French kisses and hisses for India By Federico Bordonaro
India's economic and industrial relations with France are experiencing a new
phase, characterized both by new opportunities and by friction.
Delhi's enhanced cooperation with Paris in crucial sectors such as nuclear
power, satellite technology and the aerospace industry may be a keystone of
India's power strategy. At the same time, France's growing interest in the
rapidly expanding Indian market is opening up new prospects for bilateral
economic ties, thus fostering mutual business opportunities.
However, Paris's determined assertion of a new industrial policy based on
so-called "economic patriotism" has inevitably interfered with the expansion
plans of Mittal Steel, as France is actively
supporting Arcelor, the Luxembourg-based steel champion, in its attempts to
resist Mittal's hostile takeover.
The outcome of the Mittal-Arcelor tussle remains unclear; late last month,
Arcelor proposed a merger with Russian steel giant Severstal to thwart Mittal's
takeover attempt, saying that the acquisition of Severstal would give birth to
an "unrivaled global champion" that would be out of reach of its Indian rival.
But Mittal has persisted in its bid, issuing a detailed plan for the combined
firm to Arcelor, and passed another hurdle on Sunday when European competition
regulators conditionally approved Mittal's bid, provided the combined firm
divested itself of several facilities to make heavy-section beams.
The big steel brawl has introduced an element of friction into the complex web
of Franco-Indian cooperation initiatives, although tensions are likely to
remain limited given the attractive political and economic opportunities
available.
Understanding France's economic security strategy
The Arcelor-Mittal issue and its recent developments are only comprehensible in
the broader framework of France's perception of globalization and the European
integration process.
Broadly speaking, Paris conceives of Europe as a "power multiplier", a platform
to project its influence globally, both politically and economically. Hence
France supported the creation of a "strong Europe" as a tool to gain
independence from US power in a "multipolar world" at a time of globalization.
Since the European Union is becoming an huge common market without a strong
political leadership, and as the new Eastern European EU members seem unlikely
to accept a strong Franco-German leadership over the Union, France tends to
perceive the present situation as a dangerous one. In Paris's view, EU-promoted
liberal rules support the expansion of major financial and industrial complexes
linked to the Anglo-American world. This is why France prefers Arcelor to merge
with the Russian steel giant Severstal rather than with Mittal - which is
linked to the powerful US investment bank Goldman Sachs, among other firms.
Contrary to a widespread belief, France's "economic patriotism" is not
disguised protectionism; rather, it is a policy based on a new partnership
between the French state and French corporations according to market rules,
aimed at avoiding hostile takeovers and at ensuring the success of its big
groups while fostering national economic security. In other words, Paris
actively supports the creation of national champions and even mergers, as long
as the French groups remain largely in control of the newborn corporation.
By such means, France is trying to avoid losing control of its national
champions in sectors such as energy, defense, information technology (IT), and
other strategic markets such as the steel industry. Hence international
political considerations play a decisive role in industrial and financial
operations. Inevitably, the long struggle for Arcelor will have political and
diplomatic consequences; however, it is to be expected that such tensions will
not undermine Franco-Indian bilateral projects in other sensitive sectors.
Strategic industrial cooperation
In today's changing global geopolitical map, powers are not linked anymore to
well-defined, Cold War-style political blocs, and opt instead for more flexible
strategic partnerships designed to enhance power and security in selected
areas.
There are excellent reasons that India and France are interested in enhancing
their strategic-industrial cooperation. France is eager to expand its
aerospace, satellite and defense-industry sectors, and India's rise as a great
power seems a particularly fitting opportunity. Delhi's energy security needs
to pair up with French know-how in civilian nuclear power, while India's
emerging market provides a window of opportunity for France's globally oriented
small and medium enterprises.
The two nations share a tradition of mutual friendship, despite the fact that
the French defense industry has consistently provided hardware and know-how to
India's arch-rival, Pakistan.
In particular, since 1998, diplomatic and strategic dialogue between the two
powers has been regular. Last June 17, the chairman of the Indian Space
Research Organization (ISRO), G Madhavan Nair; the executive director of Antrix
Corp Ltd (the commercial arm of the Indian Department of Space), K R Sridhara
Murthi; and the chairman of European Aeronautics Defense and Space Co (EADS)
Astrium (Europe's leader in satellite systems), Antone Bouvier, signed a
memorandum of agreement according to which Antrix and EADS Astrium would
"jointly address the commercial market for communications satellites with [a]
payload power below four kilowatts and a launch mass in the range of two to
three tons".
On September 12, Indian Prime Minister Manmohan Singh's visit to Paris produced
a joint declaration calling for enhanced economic relations, and French
President Jacques Chirac's visit to Delhi in February was the occasion for
signing another joint declaration about nuclear-power cooperation "for peaceful
purposes" and "with a view to achieving sustainable development". However, the
talks stalled after Indian negotiators refused to include the reference to
"peaceful, non-explosive" purposes in the final draft, which may significantly
delay the start of a consistently structured cooperation.
France's commitment to a multilateral strategy designed to prevent Iran's
alleged effort to obtain nuclear weapons suggests Paris wishes to avoid being
involved in a nuclear cooperation project not strictly limited to civilian
uses. In spite of these problems, Delhi is likely to seek out France's help
steadily in nuclear projects, as atomic energy is increasingly seen as the only
viable alternative to oil and gas.
After Chirac's visit to Delhi on February 20, Airbus, 80% owned by the
Franco-German-Spanish aerospace giant EADS, secured a US$2.5 billion deal to
sell its A319 and A320 planes. Airbus is Boeing's most important competitor,
and the two air leaders are both striving to reinforce their presence in
India's rapidly growing commercial jet market. Moreover, both groups sees the
Indian labor market as a favorable place for outsourcing, thanks to the Indian
workforce's high level of scientific and technological education.
Indian growth whets French appetite
Apart from the strategic sectors mentioned already, Paris is also interested in
boosting the presence of its small and medium-sized enterprises in India's
emerging market. French Foreign Trade Minister Christine Lagarde launched a
program called Cap Export Inde right after Chirac's official visit to Delhi.
This scheme is part of a wider strategy aimed at supporting French enterprises
in India, China, Japan, the US and Russia. Communication is the key to
developing Franco-Indian trade relations, according to Lagarde. Thus Cap
Export's three main points are the improved availability of strategic
information on India's regions needed by French groups, the promotion of the
latter's activities thanks to forums and conferences in New Delhi (last
December) and Bombay (next year), and the invitation of an ever-increasing
number of Indian decision-makers to French events related to trade.
France's propensity to support its private investments in India is also due to
Delhi's progressive removal of trade barriers and investment restrictions,
although some sectors such as telecommunications and Internet maintain higher
taxes, while some biotech activities and retail markets remain either
prohibited or restricted for foreign players.
Moreover, as the studies issued in the framework of Cap Export Inde clearly
state, French investments in India are not limited solely to big aerospace and
defense corporations such as EADS, Safran or Thales, but also include top IT
groups such as Alcatel and ST Microelectronics, various energy groups (GDF,
Legrand, Schneider Electric, Total, Suez, Veolia), and financial services
players (AXA, BNP-Paribas, Societe Generale).
In conclusion, notwithstanding the tensions surrounding the Mittal-Arcelor
affair and France's "economic patriotism", and apart from some unsettled issues
in the nuclear deal, Delhi's economic relations with Paris will continue to
intensify. As France gets ready to support its small and medium-sized
enterprises in the huge South Asian market, expect other European nations
quickly to imitate Paris's strategy.
Federico Bordonaro is senior analyst with the Power and Interest News
Report. He can be contacted at fbordonaro@NOSPAMpinr.com.
