governance, political economy, institutional development and economic regulation

Archive for August, 2014

20 Attributes of “Great” Powers

great powers

(photo credit: english.sina.com)

  1. You don’t have to say you are sorry. Japan took half a century to sort of apologise to Korea for its war crimes. The US has never apologized to the Vietnamese for napalming them.
  2. You can lie with impunity. The US and the UK lied about Saddam Hussain’s arsenal of chemical and nuclear weapons. Russia lies when it says local rebels are fighting the Ukrainian government. China lies when it calls itself a democracy.
  3. You don’t have to go looking for someone to talk to at a diplomatic party. Everyone else flocks around you.
  4. The line-up for the photo-op after a conference happens around you rather than you scrounging around for a place in the third row.
  5. Your “think tanks” are well funded and packed with retired Ambassadors, Generals and assorted strategists and feel comfortable preaching to your neighbours.
  6. You consider it your duty to send 20 some things, who can barely handle their nickers, to “help” the unfortunates in foreign lands. Never mind that they have never done the same in the country of their birth.
  7. A University professor in the neighbouring countries gets paid the same as a semi-skilled worker in yours.
  8. When you are sure that if you die in your sleep in a foreign land, your local embassy will bother to inform your folks and send back your body.
  9. When you don’t need a visa to travel to other “great countries”, except those whom you have browned off.
  10. When you don’t have to spend an hour figuring out how the loo flushes in your up-market hotel abroad.
  11. When a decent meal in your hotel abroad doesn’t mean that its McDonalds for the rest of the business trip.
  12. When you BPO jobs out to allies.
  13. When high security for the “President” does not mean locking down the neighbourhood where she is visiting for the entire day.
  14. When more foreigners are voting with their feet to come and work in your country than there are citizens trying to get out.
  15. When your language is recognized by the UN as one of its official languages.
  16. When the number of scholars working on your country in the universities of a competing great power are many more that those working on your neighbouring countries.
  17. When your delegation is doing the selling (not the buying) at an air and weapons fair.
  18. When the WTO calls you for convenient dates before fixing the next round of negotiations.
  19. When the poorest adult woman in your country weighs at least 10 kg. per foot of height.
  20. When you don’t need to have a child just to have someone to look after you in old age.

 

 

Do South Asian politicians learn from Samson?

imran khan

(photo credit: en.wikipedia.org)

Samson, the mythical Israeli, who was born with the strength to rip apart a lion with his bare hands, loses it all, when Delilah, an unreliable female “partner”, in whom he confides that the source of his strength lay in his long hair, cuts them off, in exchange for “blood money” from his enemies, whilst he is asleep.

Possibly learning from Samson, Imran Khan, the ruggedly handsome, heart throb, erstwhile cricketer and presently a potential Prime Ministerial hopeful in Pakistan, complete with long locks,  pledged during the recent siege of Islamabad, which he led demanding PM Nawaz Sharif’s resignation, that he would not marry (lest he lose his locks?) till a “New Pakistan” dawned.  

The South Asian sub-continent is rife with similar examples of political leaders who eschew marriage to serve a higher purpose, implicitly learning from Samson.

Gautam Buddha walked away from his sleeping family and the World, to found a new religion, which has adherents across the world practicing the technique of deliberate disassociation from material things and thoughts via meditation, as a therapy for even tired, dissolute and remorselessly materialistic, Wall Street Bankers.

India is particularly afflicted by this seeming conflict between a higher duty and the pleasures of a family. Sadhus (holy men) are Hindu mendicants, colourfully clad in ochre robes and long hair, matted in a manner any Rastafarian would envy, whom the rest of us have to support as they pursue a higher purpose.

Even politicians are affected by this bug. Jinnah, the founder of Pakistan, was a bachelor. Nehru, India’s first Prime Minister, Jinnah’s contemporary and rival did not remarry after his wife died in 1936. A. B. Vajpayee, the first BJP stalwart to become Prime Minister also never married. Bhen Mayawati, the Dalit leader from Uttar Pradesh; Mamta Banerjee the first time, firebrand, Chief Minister of West Bengal; Amma Jayalalitha, the veteran Chief Minister of Tamil Nadu and PM Modi, all are not married. Rahul Gandhi, the scion of the Nehru clan, pledged himself to the nation in the 2014 elections, also seemingly following that path. But sadly it did not help the election outcome.

There is something incredibly attractive to South Asians about the idea of their leaders giving up permitted pleasures, like having a family, to serve the nation. The notion that a family distracts rather than focuses attention on one’s career, is enshrined in Hinduism, which urges people to renounce material concerns, once they have discharged all their family duties and obligations.

This underlying bias, which views a family as a drag, rather than a resource, was reinforced by the colonial tradition. Young officers under British rule were not allowed to acquire a family till they were (a) old enough to afford one and (b) too senior to be likely to engage in battle and get killed, thereby leaving behind a helpless family to be looked after by the paltun (his army colleagues).

That the family and most importantly a wife, is important in making a man what he becomes, is entrenched in Indian tradition. This is why callow youths, prone to “false” female charms, are not encouraged to choose their own wives, lest they choose Delilahs, as Samson unwisely did, who would only shorn them of their power and desert them thereafter.

Whilst the choice of a spouse or partner is a tough one for any man-politician, it is an impossible choice for women-politicians for a number of reasons.  

First, men are wayward. During the extended daily absence of a busy politician wife, whose every waking moment is taken up by matters of the State, heaven knows what the man may be getting up to. Keeping track of a male spouse, boosting his fragile ego and keeping him harmlessly engaged, can quite derange a woman-politician.   

Second, not every man can keep looking grand, like Prince Phillip of the UK, whilst perpetually trailing Queen Elizabeth, his wife, and yet remain seemingly content to be perpetually out of the main spotlight. Some male spouses of powerful women, are prone to leverage their position, to their advantage in business thereby potentially wrecking the woman-politicians career.

There are very few “Power Couples” like the Clintons, who have perfected the “art of living and thriving together”. In India, Prakash and Brinda Karat of the CPI (M), stand out as one such power couple. But sadly such sharing of power does not seem to have brought political dividends.

In India, such successful, congenial power play, is seen most often in the bureaucracy, where it is used to deadly effect. In contrast, politicians are still too seeped in the male-dominant tradition and need to catch up with their bureaucratic colleagues. Possibly, the political environment reflects main steam India, with all its social inhibitions better, whilst the bureaucracy, after all, is just a chip-off-the-Colonial block and thereby retains some characteristics of a more western orientation.

The real problem of course is not the fact of the marriage but its outcome in children and a spreading net of close relatives all whom want a finger in the power pie. Indian parents are culturally tuned to cosset their children endlessly. Combine this cultural trait with access to political power and you have the beginnings of a corrosive dynasty.

PM Modi is a competent and charismatic man, but the fact that the only thing he will leave behind is his collection of kurtas and turbans and several large development projects dedicated to the nation, is chillingly compelling. Indeed this was also the Mahatma’s magic and possibly the reason for his forsaking his family. His meagre personal belongings, his charkha and his thoughts are all we are left with and yet, they are more powerful and long lasting, than all the riches in the world and the combined political force of the State in India. Maybe we should go back to our roots.  

 

 

 

 

A new National Development Council: PM Modi could keep the bird in hand and still net two more from the bush.

Modi piegeons.theunrealtimes.com

(photocredit: unrealtimes.com)

In inimitable style, Prime Minister Modi freed the nation from the “stifling” control of the Planning Commission (PC) on August 15-India’s Independence Day.  Not many are likely to mourn its passing.

But bureaucracies dislike a power vacuum and it is not clear who inherits the mantle of work the Commission used to do. Of primary concern is the need to co-ordinate the allocation and use of public resources, mostly though not exclusively, as investment for sustainable development. The amounts involved are huge, amounting to 11 % of GDP, of which Central government resources comprise 60% whilst the residual 40% are state government resources.

India’s quasi federal structure creates governments at three levels with varying and mismatching levels of functional assignments and resource allocations and a spaghetti bowl of mandated and discretionary, inter-government transfers. Whilst a good long term strategy would be to work at aligning responsibilities with resources, there is little hope of these issues being sorted out in the next five years.

The need of the hour is to find practical near-term solutions to three key issues which would remain unresolved if the PC is wound up.

One, which government entity could be empowered to realize the PMs vision of “cooperative development” between the Union government and the states?

Two, which government entity could have the capacity and the mandate to take an integrated and a technically informed view on development priorities and evaluate options and their tradeoffs?

Three, which government entity could be structured to bring together the best brains in the business of development to assist the “combined team of the PM and the Chief Ministers of state governments” to take informed and optimized decisions which simultaneously reduce poverty, create productive jobs and ensure sustainability?

This is not to assert that the PC did any of the three very well. But it did provide a forum for all three issues. The fact that it was not used to that purpose is a reflection of its leadership rather than its substance.

The PM, whilst announcing the demise of the Planning Commission (an institution, which the PM heads, created in 1950 by executive order), also said it would “soon” be replaced by another institution but no details were shared. Speculation abounds that this may be a lean, high power, government “Think Tank”.

It is unclear however why the government needs another in-house think tank when it has so many aided “Think Tanks” already at its disposal. The National Institute of Public Finance and Policy (NIPFP); Indian Council of International Economic Research (ICRIER); National Council of Applied Economic Research (NCAER); Institute of Economic Growth (IEG), just to name a few, which are all part of the Delhi Durbar.

Others include highly specialized ones like the Center for Policy Research (CPR); The Energy Resource Institute (TERI) and the Center for Science and Environment (CSE) in Delhi. There are scores more of such “knowledge institutions” in other metros and the state capitals. All of them are already able and engaged in providing research and knowledge support to governments, state owned enterprises and the private sector.

Why spend new public money on establishing yet another sarkari (government) or quasi sarkari knowledge institution, which will likely be bedeviled by the same constraints as its predecessor? All sarkari institutions suffer from the problem of low remuneration levels, which are insufficient to attract the best from the domestic private sector or to attract the many qualified Indians working abroad. Lateral entries are mostly “fixed” on the basis of exploiting networks, not on the basis of assessed merit. Lastly, and most importantly, their processes and systems are stiflingly bureaucratic, which puts-off most experts.

In any case, even the best “Think Tank” cannot achieve all the three objectives cited above. Even International Development Institutions, like the World Bank, IMF and UNDP find it hard to sell their admittedly “high quality thoughts” if they are not backed by money power to implement them. A Think Tank is not the solution.

The erstwhile Commission discharged several functions. It coordinated the allocation of vast public investment resource and monitored implementation and expenditure. It provides the secretariat for the National Development Council (NDC; an entity created in 1952 by executive order for interaction between political heads of the Union and state governments). In fact unfettered “thinking’ and “knowledge generation” was never a major part of the Commission’s job. It was more a hands on “applied knowledge” generator which navigated political economy constraints to suggest commonly acceptable, technically suitable options for allocating development resources. This role remains vital.

The notion that the Ministry of Finance, Department of Expenditure, Plan Finance Division can perform the investment management; resource allocation and monitoring role is laughable, given the limited human resources available to it.

Why not then simply assign the entire existing Planning Commission staff to the Plan Finance Division; upgrade this to a Department and let it do the job? This solution would be even worse than the existing arrangements. It would extract whatever independent “non-government” knowledge capital, which existed in the Planning Commission, plus embed the entire process in the traditionally (possibly necessarily), non-transparent functioning in the “forbidden fortress” of the Ministry of Finance even further, with no hope of efficiency improvements in return.

Can the PM retain the bird in hand- the virtues of the PC- whilst still netting two more birds (state leadership participation and enhanced human capital) in the bush?

This post outlines a proposal to this effect:

  1. The PC already provides the secretariat for the National Development Council. Unfortunately, meetings of this entity have been reduced to a mere formality, where no meaningful co-operation takes place. The reason is that it is not empowered to do more than talk. This can change dramatically if it is empowered to “approve” the medium and long term invest plan of the Union and State governments. This “symmetric sharing” of fiscal power, between the state and union governments would be unprecedented. It could energise the NDC into a business like agency.
  2. What we call “the Five Year Plan”, in India, is very similar to what more modern governments call the “Medium Term Fiscal and Expenditure Framework (MTFEF)”. This is an internationally accepted “good practice” as a guide. The Plan can be tweaked into becoming this modern avatar.

In essence the MTFEF requires the setting of aggregate fiscal deficit, revenue and expenditure targets; assessing the fiscal resources and then painting in allocations for different sectors and projects, within these broad fiscal envelops.

This is already done by different agencies independently; RBI, MOF, line ministries, state governments and the PC. Each entity has vested institutional interests which are at variance. The RBI would like to constrain debt and regulate money supply since it targets inflation. The MOF traditionally exaggerates revenue and borrowing potential while targeting growth. The line departments and state governments exaggerate expenditure needs to “grab” the highest allocations. The interplay between these entities is expected to reach an optimised equilibrium which the PC presents to the PM and the NDC. We still need an entity to perform this vital function.

  1. This could be a new “empowered” NDC which would operate much like the Governing Board of a multilateral development institution. The Governing Board would consist of the Prime Minister as chair; a designated central minister as Dy. Chair; chief ministers of state governments or their alternates, key central government ministers and the RBI Governor as members. The Governing Body would ensure pan-India political leadership and “buy-in”.
  2. Technical governance could be provided by an Executive Board, chaired by the Secretary of the new NDC Secretariat. Other members would be of Chief Secretary level from each state government and key Secretaries of the Union government. The Executive Board would mirror, at the bureaucratic level, the composition of the “political” Governing Board. It would be the function of the Executive Board to coordinate and clear documents formulated by the Secretariat, before circulation to the Governing Board for decision.
  3. The new Secretariat would be designed for independence and competence. This requires that only the best talent is selected. To ensure merit all appointments to the secretariat would be outside the central staffing pool which is operated by the Department of Personnel, GOI and draws officers from the All India Services and Central Services based on pre-determined proportions from each service and then allocates the officers to vacant positions in the union government; a cumbersome and non-transparent mechanism of ever there was one.

All positions in the NDC secretariat would be open to external competition. Government officers would be expected to compete with external experts for appointment to specific positions, each of which would have defined job descriptions and eligibility criteria. Secondly, all appointments would be contractual. This simple device will give more flexibility to the NDC to pay for merit. The fear of competition and the need to temporarily step out of the “comfort zone” of service regulations (like the payment of house rent at market rates rather than allocation of a government house; payment of car and driver allowance at market rates rather than allocation of a government car) will automatically ensure that only those competent in and committed to pursue specialized technical work would apply.

All recruitments would be processed by the Union Public Service Commission (UPSC) to ensure that the highest fiduciary standards in selection are maintained.

Despite the liberalized compensation, the operational cost would be lower than in the case of the PC by limiting the number of employees to 100 or around one half of the staff presently employed; enhancing the teeth to tail ratio and aggressively adopting technology to reduce cost.

The proposed new NDC can meet the PMs objectives of introducing “co-operative federalism” by building “a common team” of leaders from state and the union governments.

It bridges the gap between state and the union government, at the bureaucratic level, by bringing high level government representatives together in an empowered Executive Board with real time “shared” powers and functions.

It ensures that the best available human capital is made available to inform the deliberations of the NDC and yet minimizes the institutional dislocation from the demise of the Planning Commission.

The bath water is drained, the “baby” remains, to be nurtured into an image of inclusive, federal, technologically empowered, institutionally integrated, India.

 

 

Why the Economist misread India’s incentives at the WTO

TFA

(photo credit: Times of India)

The Economist, a venerable English newspaper, can be excused for being confused about why India kicked the WTO bucket on July 31st. But it is a mystery why the Economist expects nations to behave rationally, when it knows full well that individuals don’t.

Humans fear losing more than they like winning, similar amounts of money. The anxiety about loss is irrational. There is nothing rational either about buying diamonds, but the world spends $72 billion each year on them. It is even less rational to buy missiles and weapons but the world turnover of these adult toys is more than $350 billion annually. Incidentally, this not very different from the net estimated gains for developing countries from implementing the now torpedoed Trade Facilitation Agreement (TFA); basically aimed at cutting red tape in international trade.

Assume instead that irrationality rules. It then becomes easy to see why a seemingly “win win” solution, in a narrow, partial equilibrium sense, like the TFA, becomes less attractive because of the costs and collateral political damage it causes to the cozy, status-quo favouring domestic elites.

The Economist is perceptive however, in assessing that the WTO in its “jamboree” form is dead as the dodo. On this it is bang on. The expectation that nearly 200 nations can possibly reach a common “agreement” and more importantly stick to it is so utopian that it boggles the mind.

But it is odd that a newspaper, as incisively investigative and intellectually rigorous, as the Economist, should not have picked up on the key, underlying issue of “cultural rifts”, which lies at the core of multilateral failures (trade and climate change).

In developing economies, a “sustainable agreement” is one in which the mutuality of interest is explicitly acknowledged; no party has residual reservations and the agreement is aligned with practicality. A mere formal consent, given under pressure, or with the intention of “kicking the can down the road”, is no consent at all. A pile of papers signed to seal such “faux deals”, have even less value. Whilst individuals are prone to such derelictions, agents (read leaders and bureaucrats) are even more likely to adopt the easiest route to avoid immediate stress.   

Why then do multilateral institutions bother to negotiate such unsustainable “deals”? First, every broking house has a “managerial incentive” to “close” deals. Never mind if they unravel subsequently. Second, cultural cleavages between ancient civilisations and “modern” States create mutual mis-assessments of the degree of consent and the leeway for subsequent rethinking behind formal agreements. Third, modern institutions are prone to use a “template” methodology for assessing conformity and consensus. Whilst templates reduce the time and cost of decision making by enforcing standardized conformity, they miss the contextual signals indicating covert dissent; misgivings or simply lack of “buy in”.

The near universal business model today is the one based on neo-liberal economic precepts and political architecture. Prior to 1990, Soviet Russia cocked a snook at this model of development which is embedded in the “Doing Business” publication of the World bank/IFC.

Today, it is China which is doing so. Despite growing at more than 8% per annum over the last 33 years; becoming the second largest economy in the world and reducing the level of its poor to 3%, it ranks 96th out of 189 countries in the “ease of doing business”. What explains the mismatch between its achievements and its ranking?

The purpose of this statement is not to undervalue the “Doing Business” publication. Instead, the intention is to show that there is more than one way of skinning a cat as so vividly illustrated by China.

Large, continental economies, like China or India, have options to innovate development solutions, which may not be available for small countries. If an economy is hugely dependent on external markets or foreign investment, the need to “de-risk” its institutional arrangements, in the conventional sense, will be far greater. Big economies can attract business interest, purely on the basis of their vast market potential, without having to go through the hoops of process change to conform to “best practice” institutional norms. The only caveat is that political stability is a must.

But it is hard work to convert informal, business practices, which work at the boutique level, into a generally applicable market principle. The diamond trade in India, worth around $9 billion, is done entirely on trust. No formal agreements are executed between buyers, sellers or couriers but there are no defaults. Yet, no Indian retail investor would consider purchasing a home without signing legal agreements with home suppliers. Access to bank credit is similarly cocooned in masses of paper. Never mind that the Non-Performing Assets (NPA) of Indian public sector Indian banks have nevertheless increased to an alarming level of 10%. Never mind that these paper agreements are virtually unenforceable or enforceable only at significant transaction cost.

Small players need the comfort of a legal agreement. Large players know that any agreement is sustainable only if it remains mutually beneficial and the balance of market power does not shift significantly over the course of the agreement. In effect, this reduces a legal agreement to a mere formality, more like a memorandum of understanding or a minute. More accurately, a fudge, to lull the less informed into a false sense of security.

The bottom line is, clunky international agreements are out. Smaller pacts between immediate beneficiaries are easier to conclude and provide higher gains all around. Consider how ineffective the G20 (a talk shop of mostly rich countries and a few poor countries-including India, convened to coordinate national actions during the 2008 financial crisis) was in the WTO-TFA affair. The group aims for “individual country action based on a common understanding”. The Indian action of rejecting the TFA, in opposition to the remaining 19 members of the G20, was akin to kicking it in the teeth.

The “unnatural exuberance” of the last 30 years is over. Trans-border equity is no longer normative. It has to be negotiated every time, in every context. Market power is in; collaboration between high-worth, small groups (BRICS) is in; bilateral deals are in. The world is suddenly less grandly inclusive and more squalidly business like, than ever before. But it is also more real and practical and less hypocritical.

Can India choose its defence challenges?

defence

(photocredit: ndtv.com)

Secretary Chuck Hagel’s whirl-wind India visit, ending August 9, highlights the tight rope India needs to walk, whilst enlarging its defence establishment’s collaborative engagement with the external world.

The opening up of defence production to the private sector, including foreign direct investment, is a sensible, hard-headed, no-brainer, business decision given India’s current volume of defence procurements and expected future expenditure (1% of a fast growing GDP).

What is more difficult to manage and to resist, is the accompanying temptation to take sides in managing the regional strategic and security balance between the US and China.

It is not for nothing that Nehru conceived of non-alignment as a way of ducking such hard choices. Pakistan was the US outpost in South Asia, in their joint global “jihad” against communism in the 1960s. By dispatching an aircraft carrier in 1971 to threaten the Mukti Bahini in erstwhile East Pakistan, the US effectively pushed India  into the lap of the Soviets and there we remained, till Russian penury ended this “special relationship” in the 1990s.  

But much has changed since then, including India’s spectacular, steady, rise as an “aspiring” regional power, courtesy better economic management, post 1990. As Mr. Hagel graciously acknowledged, Jaswant Singh was to the “new” India-US friendship what Nixon was to the China-US détente. Subsequently, the dominance of China, has spurred the US and its regional allies; Japan, Australia and Singapore to look for regional counterweights to China. India is an obvious choice.

For India, if acquisition of front-line technology is our objective and joint defence manufacturing is the intended instrument, clearly it is to the US we must look. There are three reasons for this “look West” approach.

First, the US has no competing interests with India in achieving regional hegemony status. China, on the other hand, is in direct conflict with India on this score.

Second, the US political environment, characterized by freedom of choice and competition, resonates with Indians. Most Indians would choose the US as their country of choice, after their motherland. Some choose it even above their own motherland and good luck to them. China, on the other hand, is a cold, ruthless, ”godless”, factory. Indians find hard to identify with China, nurtured as we all are, on a mélange of an uncaring but “soft” State; faux-religiosity; cultural plurality and a disdain for rules. The last, if regulated, can be the mother of innovation; a light weight equivalent being jugaad (making do).

Third, the US has the best defence technology to offer. Residents in Delhi would feel a lot safer if we had an “Iron Dome” protecting us, like Tel Aviv, from incoming missiles. Collaborating with the US also means spin-offs for technology transfer with other countries in the Western bloc.

But the downsides of a strategic partnership are considerable.

First, the big down side of partnering with the US is, ironically, that it is a democracy and like India, susceptible to public opinion. All US Presidents are guided overwhelmingly by their domestic ratings and are willing to sacrifice inconvenient external engagements and partners towards that end. India suffers the very same democratic compulsions. The two do not make ideal and stable, strategic partners.  

Second, our South Asian neighbours; Srilanka , Nepal and Bangladesh are being actively wooed by China. We are in competition with China there. Becoming strategically aligned with the US is likely to sharpen, rather than diffuse, this unnecessary competition.

Third, Pakistan is part of the arc of Islamic terror, originally cultivated by the US and conveniently used, from time to time, for its own purposes, including to remote control Afghanistan. These incentives and institutional linkages will not go away. So long as it suits the US to covertly retain its links with Islamic Terror, India will remain an easy target.

China on the other hand has a far less ambivalent approach, very similar to that of India; a zero tolerance for Islamic terror. China recognizes that they themselves are susceptible to this threat and being in the neighbourhood, unlike the US, they cannot afford to risk starting a fire they cannot control.

Ironically the Nehruvian vision of non-alignment seems the best option.  

An asymmetric approach seems best. Say yes, to defence manufacturing in partnership with the West to add jobs and boost economic growth in India.   Say no, to partnering the US, or anyone else, in securing the region. India has neither the economic muscle nor the mind space to play the “Great Game”. Having said this, the fact is that, in an integrated world, nations align with the big powers they buy their security assets from. A comfortable relationship is a necessary pre-condition for transfer of sensitive technology. Buying arms and technology from the US consequently means, eventually celebrating “Thanksgiving” in New Delhi.

Before we get there, we first need to get our own fundamentals in place. Chuck Hagel, an erstwhile potential nominee for President of the US and a person who voluntarily enlisted to fight for his country in Vietnam and earned four medals, including the prestigious Purple Heart in the space of two short years; 1967 and 1968, astutely stated today, at an Observer Research Foundation event in New Delhi: “Superpowers do not choose their challenges. They deal with them as they come”. We are clearly not in that league yet and still have to be extremely choosy.

Our fundamental challenge is extreme poverty. One third of our people are caught in that trap. Our first commitment must be to them. This is why creating opportunities for economic growth and jobs via defence manufacturing, fits our objectives perfectly. Swaggering around the neighbourhood, pretending to be a cousin of the Americans, does not.

Nevertheless, we have to step up our spending, to achieve defensive credibility, which we lack today. If the chips are down and the Chinese attack India, we are sunk. This is not acceptable. We must have the ability to inflict sufficient counter damage to pre-empt and limit any Chinese mis-adventure in India.

Stepping up spending on equipment and defence capital assets will put significant fiscal pressure on our budget resources. Our blue water Navy, our Air Force and our Army are hopelessly antiquated and under provided. Our domestic and external intelligence networks similarly require a capacity upgrade. All this means big bucks, which we don’t really have.

This is why we must pursue the Defence Trade and Technology Initiative but shun any grandiose notion of partnering the US in joint surveillance of the Indian and Greater Pacific Oceans; we must equip our Air Force and Army to defend the icy heights of Siachin; assert our sovereignty in Arunachal Pradesh and defend the line of control in Kashmir, but not adventure to reclaim land not held by us today.

Chuck Hagel propounded the concept of P2: “Power with Principles” which binds India and the US. For India the applicable concept is P4: “Power though Prosperity, Parity and Principles”.

  

 

Hiccups in India’s new external engagement framework

Modi trade

 (Photo credit: Oneindia)

 

.Neo-liberal public intellectuals and foreign service babus in Lutyens Delhi are not happy with PM Modi’s “South Asia First” policy. For long, the managerial incentive was to hobnob with the “sahib log (people)” of the G 20. A predominantly rich country club, in which India is the poorest member. After all, our children do not aspire to study in Dacca or work in Kathmandu. Nor do we aspire to holiday in Pakistan. The incentive has always been to cozy up to the rich country missions in Delhi; get posted to rich countries abroad to enjoy the good life; drink the best wines; nibble the choicest of cheese and talk knowledgably of foie gras (duck liver paste).

First, Modi spoilt it for the domestic babus in Gandhi Nagar for thirteen long years, by making them spend their weekly holidays monitoring development schemes in remote villages of Gujarat, along with their ministers. Now, as PM, he seems bent on focusing the energies of the “foreign service babus” on our “near abroad”; an area that the top brass pointedly “looked beyond” for the last two decades. Now it’s all about roughing it out in “foreign” places in South Asia, which are in no way more “foreign” then the home districts of babus; rubbing shoulders with the “aam babus” of South Asia and making friends with movers and shakers in the region. All this is tough to adjust to.

Notice the immediate outcry that the PM should not neglect the West whilst seeking friends nearer home. What a sham!

India has courted the West for years, driven mostly by the “managerial incentives” of its babus and “babu-like politicians”. India forgot that the West, live all of us, is driven principally by commercial principles. Per these principles of engagement, if you are not strong at home and with your neighbours you matter very little abroad. Think Pakistan, if you want an example of a country which barely survives, on the twin and directly correlated pillars of US support and regional instability.

Look at the manner in which the “principled” G8 is now somersaulting to get an inroad into PM Modi’s mind space. The only thing that has changed between as late as March 2014 and today is that the people of India returned a mandate on May 16, 2014 which cocked a snook at the sham “principles” of the West.

Witness yet again the furor by our home grown neo-liberals cum faux- socialists over the horror of India speaking its mind at the WTO meet recently in Australia. It seems mindboggling that any Indian would question the need for food subsidies in a country, where nearly 70% of citizens earn less than $ 2 per day. The UPA was happy to coast along on vague assurances that the outdated, maximum subsidy limits on food, specified in the WTO, would not be applied to India till 2017.

Admittedly, by playing “spoiler” and rejecting the cozy compact submitted to by the UPA earlier, by “linking” it to a trade facilitation agreement, PM Modi was asserting his “56” chest” internationally, in a manner reminiscent of Putin. 

But it is note-worthy that PM Modi could have played the UPA tune of a short term of reference. After all, under the compromise reached by the UPA, India has till 2017 when food subsidies will not be hit. In 2017 Modi could plead international compulsions and reduce food subsides.

Domestic neo-liberals are at pains to explain that, in any case, the earlier UPA deal did not prohibit the government from giving a cash subsidy to the poor. It merely restricted the ability of the government to pay more than what it needs to farmers. Surjit Bhalla (Indian Express July 31, 2014) tabulates that the government has consistently paid much more than the equated international price for cereal purchase since the 1980s.  This is possibly true. But Bhalla forgets that the worst way to justify sound domestic policy is by pleading International constraints.

A case in point is the attempt to explain away high inflation since 2011 by ascribing it to the fiscal loosening post 2008. This type of reasoning is dishonest and misleading. It subscribes to the traditional manner of “reform by stealth and deception”, first used by the team of PM Narasimha Rao and Finance Minister Manmohan Singh in 1991 and continued during the successor UPA governments. It also has the downside of falsely creating the public perception that the world’s interests are different from those within the country.

Full marks to the Modi government for rejecting this craven strategy of economic reform and confronting the food subsidy issue boldly and in a transparent manner. It is noteworthy that subsequently, even the International Fund for Agricultural Development (IFAD); a UN entity, has rejected the notion that a country of 1200 million people should soft pedal its obligations to hungry people.

It is without doubt that agriculture subsidy needs to be better regulated and targeted. But the manner and sequence in which this is to be done, is a matter to be decided by Indian stakeholders- in this case the Union government and the State governments, by evolving a transition path for cost reflective, regulated fuel, electricity and  fertilizer prices whilst also rationalizing the administered price paid for the procurement of food.

Domestic neo-liberals need to step back from the 101 economics they base their arguments on and step into the real world of international negotiations. Sleight of hand; quid pro co (opening domestic markets for insurance and defence production) and swagger, all anchored to the foundation of rock-solid, domestic, political support, is usually what gets the “sahib log” in the West to the table. This is the China model and it works.

PM Modi knows this environment well. He is no stranger to the same environment at home, which an ordinary Indian battles daily to succeed. Fire in the belly, the capacity to take pain and personal credibility, is what succeeds in fiercely competitive environments, abroad and at home.

It is no surprise that our “domestic sahib log (DSL)” whether in heavily protected and regulated industries; the bureaucracy or our “public intellectuals” should question the shift in balance from the “far abroad” to the “near abroad” and be fearful of the bold contrarian stand in the WTO.  The DSL do not live in cheek-by-jowl community housing, where you are only as good as your neighbour’s opinion of you. Nor are the DSL used to perturbing the status quo. They are more comfortable in clubby environments; enhanced by the soft hum of convivial conversation and the gentle tinkling of cut glass. The DSL are far removed from the pressures of a competitive world and the science of living well with scarce resources.

Where the government failed spectacularly was in outreach and communication. The Indian people were bombarded with inspired public outreach of how terribly India had bungled. But the government was silent. Was this a result of crossed wires between the PM, Commerce and External Affairs? We will have to wait for a “kiss and tell” book from a retired babu or a vanquished politician, to get to the bottom of this mystery. But clearly, such outreach failures must not go unattended. Public perception is everything.

 

 

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