President Obama and his Indian counterpart pledged Tuesday to cooperate on nuclear energy, but specialists say Indian liability laws have made progress virtually impossible and have rendered moot a landmark 2008 agreement between the two countries.
During his first trip to the U.S. since assuming power earlier this year, Indian Prime Minister Narendra Modi — who has made economic growth and attracting international investment the centerpieces of his new administration — expressed openness Tuesday to changing his nation’s liability laws, a prerequisite to U.S.-Indian cooperation on nuclear power moving forward.
The two nations struck a historic nuclear energy deal in 2008, one that was heralded at the time as a breakthrough in U.S.-Indian relations but also criticized as a de facto endorsement of India’s nuclear weapons capability. It allowed American companies for the first time to build reactors in India, a potential boon for firms looking to expand to emerging markets. It also lifted a ban on uranium imports for India.
In return, India agreed to allow international inspections of its nuclear facilities and vowed not to conduct future nuclear weapons tests.
While the agreement opened the door for U.S. nuclear suppliers to do business in India, there’s been virtually no progress over the past six years. Nuclear industry analysts say that’s due to India’s liability laws, which leave suppliers, rather than operators, accountable for damages resulting from accidents at nuclear facilities.
The laws were passed in 2010, before U.S. companies could make any real investments in India.
“The liability law had the impact of shutting U.S. companies out of the Indian market. It’s been a major stumbling block. There’s a lot of frustration in the U.S.,” said Lisa Curtis, a senior research fellow in the Asian Studies Center at the conservative Heritage Foundation.
Other specialists say the deal, in retrospect, is an embarrassment for the U.S.
Not only did the perceived benefits to American businesses not come to pass, but the agreement may have indirectly spurred Iranian and North Korean nuclear ambitions by signaling nations could refuse to sign international nuclear nonproliferation treaties and still receive the blessing of the U.S., specialists say.
“We totally embarrassed ourselves with that deal, and we have to kind of act like it didn’t happen the way it seemed to have happened. We convinced ourselves that this was worth sort of bending the rules with regard to nuclear trade and nonproliferation,” said Henry Sokolski, executive director of the Nonproliferation Policy Education Center.
Mr. Sokolski was among the critics who warned in 2008 that Indian liability laws would prevent the U.S. from reaping any benefits from the deal.
“It turns out the Indians very much wanted to get out from underneath the sanctions that prevented them from importing uranium. And they got it,” he added.
Even though the agreement was signed before either man came into office, Mr. Obama and Mr. Modi appear willing to continue trying to make the deal work.
While the Indian liability laws were aimed at holding international suppliers accountable in the event of a tragedy, they may also be having an effect on Indian companies.
The Times of India reported last week that domestic nuclear suppliers are reluctant to launch new projects out of fear they’ll be held entirely financially responsible should something go wrong.
“The law is a deterrent for historical and committed domestic nuclear industry suppliers/manufacturers, but it also encourages unplanned/inexperienced but huge risk-appetite, fly-by-night suppliers to take part in contracts,” said Suhaan Mukerji, an adviser to Indian nuclear companies, as quoted by the Times of India.
In an address later in the day, Mr. Modi told the U.S.-India Business Council he was determined to push through his larger economic liberalization agenda and reduce the Indian bureaucracy’s heavy hand in the economy.
“It is not the government’s business to run a business,” Mr. Modi told the group. “There are people who are competent. Our job is as a facilitator to create new opportunities. Our job will be to do that.”
Urging U.S. businesses to step up investment and trade with India, the new prime minister promised to clear away rules and regulations that have restricted two-way trade as part of his “Make in India” policy, outlined in New Delhi last week.
“All of those useless laws that are there should be phased away,” Mr. Modi said.
• Mark Pace contributed to this report.