MISCELLANEA

1 US-Australia submarine deal: What are the risks?

The US decision to sell nuclear-powered submarines to Australia has put at risk longstanding but fragile global pacts to prevent the proliferation of dangerous nuclear technologies, according to experts.

The deal killed a previous French agreement to sell non-nuclear subs to Australia and radically bolsters Canberra’s ability to project military power across the Asia-Pacific region.

But will it encourage other countries to freely sell their nuclear technology, potentially expanding the number of countries who can build nuclear weapons?

Australia had originally sought conventional diesel-powered French submarines, which are more easily detected and must rise to the surface every few days to recharge their batteries.

Nuclear-powered submarines can spend weeks on end beneath the surface, travelling long distances undetected, only limited by stocks of food and water for the crew, generally a maximum of three months.

The submarines used by the US Navy, and also the British, who are part of the deal with Australia, use highly-enriched uranium, or HEU, enriched to a level of 93%. At that level the submarines can run for 30 years without new fuel.

But that is also the same level of uranium concentration necessary for a powerful nuclear weapon.

One of the key worries about nuclear proliferation is that weapons-grade HEU cold fall into the hands of a rogue state or terror group, said Alan Kuperman, coordinator of the Nuclear Proliferation Prevention Project at University of Texas at Austin.

‘The most likely path to such a bomb would be for an adversary to divert or steal one of the two required nuclear explosives, plutonium or highly-enriched uranium, from a non-weapons purpose like reactor fuel,’ Kuperman wrote on the Breaking Defense news site.

US Navy ships ‘use about 100 nuclear bombs’ worth of HEU each year, more than all of the world’s other reactors combined,’ he said.

Only six countries – the United States, Britain, France, China, India and Russia – have nuclear-powered submarines. Countries have been cautious about allowing the spread of the technology and the fuel.

For James Acton of the Carnegie Endowment for International Peace, the US sale to Australia is a disturbing precedent.

He noted that under the 1970 Nuclear Non-Proliferation Treaty, countries that do not have nuclear weapons are not prohibited from acquiring nuclear-powered submarines and, if they wanted, could remove the nuclear material from the watercraft.

‘This is a huge loophole,’ Acton wrote on Twitter.

‘I’m not particularly concerned that Australia will acquire nuclear weapons. I am concerned that other states will use this precedent to exploit a serious potential loophole in the global non-proliferation regime,’ he said.

Daryl Kimball of the Arms Control Association said the US sale ‘compromises’ Washington’s own non-proliferation principles.

’It has a corrosive effect on the rules-based international order,’ he told AFP.

White House spokeswoman Jen Psaki insisted that the United States is still committed to non-proliferation, calling the sale to Australia ‘an exceptional case, not a precedent-setting case.’

But experts call it risky.

The US-Australia deal ‘could well open a Pandora’s Box of proliferation,’ said Tariq Rauf, the former head of verification at the International Atomic Energy Agency, which helps enforce nuclear agreements.

He said it could encourage non-nuclear weapons countries like Argentina, Brazil, Canada, Saudi Arabia or South Korea to buy nuclear submarines that could give them weapons-grade fuel.

Hans Kristensen of the Federation of American Scientists worries there could be a snowball effect of proliferation.

After the US-Australia deal, he told AFP, ‘Russia could potentially increase supply of such technology to India, China could potentially provide naval reactor technology to Pakistan or others, and Brazil might see an easier way forward on its troubled domestic submarine reactor project.’

Experts say a somewhat safer alternative could be for Australia to obtain nuclear submarines that use low-enriched uranium (LEU).

LEU is enriched to a level of less than 20% uranium, a grade used in nuclear power plants.

In submarines, it has to be replaced every ten years, in a dangerous and difficult process.

That has not deterred the use of the technology by navies in France and China. The US Navy has been pressured to shift to LEU, but has yet to do so.

(Source: International Business Times – By Sylvie Lanteaume – 21st September, 2021)

II. Economy

2 OECD marginally lowers India’s F.Y.22 growth projection to 9.7%

The Organisation for Economic Co-operation and Development (OECD) has marginally lowered India’s growth projection for the on-going fiscal year to 9.7%, a reduction of 20 basis points (bps), and to 7.9% for the next financial year, down 30 bps from its May forecast, citing pandemic risks.

The inter-governmental economic organisation with 38 member nations had slashed India’s F.Y.22 growth forecast to 9.9% in May from 12.6% estimated in March, as the second Covid-19 wave impacted recovery.

‘The risk of lasting costs from the pandemic also persists. The output shortfall from the pre-pandemic path at the end of 2022 in the median G20 emerging-market economy is projected to be twice that in the median G20 advanced economy, and particularly high in India and Indonesia,’ OECD said in a report.

It pointed out that high-frequency indicators had rebounded. ‘High-frequency activity indicators, such as the Google location-based measures of retail and recreation mobility, suggest global activity continued to strengthen in recent months, helped by improvements in Europe and a marked rebound in both India and Latin America,’ it said.

The OECD projected a strong global growth of 5.7% this year and 4.5% in 2022, slightly changed from its outlook in May of 5.8% and 4.4%, respectively, on the back of continuing vaccine roll-out and a gradual resumption of economic activity, besides decisive actions by governments and central banks at the height of the crisis.

Vaccination key to recovery
The OECD report cautioned that to maintain recovery stronger international efforts were needed to provide low-income countries with the resources to vaccinate their populations, both for their own and global benefit. ‘Ensuring that the recovery is sustained and widespread requires action on a number of fronts – from effective vaccination programmes across all countries to concerted public investment strategies to build for the future,’ said OECD secretary-general Mathias Cormann.

(Source: Economic Times Bureau – 22nd September, 2021)

III. Industry

3 Will 2021 be the second-best year in a decade for Indian car market? Yes, IF it survives chip shortage

It’s always the darkest before the day dawns.

India’s carmakers, despite niggling chip shortages, are proving this year that there’s much more than a grain of truth in that age-old saying.

Last year was a washout and car sales slumped to levels not seen in a decade. But 2021 has been stellar by all yardsticks so far: The passenger vehicle market has already posted its second highest sales in a decade through August in 2021.

And that isn’t all: This calendar year may turn out to be the second best in a decade!

With sustained demand and expectations of improving chip supplies, Jato Dynamics expects the Indian passenger vehicle market to end 2021 with volumes of 3.34 million units – the second highest in a decade and just about 50,000 lower than the peak.

Sales charts would have gleamed even more had Covid two not come in the way.

Global forecasting firm IHS Markit expects India to overtake Germany as the fourth largest light vehicle maker in the world in 2021.

So far this calendar year, volumes have climbed over 70% to 2.13 million units, which is the highest growth rate in a decade. Vehicle makers produced 58% more than last year, against the highest in absolute terms at 2.29 million units.

The low base of last year, the need for personal mobility and the spike in demand for SUVs have led to a swift rebound.

Vehicle makers have posted sales of over three lakh units per month this calendar year, and despite the second wave of Covid-19, the revival has been so quick that dealer inventory has been among the lowest. For some, inventory is only for days as against weeks.

Ravi Bhatia, president of JATO Dynamics India, told ET that sales this year are running close to the best in a decade and the market is expected to close at 3.34 million units.

The Indian middle class pool of 121 million households with an income of Rs. 75,000 to Rs. 150,000 clearly wants to get back to work and they need personal mobility, which is clearly reflected in the numbers.

*Source: Jato Dynamics India

‘If vaccinations proceed and we have no severe third wave, then it could be close to one of the best. What stands out is the resilience of demand. Also, dealers have done this with lower inventory, lower incentives and higher prices,’ added Bhatia.

One of the factors hurting output recently has been the disruption in manufacturing in Malaysia due to rising Covid cases. However, the situation is gradually improving and that may help the Indian market secure better supplies than in the recent months. Vehicle makers on their part have adapted to the chip shortage with special trims.

Bhatia says Malaysia has 13% of the world’s automotive testing and packaging capacity and that the testing and packaging capacity is almost back up, boosting supplies in the coming months.

Experts believe that if not for chip shortages, the market could have crossed its peak. Over a dozen models have a waiting period of more than eight weeks. The industry still faces pending bookings of more than four lakh units and the numbers are swelling, with several more high-profile launches – of Mahindra XUV 700, Tata Punch, MG Astor and Citroen C3, for instance – coming up.

*Source: IHS Markit

Gaurav Vangaal, associate director at IHS Markit, says strong demand, low semi-conductor content, better product mix and proactive management have cushioned the impact of chip shortage.

‘We project India to surpass Germany in 2021 to become the fourth largest manufacturing base for Light Vehicle Production. However, Germany might regain its position once the supply scenario improves. Demand is indeed very strong; however, the recent disruption in the supply scenario is a cause of concern and it is likely to continue. How vehicle makers manage this disruption will determine the final numbers,’ Vangaal added.

(Source: ET Bureau – By Ketan Thakkar & Ashutosh R. Shyam – 22nd September, 2021)