With Liability Clause settled, will Obama clear nuke deal by dumping flagging issue?

India and the United States still have a chance to operationalise their civilian nuclear cooperation agreement, hanging fire since 2008. This can happen if US President Barack Obama chooses to surprise Prime Minister Narendra Modi during their talks on Sunday by dropping a persistent American demand of seeking flagging and tracking rights of nuclear materials in perpetuity. It is not an impossible scenario, considering that Canada has already precisely done this with the Indians. The contact group of the two sides held its third meeting in London earlier this week and extended it by one day in an attempt to push a solution to the vexed issue of operationalisation of the Indo-US civilian nuclear agreement ahead of Obama’s India visit (25-27 January). [caption id=“attachment_2062093” align=“alignleft” width=“380”]  US President Barack Obama. AP[/caption] The meeting failed to produce a breakthrough on the flagging rights issue and delegates from both the sides dispersed to brief their respective governments. Now the ball is in the court of the two principals, Obama and Modi. It is up to Obama to take a call in the larger interest of bilateral relations with a country like India which he believes to be a key countervailing factor in America’s long-term strategic game of containing China. Obama has already demonstrated to India and the world the importance he attaches to India as he would become the first-ever US President to visit India twice during his tenure the moment his Air Force One lands in New Delhi at 10 am on Sunday. There is all the more reason for Obama to show magnanimity and do away with the flagging rights issue and operationalise the Indo-US nuclear deal because the most important and complicated irritant in this regard has been resolved: the liability clause. The outgoing UPA government, during its last few months in office, had initiated a move to break the logjam over the liability clause by proposing the mechanism of an insurance pool. The London talks this week have been able to pull off an agreement in this area. This is no mean achievement. In fact, the solution to the vexed liability issue is such that if it comes to fruition with the Americans it would inevitably trigger a gold rush of international nuclear vendors to India, in contrast to tepid international response to Indian nuclear industry for over last six years. The Civil Liability for Nuclear Damage Act, 2010 or Nuclear Liability Act, which came into force from 11 November, 2011, effectively caps the maximum amount of liability in case of a nuclear accident at Rs 500 crore or about $79 million to be paid by the operator of the nuclear plant. The Act stipulates that if the cost of the damages exceeds this amount, special drawing rights up to $300 million will be paid by the Central government. However, the maximum amount payable by foreign companies is capped at Rs 1,500 crore (about $244 million at current exchange rates) and if the total liability amount were to exceed this figure of Rs 1,500 crore, the rest of the amount will be paid by the Indian government. The deadlock is understood to be now over as the Indian government has expressed its readiness to sweeten the deal for foreign vendors by coming up with an insurance poll mechanism and also give its sovereign guarantees and catastrophe bonds. The idea of insurance pool came up when all the four government insurance companies expressed their inability to create an insurance pool of Rs 1,500 crore even after pooling in all their resources. The four insurance companies could have raised only Rs 750 crore which was way too short. The global norm is that insurance companies can pledge only three percent of their net worth for creation of a new pool which in this case proved to just the half way mark or Rs 750 crore. If Obama wants, he can use his executive powers, dump the flagging issue, grab the Indian government’s latest proposal of sovereign guarantees and catastrophe bonds and thus operationalise the nuclear deal. He can do this even though many view him as a lame duck president (despite having close to two years of tenure still left). But this may be too good to be true. Experts feel Obama may not be keen in pushing the envelope to operationalise the nuclear during this visit, though he can.