one of many Indians who move to the United States, often straight after graduating, for exciting and lucrative jobs in Silicon Valley.

They make the transition from hired hand to entrepreneur in fertile, venture-capital and ideas-rich northern California. According to researchers, some 750 companies in Silicon Valley are run by Indians.

They account for sales of more than US$3.5 billion and employ more than 16,000 people.

According to some estimates, Indians comprise 40 per cent of the team of any software-development agency.

Every year, about a third of the 115,000 H1B visas issued by US embassies worldwide go to Indian professionals.

Many US companies -- and not always software or Internet players -- regularly raid the ranks of IIT and Indian Institute of Management (IIM) graduates every year.

In one such exercise at IIM Bangalore last week, many of the top 181 graduates were snapped up by US, British and multinational firms.

These ranged from India's Infosys Technologies to Citibank and the Mitchell Madison Group, a consultancy based in Britain.

IT and related sectors accounted for well over 30 per cent of job offers at the IIMs and other top management-training institutes at their annual top graduate rollouts last week.

A significant percentage of those graduates are headed overseas.

The cumulative effect of the figures is astonishing and what was once considered a serious problem in terms of a "brain drain" for India is now revealing a silver lining as some successful Indian entrepreneurs plough the cash back into ventures at home.

It helps that there is a dot.com boom in India, which, with China, is considered one of the mega-markets of the future.

There is a scramble to get in on the ground floor in one of the fastest-moving industries of all time.

Every day brings new headlines in business pages about dot.com investments and five of the six top companies in terms of market capitalisation on the Bombay Stock Exchange are IT-related.

Notwithstanding the potential to get rich quickly, life is not always easy for the imported IT professionals in the US.

"The IT revolution is occurring on the backs of these workers," Mr Pradeep Chaphalkar, a US green-card holder from India, told The New York Times last month.

He is a spokesman for the Immigrants Support Network, an organisation of workers seeking permanent residency in the US.

H1B visas have many restrictions that hamper career progression and options for change -- a paradox in an industry in which technology changes every week.

In an incident in January which shocked the overseas IT professional community, 40 Indian nationals working as contract computer programmers for the US Air Force were arrested at the Randolph Air Force Base in San Antonio, Texas, by agents of the Immigration and Naturalisation Service (INS). There was an uproar over the arrests, in which the programmers, including women, were led away in handcuffs for alleged violations of their H1B rules.

The INS agents reportedly also made racist remarks. The INS eventually dropped all charges against the programmers.

But IT makes the world a smaller place.

Even while Silicon Valley's position will clearly remain unchallenged for years to come, the tens of thousands of IT engineers that Indian universities and institutes churn out every year -- the second biggest pool of English-speaking skilled workers after the US -- will soon have many more choices at home than they did in the early 90s.

Young and dynamic companies are going the stock-option route to attract talent.

For the first time in India, it seems possible -- if one is equipped for the job -- to get rich in one generation in the service industry.

India may shoot for the moon

Its space agency says a lunar mission could be launched by 2008, although some scientists are urging caution

NEW DELHI -- India's national space agency, which launched its maiden satellite in 1983, is now considering a moon mission to stamp its mark on the global space community.

The Indian Space Research Organisation (Isro), which is tinkering with a rocket engine for its glitch-ridden Geosynchronous Satellite Launch Vehicle (GSLV) project, says an unmanned lunar mission could be launched by 2008.

Isro spokesman S. Krishnamurti, however, said the agency had yet to receive the green light from the government.

"There is no approved project. However, some preliminary discussions have taken place between Isro engineers and Indian scientists on the feasibility of a lunar mission," he said.

Studies on a possible rocket have focused on the Polar Satellite Launch Vehicle (PSLV), which is already capable of carrying a 1,250-kg payload 1,000 kms above Earth.

"A lunar mission can provide impetus to science in India, a challenge to technology and, possibly, a new dimension to international cooperation," said Isro chairman K. Kastururangan.

"It can also serve as a test bed for future missions which could be undertaken by India to explore outer space in the new millennium."

Indian scientists had been debating a moon voyage since 1997, an Isro source said, and last October they held their first public brainstorming session on "scientific objectives, trajectories, conceptualisation of spacecraft and the capability of Indian launch vehicles to undertake the mission".

Mr Krishnamurti said either of India's two launch vehicles could be modified to reach the moon's orbit, but scientists who have worked with the rockets sounded a note of caution.

"It would be a tall order," said a former Isro senior systems scientist who worked on the GSLV -- a rocket designed to put a 2,000-kg satellite some 36,000 kms into space.

Isro has put into orbit five communications satellites, four remote-sensing satellites and three experimental satellites during the past 25 years.

Most of them rode piggyback on either Russian or French satellite launch vehicles -- a trend that continued after the PSLV's maiden flight in 1994 came to a watery end in the sea.

However, Isro took its first step towards the multi-billion-dollar commercial satellite launch market on May 26 last year when a PSLV carried a South Korean and a German satellite into orbit.

The GSLV was slated to take off last year, but a glitch in its locally-built engine in February forced Isro to postpone testing of the deep-space rocket until next year.

"The lunar mission is a deviation from Isro's original vision of an application-driven approach for grass-root beneficiaries, and hence it is not geared to undertake a task of such dimensions," said the former systems scientist.

"The question is also not whether the PSLV or the GSLV can reach the moon but their capacity to re-enter our atmosphere. So it would be wise to keep our feet planted on earth for the time being." -- AF

India goes Italian

ONE of the feats of Indian democracy, it has been suggested, is its ability to survive Indian democrats. That is true, but the challenge should not be underestimated. The circumstances in which Prime Minister Atal Behari Vajpayee's coalition government has fallen attest to a combination of ambition, opportunism and intrigue that is ominous for the political system. While the Bharatiya Janata Party's successor in government will be overjoyed at its departure, jubilation should be tempered by the realisation that the means of the BJP's undoing are not unrepeatable. The issue goes beyond the future of individual politicians and parties, and touches on the direction of the political process itself. There is no politics without politicking, and there is no nation without its regions. But when politicking by unreliable coalition partners -- regional parties powerless to enable national governance but powerful enough to disable national governments -- holds the national destiny hostage, it is cause for concern. The next coalition government may discover that truth sooner rather than later.

Yet, Indian democracy continues to outshine Indian democrats because, for all its shortcomings, it tries to reflect opinion on the ground. The fractiousness evident at the top today acknowledges nothing more than the fact that India has entered the coalition phase of its political evolution. In refusing to give the BJP or Congress a majority, the electorate signalled its lack of decisive support for either of those national parties. Regional parties filled the space left vacant by the absence of that support. Today, if some regional parliamentarians are emboldened to act as they did in the ouster of Mr Vajpayee's government, it is because they are beneficiaries of electoral trends and patterns that are wider than the reach of their personal and ultimately transient presence in politics. The system prevails.

But it prevails at a price, and the question is whether New Delhi can afford that price. India appears to be going the way of Italy, not because Italian-born Sonia Gandhi's Congress is poised to lead the country, but because coalition governments, with their penchant for dissension, delay and potential disarray, are becoming the norm. That is tolerable in a country which is part of the Group of Seven industrialised nations, but for a nation where the annual per capita gross national product is US$380 (S$642), a political deadlock is an economic opportunity foregone. Foreign investors, critical to the more than US$26 billion needed each year in the next four years for infrastructural development, will wait to see whether a stable policy regime can emerge from the political flux. Political instability and an absence of regulatory clarity are costing India dearly already. According to one set of figures, it attracted US$5.02 billion in foreign direct investments in the year ended March 1998, compared to US$45.6 billion that China did in the year ended December 1998. That said, there are hopeful signs that the Indian economy will not be stymied too badly by the political developments underway. An all-party parliamentary meeting's decision to pass the pending national budget without amendment makes it possible for the country to avoid a looming financial crisis. This is the spirit in which politicians should go about their job as India moves towards another coalition government -- or towards a general election should the next coalition fall from government. The country's prospects are more important than politicians'.

China-India ties 'a lot better now'

By FRANCESCO SISCI
IN BEIJING

CHINA and India have improved their ties dramatically and this situation is good for regional peace and stability, Chinese Foreign Minister Tang Jiaxuan said yesterday.

Both sides are preparing to celebrate the 50th anniversary of the establishment of ties.

He added: "China pays great attention to relations with India and this attention is proved by the upcoming visit of the Indian President to Beijing."

He was referring to the visit of Indian President K. R. Narayanan in May to mark the occasion.

"Of course, there are some disagreements between China and India, which are reflected in some outstanding issues," he told a news conference.

"But generally speaking, China and India do not pose a threat to each other," he said, adding that the development of ties was in the interests of South Asian peace.

He did not spell out the disagreements, but his remarks came three days after officials from both sides held their first dialogue.

According to foreign diplomats, his statements constituted the start of a new phase of bilateral relations, which were at their lowest ebb in 1998 after India carried out nuclear tests.

New Delhi justified the tests by pointing to a perceived threat from China's nuclear arsenal.

Indian Foreign Minister Jaswant Singh tried to repair the damage by visiting Beijing last June, when both sides agreed to start up the security dialogue.

Diplomatic sources here said that the flight to India of the 17th Karmapa Lama had also turned out to be a blessing in disguise for Beijing-New Delhi relations.

India's handling of the issue could help rebuild trust between the world's two most populous nations.

China is grateful that India has not given much publicity to the 15-year-old Karmapa, the third most important Tibetan religious leader, who reached Dharamsala on Jan 5 after trekking through the Himalayas for eight days.

An Indian official from New Delhi said: "We could have fed the boy to the international press and sent scores of journalists to his mountain refuge.

"All this would have made China look very bad, underscoring the complexity and sensitivity of the Tibetan issue."

India and China begin first security dialogue

International security issues and nuclear proliferation will be on the agenda, says Indian Foreign Ministry

BEIJING -- India and China began their first security dialogue yesterday, following tension in relations in the wake of the May 1998 Indian nuclear tests and with United States President Bill Clinton's maiden visit to India just two weeks away.

The Indian Foreign Ministry announced the dialogue last week, but the Indian Embassy here declined to provide any details.

China has made no comment on the talks.

Indian Foreign Ministry spokesman R.S Jassal said last week that the talks would be "broad-based" and that international security issues, nuclear proliferation and other issues would be discussed.

He added that China and India agreed to the talks during the visit by Indian Foreign Minister Jaswant Singh to Beijing last June.

Mr Jassal did not comment on whether Indian charges -- that China supplied M-11 missiles to Pakistan -- would be discussed.

Relations took a nasty downturn after India conducted a series of underground nuclear tests in May, 1998.

Beijing was furious after India justified the tests by pointing to a perceived nuclear threat from China.

Chinese President Jiang Zemin visited India in 1996, but the last major Indian visit to China was by Premier P. V. Narasimha Rao in September 1993.

Indian President K. R. Narayanan plans to visit China in May to mark the 50th anniversary of diplomatic relations with Beijing.

Meanwhile, Indian Prime Minister Atal Bihari Vajpayee said on Sunday that India would maintain a credible nuclear deterrent until all weapons of mass destruction were dismantled worldwide. -- AFP, AP

What won't be discussed

THE long-running Sino-Indian border disputes, which led to a brief war in 1962, will not be discussed.
India says China still holds 40,000 sq km of its territory in Kashmir, while Beijing lays claim to part of the far-eastern Indian state of Arunachal Pradesh.