The nuclear deal reached during President Bush's recent visit to India unleashed a predictable wave of criticism. From editorial and op-ed pages to Congress, led by the left but supported on the right, the administration has been assailed for making a bad bargain.

Under the agreement, which still needs congressional approval, India would open much of its nuclear facilities to international inspections in return for gaining access to the world's supplies of uranium and U.S. nuclear expertise.

The attacks on the deal reflect the view of the nonproliferation lobby -- the experts and policymakers whose central concern is to stop the spread of nuclear weapons. I share their aim. But American arguments against the India deal are misleading and only expose the deep contradictions, if not hypocrisy, of our own nuclear policies.

There are two main criticisms of the agreement: first, it undermines the Nuclear Nonproliferation Treaty, the NPT, and second, it permits, even encourages, India to expand its nuclear weapons production.

The NPT issue is particularly sensitive at a time when the international community is trying to persuade Iran to give up certain nuclear technologies which many nations fear are part of a secret bomb program.

The NPT created two sets of global rules -- one for the five nuclear weapons powers it recognizes (China, the United States, Russia, Britain and France) and another for everyone else. The five, for example, allow only "voluntary'' international safeguards on their civilian nuclear facilities. They have no obligation to open their military programs to any kind of scrutiny. And the NPT places no real limits on their arsenals, other than a vague commitment to reduce and eventually eliminate all nuclear weapons.

The rest must open their nuclear energy programs fully to international inspection and agree never to build bombs. In exchange, they gain access to the peaceful uses of nuclear energy.

Iran -- and North Korea -- made that bargain and can be held to account for breaking the rules. But India consistently regarded that as an unequal trade-off and never signed the NPT; neither did Pakistan and Israel, two other nuclear weapons states.

India's nuclear program is the product of decades of largely indigenous effort; it did not result from secretive proliferation in violation of the NPT.

The deal with India turns the five into six. It treats India as a de facto member of the inner club. The deal would require changes in U.S. law to remove existing restrictions on the transfer of nuclear energy technology, changes that would allow India to be treated no differently from China.

That does not weaken the NPT -- it strengthens it. It brings it more into accord with reality and gives India a stake in a system it had previously rejected as unfair. It paves the way for India to join the Nuclear Suppliers Group, the international organization that controls nuclear exports.

The critics are right that the deal enables India to expand its production of fissile materials to make nuclear warheads. Eight of India's 22 power reactors will remain outside international controls, along with a new breeder reactor. The Indians fought for that exemption because they feel their nuclear arsenal may not be large enough to deter a nuclear first strike by Pakistan or China in the future. Critics fear that with increased access to uranium and limited inspections, India will set off an arms race in South Asia.

Again, the agreement simply treats India like the five. Nonproliferation experts claim that unlike India, however, the five have halted their production of plutonium and highly enriched uranium that could be used to build new weapons. This is true, but misleading.

The five have massive stockpiles of fissile material built up during the Cold War. "If I've got a full pantry, it's easy for me to swear off trips to the supermarket,'' said Michael Levi, an arms-control expert at the Council on Foreign Relations.

Moreover, the United States has embarked on a new program to rebuild its nuclear weapons production capability, including creating new facilities to produce plutonium cores for warheads and to assemble them.

India has agreed to back a global pact to cut off fissile-material production. But the Bush administration does not support a treaty that would actually verify this is taking place. And the U.S. Senate has refused to ratify the Comprehensive Test Ban Treaty that would permanently halt any new testing of nuclear weapons.

A Congress that can support those policies is hardly in a position to challenge the administration's agreement with India. Rather than block the U.S.-India deal, it makes more sense to improve it. This could include reaching agreements for cooperation between the two countries to ensure the safety and security of nuclear facilities, including those for military purposes, suggested Stanford Professor Scott D. Sagan, a leading expert on nuclear safety and nonproliferation. "Reducing the risk of terrorist theft of nuclear materials or weapons in India would also help protect the United States,'' argues Sagan.

Beyond that, the six acknowledged nuclear powers should begin to seriously fulfill their part of the NPT bargain -- to cap fissile-material production, to ban nuclear testing, and to eventually radically reduce stored arsenals of nuclear weapons and materials.

When India spectacularly burst into the headlines via its nuclear explosions in May 1998, then US president Bill Clinton had openly vented his fury before aides in the White House. "We are going to come down on those guys like a ton of bricks," he had remarked. Clinton's "volcanic fit" found its echo in the White House statement that expressed "distress" and "displeasure", culminating in Washington imposing a slew of sanctions against India.

These images from the past, culled out from Engaging India, then deputy secretary of state Strobe Talbott's book, appear incredible now. Especially as India readies itself to accord a warm reception to US President George W. Bush next week. The entente, the product of laboriously conducted diplomacy as much as geopolitical shifts that yoked the two together as 'natural allies', is now taking deep root. Sure, there will be protest rallies, strident voices will rail against Bush's hegemonic designs, Prime Minister Manmohan Singh will be cautioned against any tight clinch with Bush. Yet even these voices arise from the awareness that there's a growing relationship between the US and India, realized through knots of strategic partnership and cooperation in every conceivable field - from economy and nuclear technology to education, space and agriculture.

Bush's visit next week prompted Karl Inderfurth, who was assistant secretary of state for South Asia in the Clinton administration, to say, "All of this represents a refreshing degree of continuity in US foreign policy, based on a recognition by the last two American presidents that India is a country that will be a key player in the 21st century." Similarly, Robert Hathaway, of the Woodrow Wilson Center for International Scholars, is impressed that "two successive Indian governments representing different political views and parties... both came to the same conclusion that it is in India's interest to forge a better relationship with the US."

From imposing sanctions against India to laying out a blueprint for nuclear cooperation, both New Delhi and Washington have come a long way in an inordinately short time. Ironically, it was Clinton who provided the impetus for this transformation. Talbott says the former president, after coming to terms with the Pokhran II realities, found it "downright distasteful and counterproductive" to impose sanctions against a country he was trying to improve relations with. Consequently, Talbott, Inderfurth and senior director in the National Security Council Bruce Riedal were entrusted with the task of pulling out Indo-US relations from the abyss in which it had been languishing from the beginnings of the Cold War era.What followed was a dialog between foreign minister Jaswant Singh and Talbott, both seeking to convey to each other the security and strategic interests of their respective countries.

The dialog started yielding dividends immediately, even during the Kargil conflict. Clinton's confrontation of then Pakistani prime minister Nawaz Sharif at their July 4, 1999, meeting in Washington took trust patterns between the US and India to a new level. "Throughout this period, we kept the Indian government informed of what we were doing to try to ease the crisis," recalls Inderfurth, who played a key role in the dialog with Sharif. "All of this turned into an important confidence-builder in our new relationship with India."

"The July 4 meeting was the turning point," agrees Michael Krepon of the Henry L. Stimson Center in Washington. "It demonstrated that US engagement in the India-Pakistan imbroglio would not be detrimental to New Delhi's interests, and it shifted the Clinton administration's focus from proliferation to engagement." The trust was manifest in Clinton's spectacularly successful visit to India in March 2000. An enabling factor in the budding Indo-US romance, says former ambassador Richard Celeste, was the now-forgotten Y2K factor. "The crisis introduced India's enormously talented manpower to our business leaders. Today, the 24/7 bond between companies in the US and service providers in India is the stuff of books and myth-making."

The budding romance acquired a new meaning with the advent of Bush in the White House. His most perspicacious decision was to appoint confidant Robert D. Blackwill as ambassador to India. Blackwill appealed to the popular imagination; his unequivocal pronouncements against Pakistan for fomenting terrorism in India further bolstered the trust between New Delhi and Washington. More importantly, he sought to impart a new heft to the relationship by putting his formidable weight behind the "Next Steps in Strategic Partnership", which envisaged cooperation between the two countries in civil nuclear energy, hi-tech trade, space and dual technology. "If Clinton was the pioneer of the new relationship, Bush is its architect," says Teresita Schaffer of the Center for Strategic and International Studies in Washington.

The impulse for the new relationship is linked to the question: why has India started to matter to the US? Inderfurth cites three reasons: India will become the world's most populous nation, it may well have the world's fastest growing economy by 2020, and it is the world's largest democracy. Krepon adds one more to the list: intellectual capital. "The world expects India to do more heavy lifting," he says.

Ultimately, a relationship in international affairs hinges on convergence of interests. Ashley Tellis of the Carnegie Endowment for International Peace, who's now advising under secretary of state R. Nicholas Burns, listed a string of "common interests" at a congressional hearing last year. These included:

preventing Asia from being dominated by any single power that has the capacity to crowd out others and which may use aggressive assertion of national self-interest to threaten American presence, American alliances, and American ties with the states of the region; eliminating the threat posed by state sponsors of terrorism; protecting the global commons, especially the sea lanes of communications, through which flow not only goods and services critical to the global economy but also undesirable commerce such as drug trafficking, people smuggling and weapons of mass destruction technologies.

So, isn't China the "single power" that Tellis thinks could threaten American interests in Asia? He denied this assumption to Congress, but many feel China is indeed the factor behind Washington's attempts to assist India in becoming a major world power.As author Sunil Khilnani, of the Johns Hopkins School of Advanced International Studies, says, "Many current inhabitants of the Pentagon see an India allied to the US as a potential bulwark to a China whose ambitions are still difficult to read." Washington's long-term view is that since China will not support the US war on terror, it's a threat against which the US needs a counterweight. "Japan has proven it does not have the emotional and intellectual muscle to face China. Hence, India should play that role," explains Rafiq Dossani of Stanford University.

The Bush regime's keenness on India also springs from the disaster his other foreign policy initiatives have been. "Bush would like to leave at least one foreign policy achievement as his legacy. He'd like to claim that he 'delivered' India to the US, just as Nixon could earlier claim the same about China," says Khilnani.

These reasons apart, the relationship has gathered great momentum from business-to-business links over the last decade. Says Anatol Lieven of the New America Foundation in Washington, "India's abandoning of its social democratic economic model, derived from the Nehru period, in favor of globalization and free market economics has made it much more attractive to investment and ideologically sympathetic to the US." Indeed, the more the two countries deepen their economic interdependence, the more each will have a stake in the other. And this economic interdependence can deepen, says Stephen P. Cohen of the Brookings Institution, through the removal of obstacles to US investments. "Infrastructure, (inadequate) liberalization, and education are three real obstacles. These (improvement in the three areas) will make it easy to implement the strategic relationship."

That India matters to the US is no longer a promise of the future. At a recent conference, former state department official Walter Andersen pointed out two US decisions that underscored India's enhanced importance. First, the four-country tsunami relief efforts involving the navies of the US, Japan, Australia and India. Two, the Bush administration's efforts to exempt a nuclear-capable India from exports restrictions on nuclear and dual use technology.

The blossoming ties have enabled significant partnerships in the international arena too. India has supported the war on terror in Afghanistan; its navy protected high-value US cargoes through the Straits of Malacca; more recently, India voted with the US at the International Atomic Energy Agency to declare Iran in "non-compliance" with the nuclear Non-Proliferation Treaty.

All this doesn't mean the US and India will automatically collaborate on every problem dogging them. "Nobody expects a perfect alignment ever, but increasing alignment is something we hope will come naturally," says Schaffer. Partly this alignment can be brought about through changes in the conduct of foreign policy. For instance, the US, Hathaway admits, needs to recognize that India expects to be treated on a basis of equality. Similarly, Khilnani contends, a section of Indian political elites need to shed its instinctive anti-Americanism. "This does not mean renouncing a critical position, or an independent assessment of our own interests. It means engaging more deeply and confidently, and picking battles more selectively and prudently," he says.

Obviously, like any two countries, there will be disagreements. "Indeed, there have been over the past few years on a number of issues, including the war in Iraq," says Inderfurth. But, he adds optimistically, "the fact that this has not disrupted the upward trajectory of our relationship is a good sign and a promising one for future relations."

The United States and India have gone a long way from Cold War days of wariness and suspicion to genuine friendship and incipient global partnership. The visit of President Clinton to India in 2000 marked a breakthrough in Indo-U.S. ties, which had been set back by India's decision to conduct nuclear weapons tests in 1998.

President Bush, to his credit, broadened the road opened by Clinton and paved it with a more solid foundation. Cooperation in a range of areas, from military ties to joint scientific work, is well established. A presidential visit puts a personal seal on that budding partnership -- even if it is a couple of years late.

When it comes to Indo-U.S. relations, however, there are three pitfalls to avoid: the India card; democracy matters; and it's the economy, stupid!

The India card

Washington has a surplus of geo-strategists. As Kissinger famously played the "China card'' against the Soviet Union, the strategists imagine cleverly using an India card against a rising China.

There is one small rub in that grand design -- India isn't interested in being an instrument of an American containment strategy against China. As Robert Blackwill, former Bush administration ambassador to India, put it recently: "There's no way better to empty a drawing room in New Delhi of Indian strategists than to start talking about this idea.''

Indians eagerly compete with China for economic leadership in Asia. They have a legacy of tensions, from border wars to nuclear rivalry. But Indian policy is to engage China and create the best relationship possible.

The president is avoiding India card talk. But it is no secret that some inside the administration harbor these illusions. Let's hope they keep their mouths shut for at least this week.

Democracy matters

Beyond cliches about the world's two largest democracies, both governments have a habit of forgetting that democracy really matters. Witness the up-to-the-last-minute effort to salvage a deal from July to open India's civilian nuclear program to international inspection in exchange for access to nuclear energy technology and fuel.

The Bush administration did little to sell that deal in Congress, either ahead or afterward. Opposition has mounted on both sides of the aisles from those who fear it would undermine nuclear proliferation controls, particularly when Iran is claiming its own right to pursue peaceful nuclear technology.

The United States has now toughened its requirements. But the coalition government of Prime Minister Manmohan Singh faces rising resistance in parliament, encouraged by the prestigious nuclear establishment, to any deal that would significantly restrict India's ability to develop and build nuclear weapons.

I favored the July deal and support any reasonable new agreement that would separate a significant part of India's civilian nuclear program from its military one. Hopefully, the negotiations will succeed, but even if they do, both governments need to do a much better job selling it in their feisty democratic systems.

It's the economy, stupid

The biggest threat to this emergent partnership is to forget what brought the two countries together -- not geopolitics but shared interests. Some of those are security-driven, not least a common foe in Islamist terrorism. But the real driver has been economics.

Since India decided to open its protected economy in the early 1990s, the country has taken off, producing sustained growth rates nearing double digits. Led by the high-technology industry, foreign investment and trade with India is rising rapidly. The Indo-Americans who thrive in Silicon Valley form a powerful cultural and economic bridge between our two countries.

India's billon people include a middle class of 200 million to 300 million, equal to the population of this country, with an increasingly sophisticated appetite for Western consumer goods. In contrast to China, India has a young population, half of them under 25 years old.

For the United States, there are added opportunities -- and competitive challenges. As is evident from the Saturday morning phone calls from telemarketers in Chennai trying to sell me a new mortgage, India has a great resource in its English-speaking educated elite. That has meant job loss in the United States but also openings to create new businesses and new jobs.

Both governments need to focus on what is needed to accelerate the kind of virtual integration between India and the United States we see in Silicon Valley. If we do that right, the geopolitics will follow naturally. If we mess that up, all the strategic castles in the sky will come crashing to Earth very soon.

The Government of India has appointed Senior Research Scholar Rafiq Dossani to a new Committee on Technical Innovation and Venture Capital (VC). In this capacity, he will recommend policy and regulatory changes to improve the development and financing of technical innovation. The committee reports to the Planning Commission, which is the apex body for policy changes.

Dossani also serves on the U.S.-India Venture Capital Working Group, within the U.S. Department of Commerce, whose objective is to suggest policies that will enhance the flow of U.S. venture capital money to India. Dossani has put the two committees in touch, so that the work of one can help that of the other.

Both committees offer Dossani -- who conducts extensive policy-relevant research on South Asia at Shorenstein APARC -- an opportunity to influence policy in a field that is important to both India and the United States. VC investments in India exceeded $2 billion last year -- 70 percent of which was funded by U.S. institutions -- making India the largest destination for American VC outside the United States.

Multinational corporations (MNCs) have increasingly located research and development (R&D) in developing countries such as China and India since the 1990s. On the one hand, governments in developing countries are eager to attract R&D to their local economies; on the other hand, developed countries are concerned about losing their competitive advantage due to R&D offshoring. At the same time, intellectual property protection is a growing concern.

What are the MNC R&D labs actually doing in China? Quan noted that her 2004 survey of MNC R&D labs in information technology industries in Beijing found that these MNC R&D labs are not just providing technical support, product localization, or product development for the local market; rather, they are developing products for the global market. Her study documents an emerging spatial division of labor in R&D based on the increasing specialization of R&D activities.

Ensuring returns appropriation

Appropriating returns is essential to continuous R&D investment. However, returns appropriation is not necessarily realized through formal IP protection institutions such as the patent system. As the growing trend of globalization of R&D has evolved to this new stage characterized by MNCs locating R&D labs in developing countries, it provides a good test bed to further explore more theoretical mechanisms of IP protection. Considering the weak intellectual property rights regimes these developing countries typically have, it is crucial for MNCs to find an effective way to protect their valuable technologies thus facilitating returns appropriation from their R&D activities in host developing regions. It is in fact the effective means of IP protection that can greatly assist MNCs' location of R&D offshore, in addition to other well-known incentives such as low cost R&D labor and market attraction.

R&D specialization essential

Using evidence from MNC R&D labs in Beijing and Shanghai, Quan's study proposes that R&D is further specialized within MNCs' global R&D network. Furthermore, IP protection and returns appropriation can be realized through such R&D specialization. The key proposition is formulated as below: 'Hierarchical modular R&D structure can be an effective way for MNC R&D labs to protect their intellectual property and thus facilitate returns appropriation in weak IPR regime developing countries'. This 'hierarchy' includes 'core R&D' and 'peripheral R&D', based on two dimensions--technology value-added, desire and ease of IP protection. While 'core R&D' is mostly done in developed countries, 'peripheral R&D' is conducted in developing countries. Dr. Quan's study suggests that this hierarchical modular R&D structure facilitates the global configuration of MNC R&D labs.

Slides from this presentation can be found at the event link below.

SELECT: What is the current size of the outsourcing market? What percent of U.S. software development, call centers, etc., have already moved to developing nations? Is the amount of outsourcing still increasing?

Dossani: To provide some perspective, although the off-shoring of services has been going on for mans Nears, technology led by the widespread use of the Internet has changed things. The resulting new twist in the provision of services is that the required interaction between the seller and the consumer has been substantially limited. The advances in information technology made possible the parsing of the provision of certain services into components requiring different levels of skill and interactivity As a result, certain portions of the serviced activity that might or might not be skill-intensive, but required low levels of face-to-face interaction could be relocated offshore. The sequence of events that enabled this process is the following:

First, the digital age allowed (or, at least, revolutionized) the conversion of service flows into stocks of information, making it possible to store a service. For example, a legal opinion that earlier had to be delivered to the client in person could now be prepared as a computer document and transmitted to the client via e-mail or, better yet, encoded into software. Easy storage and transmission allowed for the physical separation of the client and vendor as well as their separation in time. It also induced the separation of services into components that were standardized and could be prepared in advance (such as a template for a legal opinion) and other components that were customized for the client (such as the opinion itself) or remained non-storable. Taking advantage of the possibility of subdividing tasks and the economies that come with the division of labor, this reduced costs by offering the possibility of preparing the standardized components with lower-cost

labor and, possibly at another location.

The second fundamental impact of digitization was the conversion of non-information service flows into information service flows. For example, the sampling of tangible goods by a buyer through visiting a showroom is increasingly being replaced by virtual samples delivered over the Internet. Once converted to an information flow, the service may also he converted into a stock of information and subjected to the above mentioned forces of cost reduction through standardization of components and remote production.

Third, the low-cost transmission of the digitized material accelerated the off-shoring of services. Services such as writing software programs which were off-shored to India in the early 1970s were enabled by digitized storage and, in the 1980s, by the standardization of programming languages. Still later, as digital transmission costs fell in

the 1990s (just as digital storage costs had fallen earlier), even nonstorable

services, such as customer care, could he handled offshore.

The offshore services outsourcing market (excluding software development) is still small and will probably be approximately $10 billion for 2005. It employs about 500,000 people, two thirds of whom are located in India. The rest are widely distributed, with developing Asia and Ireland accounting for most of the remaining employment. About 60% of the employment is in call centers. The U.S. and U.K. call-center industry together employ about five million people, so the percentage of offshore jobs is still small. It is even smaller for other services.

Offshore software development employs approximately another 500,000 people. This compares with U.S. employment of about two million. This is a larger percentage of the total software development labor market. although most of the outsourced work is programming, while work such as systems integration and design continue to be done in the U.S.

The growth rate is still high and there are concerns about whether or not this rapid growth rate will hurt the quality of work done. However. this rate will still likely he in excess of 30% in 2005 and 2006. The reason for this is the massive wage differential.

Clearly there have been massive failures as well as outstanding successes in outsourcing. What are the critical success factors for making outsourcing work?

The infrastructure (telecom. finance, power) has all been standardized, although the solutions might not he the same as in developed countries. The critical success factors are two: the quality of labor and supervision; and managing growth. Unbelievable there is a growing shortage of labor. The result is that the quality of work is declining. Project supervisory skills are also in short supply. Managing growth, especially keeping attrition

under control, training, developing new vertical skills, moving into back-office work, and offering the client turnkey packages are some of the critical managerial factors for success.

Short of being willing to work for $15,000/year, what can western IT professionals do to provide sufficient value to prevent their functions from being outsourced?

The U.S. educational system still turns out a good product. It is sufficiently ahead of the comparable Indian product so that a recent computer science/computer engineering graduate from the average U.S. university can earn a premium of at least 100% over his Indian counterpart from a good university such as the IlTs, with substantially higher premiums for graduates from schools such as MIT and Stanford. The problem occurs more with mid-career professionals. Those with older skills are unable to compete with freshly trained graduates from India. Therefore, they need to update those skills regularly and take advantage of opportunities to globalize and convert them into managerial skills. This may have to he mandated at some point, as has happened in the financial sector, where stockbrokers need to regularly sit for exams to renew their licenses.

That said, most of the offshore jobs are relatively low-skilled. For example, the single largest category of offshore services is outbound calling for the financial services industry for selling mortgages or collecting overdue receivables. The work is routine, based on scripts that pop-up on the computer screen in response to prompts.

Do these findings suggest that developed countries are likely to be only marginally threatened by the globalization of services? Even if high-end work is stays within developed countries, as has happened in the software industry, the problem is that not everyone in developed countries can readily shift to high-end work. Since the 1960s, the shift in the economies of developed nations towards service-based economies certainly increased the number of highly-skilled service workers, but there was an even greater swelling in the number of other less-skilled service workers. This is partly a consequence of the nature of many services as linked, inseparable sets of activities with different

skill levels, combined with a pyramid of labor requirements, i.e., there is more demand for lower-level work than for high-end work. In manufacturing. the unemployment created by the reduction in demand for blue collar labor in developed countries was offset by the absorption of much of the surplus labor into service industries, often with minimal training. But the shift of low-end service workers to high-end workers will require a longer period of re-education and may have significant interim consequences on unemployment rates.

The threat to developed countries is increased by the fact that, apart from software, the largest growth in off-shoring is happening in business services. These are also the sectors with the largest growth in U.S. employment.

Further, there is evidence that even higher skilled functions can be moved offshore or might evolve on their own. For example, interviews with people at a firm earlier this year revealed that they had initially been contracted by an American firm to call its clients with overdue credit card payments. The offshore company eventually purchased the receivables from its client and assumed the collection risk itself. Another firm, Wipro Spectramind, managed the radiology services of Massachusetts General Hospital for its second and third shifts. Thus, American radiologists, who earn an average of $315,000 a year were replaced by Indian radiologists, who earn $20,000 a year on average.

I understand that there is a whole subculture in Pakistan and India of people who go to work in the late afternoon or evening and then work a full day on U.S. time. What effect has outsourcing had on the cultures of the countries that are recipients of much of the outsourced work? Have labor rates dramatically increased? Is it difficult for local companies in India and Pakistan to get quality IT talent?

Indeed such a subculture now exists. It is viewed as very stressful work and not suitable for a long-term career. Companies that do such work try to ameliorate the stress by hiring psychiatric counselors to provide free counseling to stressed-out employees. They also provide free meals and transportation, sports facilities, etc.

However, labor rates have increased only, a little. This is more than offset by

the rise in productivity of this labor over time.

Outsourcing is clearly a temporary solution. As labor rates equalize, the benefit of outsourcing decreases. In Pakistan and China, there are still huge differences in labor costs, but in Turkey, rates are closer to what they are in the 11.5. and other Western states. Realistically, how long can we gain a significant benefit form outsourcing?

India and China, and to some extent, Pakistan, have large labor pools. That is why, in manufacturing, Chinese wage rates have not changed despite massive employment growth over the past three decades. I think that wage rates in India will actually fall because of increasing supply, which is being drawn into outsourcing. This would mean several more decades of benefit from outsourcing.

One way in which developed countries may retain value is if their firms control the work done, either through providing the risk capital or through subsidiaries. While it is difficult to predict which organizational types will dominate, a number of firm-specific factors that influence the liability of off-shoring and organization structure are summarized here:

The knowledge component of the activity. A higher knowledge component makes the firm more concerned about whether the quality of the service will change due to a location change or the transfer process.

The interactive components of the process.

The ability to modularize the process

Savings from concentrating an activity in one location, leading to

benefits of scale and scope.

Reengineering as part of the transfer process. To transfer a business process, it is necessary to study it intensively and script the transfer. In the process of study, often there will he aspects of the current methodology for discharging the process that do not add value. Very often these aspects are legacies of earlier methodologies that were not eliminated as the production process evolved. During the act of transfer these are easier to abandon than at an existing facility' where they have become a "natural' part of the daily routine. Our interviews identified other unexpected benefits that go beyond the efficiency effects. Simply examining the business processes may reveal previously undetected inefficiencies. During the transfer process, these inefficiencies can be addressed without disrupting work patterns. Workers in the new location then use the reengineered process which is usually more efficient.

The time-sensitive nature of the work.

At a time of unusual US interest in south Asia it is useful to see how specialists there look at the two issues explored in this book -- the Kashmir conflict and south Asian nuclearisation. Twelve of the 15 contributors are US-based and therefore it is not surprising that the book is largely by Americans for Americans. But this does not detract from its value for Indians and Pakistanis, because the scholarship is impressive and analyses mostly free of bias. The volume contains 13 essays including a short introductory one by the editors. The remaining 12 are grouped into three parts.

The four essays in the first group (Pakistan: Politics and Kashmir) are "Islamic Extremism and Regional Conflict in South Asia" by Vali Nasr, "Constitutional and Political Change in Pakistan: The Military-Governance Paradigm" by Charles H. Kennedy, "The Practice of Islam in Pakistan and the Influence of Islam in Pakistani Politics" by C. Christine Fair and Karthik Vaidyanathan, and "Pakistan's Relations with Azad Kashmir and the Impact on Indo-Pakistani Relations" by Rifaat Hussain.

Vali Nasr provides a succinct account of how Islamic fervour and Islamic extremism grew in Pakistan after 1971 and how political players in the country, especially the army, tried to make use of it for domestic political and foreign policy gains. He provides a good analysis of how the Pakistani elite is torn between de-emphasising Islam for the sake of socioeconomic gains and stressing it for political advantage. In case of the army there is the additional factor of "jihadi" usefulness in pursuing regional strategic aims.

Charles Kennedy presents an interesting analysis of how the army captures power and holds on to it. He shows how Ayub Khan, Zia-ul-Haq and Musharraf have adopted essentially the same approach in this regard -- following the stages of making things legal, eliminating political opponents, becoming president, stressing local government, intimidating bureaucracy and judiciary, fixing the constitution and orchestrating elections. Two key observations he makes at the end are "the failure to develop a stable constitutional system is the fault of both Pakistan's military and civilian leadership" and that "constitutional stability can only be achieved if there is an accommodation between the interests of the two sets of actors."

Christine Fair and Karthik Vaidyanathan have tried to assess the influence of Islam in Pakistan partly on the basis of three polls conducted to gauge Muslim reaction to war against terrorism, and partly on the basis of interviews. Two noteworthy conclusions of the authors are that there is little popular support for extremist Islam in Pakistan (the good performance of MMA in the 2002 elections is rightly attributed to the political vacuum created by Musharraf and strong post-9/11 anti-Americanism), and that the Pakistan military's current effort to control, rather than eradicate, terrorism cannot work.

Rifaat Hussain has given a detailed account of India-Pakistan relations during 1979-2004, but his effort to explain Pakistan's relations with "Azad" J and K does not go beyond the little that is generally known. The lack of detailed, unbiased information about the society and politics of "Azad" J and K, which Pakistan pretends is not under its thumb, and of northern areas, which Pakistan has unabashedly incorporated into itself, is a major knowledge-gap that handicaps the search for peace in J and K.

The four essays in the second group (India: Politics and Kashmir) are "Who Speaks for India? The Role of Civil Society in Defining Indian Nationalism" by Ainslie T. Embrie, "Hindu Nationalism and the BJP: Transforming Religion and Politics in India" by Robert L. Hardgrave Jr., "Hindu Fundamentalism, Muslim Jihad and Secularism: Muslims in the Political Life of the Republic of India" by Barbara D Metcalf, and "Jammu and Kashmir in the Indian Union: Politics of Autonomy" by Chandrashekhar Dasgupta.

In his essay Ainslie Embrie has tried to explicate the complex relationship between the state and civil society in India. The tension and overlap between secular and Hindu nationalisms have been presented with deep understanding. The Gujarat massacres of 2002 have been explained in relation to the various constituents of the Sangh parivar. Indian attitudes to matters of sub-nationalism have been explained not only in relation to Kashmir but also to the north-east and Punjab.

Robert Hardgrave's essay covers much the same ground although the focus is more squarely on the BJP and the RSS. He speaks of sections within the RSS that want to align "Hindu" India with the west against Islam. At the same time he underscores how the demands of power have moderated the ideological temper of the BJP. Both Embrie and Hardgrave have written with western readers in mind and much of the ground they have covered would be familiar to Indians.

Barbara Metcalf's essay about Muslim Indians draws attention to the fact that the post-9/11 war against terrorism evoked no response from them, unlike the case with Muslims elsewhere. She has explained thoughtfully the reasons for this as well as for the rise in anti-Muslim sentiments in India from the 1980s. The contents of this essay can provide useful insights to Indians and Pakistanis. Metcalf warns that Hindu extremism can help recruit Muslim terrorists in Pakistan and Bangladesh and, in the long run, possibly within India itself. She also makes a case for declaring organisations like the VHP "terrorist" in the light of Gujarat killings.

Chandrashekhar Dasgupta's essay on J and K and autonomy is "balanced" by Indian standards. He writes that New Delhi should "accommodate Kashmiri demands for autonomy to the maximum extent compatible with the legitimate regional interests of Jammu and Ladakh and with the requirements of democracy and good governance in the state as a whole. The interests of Jammu and Ladakh can be protected by a mix of regional autonomy; devolution of power to lower (district, sub-divisional and panchayat) levels; and an equitable inter-regional revenue-sharing formula." But while offering this sound advice, Dasgupta has carefully steered clear of examining its practical implications.

The four essays in the final group (India's and Pakistan's Nuclear Doctrines and US Concerns) are "The Stability-Instability Paradox: Misperception, and Escalation Control in South Asia" by Michael Krepon, "Pakistan's Nuclear Doctrine" by Peter R. Lavoy, "Coercive Diplomacy in a Nuclear Environment: The December 13 Crisis" by Rajesh M. Basrur, and "US Interests in South Asia" by Howard B. Schaffer. In the reviewer's view, this is the most interesting of the three sections in the book and merits careful reading in both India and Pakistan.

Michael Krepon has explored the ramifications of the use of force by south Asia's nuclear-armed adversaries. He stresses the danger emanating from the two sides drawing (largely for public consumption, in the reviewer's view) opposing lessons from tests-of-will like the Kargil war and Operation Parakram. A useful point to note is how Krepon has, over the years, shifted stress from nuclear confidence building measures(CBMs) to conflict resolution in reducing nuclear risks in south Asia. This can be seen from the following sentences in his concluding paragraph: "Much could go badly wrong on the subcontinent unless Pakistan's security establishment reassesses its Kashmir policy and unless New Delhi engages substantively on Islamabad's concerns and with dissident Kashmiris" and "The best chance of defusing nuclear danger and controlling escalation lies in sustained and substantive political engagement." Nuclear CBMs can only do so much.

Nuclear Doctrine

Peter Lavoy's essay is a good piece on Pakistan's nuclear doctrine. He has listed eight separate "uses" for Pakistan's nuclear weapons. In specific relation to India, there are four, viz (i) Last resort weapons to prevent military defeat or loss of territory; (ii) Deterrent to conventional military attack; (iii) Facilitators of low-intensity conflict; and (iv) Tools to internationalise the Kashmir issue. He has drawn attention to the fact that Pakistan's nuclear "redlines" are vague which, the reviewer might add, is true of all countries that reserve the right of "first use."

Rajesh Basrur's essay is about the coercive and nuclear dimensions of Operation Parakram. His narrative of events, diplomatic moves and public statements is valuable for separating chaff from wheat. He has drawn attention to how much India's "compellence strategy" was played out through the US, which had forces in close vicinity. During the confrontation both India and Pakistan sought to "create a fear of nuclear war in the global community, especially the US". He also highlights the fact that India decided to withdraw its forces when Pakistan ceased "responding" to Indian pressure.

The book has no conclusion. The last essay is by Howard Schaffer on US interests in south Asia. Schaffer writes about how the relatively low US interest in the India-Pakistan hostile relationship began to climb in the 1980s when the threat of nuclear war entered the calculus. He says "The US has now come to regard Kashmir less in terms of the equities of the issue -- the lot of the Kashmiri people, the morality or immorality of the insurgency in the Kashmir Valley. Instead it sees the dispute primarily as a tinderbox that could be the flashpoint of a nuclear conflagration." He concludes his essay with the comment that "Washington's view of US interests in the region and the way it goes about promoting them" is unlikely to become more consistent than in the past. Both are valid observations and Indians and Pakistanis would do well to mull over their many implications.

It is not stated in the book, but this volume had its beginnings in a conference at the Asia-Pacific Research Centre in Stanford in early 2003. This was soon after Operation Parakram and before India-Pakistan relations began to thaw in late 2003. Although contributors have updated their narratives to mid-2004, the milieu in which the arguments have evolved was a period of considerable tension. The peace possibilities that have opened up in early 2004 and have got slowly augmented since have, therefore, not been adequately factored in. The book has avoided making any kind of prediction about peace prospects in south Asia although the very title of the book leads the reader to expect some exploration in this area.