India-China-India Face-off Ends: How Things Have Changed

Posted in China, Current Affairs, India, Media, Pax Americana, politics by Anuraag Sanghi on May 6, 2013

As for the current intrusion, all these war-like noises in the Indian media are good. It sends a good message

See how Daulat Beg Oldie can be used to cut off China from Pakistan and Gwadar.

See how Daulat Beg Oldie can be used to cut off China from Pakistan and Gwadar.

Right at the onset, the Chinese military contingent pitching tents at Daulat Beg Oldie in Ladakh was a gesture. It was, of course, very clear that India of 2013 was not the India of 1962, when facing China. The small Chinese contingent was making a symbolic gesture – and India was responding to that gesture.

The reasons are clear. Though not to everyone.

China has significant numerical superiority – but technically and qualitatively, India can hold off and beat any kind of Chinese adventurism.

The Great Indian Defeat of 1962

India’s qualitative superiority was also probably true even in 1962.

Keeping in mind that the Indian soldiers of ’62 had been all over the world during WWII. Unlike China. Except the peculiar situations of the 1962 hides this aspect.

What 99.9% of the commentariat on the 1962 War with China forget is that the Chinese used the cover of the Cuban Missile Crisis.

The Cuban Missile Crisis was when the world came closest to a nuclear war – according to some. While the world’s attention was locked onto Khruschev-Kennedy confrontation over Soviet nuclear missiles stationed in Cuba, China played mischief.

From 1959, to 1962, border skirmishes with China and ‘friendly’ talks were the norm.

Three contentious years later, Chinese forces launched a surprise invasion on October 20; the same day the Kennedy administration decided to enact a blockade of Cuba to keep Soviet missiles out of the Western Hemisphere.

Only days after Chinese forces crossed the Himalayas, President John Kennedy wrote to Indian Prime Minister Jawaharlal Nehru asking “what [America] can do to translate our support into terms that are practically most useful to you as soon as possible.”

via A Forgotten War In The Himalayas.

To this offer of help, Nehru wrote two letters to Kennedy. Detailing what help US could extend.

W. Averell Harriman, Assistant Secretary of State for Far Eastern Affairs, and Duncan Sandys, British Secretary of State for Commonwealth Relations, led a small group of diplomatic and military experts to India on November 22. While the experts assessed India’s military needs, Harriman, Sandys, and Galbraith discussed the implications of the border war with Nehru. Harriman and Sandys made clear their governments’ willingness to provide military assistance to India but pointed out the related need for negotiations to resolve the Kashmir dispute. In a private meeting with Nehru, Harriman stated that unless tensions over Kashmir eased, the United States could not continue to provide military assistance to both parties to the conflict. Nehru reluctantly agreed to negotiations but warned that in the wake of the humiliation suffered by India at the hands of China, Indian public opinion would not stand for significant concessions to Pakistan over Kashmir. (via FRUS, Vol. XIX, 1961-1963, South Asia.

Indian proposals to the US for help in armaments were met with talks, delays, and inaction. A drip of US military aid started, well after the war was over and continued till 1965 war with Pakistan.

Under the cover of the Cuban Missile crisis, the Chinese gave India a resounding slap in the middle of still-friendly talks.

SECOND -Before Indians could retaliate, the Chinese had withdrawn and were talking peace. The world, in an extremely stressful situation, pressured India to accept Chinese peace overtures.

After slapping us Chinese ‘talked’ peace profusely – before we could slap them back. And in the middle of the Cuban crisis, the world was afraid that this border conflict could draw in opposing allies and deteriorate into a wider conflict.

THREE – According to modern Chinese analysts, like Wang Jisi, in 1962, Mao was struggling to retain his hold on the party. He alone took this decision to send those soldiers to give a quick slap and run back to the Chinese side of the border.

Mao – Not 10 ft. Tall

Wang Jisi’s understanding of Chinese motivations, goes on to cover how Mao

lost control of number of practical issues. So he wanted to testify and show he was still in power, especially of the military. So he called the commander in Tibet and asked Zhang are you confident you can win the war with India?” Wang said.

The name Zhang referred to Zhang Guohua, the then PLA commander of the Tibet Regiment.

“The Commander said, ‘Yes Mao, we can easily win the war’. Mao said ‘go ahead and do that’. The purpose was to show that he was personally in control of the military. So it had little to do with territorial dispute, (may be) something to do with Tibet but not necessarily,” according to Wang, who was also associated with the Institute of International Strategic Studies of Party School of the CPC.

The strategist believes that most of the wars fought under the CPC leadership had strong links with domestic crises.

“Everything China did in the border war with Soviet Union was triggered by domestic crisis in 1969″ and so was 1979 war with Vietnam which was launched partly because Mao’s successor Deng Xiaoping wanted to emerge as top leader, he said.

Asked whether he was convinced that domestic issues, more than territorial ambitions, prompted Mao to launch the war against India, Wang said “Yes yes I buy that theory because I looked at other episodes of history.

“The general conclusion is that (India-China) border war was neither based on real interest in getting territory nor solving territorial dispute.”

Asserting that China did not gain much out of the war, Wang said he was told by a top Chinese diplomat who served in India that the “war was totally unnecessary”.

via Mao ordered 1962 war to regain CPC control: Chinese strategist.

How Now …

Unlike the 1962 situation and China’s use of the: –

  • Cuban Missile crisis as a cover
  • While planting a resounding slap
  • Immediately offering a hand of friendship

was classic Chinese.

Today’s India’s airforce with Su-30MKI air dominance aircraft, Brahmos missiles, aircraft carriers have no Chinese equivalents.

China depends:

  1. On Russia for vital engines for its aircraft.
  2. On it unreliable domestic armaments industry.
  3. It is also on an international blacklist for arms supply.

India, too is dependent on imports. But, look at India’s track record.

At the height of the Kargil war, India was able to muster the French and Israelis to make emergency modifications to Mirage aircraft. These modifications helped IAF to fire laser-guided bombs that smoked out the Pakistani soldiers from camouflaged caves in the Himalayas.

China & War

China has no such options.China’s track record in war scenarios has been patchy.

In Korean and Vietnam Wars the Chinese support and intervention had no effect. China’s invasion of Vietnam in 1979 was a failure. Its’ attack on India in 1962 was under the cover of international crisis. China’s was badly brutalized at the hands of the Soviets in the 1969 War with Soviets.

Keeping this in mind, China will be mindful of an open attack.

Peaceful India?

India on the other hand has a successful record against the US-Pakistan War against India in 1965.

Similarly, staring down the US 7th Fleet while attacking Pakistan on two front, or turning tables in Kargil.

In the all the three wars of 1965, 1971 and the Kargil War, China was kept out of the war, with only lip sympathy to Pakistan.

Gentlemen … Applause

But while all this was happening what do some Brown American do?

Here is what Sadanand Dhume was doing.

Other Brown Americans do it differently.

Another will ‘shield’ Hinduism, while attacking India’s economic achievements and future (auto, software industries, for instance.). Another will scorn Indian education challenges with a dubious US public school model.

These Brown Americans are no less than the more famous stone-pelters from Lal-Chowk in Srinagar. All that they want to do, is throw stones at something Indian.

NEW DELHI: The 20-day military standoff with China at an altitude of 16,300-feet in Ladakh has ended. After furious activity over diplomatic channels, coupled with two flag meetings on Saturday and Sunday afternoon, the Chinese troops retreated from the Depsang Bulge area to their bases on Sunday evening.

The resolution of the troop face-off came even as preparations were in full swing for foreign minister Salman Khurshid’s visit to Beijing on May 9 despite a growing political clamour to cancel the trip. Now, the visit will go ahead as scheduled, in preparation for the May 20 visit to India by Chinese premier Li Keqiang.

There was no immediate word on the conditions decided for the mutual withdrawal of the troops, confronting each other on the heights since April 15. The earlier refusal by the Chinese to withdraw its soldiers from northern Ladakh, where they had pitched tents 19 km inside Indian territory, has created a national security scare in India.

via China-India face-off ends as armies withdraw from Ladakh – The Times of India.

Global media investigation: 612 Indian firms in tax havens – Indian Express

Posted in Business, Current Affairs, India, Pax Americana, politics, Propaganda by Anuraag Sanghi on April 4, 2013

Only 612 Indian names, mostly businessmen, in the 1.2 lakh names. This vindicates 2ndlook reading on corruption in India.

For at least 5 years, it has been 2ndlook position that corruption in India is a small problem. All those stories about trillions in Swiss accounts, turned out to be just hot air. Based on 2ndlook at some economic and business realities it was clear that these corruption-in-India claims were just plain flibbertigibbet.

Arvind Kejriwal, Anna-bhau take that. Eat crow now.

Now we have data.

Indians businessmen are a small part of this offshore mechanism. This data is broadly in line with the trend. For India, which is a Top-5 economy, to have so few people in the list proves two things.

One: Indian take on corruption is round-tripped back into India.

Two: Indians generally lack faith in these corporate structures – and would rather hand over money to their CAs, who will handle this for free.

Typically, specialist Indian CAs handle this money on a simple understanding. Only the principal will be returned – and actual investments at the instruction of the beneficiary, if any, will come back to the beneficiary. Otherwise all risks and benefits from the deployment of these funds will be the CAs take.

Three: Indians understand money much better – and can handle it themselves instead of saand-ka-tel (snake-oil) MNC salesmen.

In the next few days we will read and hear more. But on thing is clear. Indian Express will not be able to suppress it – as the same data can be released by other media houses in the rest of the world.

I presume in the next 2-3 months, this data will be publicly available – and data-scraping software will be used by others.

Here is the initial story.

In the biggest global expose of its kind on offshore investments and secret financial transactions, an international group of investigative journalists has found details of more than 1.2 lakh offshore entities and trusts belonging to individuals and companies in more than 170 countries and territories, including India.

These individuals and companies include politicians, the mega rich and tax offenders, among others, who have invested in tax havens such as the British Virgin Islands, the Cook Islands, Samoa and other offshore hideaways.

The 612 Indians in this list include two members of Parliament — Lok Sabha Congress MP Vivekanand Gaddam and RS member Vijay Mallya — and several industrialists such as Ravikant Ruia, Samir Modi, Chetan Burman, Abhey Kumar Oswal, Rahul Mammen Mappillai, Teja Raju, Saurabh Mittal and Vinod Doshi.

The list also includes businessmen who have had a brush with authorities such as the Income-Tax department and the CBI. Several of the offshore investments were made in possible violation of RBI and FEMA rules.

Details of these transactions were contained in 2.5 million secret files and accounted for more than 260 gigabytes of data. They were obtained by the International Consortium of Investigative Journalists (ICIJ) and their total size is more than 160 times larger than the leak of the US State Department documents by Wikileaks in 2010.

Based in Washington DC, ICIJ (www.icij.org) is an independent network of reporters who work together on cross-border investigations. ICIJ collaborated with 38 media organisations around the world, including the The Indian Express, for this ambitious global project and to analyse the documents. The other media partners include The Washington Post in the US, The Guardian and BBC in Britain, Le Monde in France and the Canadian Broadcasting Corporation.

The 15-month long investigation has found that alongside perfectly legal transactions, the secrecy and lax oversight offered by the offshore world allows fraud, tax dodging and political corruption to thrive. The expose has also thrown light on the functioning of “nominee directors” in offshore companies, several of whom have also been engaged by Indian patrons of offshore companies.

For instance, a cluster of 28 “sham directors” have been identified as having served as the on-paper representatives of more than 21,000 companies between them, with some individual directors representing as many as 4,000 companies each. The expose comes shortly after a list of 18 Indians who had bank accounts in the LGT Liechtenstein Bank and around 700 Indians who had accounts in HSBC in Geneva became public. In both cases, account holders were prosecuted and paid penalties to Income-Tax authorities for deposits they had made abroad without paying taxes in India.

via Global media investigation finds 612 Indian firms in tax havens – Indian Express.

Anuraag Sanghi  |  February 24, 2011″ href=”http://quicktake.wordpress.com/2011/02/24/even-god-cant-help-you-corruption-ii/” target=”_blank”>c

Islamic World: Last 100 Years

Posted in History, Pax Americana, politics, Propaganda by Anuraag Sanghi on March 9, 2013

Fundamentalist Islam has, apart from the solitary success of increasing enlistment, delivered nothing on political governance, economic growth, social justice, modernization of education or even military preparedness..

August 1953: Scenes from the coup that Iran will not forget.

August 1953: Scenes from the coup that Iran will not forget.

By the middle of the 19th century (1850), decline of Islamic empires was truly and completely real.

Empires Of Islam

After a 1000 years of expansion and dominance, by 1850 just two declining Islamic powers were left to compete on the world’s imperial stage. One was the Mughal Empire that controlled India. An India, that was: –

The other major Islamic Empire was the Ottoman Empire, centered in modern Turkey, that controlled a geography from the borders of Iran to the outskirts of Europe.

From Western Seas

Opposing these Islamic Empires were the Christian colonial Empires of Spain & Portugal, France and Britain.

The first challenge to the Christian colonial Empires came from India – with the Anglo-Indian War of 1857.

Stretching over a period of nearly two years, the alliance was nominally headed by the Mughal Emperor, and the war was mainly between the Marathas and a mercenary army of Indian soldiers, raised and equipped by the British. The war-chests of Maratha-Mughal alliance were puny compared to the British capital – bolstered by huge capital inflows from slave trade, slave plantations of sugar and tobacco, apart from piracy, loot and plunder.

Within two years, the Mughal Empire was over.

Minor Islamic kingdoms of Egypt and Persia ruled at British sufferance. The Ottoman Empire folded up 60 years later.

In 1920.

Street scenes from August 1953 coup in Iran.

Street scenes from August 1953 coup in Iran.

Under Western Thumbs

Nearly a 100-years after the end of the Ottoman Empire, the Islamic world is still ruled by Western puppets.

In Pakistan, Saudi Arabia, Iraq, Libya, Afghanistan, Egypt – or a Turkey which is happy being at the periphery of every Western alliance – CENTO, European Union, etc.

Under Nasser or Yasser Arafat, people mobilization was a political movement – the agenda being independence from Western subjugation.

All these movements succumbed to religious obscurantism after the overthrow of Shah Of Iran. Iran’s incendiary mix of religion and anti-American politics found a Sunni resonance in Saudi Arabia with a Wahhabi revival. Pakistan turned from Deobandi to Wahhabi strains of Islam.

Desperate situations call for desperate …

The use of fundamentalist Islam has been successful in increasing citizen enlistment against the West. Apart from the solitary success of increasing enlistment, the Shia-Sunni consensus on fundamentalism has delivered nothing on political governance, economic growth, social justice, modernization of education or even military preparedness. This uni-dimensional agenda of ‘modern’ Islam has many detractors within and outside the Islamic world.

In the last 40-odd years

Recently released classified information and memoirs by retired spies, provide a more complex picture of the CIA, its effectiveness, and its overall power, suggesting that at times Langley was manned not by James Bond clones but by a bunch of keystone cops. My favorite clandestine CIA operation, recounted in Tim Weiner’s Legacy of Ashes, involves its 1994 surveillance of the newly appointed American ambassador to Guatemala, Marilyn McAfee. When the agency bugged her bedroom, it picked up sounds that led agents to conclude that the ambassador was having a lesbian love affair with her secretary. Actually, she was petting her two-year-old black standard poodle.

But the CIA’s history does include efforts to oust unfriendly regimes, to assassinate foreign leaders who didn’t believe that what was good for Washington and Wall Street was good for their people, and to sponsor coups and revolutions. Sometimes the agency succeeded.

Topping the list of those successes—if success is the right word for an operation whose long-term effects were so disastrous—was the August 1953 overthrow of Iran’s elected leader and the installment of the unpopular and authoritarian Shah in his place. Operation Ajax, as it was known, deserves that old cliché: If it didn’t really happen, you’d think that it was a plot imagined by a Hollywood scriptwriter peddling anti-American conspiracies.

Book cover of Ervand Abrahamian's The Coup.

Book cover of Ervand Abrahamian’s The Coup.

Ervand Abrahamian isn’t a Hollywood scriptwriter but a renowned Iranian-American scholar who teaches history at the City University of New York. With The Coup, he has authored a concise yet detailed and somewhat provocative history of the 1953 regime change, which the CIA conducted with the British MI6. If you don’t know anything about the story, The Coup is a good place to start. If you’ve already read a lot about Ajax and the events that led to it, the book still offers new insights into this history-shattering event.

Abrahamian constructed his narrative by analyzing documents in the archives of British Petroleum, the British Foreign Office, and the State Department as well as the memoirs of the main characters in the drama. These characters—British spies and business executives, American diplomats and journalists, Soviet agents, Communist activists, Nazi propagandists, Shiite mullahs, Iranian crime bosses—have double or even triple agendas to advance as they jump from one political bed to another and back, lying, cheating, stealing, and killing. It all makes the CIA-led extraction of the American hostages in Iran, depicted in the film Argo, look kind of, well, boring.

On one side there was Muhammad Mossadeq, the democratically elected prime minister of Iran from 1951 to 1953, a secular, liberal, and nationalist leader who wanted to join the “neutralist” camp that disavowed commitment to either of the superpowers during the Cold War. An aristocratic and eccentric figure who welcomed foreign officials into his house wearing pajamas, Mossadeq introduced many progressive social and economic reforms into the traditionally Shiite society, and sent shock waves across the world when he moved to nationalize Iran’s oil industry, which had been under British control since 1913 through the Anglo-Persian Oil Company.

On the other side there was Kermit “Kim” Roosevelt, Jr., Teddy’s grandson, a legendary spymaster, a self-promoter who dined with major world leaders and business executives but also befriended power-hungry Iranian military generals, corrupt politicians, merchants in the bazzar, and quite a few thugs, who helped him achieve what became Washington’s goal: to remove Mossadeq and his political allies, which included liberals, social democrats, and Communists, from power; to return the oil industry into British hands (with more American presence in Iran’s oil business); and to place reliable pro-western politicians in power.

It seemed to work beautifully. The United States gained a key strategic ally in the Middle East. American companies received a considerable share of Iran’s enormous oil wealth. Other oil-producing Middle Eastern nations got a lesson in what might happen if they nationalized. At a time when the Americans were facing challenges from nationalists such as Egypt’s Gamal Abdel Nasser and were trying to contain the so-called Soviet threat in the Middle East, Our Man in Tehran welcomed American soldiers and investors (and purchased a lot of American weapons). It all looked good until it didn’t.

While the coup did set back the nationalization of the oil resources in the Middle East, the delay ended in the 1970s. In that decade, Abrahamian writes, one country after another—not just radical states such as Libya, Iraq, and Algeria, but conservative monarchies such as Kuwait and Saudi Arabia—“took over their oil resources, and, having learned from the past, took precautions to make sure that their oil companies would not return victorious.”

At the same time, the coup decimated the secular opposition, leaving Shiite clerics as the most viable political force when the Iranian Revolution deposed the Shah in 1979. The pro-American puppet gave way to a radical and anti-American Islamic Republic where the secular and liberal opposition remains weak and leaderless. That, as they say in Langley, is blowback.

The coup also intensified what Abrahamian calls the “intense paranoid style prevalent throughout Iranian politics.” While the Iranian clerics worry that Washington wants to do a rerun of the 1953 regime change, many members of the opposition are counting on that to happen. In Tehran, they still think the CIA makes the world turn around.

via Our Man in Iran – Reason.com.

Must India Curb Gold Imports: Why It’s A Bad Idea

Posted in Business, China, Current Affairs, Gold Reserves, India, Pax Americana, Propaganda by Anuraag Sanghi on February 10, 2013

India imports 800 tons of the 2500 tons of gold produced each year. This creates pressures on the dollar-currency architecture of the modern world. What can India do to resist US pressures on this front?

Gold smuggling has gained a new life with higher import duties on gold to curb rising demand, according to Indian financial intelligence agencies |  Graphic source & courtesy - economictimes.com

Gold smuggling has gained a new life with higher import duties on gold to curb rising demand, according to Indian financial intelligence agencies | Graphic source & courtesy – economictimes.com

Fourteen months ago, in December 2011, as the Western world took a break for Christmas, India and China took simultaneous actions to restrict demand gold in their respective markets.

Chindia in Tandem

China, till December 2011, was installing gold-ATMs to ramp up gold buying by its citizens.

Government of India (GoI) was tweaking policy (gold loans attracted zero-risk weightage in bank capital provisioning norms) to aid multi-billion corporations like Muthoot Finance to expand the gold-loans market.

And then the tune changed.

In India, the Prime Minster’s Economic Advisory Council (PMEAC) took a strident anti-gold stand. In the last 13 months, India has increased import tax by nearly 850% on gold – from a flat Rs.200/10 gm to 6% (roughly Rs.1700/10 gm at current prices & exchange rates).

In China, the Government cracked down on gold importers.

Dollar Drought

Three months before these concerted actions by India-China, in September-December 2011, as gold prices dropped from US$ 1900 to US$1600, global banking was seized by an acute dollar-scarcity.

Banks in Europe were raising money by using gold as collateral. India, the world’s largest importer of gold was particularly affected. The Indian rupee became Asia’s worst performing currency. India rushed to sign a US$15 billion of credit line from Japan.

China assured credit lines to some of its favored trading partners. Six months later, Africa got from China US$20 billion. Some US$10 billion of Chinese credit went to nations in Central and Eastern Europe and another US$10 billion to various Latin American countries came from China. Even before this, Chinese telecom firms made breakthroughs in Latin-America with credit.

A dollar-drought while the US was busy flooding the world with dollars?

A dollar shortage while Ben Bernanke is pumping trillions of dollars in the world economy?

As the difference increased in Indian and international gold prices, smuggling of gold too is making a comeback.

As the difference increased in Indian and international gold prices, smuggling of gold too is making a comeback.

Gold Tail That Wags the US dollar?

In the last 18 months, any drop in gold prices favored the dollar in the dollar:rupee trade.

Any drop in dollar-price of gold has been coupled with an increase in dollar price against the rupee. As a result, Indians had to spend more rupees to buy gold that was worth fewer dollars.

Now, this is strange!

On a long-term basis, gold has no positive, negative, inverse, divergent, convergent correlation with any other commodity, or exchange-traded stock. So why this short-term coupling of rupee:dollar:gold.

Is there a central bank consensus, including(?) Reserve Bank Of India (RBI), that the Indian consumer should not benefit from price-drops in gold?

Trade Deficit … Anyone?

India’s current account deficit i.e., exports + inward remittances less imports = current account deficit (CAD), is running at less than 6% – up from less than 3% at the start of the Great Recession.

Exports to a world in the grip of the Great Recession have grown slowly while imports-increase into a growing Indian economy is faster. While the Indian CAD situation needs addressal, it is by no means alarming.

It is well-known and widely-accepted that vast sectors of the Indian economy are not measured or monitored by official statistics. Hence, Indian GDP is understated. It is not surprising that Indian GDP measured on a nominal basis (US$1.85 trillion) is less than 42% of the figure obtained when measured on the basis of purchasing power (US$4.46 trillion).

Indian Gold Imports

Keeping these factors in mind, a CAD that is higher by 2% of India’s nominal GDP means a gap of about US$35 billion – no large sum for the Indian economy. Anyway, since a large part of Indian imports is gold, it further reduces the cause and need for alarm.

Ostensibly, India’s CAD situation is due to gold, India’s second largest import, according to GoI. The Indian Government has targeted gold for its policy-intervention attention. Prima facie, US$60 billion gold imports cannot be the issue for a US$2 trillion economy. There are good reasons to believe that this policy intervention by the GoI is happening under US pressure – because Indian gold imports account for one-third of total mine production of gold in a year.

In the past …

The Indian Government’s “management” of the rupee-dollar till the 1970’s meant the rupee at a higher value. Over the 1980s and early nineties in a series of devaluations, Indian rupee’s over-valuation was corrected. Before that, there was a massive arbitrage opportunity between  official exchange-rates and a thriving black market.

A blogger who has been travelling to this part of the world writes

“…in 1969 a dollar fetched 13 rupees, although you could buy 28 rupees for a dollar in Switzerland and 40 rupees for a dollar in Kabul. The official exchange rate is now 38.50 rupees for a dollar, a nice deal”

This high rupee-value gave rise to an active black market in foreign exchange, supported by gold smuggling into India; drug transshipment out of India from the Golden Crescent and the Golden Triangle. This drug+gold trade spawned a huge crime wave of global proportions.

Artificial valuation of the rupee made exports uncompetitive; imports cheap – for which there was no foreign exchange. India regularly had meetings with AID India Consortium and elaborate cases for borrowings were made. The trade deficit remained.

Will things be different this time? I am sure that a few people in the Central Bank consensus group who think that this time, it will be different.

How serious is the smuggling problem?

Gold imports through Thailand have increased as India has a free trade agreement with Thailand that allows gold imports at !1% instead of 6%  |  Image source & courtesy - economictimes.indiatimes.com...

Gold imports through Thailand have increased as India has a free trade agreement with Thailand that allows gold imports at !1% instead of 6% | Image source & courtesy – economictimes.indiatimes.com…

Why is the RBI Wrong?

RBI’s anti-gold policy is definitely misplaced.

Indian gold imports at 800+ tons are a cause of disequilibrium, with global production at some 2500 tons.

So be it.

India is at the receiving end of a bad deal in agricultural subsidies, foreign exchange reserves, technology imports, UN, IMF, World Bank – not to forget a bad deal in oil.

It is not like India controls global gold mines or production. Or is India in any position to stop other buyers from purchasing gold? Unfair apart, why must GoI + RBI take unilateral  steps to restrict gold imports into India?

Currency Printing: Like every other central bank in the world, the RBI also has been printing too many rupees. Unlike the rest of the world, Indian consumers have been sterilizing excessive printing of the Indian rupee by buying gold. This way, the market automatically sterilizes excess rupee liquidity.

More taxes is more profits for smugglers: The higher the difference between international prices and official prices, higher the profit margin for illegal imports.

In fact, raising of duty has only enhanced the profit margin of smugglers,” said a senior DRI official who did not want to be identified. (via Gold smuggling on the rise as imports turn costlier – Livemint).

“As of now, gold smuggling is limited to air passengers and carriers, which has limitations in terms of volume and cost. The bulk smuggling channels (by sea and land) have not revived, but the recent increase in customs duty will provide the profit differential to revive it,” said a senior customs official who too did not want to be identified due to the sensitivity of the issue. This person added that it would be impossible for enforcement agencies to contain smuggling through these routes. (via Gold smuggling on the rise as imports turn costlier – Livemint).

Trade Deficit: Is this increase in Customs likely to reduce India’s trade deficit? Unlikely. It will increase capital-flight to offshore financial centres – from where foreign-exchange earnings will get higher returns than in India. Higher customs or other barriers will mean more (and more) policy interventions that will increase compliance overload and reduce policy-impact.

If the proposed duties do indeed lead to more smuggling, though it would not appear in India’s balance sheet, it could continue to pressure the Indian rupee, which has been losing value against the U.S. dollar in recent months. (via Gold Smuggling Redux in India? – India Real Time – WSJ).

Questioning the anti-gold logic of the Govt apart, increasing customs duties from 2% to 6% will not change a 2000-yr of gold tradition  |  Graphic source & courtesy - economictimes.com

Questioning the anti-gold logic of the Govt apart, increasing customs duties from 2% to 6% will not change a 2000-yr of gold tradition | Graphic source & courtesy – economictimes.com

End of Bretton Woods: No fiat currency system has lasted for more than 75 years.

The Bretton-Woods system, pinned to the US dollar has morphed from a gold-based to an oil-based currency. In the last ten years, the petro-dollar surplus has decreased – and US debt has ballooned to US$17 trillion – 125% of US GDP. Add US consumer debt and corporate debt, and we are talking US debt at about 300% of US GDP.

Euro-Yuan Challenge: Euro-currency has not broken down. Not quite what Anglo-Saxon Media (ASM) has pushed us to believe. – in line with 2ndlook estimate of 2 years now. ASM also pushed the case of a Chinese hard-landing very hard. But the Chinese hard-landing is nowhere in sight. So, the Euro and Yuan are likely to increase their share in global trade. From nearly 90% of global trade, the US dollar share of trade has reduced to about 67%. As it gets close to 50%, (probably) in the next 7-10 years, we may see a greater role for gold as an objective cross-currency index. Gold trade will only increase in importance.

Rise Of The Underworld: Will we want to give the Indian narcotics-gold underworld a greater hold over the Indian economy – like it was 25 years ago. Like the narcotics-gold underworld dominates Pakistan or Afghanistan now.

Safety Net: In the face of global or local dislocations (due to drought, floods, earthquakes, war, epidemics) private gold reserves can help families to restart lives. Even without State support.

Much of the reason for Indian economic equilibrium over the last 65 years, has been the India’s private reserves of gold.

Let’s See Action

Covering a gap of US$35 billion means looking at three big targets of US$12 trillion each.

1. Increase oil refinery exports (set up two more Jamnagar type refineries), increase domestic crude output (split ONGC into four parts?) and shrink oil imports.

2. Fund 10,000 SMEs with credit for expansion and growth to add about US$12-US$15 trillion of output. Privatize city bus services and privatize train operations.

3. Sign a Third-World rupee-trade FTA, which will boost exports to the Third World by US$12 billion and replace dollar imports with rupee imports.

It is these measures which will yield answers to the Indian CAD problem – instead of curbs, taxes and barriers to gold imports.

But then …

What was on the Plate?

In October last year, the US Treasury Secretary, Timothy Geithner and the Chief of the US Federal Reserve were on a two-day India visiten-route to Tokyo to attend some IMF and World Bank meetings.

Any bets on Geither and Bernanke’s main item on the India-visit agenda was gold?


The depth of the global gold market with a large Indian diaspora makes it easy to avoid excessive taxation - a short step from criminal smuggling.  |   Graphic source & courtesy - economictimes.com

The depth of the global gold market with a large Indian diaspora makes it easy to avoid excessive taxation – a short step from criminal smuggling. | Graphic source & courtesy – economictimes.com

Aww … another conspiracy theory?

John Hopkins University in Baltimore, Maryland, USA hosts since WWII the Warfare Analysis Laboratory – a part of its Applied Physics Lab. Used frequently by the Pentagon, in 2009, a unique war simulation was conducted here.

Not a nuclear or a conventional war, not even a biological or chemical war – but an economic and financial war. Simulating how an Economic Hit Man from other countries would operate, its effect on the US and the US response.

Two years after this simulation, one of the participants, James Rickards has published a book outlining some of the presumably basic models used in the exercize.

All these actions point towards a declining US using more desperate means to stay on top.

For how long?

Rising Chorus … Within and Without

All these points are well-known and understood within sections of GoI. By the Indian and global press.

Some extracts below.

Gold smuggling has acquired a new lustre with imposition of higher import duties on the yellow metal to curb rising demand, financial intelligence agencies have said, warning of a sudden resurgence of underworld activity.

Import duty on gold has risen from nil to 6% in the last 12 months. Incidents of smuggling have seen an upswing recently.

Officials in the finance ministry fear that return of gold smuggling will revive Mumbai’s underworld, which thrived on the practice until the economic liberalisation of the early 1990s.

They say a rise in the illegal gold imports will undermine the government’s strategy to curb gold imports to check a runaway rise in current account deficit, which touched a record high of 5.4% of GDP in the first half of 2012-13.

Some officials said the recent confiscations point to a growing trend of organised networks engaging “carriers”, who are paid between 10,000 and 25,000 for each trip. They said illegal transfer of gold has become more lucrative for these carriers since the hike in import duties, adding that many of them are now resorting to rectal smuggling.

Agencies also fear that smugglers may take to the sea route once again.The authorities say they have seized Rs165 crore worth of gold between April and December 2012, an 11-fold increase over the seizures in the year-ago period.

India, the world’s biggest consumer of gold, imported $56.4 billion worth of the metal in 2011-12, accounting for nearly half of its current account deficit.

The country has already imported gold worth $38 billion this fiscal, prompting the government to raise import duties again by 200 basis points to 6%. Current account deficit widened to a record 5.4% of GDP in the first half of 2012-13, with higher gold and crude oil imports increasing the country’s dependence on foreign capital inflows

via Financial intelligence agencies sound alert on gold smuggling – The Times of India.

Gold smugglers have stepped out of 1970s’ Bollywood potboilers into present day reality with the government raising taxes to curb the import of the yellow metal.

According to data from the Directorate of Revenue Intelligence (DRI), an agency that monitors economic offences, the incidence of gold smuggling in the current fiscal year has zoomed at least eight times compared with the corresponding period the previous year.

As the government struggles to rein in a raging current account deficit that is likely to cross 4% of the national economic output this fiscal, it has increased the import duty on the precious metal thrice since last year.

India’s gold imports, (are) next only to oil imports in terms of value.

The increase in import duty on gold has clearly led to a price differential between Indian and international gold, and that, in turn, has led to an increase in smuggling. Spot gold prices here are as much as 5.7% higher than in Dubai, compared with a difference of 0.1% in 2008. Typically, gold is smuggled into India from Dubai.

In the first 10 months of 2012-13, till January, DRI has seized gold worth Rs.60.17 crore (200kg at the current price of gold) and cracked 36 cases of smuggling. In the corresponding period in 2011-12, it had seized gold worth Rs.7.42 crore and cracked 15 cases.

To be sure, the number is almost insignificant when compared with the value of India’s gold imports—$38 billion (around Rs.2.03 trillion today) till December.

And it refers only to seizures and the gold smuggled into India could be much more; DRI officials admit that they detect about one in every 10 cases.

“The duty rate hike in phases, from Rs.100 per 10g to 6% (about Rs.1,800 at the current price) now, has not really dampened the demand. In fact, raising of duty has only enhanced the profit margin of smugglers,” said a senior DRI official who did not want to be identified.

While the government’s actions are intended at discouraging import of physical gold, DRI and customs officials say the recent 2 percentage point increase in the import duty on the precious metal will make it difficult for enforcement agencies to contain bulk gold smuggling in India.

On 22 January, India raised the import duty on gold to 6% from 4%.

After restrictions were lifted on gold imports and a few commercial banks were allowed to import gold and sell the yellow metal to jewellers and exporters in 1997, the spread between international and local market prices shrank dramatically, but with the rise in import duty, it is now widening.

Modus operandi

Explaining the modus operandi of gold smugglers, the DRI official said most of the smuggled gold is brought into India through air mostly from Dubai and Thailand, concealed in either cabin baggage or different parts of the body. People carrying this gold are called carriers, or mules, and they work in pairs. Going by the data collected by DRI, on average, each mule carries at least 5kg of gold per trip.

According to the DRI official, the return on investment for a smuggler in a year amounts to as much as 200% for such trips.

Here’s how the math works: At the current price, it costs Rs.1.44 crore to buy 5kg of gold in Dubai. The cost of an air ticket, hotel expenses and the commission of the mule plus hawala fees to send the money to Dubai after the gold is sold in India comes to another Rs.2 lakh. The same gold can be sold in Mumbai for Rs.1.51 crore, netting the smuggler Rs.5 lakh for a single trip.

Such an operation typically takes four days. Theoretically, this means a smuggler can churn his initial investment seven times a month. Over a year, that means a profit of Rs.4.2 crore on the original Rs.1.5 crore investment.

“As of now, gold smuggling is limited to air passengers and carriers, which has limitations in terms of volume and cost. The bulk smuggling channels (by sea and land) have not revived, but the recent increase in customs duty will provide the profit differential to revive it,” said a senior customs official who too did not want to be identified due to the sensitivity of the issue. This person added that it would be impossible for enforcement agencies to contain smuggling through these routes.

Customs officials also claim their job has been made tougher by a 2011 Supreme Court ruling under which individuals arrested for violating the Customs Act can be released on bail. The apex court’s decision, both officials mentioned above said, has taken away the powers of the customs department to deter smuggling.

via Gold smuggling on the rise as imports turn costlier – Livemint

For some, it’s almost Haji Mastan time again.

There has been a 10-fold increase in the number of gold smuggling cases in recent months. Between April and June this year, authorities impounded gold worth 940 crore in some 200 cases of smuggling, up 272% over the same period last year, finance ministry data shows.

Smugglers make money if they can successfully avoid paying duties – 4% customs duty and other taxes, which add 5%-plus to the landed cost of gold.

via Weak rupee makes gold smuggling, bets attractive – Economic Times.

An increase in the import duty on gold, the third in less than a year, is expected to lead to a rise in smuggling of the precious metal into the country. On Monday, the government hiked the import duty on gold from 4% to 6%.

Air customs officials speculate that more gold will be smuggled from abroad through airports as import duty is now at its steepest.

There has been an increase in smuggling of gold through Chennai from Sri Lanka, Singapore, Malaysia and other Southeast Asian countries over the past three years.

This is the third time the government has raised import duty on gold. In March 2012, the government doubled import duty on standard gold from 2% to 4%. In January 2012, it increased duty from 1% to 2%. Of the 800 tonnes of gold that India imports every year, one-fourth is accounted for by Tamil Nadu.

While customs officials are apprehensive that they will have to be on their toes, bullion traders are unhappy that high duty will push up attempts to smuggle in gold by evading taxes and will lead to loss of jobs for local goldsmiths.

Jewellers say smugglers, couriers and middleman can make as much as Rs 1,800 for every 10g of gold imported (6% of Rs 30,000).

“With imports of 50kg, the margins can be as high as Rs 1 crore,” said a jeweller who did not want to be named. Jewellers say the government has seized close to 900kg of unaccounted gold in the last year.

via Import duty hike to up gold smuggling – Times Of India.

Gold smuggling is not new to India; in fact, many villains of Bollywood movies in the late 1970s were often smugglers. One of the most memorable Bollywood smugglers was Lion (pronounced Loyan) played by actor Ajit in movies like Kalicharan and Yaadon Ki Baraat. Even superstar Ambitabh Bachchan was a smuggler in his blockbuster movie in 1975 Deewar.

“In the late 1980s and early 1990s, the price of gold in India was 65% higher than in other countries,” wrote Douglas Farah, a national security consultant in the U.S., in a paper in 2004.

Citing a report by Interpol from the mid-1990s, Mr. Farah said that gold worth $4.2 billion was smuggled into India in 1991.

In the early 1990s, as part of India’s economic liberalization, the Indian government removed the restrictions on importing gold.

This eventually helped lower the price gap between prices in India and abroad.

If the proposed duties do indeed lead to more smuggling, though it would not appear in India’s balance sheet, it could continue to pressure the Indian rupee, which has been losing value against the U.S. dollar in recent months.

via Gold Smuggling Redux in India? – India Real Time – WSJ.

The government has raised customs duty on gold in bid to curb imports that are largely responsible for the high current account deficit and weakening currency, but a spurt in smuggling threatens to undermine its efforts.

“The operation is currently on…there was intelligence on a sudden jump in gold jewellery imports from Thailand,” said an official with the organisation privy to the development.

India has a free trade agreement with Thailand that allows gold jewellery imports at a concessional customs duty of 1 per cent.

The duty rates for imports through normal channels are much higher after a steep increase in this year’s budget and goes up to 10 per cent on standard gold bars, gold coins and non-standard gold stand, making Thailand an attractive place for purchases.

Though, stringent rules of origin norms are in place in the FTA to ensure that any goods taking advantage of the concessional duty regime undergoes a substantial value addition in Thailand, DRI is alleging large-scale misuse of these norms by importers.

According to DRI sources, the rules of origin under the FTA envisage a value addition of up to 20 per cent but since gold rates in Thailand are at the same levels at India and value addition can only push up the cost of goods and render gold jewellery imports uncompetitive.

Customs authorities had impounded gold worth 942 crore in some 200 cases of smuggling bettween April and June this year, up 272 per cent on 243 crore corresponding period last fiscal that involved 20 cases.

via DRI cracks down on gold smuggling from Thailand – Economic Times.

Jai Jawan, Jai Kisan: India’s Defence Vision

Posted in British Raj, China, India, Indo Pak Relations, Pax Americana, politics by Anuraag Sanghi on October 30, 2012

With Agni, Brahmos missiles, Arjun MBT, Tejas LCA and the induction of a stealth fighter in ten years, Indian defence posture will have a profile that will intimidate any aggressor – adequately.

A Puff Of Dust

India’s collective memory plays strange tricks.

British Raj no longer evokes outrage or indignation in India, within a few decades after the end of colonial rule. The same British Raj, who were overseers of India’s rapid decline from the richest economy to the poorest in a short span of 100 years. Britain’s rapid decline after the loss of India rarely registers on Indian minds.

Inspite of a nuclear neighbourhood, defence issues are not electoral hot-buttons in India’s mind-scape. China and Pakistan apart, the three other nuclear powers, (USA, Britain, France) also have military presence in India’s immediate vicinity. In India’s collective memory, its remarkable rise from the Great Bengal Famine of 1941 to overflowing food godowns in 2011 is lost in the media din and NGO activism.

But then, this par for the course, for a society that keeps re-indexing even heroes like Raghu Ramachandra and Yadu Krishna.

Walk The Talk …

65 years later, after the end of colonial rule, the Indian State, is trying to be all things to all people – with giant-schemes like MNREGA and AADHAR. LB Shastri’s policy of Jai Jawan, Jai Kisan committed the Indian State to two objectives – India will not go hungry and India will not back down, militarily. To an India recovering from colonial loot of the British Raj, these were the two non-negotiables.

Ten years after Shastri’s Jai Jawan Jai Kisan policy, by 1975, India had achieved food security at a national level. Defence parity with immediate and emerging threats was another matter – and will probably take till 2025.

Today these may seem within reach – but back then in 1965, it the dark night seemed stretch endlessly ahead.

Kargil Infographic - Source & courtesy - globalsecurity.org

Kargil Infographic – Source & courtesy – globalsecurity.org

Trouble In The Barrio

India shares borders with two nuclear neighbors – unlike any other country in the world. India has also fought four wars with Pakistan, one with China and managed another war-scenario with Portugal.

Pakistan had to eat crow on all four occasions. Indian acceptance of Chinese ceasefire, made the Chinese campaign look better than the probable outcome had the war continued. India’s Goa campaign, does not even find a mention in Indian military history – even though India stared down a Western-colonial power.

Parity & Proportion

Fifty years after LB Shastri’s death, by 2016, India will probably start seeing military parity in the modern era. Behind this parity, are two developments in India’s defence posture.

One is the Indo-Russian development of the Brahmos missile. The world’s only supersonic missile, at many times the speed of sound, the Brahmos completes its attack in 5-10 minutes of its launch. There is currently no system whatsoever that can stop a Brahmos. Based on ramjet engines, Brahmos has no global rival.

Flying just 15 metres above water level, Brahmos is virtually invisible to radar, when launched from a warship. Fully mobile, it can stop an invading land-unit. The air-version, to be deployed soon, will probably shoot down an enemy aircraft even before it enters Indian airspace.

You Talkin’ To Me

The Americans, without a similar missile, have been talking-up an electromagnetic railgun – which can only be launched from nuclear warships, due to enormous electrical requirements. These railguns under development for more than 60 years now, cannot knock out a Brahmos. Being very compact, Brahmos can be launched from multiple platforms.

Further, Indo-Russian teams of defence scientists are developing Brahmos from supersonic to hypersonic missile. The Brahmos uses a ramjet engine technology that even the US or the EU don’t have. Brahmos effectively creates a 200 km barrier in Indian airspace, at borders and on the coastline – at a very low-cost. Guided by the Russian Glonass system, Brahmos is not dependent on the American GPS system.

By 2025, India would have deployed enough numbers of Brahmos missiles, to deter any invader.

The Big Whale

Two – The other major development is the T-50 Fifth-Generation Fighter-Aircraft (FGFA). Currently, the only FGFA actually deployed is the the US F-22 Raptor. Grounded due to faulty oxygen-supply system, the F-22 may never be able to match the T-50 FGFA, based on current evaluations – and comes at more than three times the expected price of the Indo-Russian T-50 FGFA.

Interestingly, India’s choice of Rafale, in the MMRCA tender, could be a crucial technology bridge that will enhance the Russian FGFA into a super-FGFA Indian version – like how the SU-27 became the SU-30MKI. For long, the SU-30 was a export product – and recently, the Russian airforce has ordered a domestic version, which is based on the Indian design.

The choice of Rafale is closely tied to transfer of AESA-radar technology – which currently, apart from US and Russia, no other country has. The Eurofighter Typhoon is expecting to get that technology a few years down the road. France is forming a JV-company between Thales and BEL to produce the AESA radar in India.

F-22 Raptor – Running or Hiding?

Curiously, the US has decided to stop the manufacture of F-22 Raptor aircraft. The F-22 Raptor aircraft was also not used in recent Libya operations or sold to any foreign US ally. But, while the US was ‘unwilling’ to sell the F-22 Raptor, the US has pressured eight of its allies to join the newer F-35 Joint Strike Fighter (JSF) project. So, while the US was reluctant to sell the older F-22 Raptor, it is very eager to sell the F-35 to it allies and client-States.

Was the US hiding ‘secret’ technology – or hiding technology defects?

The FGFA for USA + 8 Allies - The F-35 (JSF) Variants

The FGFA for USA + 8 Allies – The F-35 (JSF) Variants

The next FGFA from the US, the F-35 is nearly US$250 billion in development, technically unstable, facing critical problems – and not yet in production. In contrast, the Indo-Russian T-50 FGFA is currently budgeted at less than US$40 billion.

Delays and cost overruns have plagued the F-35 Joint Strike Fighter – which at $238bn is the Pentagon’s biggest weapons procurement programme – and one variant of the plane suffered cracks in the bulkhead after it had flown just 1,500 hours out of a planned 16,000.The US Air Force has also had to ground dozens of F-22 fighter jets for the second time this year, after a pilot had experienced oxygen deficiency in the cockpit, officers reported in early October. The announcement follows the air force’s highly unusual step of grounding the entire Raptor fleet between May and mid-September, to allow engineers to investigate possible problems with the plane’s oxygen supply

Elaborate tests and safety measures have nevertheless failed to locate the precise source of the fault. The latest case follows around a dozen previous incidents affecting F-22 pilots over a three-year period, the circumstances of which the US Air Force is reluctant to discuss in detail.

At a cost of nearly $150 million a plane, the F-22 Raptor is designed mainly for dogfights against rival fighter jets, and the radar-evading aircraft were not deployed in the Nato-led campaign over Libya.

via Top attack aircraft – T-50 to J20 – Airforce Technology.

Enormously complex, the F-35 project aims to deliver three versions of the aircraft.

Cost apart, there is also the matter of design-logic. While the F-35 seeks to attack deep in enemy territory, relying on radar evasion through stealth technology, the T-50 FGFA is designed to ensure that air dominance is not lost. While the F-35 relies on stealth technology, the T-50 depends to extreme maneuverability to win an aerial dog fight. The idea of deep-penetration-and-strike mission by a stealth aircraft was thoroughly discredited after the Serbs shot down America’s stealth aircraft, F-117 Nighthawk with a vintage Soviet-era S-125Neva anti-aircraft system in 1999.

The attack role of the F-35 will increasingly be the domain of cheaper missiles and drones – not expensive stealth aircraft.

The Russians are not looking to make the aerodynamic tradeoffs to stealth that the US has made, for a variety of reasons including the effectiveness and costs of such stealth. Given that stealth in the real world would be far less effective than the advertised “metal marble” because the enemy may not always come exactly head on, nor use the radar’s that the F-22s were tested with. Nor would any future competent enemy only have one radar on (but rather a plethora of ground and airborne radars at various frequencies). Further, wear and tear in a real world operational scenario are likely to reduce stealth.

via Grande Strategy.

On the other hand, T-50 will do a better job on denial of air-superiority, even against stealth aircraft. Since stealth aircraft have a small and low radar profile, a missile attack on a stealth-fighter will probably be unsuccessful – and a T-50 type of fighter plane may be a better aircraft for an aerial dog-fight with a stealth fighter.

Main performance characteristics of Sukhoi T-50 fighter jet and similar foreign aircraft  |  Source & credit embedded in image.

Main performance characteristics of Sukhoi T-50 fighter jet and similar foreign aircraft | Source & credit embedded in image.

Models From Russia

With three prototypes and nearly 150 flights to its credit, the T-50 FGFA will start rolling off Russian assembly lines in four years.

Twenty-one months after first flight at Komsomolsk-on-Amur in Siberia, the Sukhoi T-50 PAK-FA fleet recorded its 100th flight on 3 November.

For perspective, the Lockheed Martin F-35 programme needed 31 months from the first take-off by the AA-1 test aircraft to pass the 100th flight mark.

via Sukhoi T-50 PAK-FA passes 100th flight milestone – The DEW Line.

Europeans would still be tinkering with their 4G++ Euro-fighter Typhoon – even as India will be a FGFA manufacturer.

One notable feature that India wants is a 360° active electronically scanned array (AESA) radar rather than the more conventional AESA found on the original Russian aircraft. A 360° AESA would be a first for any fighter on the planet, and it will undoubtedly be expensive.

via Indian PAK-FA variant delayed by two years – The DEW Line.

AESA, Waisa, Kaisa

The 360° active electronically scanned array (AESA) radar is already in use on the sub-sonic Indian indigenous Airborne Early Warning and Control System (AEW&C), mounted on a Brazilian Embraer aircraft using about 60 antennae and sensors.

Work on the crucial transceiver unit is happening in parallel. Meanwhile the Russians are developing an AESA system using X-band radar antenna containing over 1,000 solid transmit/receive modules. India’s own development direction seems to be different from others. Russia’s offer to fully transfer AESA radar technology of Zhuk-ME system, from Phazotron-NIIR Corporation did not get much traction in India.

The Chinese J-20 FGFA, by most expert opinion, is dead in water – without an engine, AESA radar, technologies that the Chinese lack.

The Chinese J-20 (Mighty Dragon) fifth-generation fighter jet program is advancing in truly huge strides. The jet has already made over 60 test flights, performing elements of aerial acrobatics.

In 2009, General He Weirong, Deputy Commander of the People’s Liberation Army Air Force estimated that the J-20 would be operational no earlier than in 2017-2019. Now it appears Chinese engineers have done a great job and the jet is much closer to being ready than expected.

Created by Chengdu Aircraft Corporation, this heavy fighter jet is the first military plane China has constructed on its own, without visible attempts at copying foreign technology. It resembles neither the American Raptor F-22, nor the Russian T-50 PAK-FA.

Though peculiar forms of the jet and technical decisions allegedly realized in the vehicle might be questionable, one thing about this plane is an established fact.

As of now, the J-20 flies with two Russian AL-31F jet engines it borrowed from the Russian Su-27 fighter jet that entered Chinese service in the mid-1980s.

China also tried to put engines of their own on a second test J-20 vehicle, but the copycat of the Soviet engine AL-31F made by China is not in the same league as the Russian analogue for reliability and durability.

The real problem is both AL-31F and Chinese version are engines of the previous generation.

No question the Chinese jet is a prototype model and technology demonstration vehicle called to test new equipment and technology. Defined as a technology showroom, it may fly whatever engines its creator considers possible. But China has no working engine for a 5G jet.

via Chinese ‘Mighty Dragon’ doomed to breathe Russian fire — RT.

By 2025

With the Brahmos and T-50 FGFA, Indian defence will be able to hold on against any force in the world. By 2025, India’s Arjun MBT platform will be stable. The LCA will be in a position to bulk up the IAF. Indian shipyards will start delivering aircraft carriers. Agni missile family will make for a formidable missile array that can attack targets 5000 miles away.

Most importantly, this military parity will be achieved at a cost that India can sustain – and only India can manage.

Following India, Russia has taken some baby-steps in initiating defence ties with Israel and France. Based on an expanding defence trade with India, by 2025 France and Israel may join the Indo-Russian defence alliance.

This will further deepen the technology base – and drive down costs, to levels that Indians apart, no one even imagines.

What about China

If China has been given less importance in this post, it is for a reason.

Between 1990-2000, as the Soviet economy went into a tailspin, Russian defence producers had no customers and no money. Cut-off from Russian State funding, defence production and research suffered.

A year after the collapse of the Soviet Union, a cash-strapped Kremlin began selling China a chunk of its vast military arsenal, including the pride of the Russian air force, the Sukhoi-27 fighter jet.

For the next 15 years, Russia was China’s biggest arms supplier, providing $20 billion to $30 billion of fighters, destroyers, submarines, tanks and missiles. It even sold Beijing a license to make the Su-27 fighter jet—with imported Russian parts.

Today, Russia’s military bonanza is over, and China’s is just beginning.

After decades of importing and reverse-engineering Russian arms, China has reached a tipping point: It now can produce many of its own advanced weapons—including high-tech fighter jets like the Su-27—and is on the verge of building an aircraft carrier.

Not only have Chinese engineers cloned the prized Su-27’s avionics and radar but they are fitting it with the last piece in the technological puzzle, a Chinese jet engine.

In the past (few) years, Beijing hasn’t placed a major order from Moscow.

Now, China is starting to export much of this weaponry, undercutting Russia in the developing world, and potentially altering the military balance in several of the world’s flash points.

Russia’s predicament mirrors that of many foreign companies as China starts to compete in global markets with advanced trains, power-generating equipment and other civilian products based on technology obtained from the West.

In this case, there is an additional security dimension, however: China is developing weapons systems, including aircraft carriers and carrier-based fighters, that could threaten Taiwan and test U.S. control of the Western Pacific.

Chinese exports of fighters and other advanced weapons also threaten to alter the military balance in South Asia, Sudan and Iran.

But no other Asian country has sought to project military power—and had the indigenous capability to do so—since Japan’s defeat in 1945.

China’s rapid mastery of Russian technology raises questions about U.S. cooperation with the civilian faces of Chinese arms makers.

While Russia worries about intellectual property, other countries are concerned about security. The arms programs China initiated two or three decades ago are starting to bear fruit, with serious implications for the regional—and global—military balance.

The J-11B is expected to be used by the Chinese navy as its frontline fighter, capable of sustained combat over the entire East China Sea and South China Sea.

Aircraft carriers and J-15 fighters would further enhance its ability to stop the U.S. intervening in a conflict over Taiwan, and test its control of the Western Pacific.

China’s arms exports could have repercussions on regions in conflict around the world. Pakistan inducted its first squadron of Chinese-made fighter jets in February, potentially altering the military balance with India.

Other potential buyers of China’s JF-17 fighter jet include Sri Lanka, Bangladesh, Venezuela, Nigeria, Morocco and Turkey. In the past, China has also sold fighters to Sudan.

The potential customer of greatest concern to the U.S. is Iran, which purchased about $260 million of weapons from China between 2002-2009, according to Russia’s Centre for Analysis of the Global Arms Trade.

via China Clones, Sells Russian Fighter Jets – WSJ.com.

Su-30MKI Fighter that has become the mainstay of IAF. Image source & credits embedded.

Su-30MKI Fighter that has become the mainstay of IAF. Image source & credits embedded.

Indian and Chinese defence contracts played a huge role in saving Russian defence industry. During this same period, to overcome supply disruptions, the Chinese decided to expropriate Russian defence products without licence or consent.

It said that while more than 90% of China’s major conventional weapons imports came from Russia between 1991 and 2010, the volume of imports had declined dramatically in the last five years.

Russia’s diversified customer base, which allowed it to take a tougher negotiating stance with China, particularly given anxiety about how China would use its purchases.

“Russia is unwilling to provide China with advanced weapons and technology, primarily because it is concerned that China will copy Russian technology and compete with Russia on the international arms market,” said Holtom.

“The nature of the arms transfer relationship will increasingly be characterised by competition rather than co-operation.”

via Russia arrests Chinese ‘spy’ in row over defence weapons | World news | The Guardian.

Russians cite many cases where China has ‘copied’ Russian defence items.

It is an open secret that China has copied quite a number of Russian weapons. The list begins with Soviet I-15 and I-16 fighter jets, not to mention the legendary Kalashnikov rifle.

The list continues with D-30 howitzer, BMP-1 armored vehicle, BMP-3, Malyutka anti-tank complex, An-12 military cargo plane, Strela-2 shoulder-fired missile complex, S-300 missile system, Msta-S howitzer, Smerch volley-fire system and other weaponry. The last rip-off report was referred to Su-33 deck-based fighter jet.

China previously had the licensed production of Soviet Romeo submarines, which were dubbed in China as “Type 39.” Chinese engineers acknowledged that their developments were based on Russian state-of-the-art defense technologies. However, they vehemently denied the fact of blunt copying claiming that that they had considerably improved them.

It may seem strange that Russia has not set forth any claims to China yet. However, China is Russia’s long-time partner in the field of arms trade and Russia is not willing to ruin relations with China. Does Russia overestimate the importance of defense cooperation with the Asian giant? China usually makes small one-time purchases that do not bring much profit to Russia. Moreover, the purchases are made to simply copy the original. For example, the Chinese bought one or two radars for fighter jets from Russia only to launch their serial production several years later.

via China to conquer world arms market with poor quality rip-offs – English pravda.ru.

For close to fifteen years, China alongwith India were major buyers of Russian defence products.

For almost two decades, it was close to the perfect match of buyer and seller.

Denied weapons and defense technology from the West, China was almost totally reliant on Russia for the hardware it needed to jump-start an ambitious military buildup. And while the Russian economy teetered in the aftermath of the Soviet Union’s collapse, huge orders from China helped keep a once-mighty defense industry afloat.

After orders peaked at more than $2 billion a year early in this decade, Chinese arms deals with Russia shrank to almost nothing in 2006, and no major new contracts are in the pipeline, according to Russian, Chinese and U.S. defense experts.

In the meantime, Russia – which, with its economy booming, is no longer dependent on arms sales to China.

Some Chinese analysts suggest that Russia, the world’s second-ranked arms supplier behind the United States, is also concerned about the threat of competition from the Chinese defense industry.

Russian analysts estimate that arms deliveries to China from 1992 to 2006 were valued at $26 billion.

Total Russian arms exports over that period were estimated at more than $58 billion.

With a Western embargo on arms sales to China having been in place since the Tiananmen (1989), it was these weapons from Russia that allowed the People’s Liberation Army to reduce a yawning gap in technology and firepower.

Chinese experts say the army wants access to the most advanced Russian weaponry, including strategic bombers, tanks, attack helicopters and manufacturing technology for high-performance aircraft engines.

A decade ago, as military spending shriveled, a slump in orders from China would have been disastrous for Russian arms makers. That is no longer the case, with the Russian economy growing at 8.1 per cent on the back of rising energy and commodity exports, according to official economic statistics.

With Moscow running a budget surplus, there are orders in the pipeline to supply the Russian military with hardware that until recently could only be sold abroad. And overall arms exports remain buoyant, particularly to India, a long-term client that Moscow views with far less suspicion than China.

Russia has also signed lucrative arms deals with new customers including Algeria and Venezuela in recent years.

To add to Beijing’s frustration, some of the Russian transfers to India include weapons and technology that Moscow refuses to supply to China. Moscow and New Delhi agreed to begin the joint development of a new, so-called fifth-generation fighter, the Russian government announced in October.

This aircraft would be a potential rival in performance to the U.S. F-22 Raptor, defense analysts say.

India also agreed last year to buy another 40 Su-30MKI fighters from Russia for $1.5 billion in addition to an earlier order for 140 of these aircraft. Some military experts say this versatile, twin-engined jet is probably the best fighter and strike aircraft in the world. But Russia has not offered it to China. And Moscow is offering to sell India its latest fighter, the MiG-35.

In nuclear submarine technology, Russia has also been more generous with India than with China, naval experts say.

Still, with the Western arms embargo on China still in place, most analysts expect that Moscow and Beijing will eventually negotiate compromises.

via Russia and China rethink arms deals – The New York Times.

Probably the biggest break-point was when China offered a SU-27 aircraft in the international market.

Last year, Russian aircraft sales internationally topped $3 billion – second only to the US. But others too want a slice of the aviation pie.

Fake Su-27s are widely offered in the world arms market. “Sooner or later, Russian arms traders will face competition from the Chinese colleagues,” he told RT.

China was given the design plans for the Russian fighter jet in 1995, when it promised to buy 200 kits and assemble them domestically. After building 100 planes, the Chinese said the Russian plane did not meet specifications, only for a copycat version soon to appear – “Made in China” – without copyright.

The threat from China is real, and it will be difficult for the Russian aviation industry to maintain its lofty position, and soar further unless it manages to better protect its intellectual rights and also find new ways of co-operating with its eastern neighbor.

Although it made its maiden flight over 30 years ago, the Su-27 remains the bedrock of the Russian air force, and is highly popular abroad.

Some are calling for calm over the controversy. While the similarities between the two planes are clear, experts say the Chinese J11B does not have the latest Russian high-tech features and will be no match for it on the international market.

Chinese version of Russian jet endangers bilateral relations — RT.

Russia went to the extent of arresting a Chinese national in Russia on charges of industrial espionage – a rare event in Russia.

Russia‘s security service has revealed that it arrested a suspected Chinese spy who posed as a translator while seeking sensitive information on an anti-aircraft system.

The man, identified as Tun Sheniyun, was arrested on 28 October last year, the federal security service (FSB) said in a statement cited by RIA-Novosti news agency.

It was unclear why the FSB disclosed the arrest on Wednesday, less than one week before the prime minister, Vladimir Putin, travels to China on an official visit.

The alleged spy was acting “under the guise of a translator of official delegations”, the statement said.

He had “attempted to obtain technological and maintenance documents on the S-300 anti-aircraft missile system from Russian citizens for money”, it added.

Last year, Russia delivered 15 S-300 systems to China, a popular Soviet-era arms export, as part of a deal signed several years earlier.

Ruslan Pukhov, director of the centre for analysis of strategies and technologies, a defence thinktank in Moscow, said: “They [the Chinese] are trying to copy this system illegally. They’ve already copied a whole series of our weapons.

“They’re trying to clone the S-300, to serve their interests and also to export. As I understand it, it’s not all working out. They probably wanted extra documentation to better deal with this task of reverse engineering.”

Earlier this year, Ukrainian authorities jailed a Russian man for six years, claiming he was stealing military secrets to further China’s aircraft carrier programme.

In the past two years, Russian customs officials have also accused two Chinese citizens of attempting to smuggle spare parts for Russian fighter jets across the border.

Russia arrests Chinese ‘spy’ in row over defence weapons | World news | The Guardian.

Hat Tip

While China and Pakistan are pariahs in the international arms bazaar, India is a preferred customer. To India’s policy makers and handlers must go the credit for positioning India as a lead partner in the global arms bazaar.

Traditionally Russia has been a stable and safe partner for India. The US has usually avoided arms sales to India – fearing leakage of technology to Russia. However, for its latest F-35 stealth fighter, the US has decided to waive all its habitual hesitation. France, Italy, Israel, Sweden, Britain are all willing to sell any technology, product, service or components that India needs.

China is richer and Pakistan, more mercenary and desperate – yet …

Short, Little Man With A Big Dream

It has taken seventy years, and LB Shastri’s slogan of Jai Jawan, Jai Kisan is on the verge of coming true. For most of the last fifty years, India has been criticized for its slow decision-making, its exhaustive processes, its complex negotiations.

When Pakistan joined CENTO and US armed Pakistan. When Nixon met Mao. When Israel defeated the Arab alliance in the 1973 war. When Reagan ‘partnered’ with Pakistan to defeat the Soviets in Afghanistan. After each of these events, commentators lamented about India’s ‘missed’ chances and predicted disaster for the last fifty years. Yet after each decade, India has emerged a step ahead.

Who would have thought, seventy years ago …

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