There is the UK’s failed “diplomatic” (actually MI6 spies) mission to woo Libyan rebels, the royal crisis over Prince Andrew’s links with a paedophile and call girls, plus – of special relevance for this blog – a badly planned letter that Cameron wrote last month to Manmohan Singh moaning about the Indian government’s lack of commercial transparency. The letter has been leaked in India this week, which means it will probably be doing more harm than good.
All that should have led to interesting conversations this evening at the British High Commissioner’s annual Queen’s Birthday Party on the lawns of his Delhi residence that was attended a year or two ago by Prince Andrew.
Last July, when Cameron visited India with an over-large posse of six cabinet ministers and accompanying businessmen and academics, I wrote that Britain was punching above its weight. The current (peaceful) gun boat diplomacy of the Libya helicoptered emissaries and the letter to Manmohan Singh shows again that the UK is getting its diplomacy wrong and expecting too much, given the country’s declining economic importance.
Whoever advised Cameron to send the letter last month does not understand that the best way to score goals with the Indian government is not to send gripes and warnings of declining trade ties. Most other countries seem to accept this, which makes it even sillier for Britain to send such letters.
The letter listed three cases:- a $2.5bn tax demand against Vodafone’s mobile phone business; delayed regulatory approval for the $9.6bn sale by Cairn Energy of its Indian natural gas fields to Vedanta (an Indian-controlled UK-listed company) that might soon be cleared; and late payment for work done by British companies at last November’s Commonwealth Games. Such problems risked “affecting the wider business climate” warned the British prime minister, who implicitly complained about India’s lack of “transparency in the business environment”.
There is a telling editorial in today’s pro-Congress government Hindustan Times newspaper mocking Britain under the headline “Not done, Old Chap”. It uses cricketing metaphors to chime with the current World Cup and notes that “Britain doesn’t happen to be among India’s top ten trading partners,” saying:
“It’s not cricket, British prime minister David Cameron has told India while the game’s greatest spectacle is underway here in the old colony. British lads Cairn and Vodafone – and sterling fellows too – are playing on a queer pitch in the subcontinent, the Conservative resident of 10 Downing Street has written to Manmohan Singh. The umpiring isn’t up to scratch. Energy company Cairn is being bowled a bodyline every second delivery and nobody seems to notice. Before that, telecom company Vodafone was declared leg before wicket when it obviously wasn’t. Gentlemen don’t use tax googlies and regulatory bouncers on the Oval! Surely, good chaps don’t get too nosy about details like tax dodges and unpaid royalties, do they?”
Those words were not very eloquently crafted, but they make the point.
Vodafone’s $2.5bn tax demand stems from its $11bn purchase in 2007 , through offshore tax havens, of a Hong Kong-held controlling stake in what was then the Hutchison-Essar mobile phone business. It is widely believed, based on circumstantial evidence, that this demand was initiated by the finance ministry with encouragement from a rival Indian telecom company boss, who had good political connections in the ministry. That allegedly led tax collectors to find a novel interpretation of regulations, which then led to Vodafone being told it should have set aside $2-2.5bn that Hutchison owed as corporate gains tax. This is now going very slowly through the Indian courts, with the next hearing due in July.
One can feel sorry for Vodafone. It genuinely had no idea that it should have set the tax aside, and it argues that it should not be forced to pay for what it sees as a retrospective change of tax policy. The government says it is not a change of policy, but a new legal interpretation of existing regulations.
There has been a decline in foreign investment into India, and the country’s international image is slipping, as I argued here last week. Despite what the companies have been saying however, that has been caused not by the Vodafone and Cairn problems, but by a spate of big corruption cases and examples of poor governance. It is also beginning to look as if the combination of Sonia Gandhi, leader of the Congress Party, and Manmohan Singh, the prime minister, is not working effectively at the top of the coalition government.
But these are different issues and do not in any way justify a Cameron-style letter. Indeed, when the Indian government is being hit almost daily by stories revealing an appalling lack of transparency, it was scarcely tactful of Cameron to goad the government with a transparency-based letter.
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