governance, political economy, institutional development and economic regulation

Archive for the ‘world affairs’ Category

Trump’s implicit advice to India

Trump UNGA

President Trump does himself no favours by going out of his way to be deviant, as he did whilst addressing the UN General Assembly yesterday. Odd that a billionaire, realty tycoon should need to resort to coarse behaviour to stroke up self-confidence. Put it down to the testosterone filled hubris of corporate American, male machismo and forget about it.

Read the intent not the optics

The truth is that behind the pugnacious façade is an “honest” politician who wants to run an administration in terms which are understandable to the average American – not just the cerebral coastal types. At the cutting edge America is exactly like President Trump – bullying deal makers who neither expect nor give any quarter except for a very good reason.

You may prefer the moralistic flailing of President Obama or the glib speak of Hillary Clinton. The former uplifts. The latter grits your teeth for the plastic political correctness of it all. Trump may merely amuse you. But don’t underestimate him. He is using America’s power in the way it should have been done, long ago, to push back on the one sided economic deals it has struck with it’s allies – political support in exchange for global security. The roue is in decline and is raking back all the cash it can muster.

So, what did President Trump tell India? If you were listening and not rolling in the aisles with laughter at POTUS’s buffoonish ways, three messages stand out if you read between the lines in the sections on democracy, socialism, immigration, sovereignty and global security.

India’s first task is to focus on removing poverty – not an easy task in the uncertain technological and economic future

First, in a Trump world, India is a massive, progressive, democratic but POOR country, which is doing a good job reducing poverty. This is important. We are not the rising super star we imagine ourselves to be. We are not competition for China. We are not even the pole in Asia – that continues to belong to Japan, Australia and the Asean countries.

Yes, that sounds terrible. But it knocks some sense into our heads. Our first and only task is to reallocate resources towards investing in removing multi-dimensional poverty which traps around 47 per cent of our population (2016 UNDP). Of these 9 per cent of Indians are trapped in extreme poverty;  an additional 19 per cent are slightly better but still poor. Most worringly 19 per cent live on the edge and can become poor via the next economic or ecological shock – drought, floods, public health disasters or just indifferent economic management.

drinking water

Focusing more on greening public investment in infrastructure, education, health and sanitation is the development narrative we need to spin, of working hard to get the world rid of poverty – sustainably, quietly and innovatively in uniquely Indian ways. Just consistent, plain, good, hard work on the plumbing by experts who have done this before. This is the first message.

The route to sustainable sovereignty is by paying your own bills & not relying on hand-outs

The second message is that America values its sovereignty and independence and is willing to secure likewise for its friends. They will not preach what you should be doing in your country or how you should be praying. That is your business. But if you violate American sovereignty through drugs, immigration or terror. America shall come after you.

This is very close to the India position except we just don’t have the reach to go after our enemies in quite the same manner as America. Can we get this power in the short run? No. Is there a sequence of investment to be followed? Yes. A sequence that first puts in world class infrastructure and human capital achievements before running for guns.

China India

In the meantime, use savvy political and diplomatic accommodation to go under the radar and if the chips are down use the N deterrent card should any country seek to abuse our sovereignty. Learn from the British, the guile and charm with which they shake hands, seemingly as friends, whilst actually transferring your full pockets into their own empty ones. That is the kind of diplomacy we need, not the gun trotting, bravura kind. And please forget about pushing for more US visas. The cheap body count model of IT servicing is dead.

If you want to stride the world stage like a colossus be ready to bear the costs

The third message is that if we want to play “big boy war games” – like Germany, France, the UK, Canada tend to, we will need to do so on your own balance sheet. Don’t expect American cash to implicitly bankroll your flag waving around the globe.

India in danger of neglecting core domestic issues in favour of glitzy, overseas media coverage and an unaffordable,  muscular, security strategy. 

India should listen carefully. Prime Minister Modi has been misled by this government’s security and diplomatic advisers into believing that selling a cardboard image of a “Strong India” to foreigners, can diffuse onto the Indian voter back home, lifting the mood. This is “Shining India” redux. And what does one gain by doing this?

We pile up debt for buying trinkets like the Rafale jets, better guns, bigger ships and bullet trains. All this at the expense of making our domestic economy truly competitive. Domestic investment has been low, not least in agriculture. We should rectify this. It is an outcome of correcting the excess financing of the post 2008 go-go years of the UPA, much of which is sitting with banks as bad loans.

Bury ego & seek large foreign institutional finance to fund structural reforms in tax and infrastructure

The fact is we need large significant budgetary and development assistance credit if we are to increase spending whilst retaining fiscal stability. This means eating humble pie and going cap in hand to the International Financial Institutions. We should have done this well before going for the big bang GST reform to provide a fiscal buffer. It is still not too late to start the discussions.

Is the government getting captive to pre-election rhetoric

Bhagwat

Unfortunately the pre-election noise is vitiating decision making. Even the Rashtriya Swayamsevak Sangh (RSS) has departed from its monkish discipline and austere style and fallen for the trappings of public office. Aping the BJP in organising lavish, mega events is likely to be detrimental to both organisations. The contagion of public office spreads faster than an ink stain. Once this seeps into the RSS, they become merely the B team of the BJP. Its strength has been the ascetic’s ability to speak truth (their version) to power. Is politicisation of the RSS the legacy Sarsangchalak Mohan Bhagwat would like to leave?

From the mouths of babes flows wisdom. In India’s case this applies to President Trump’s address yesterday. The problem is are we listening to POTUS or just hearing in his words what we want to hear.

Also available at TOI blogs, September 26, 2018 https://blogs.timesofindia.indiatimes.com/opinion-india/president-trump-on-india/

US bringing China to heel

Trump Xi

America’s President Donald Trump is nearly halfway through his four-year term. This is when most occupants of the White House get edgy about their “legacy” — how would America remember them? It’s too expensive to launch a war and once launched even harder to bring it to an end. Making peace is a better option.

His goals are clear. First, get a peace deal from North Korea — the last of the present-day dragons to be slayed — leading to a possible Nobel Prize! After all, President Obama got his rather easily.

Second, preserve America’s mojo by enshrining himself as the “Marlboro Man” who brought China to heel. It was after all a fellow Republican, President Richard Nixon, who broke the deep freeze with China in 1972 with his visit, the “week which changed the world”. That relationship has grown to mutual benefit over the past 46 years. But every prima donna finds it hard to be upstaged by a young pretender. China accounts for 15 per cent (India is just three per cent) of world GDP versus 24 per cent for the United States. But China grows at more than double the rate of the US. By 2032, China’s GDP will be bigger than that of the US.

China no coy wall flower either in smart trade practices

China flag

Bafflingly, China has gone out of its way to be disliked. The country remains opaque and its commitment to long-nurtured international norms like the rule of law remains iffy. Admittedly, most such norms benefit the entrenched and work against outsiders, like China.

Sadly, such is the anti-Chinese sentiment stoked by China’s bulldozing ways — very reminiscent of the Ugly American, a 1958 political novel — that in Southeast Asia, India and other developing countries, while most people admire China’s successes, they would be secretly delighted to see China whipped.

Pulling up the drawbridge on trade

drawbridge

The US has chosen to impose sanctions on China by crippling its trade via high tariffs (25 per cent) on imports from China levied on a progressively wider basket of products. From $36 billion of imports in March 2018, the base was enlarged to $50 billion in August and by end-September it will further increase to $250 billion (equal to 60 per cent of Chinese exports to the US) and so on, till the Chinese cave in and start seeking an end to the trade war.

WTO trading norms adrift

This unravels all the gains made in world trade negotiations over the past three decades. The average tariff rate for WTO member countries was down to nine per cent in 2013. By then, only five economies had an average tariff rate above 15 per cent.The US accounts for around 18 per cent of China’s exports — big enough to use withdrawal of free access as a threat. China could try and find alternative markets. But it will take time. Depreciating its currency could reduce the impact of the tariffs on its exporters. But that will play into the hands of the US, which it assails for being currency manipulators.

China asserts its burgeoning economic clout

China has chosen instead to play on the front foot. It has retaliated by selecting $60 billion of imports from the US for similar tariffs. It is resolute in continuing to impose symmetric counter tariffs on US imports. But total imports from the US are only around $155 billion, versus exports of S432 billion to the US, so China’s room for imposing counter tariffs is limited.

China has a much more potent weapon. It can stop buying and start selling the $1.2 trillion of US Treasury bonds. It owns 15 per cent of the total issued by the US. This will drive down the demand for US government debt and increase US interest rates because debt products are priced using US Treasuries as a base.

Be prepared for a slump

Over time, world trade will readjust. But in the meantime, world trade will suffer at least a five per cent drop against the seven per cent growth per year it has enjoyed since 1980. Incidentally, the bulk of the incremental benefits, particularly in merchandise trade, have gone to developing countries which now have a share of 42 per cent in world trade — double their share in 2000.

The fall out of decreased capital mobility can bite the US too

Ironically, it is the US which will suffer over time. Global supply chains snake out from the US and one half its imports constitute intermediate goods which go to build US products. International credibility in honouring commercial contracts and settling disputes quickly makes it the go-to destination for capital-seeking safe havens. It has lived off its credibility for the past 43 years! The last time it ran a trade surplus was in 1975.

Despite many factories falling silent since then, the US economy has not suffered. Its open markets and investment-friendly institutions have sucked in foreign investment, creating jobs and generating economic growth. If you cut off this capital tap or make it more expensive to invest in the US, its economy will be on its knees in less than a decade.

China likely to remain on top – but remain pragmatically open to a settlement

China has the advantage that its executive decision-making is insulated from democratic noise. In the past, as during the Cultural Revolution, this resulted in horrible errors and mistakes. But President Xi Jinping’s vision of “capitalism with Chinese characteristics” is pragmatic. Trade tantrums can distract the leadership into fire-fighting. So, if the troubles persist, expect China to tone down its aloof and abrasive behaviour and seek friends abroad by playing a more sophisticated game than just stuffing open mouths with money.

A stressed China could seek to settle differences with India 

flags

Also, importantly for India, an entry point could emerge for de-escalating our border tensions with China and reset the comprehensive relationship towards more positive, collaborative ends. China, throttled by export barriers to the US, might diversify the structure of its exports, using overseas production and export units in countries with trade ties to the US. India could be one such location.

India can gain by using the slow down to fix its domestic economy 

We constitute just three per cent of world trade. Our exports are limited not by overseas demand but by our own low export competitiveness. Our main task is to make our economy really competitive. Even to benefit from transactional trading opportunities thrown up by external shocks, that back-end support needs to be in place. The Chinese are pragmatic strategists. If President Trump needs a “win” desperately they will give him one in time — pyrrhic though such a victory might be.

Adapted from the authors piece in The Asian Age, September 25, 2018 http://www.asianage.com/opinion/columnists/260918/us-china-trade-battles-to-impact-india-world.html

Nikki Haley – not one to get confused

Nikki

Ms Haley has been United States Ambassador to the United Nations since 2017 and was previously, the Republican Governor of South Carolina. She is in India right now on a goodwill mission at a time when “good-will” is not quite the flavour of the month between the US and India.  Of course, a less than cordial relationship was par for the course, till the United Progressive Alliance under Dr Manmohan Singh made strenuous efforts to align closer with the nation, which has been an Eldorado for millions of Indians.The BJP under Prime Minister Modi has added energy and substance to that initiative.

Ms Haley represents all that is virtuous in America. A child of immigrant, Sikh, professionally qualified parents, she did not wander into politics. It was a choice dictated by her will and courage to lead and be the best – a common American virtue, sometimes carried to a fault.

At the age of 32 she ran for and was elected to the South California, House of Representative and won a re-election in 2008. Her bid to run for Governor subsequently was endorsed by Republican heavyweights – Mitt Romney and Sarah Palin. South Carolina sensibly elected her Governor in 2010.  In 2012 she was speculated to be one of the options for Vice President partnering Mitt Romney for his Presidential bid versus Barack Obama. She determinedly squashed all speculation declaring that she “had a job to do which she would like to finish”. Wise move that one.

confederate flag

But it hasn’t been easy. Indian immigrants rising to the top in politics is new in America. After fellow Republican, Bobby Jindal, Ms Haley is the second Indian origin American to become Governor. The hope is that she could well be the first Indian origin President of the United States. She has the moves. She has the articulation and she has the nerves to make a great President.

In 2015 as Governor, South Carolina, she had the guts to advocate that the Confederate flag which was traditionally used as a State symbol should be respectfully retired saying – whilst an integral part of the past, it longer represented the future. This was in response to a hate crime in her State inside a Church, by a white man who killed nine people because he was trying to shoot black people and ignite a race war. South Carolina is in the deep-south where slave labour to work the plantations was a way of life before it was abolished in 1865 vide the 13th Amendment to the constitution. Of course it would be another 100 years before apartheid would be similarly ended in the US.

Ms Haley was born a Sikh but became a Christian and no, she does not speak or understand Punjabi. Theirs was the only Sikh family in the town where she grew up. As a brown skinned, Indian child it could not have been easy growing up in the Deep South through the 1970s.

The advice her parents gave was to focus on and develop the similarities with other kids, whilst retaining the differences within her. America is an avowedly secular nation where Presidents still take the oath over a bible. The heart of America is Christian, even if its head is secular. Little Nikki was clearly aiming for the heart when she switched her faith.

Is this a flaw in character then in the otherwise smooth, well rounded, balanced exterior? Only the most fundamentalist Sikh would take that narrow view. The key to deep religious feelings lies in surrendering to God, not in the highway chosen to reach Her.

But Ms Haley seems prone to sabotage. When she declared on national television in April, 2017 that sanctions on Russia were around the corner as punishment for supporting the Bashir Assad regime in Syria, she was publicly embarrassed to have the White House not support her claiming that she was probably mistakenly “ahead of the curve” and no decision had yet been taken. Not one to take a public put-down quietly, Ms Haley shot back on television that she was not the one who was confused. But this seems to be recurrent theme.

The news that the US has unilaterally postponed the 2+2 talks with India scheduled for early July this year, broke yesterday in the middle of Ms Haley’s India mission – not the most appropriate timing, if creating a conducive environment for her India visit was the objective. This begs the question if she is really one of the “big boys” of the Trump administration. Can she punch, kick and stab at the national level as well as she did in South Carolina?

Modi Nikki

America has a rich tradition of Governors going on to become President. In India this is new – Narendra Modi being the first Chief Minister to fight and win an election with him at the helm. Religion is high on everybody’s mind in India and blood is easily shed in the name of religion. Ms Haley is a powerful symbol of what can be achieved, if religion becomes a purely personal constraint and not the guiding principle for public policy.

 

India’s geopolitical choices till 2040

Trump

Every passing day, America plays the truculent, ageing diva on the wane, whilst China exudes a quiet, confident gravitas. Their chosen global roles, however, do not reflect the fundamentals of either country.

America is one of the few developed countries with a robust economy, relative to its overwhelming size. It grew smartly at an average of 2.5 per cent over 1990 to 2016 (versus world growth 2.8 per cent). In Europe and Japan, ageing and poor economic policies are slowing down the revival process, post the 2008 slowdown. But America, thanks to its ‘open-doors’ policy for talent, its zeal for innovation and a super-educational architecture, has rebounded –– even though President Trump continues to play to the injured sentiments of middle America, which sees growth and jobs as a zero sum game.  But psychologically, America is shrinking into a smaller island of prosperity than it needs to be. The mood of the nation is to cut its losses overseas, lock the doors and count its millions. This is akin to voluntary national euthanasia.

China Russia

China, despite much less going for it physically, is psychologically expansive in its ambitions – eager to fill the gaps opened up by a receding America. In 2016, GDP at US$ 9.5 trillion (constant $ 2010) was roughly where America was in 1990. Despite high levels of inequality, which concentrates the incremental growth and wealth at the top, President Xi enjoys enviable domestic support. The average Chinese is gung-ho about occupying centre stage in global affairs.  Strategic allocation of its surplus for investments overseas has created an alternative variety of quasi sovereign international finance which, to put it bluntly, seeks to “immizerise”- to twist Professor Bhagwati’s signature concept-  the beneficiary nations who accept its cheap loans.

China investment

Inability to repay the loans followed by benevolent ever-greening of the loans, will bind the beneficiary nations into a long-term, largely one-sided financial relationship, reducing once independent nations to vassals. The Chinese will try and stretch out this symbiotic arrangement till they either supersede or take control of the United Nations and related institutional arrangements for management of international affairs. China might become the largest economy by 2030, and by 2040 indentured nations will have little choice except to bow to Chinese dominance, much like an addict wanting her next shot at any cost. It is unclear, however, if China will have the staying power to continue to splurge cash on winning friends till then.

Their game plan is not very different from what America itself followed post-1945. Financing the reconstruction of Europe and Japan bound these countries to America, creating a politico-economic group which represented 66 per cent of world GDP in 1960. Back then, America itself accounted for a heady 40 per cent of world GDP.

G7

This set of “friends of America” (FOA) still account for around 58 per cent of world GDP. But America’s share has shrivelled to around 18 per cent of world GDP. This is the core of President Trump’s angst. Whilst the FOA group has grown significantly since 1960, under American protection, they continue to be free riders when it comes to spending big bucks on global security. Indeed, avoiding large outlays on defence expenditure has enabled these economies to divert resources for growth and social welfare.

The truant behaviour by POTUS at the Quebec G7 meet should be viewed in this context. One can even make the argument that the trade wars are not so much directed at China but at America’s own allies – a wakeup call to start paying the bills for global domination. America is set to become an international wallflower after a half century of global domination.

China grew spectacularly at just under 10 per cent per year over 1990-2016. But to achieve somewhere close to the critical mass – 30 per cent of world GDP- needed for global domination, it will need to grow for twenty more years at 4 per cent above the rate of world growth. But unlike America, it does not yet have a set of permanent allies, who could pump up the group share.

SCO

India is a likely candidate for such friendship. Russia and India share traditional bonds which have deepened through the purchase, by India, of defence equipment. A bloc comprising China, India, Russia and Iran (CIRI) can pump up China’s economic heft to around 45 per cent of world GDP by 2040. China and India, respectively, would account for around 30 and 10 per cent of world GDP.

Admittedly, CIRI would be a grouping of convenience. The Friends of America group, in comparison, are glued together by history, culture, religion & race (other than Japan) and the liberal democratic State architecture.

It is unclear which way India should turn. India will be an easy fit into the FOA group because of shared liberal democratic values; history and language. India could bring to that group the demographic energy, at a scale they lack. But it is in the CIRI group, that India could play the more substantive role, including by providing much needed soft power to pull-in other nascent liberal democracies. In neither group is India likely to be the decisive partner over the next 20 years, which hurts our ego.

switzerland

A third pragmatic option is to play Switzerland on an international scale. Remain a neutral, trusted adviser to both groups – neither antagonistic nor subservient to either whilst remaining focused on shared economic growth domestically. International credibility to chart this principled course would depend upon developing a domestic eco-system reflecting these principles. This course suits Indian aspirations for leadership best. But are we, ourselves, ready to live by an elevated moral and human code?

Also available at https://blogs.timesofindia.indiatimes.com/opinion-india/indias-geo-political-choices-till-2040/

Trump’s – “ugly American” redux

Trump

President Donald Trump’s administration is showing its a mean. mercantilist machine. Unsurprisingly, for it, international trade is a one-way street, with exports increasing wealth in America, at the expense of the importing economies and imports stealing American jobs. The psychosis is familiar territory for India and scores of developing countries. What is truly unusual is the conversion of the United States of America to this flawed concept and the abandonment of the open economy model, by the erstwhile foremost exponent of this philosophy.

Nǐ hǎo ma America

In today’s topsy-turvy world, Mr Trump is aping the Great Qing emperors of China during the mid-19th century. At that time China was more than willing to sell Chinese silks, ceramics and art in exchange for silver, but felt no need to import any foreign goods or influences. The result was a burgeoning trade surplus. It took export of cheap opium and gunboat diplomacy by the Western colonial powers to balance the trade.

Emperor Quinlong

Unlike China under the Great Qing, the United States runs a massive trade deficit equal to around three per cent of its GDP. This is normal for many developing countries but unusual for a “great power”. American consumers are accustomed to the “opium” of cheap imported goods. It helps that the appetite of foreigners for AAA-rated US dollar securities finances the deficit. But what matters to Mr. Trump is protecting US jobs. Hence the plan to reduce the deficit, particularly versus China, by $100 billion. Hiking import tariffs on metals significantly is part of that  endeavor. Mr. Trump hopes that metals, being intermediate goods, the resultant rise in price of final goods will not be immediately visible. More bizarre tactics may follow.

Jobs for the boys, at any cost 

But higher tariffs will rob both American consumers via higher prices eventually and jobs in ancillary, user trades, which are sensitive to price rise. All this, just to keep jobs alive on life support, in the metals production business. This is bad politics and worse economics – at best a short-term tactic — to signal the Trump administration’s sympathies for Republican rough-necks. The economy wide negative impact will be diluted over time. Mr. Trump believes in deals. So expect to be able to evade the higher tariffs if you are willing to buy enough of iconic American products – like Harley Davidson motorcycles, stetsons and Boeing aircraft.

The US remains the biggest single country, market. It imports $2.7 trillion of goods and services. But the European Union’s market for imports is much bigger, at $6.7 trillion. Japan alone imports $0.8 trillion and China imports $2 trillion worth of goods and services. So the US is steadily dropping away from being a dominant market for world exports.

India is not the target, but we suffer collateral damage

The new import tariff of 25 per cent on steel and 10 per cent on aluminum are of marginal consequence for India. Our share in world steel exports is just 2.5 per cent. Steel exports to the US, over 2012-16, averaged around 6.5 per cent of our total steel exports. We also export metals to other big markets like the UAE, Europe, East Asia and South Asia. Our share in world aluminum exports, averaged 1.5 per cent over 2013-16. The share of the US in our aluminum exports is significant, at 10 per cent. But our largest importer is South Korea, with significant volumes also exported to Mexico, Malaysia, the UAE and Turkey. Indian exports to the US are not of the scale where they could threaten the economic security of American industries. Also, our special relationship with the US, since the 2005 US-India Civil Nuclear Agreement, the shared commitment against terror and common military logistics arrangements, can facilitate privileged access to the US market.

The US – a willful ally

The elephant in the room is US intransigence, amounting to the “ugly American” behaviour. Starting with the US walking out of the 2015 Paris climate change agreement; and its recent regressive approach to immigration — in sharp contrast to responsive European policies; and its most recent arbitrary protection via high import tariffs of steel and aluminum manufacturing jobs — all these have damaged its “soft power”.

 

Of course, the US has the firepower, bolstered by its $600 billion defence expenditure, to promote “gunboat” diplomacy. But faced with China’s relentlessly expanding economic muscle which makes it an implacable adversary in the superpower sweepstakes, the US will be hard pressed to convince its own allies that it can back its brash words with action.

Indians have indelible memories, from 1971, of the threatening deployment of the US Seventh Fleet in the Bay of Bengal seeking to prevent the liberation of East Pakistan by the Bangladeshi Mukti Bahini from the oppressive, quasi-colonial rule of the Pakistani-Punjabi mafia — a long-time close US ally. It was only the counter deployment of Soviet nuclear submarines and warships, in response to a request for help from India, which rendered the USS Enterprise and the rest of the Seventh Fleet toothless. If the US was not willing, in 1971, to face down the Soviets, to help its ally Pakistan, then how credible is its willingness and ability to come to the help of India in facing down a possible threat from China?

mujib

China, our awesome, prickly neighbour

In a networked world, trade, investment and security are intertwined. The US views China as its primary adversary. Luckily for it, China is several thousand miles removed from the American land mass. But China lurks on our northern borders. It spends $180 billion on its military alone — almost equal to the total budget of the Indian government. Whilst, lining up to seek favourable trade terms from America, it would be foolhardy to provoke a trade war with China. India did well, recently, to dilute the potential use of the Dalai Lama’s April 19, 1959 flight to safety in India, as an irritant for “Emperor Xi”.

Navel gazing better than eye-balling

Modi emerging

Prudence lies in following the Chinese strategy of subordinating muscular diplomacy to economic growth till the time is ripe. It remains in India’s interest to adhere to the open economy model. We have limited capital and governance capacity. We must be frugal in allocating them to first build our domestic infrastructure and facilitate private investment, whilst keeping our markets lightly regulated and open to competition and foreign investment.

Let us not obsess about job creation or force-feeding the formal economy. The US creates two million jobs in a year. Non-farm jobs are scarce everywhere. We should become better at generating fiscal resources to redistribute as income support to the “lost generations” of unskilled, unemployed Indians who are older than 50. This will boost domestic demand and fuel economic growth, far better than resorting to failed economic solutions — such as protectionism, subsidies and publicly financed businesses to chase impossible dreams.

Adapted from the authors opinion piece in The Asian Age, March 17, 2018 http://www.asianage.com/opinion/columnists/170318/ugly-american-is-back-shun-all-the-failed-ideas.html

Junk policy for action

parliament

Policies mean very little, unless there is a national consensus behind them, because governments change in a  Formulating a policy is a clunky, time- and effort-intensive, process. It should be attempted only if massive structural change is necessary. India has rarely been in the game of big bang reform. Our forte is incremental change. For this, key actions with outsize results are more significant than policies.

Industral licensing became ideological & lasted well past its expiry date

Also, policies can haunt a country for longer that necessary.The Industrial Policy Resolution of 1956 was one such. It was inspired by the seductive early achievements of the Soviet Union. The Bombay Plan 1944 formulated by leading industrialists, including the redoubtable JRD Tata, implicitly supported massive state intervention and regulation to protect domestic industry from foreign capital and competition. This became the trap, chaining private enterprise in regulations and excluding it from capital intensive “core” sectors.

Never mind that Jamsetji Nusserwanji Tata had invested in Asia’s largest integrated steel plant as early as 1907, helped by a buy-back arrangement from the British Indian government, which also laid a railway link to the site. It was India’s first public–private partnership (PPP).

tatasteel

It took us over eight decades, till 1992, to come around to the idea that leveraging public resources with private management and investment was cleverer than autarkic public investment. It took another 25 years for us to come to terms with foreign investment. In the meantime, India missed the bus of industrialisation and manufacturing, even as China marched ahead, from the 1980s, to become the factory of the world.The short point is that making a policy is no panacea for achieving results.

Were the existing low-level of health outcomes unachievable without a policy?

Health is a state government subject under the Constitution in India. But a National was formulated in 1983. Despite three decades of central planning since then, health outcomes vary significantly across states and aggregate achievements are unimpressive.

Gradual privatisation of SOEs is ongoing because there is no policy to stop it

Balco 2

Conversely, structural change is often implemented without articulating a policy.Consider the privatisation of state-owned enterprises. The National Democratic Alliance government under Prime Minister Atal Bihari Vajpayee found it impossible to build a consensus around privatisation. A comprehensive privatisation policy was therefore, never attempted. The Industrial Policy Resolution of July 1991 — which sought to weaken the stranglehold of the government over industry — had shrunk the industries reserved for the public sector to atomic power, defence, mineral oil, mining of coal, iron and other metals and the railways. This enabled the sale of minority shares in the other public sector undertakings (PSU). Then finance minister Yashwant Sinha used the 1999-2000 Budget to reduce the reserved sector to “strategic” PSUs in atomic energy, defence and railways only. All others could be privatised.

Gradual disinvestment has been ongoing, primarily with the intention of raising revenue. This year the government anticipates an all-time high of Rs. 1 trillion from disinvestment, being 30 per cent of non-tax receipts, other than debt.Seasoned bureaucrats will advise never write something down, unless you need to.

Electricity remains a “vexed” business despite reform legislation and policy

Merely articulating aspirational objectives in a policy will not achieve results. This has become particularly true in an uncertain world, made even more unstable by technology development. Clunky state action tends to come late and gets clogged into stranded assets.

This is the fate of our Mega Power Policy with 30 GW of power generation stranded because of low demand or disrupted fuel supply. Policies create huge inertia. Consider that as late as 2015-16 the Budget Speech sought to create 4 GW of additional power capacity, even as stranded power assets were building up.

Foreign policy is different 

ASEAN

Some policies are intended to signal political alignment and intent rather than become an entry point for concrete action. falls clearly in this genre. The “Look East” policy of the Manmohan Singh government was followed by the “Act East” policy of the present government — both signaling our interest in South East Asia. But substantively little has changed in the years since, even as China has gone, from being a dominant economic power to a power-hungry bully in the region.

Paris 2016 – the world laid to rest, climate policy & switched to voluntary actionable metrics 

India does not have a comprehensive  We tend to put development before the environment — in exactly the manner other developed countries have grown. This is pragmatic. The 2016 recognises the futility of having a single for the world. Instead, it defines a global target — reversing aggregate carbon emissions to keep global temperature rise within 1.5 degree Celsius of pre-industrial levels. Countries now evolve their own action plan, keeping in view their development needs. Collective action works better than global posturing.

Imagine the impact on Google’s share value if it bound itself to follow a medium term policy

Consider that multinational companies do not formulate business policies in an autarkic manner. They define strategies which, nimbly align with global trends to  eke out the maximum value for themselves. This is a sensible approach. We should get away from announcing sector policies. Instead, we could define incremental and jointed action plans, which result in achieving national objectives.

Google folllows the money. We could follow the Directive Principles in our Constitution

happy girl

National objectives do not need to be defined afresh. A close look at Part IV of our Constitution will suffice. The Directive Principles of State Policy were formulated more than 75 years ago. Our task is to put in place the action points to achieve them, via the annual and medium-term budgets. Politicians love announcing policies and programmes because these can be narrowly targeted at specific beneficiaries for votes. This is the downside of the dharma of  We should junk sector policies as an instrument of development. Intellectuals will disagree. But pragmatism must trump ideals.

Adapted from the author’s opinion piece in Business Standard, February 26, 2018 http://www.business-standard.com/article/opinion/junk-sector-as-an-instrument-of-development-118022500673_1.html

Modi@Davos – Jawboning the future

Davos

Even as Prime Minister Narendra Modi will be winging it to frosty Davos for the World Economic Forum’s annual meeting next weekend, his bete-noire — Congress president Rahul Gandhi — has decided to be different and spend the coming week in his parliamentary constituency of Amethi, in rural Uttar Pradesh. Both seek inspiration and support. But from very different sources.

A shared future less likey than a dystopian nightmare

famished

As usual, bombast is expected to rule at Davos. Consider the title of this year’s meet — “Creating a Shared Future in a Fractured World”. It completely obfuscates the fact that everything the world has done over the past 40 years has conspired to keep the majority share of the fruits of development within the elites. The rising inequality and congealing wealth at the very top is witness to the failure of the open economy model to deliver growth benefits across the population. China’s President Xi Jinping contested this proposition in his address at Davos last year. Yes, China has lifted 700 million people out of poverty — more than any other nation. But relative poverty has increased even in China.

As if this was not enough, automation and artificial intelligence shall, over the next two decades, push ever greater masses of unfortunates outside the virtuous cycle of income enrichment. This is a prime concern for India, with 60 per cent of our current population less than 31 years of age.

It doesn’t end there. Once we create this dystopian world in which the few, engaged humans work within an insulated eco-system of high tech, the large mass of humanity will be on the outside looking in. They would be fed by subsidies thrown at them. Consider that block chain if applied widely to everyday transactions can scupper the employment of auditors, accountants, lawyers and judges — all of whom earn a living out of the problem of authenticating facts. Possibly, the efficiency benefits of automation may be high enough to finance generous handouts to the losers. But it would be a sorry society surviving on aid, rather than individual effort. We know already how debilitating aid dependency is.

This model of growth is not sustainable and needs to be junked. But it is unclear what should replace it. Davos is unlikely to help in that direction. There is never time at Davos to get beyond the breaking news.

The silver lining – WEF exaggerates the fear of a fracturing world

Consider also the assertion that the world is a more fractured place today that it was a few years ago. Nothing could be further from the truth. Just last year at Davos, China, a habitual outlier, took the lead to reinforce the need for world integration. Compare this with the China of just 40 years ago — which was not even a member of the World Bank, and which joined the World Trade Organisation only in 2001. The rapid increase in the share of domestic GDP exported today is another indication that the world has shrunk, not fractured.

Show me the money

Davos is more about striking deals than philosophising about the world order. Prime Minster Modi is a consummate deal-maker. So, expect some significant commercial action at Davos. After all, Davos is not the United Nations, where nations talk at each other. It is a forum for leveraging business opportunities through public-private partnerships.

India a leader in frugal innovation

Frugal

India has already thrown its hat into the ring of frugal innovation in space technology, with our Mars mission. Davos would be a good opportunity to emphasise the peaceful development of missile technology by India — in stark and sharp contrast to China, Pakistan and North Korea.

Unparalleled deep fiscal and institutional reform

No country has taken steps, on the scale we have, to root out corruption using digital technology, banked transactions and the Goods and Services Tax. These have together negatively impacted economic growth in the short term. To be sure, there have been glitches along the way. But steadfast remedial action is delivering financial inclusion for all. This is more than just an economic revolution since it goes to the heart of culture and social practices.

Conquering terror

Mr Modi was one of the first to warn the developed world that terrorism was a hydra which strikes rich and poor alike. India has for long suffered cross-border terrorism, which seeks to incite an alternative religious reality to Indian Muslims, who are a significant minority. India’s foundations are secular.

India is quintessentially liberal and entrepreneurial.

India was a secular country even before the term “secular” was inserted, somewhat unnecessarily, into the preamble of our Constitution in 1977, during the Emergency, by then Prime Minister Indira Gandhi. Also, despite the term “socialist” having been inserted into the Constitution at the same time, India has never been a Socialist country.  Land ownership has always been personal in India. The concept of property rights is deeply embedded into our culture. The state-owned industrial monoliths — the visible outcomes of “socialism” and the entire employment in the government sector, has never exceeded around five per cent of total employment. If there is one thing India is known by it is the spirit of entrepreneurship. The government is trying to liberate “animal spirits” through light touch regulation, the rule of law and supportive infrastructure.

Can POTUS & Modi queer President Xi’s, 2017 play as “leader of the world”

POTUS

US President Donald Trump seems to have upset Prime Minister Modi’s moment at WEF. The ebullient and volatile POTUS is likely to garner all the sunshine. But Mr Modi is sure to use their joint appearance at Davos. He will fashion events and his remarks in a manner which point to a genuine partnership between the United States, Europe, Japan, Southeast Asia and India. Together, these economic actors contribute nearly two-thirds of the current world GDP. More important, they share some institutional and cultural attributes, which even by the jaded standards of today, can be called morally superior — like due regard for citizens’ rights and a commitment to enhancing the transparency with which the State functions.

Some homework may show that India walks the talk on shared growth

sharing

Davos will be a tough challenge for Prime Minister Modi. He needs a credible story to explain why growth — the holy grail of the Davos crowd — has lagged in India even as growth has picked up world-wide. It would be great if he could substantiate that while headline growth has lagged, shared growth has increased, particularly if the 116 backward districts (out of 593 total districts in the country), identified by NITI Aayog have, contributed more than their share in GDP to growth.

That, after all, is the growth model the World Economic Forum is looking for.

Adapted from the author’s opinion piece in The Asian Age January 13, 2018 http://www.asianage.com/opinion/oped/130118/modidavos-a-new-kind-of-challenge.html

Xi and Modi – joined at the hip

xi-jinping

Prime Minister Modi and scores of democratically elected leaders, must envy Xi Jinping the President and “uncrowned emperor” of China. The serried rows of compliant and attentive members of the People’s Congress, seated, as if pinned, to identical red upholstery; displaying endless patience through Xi’s three and a half hour over-long, speech, without once dozing off or interrupting with a “point of order”. All this must seem like a dream to our leaders, used as they are, to rambunctious legislatures, more eager to speak- often all together – than to listen.

China shines

china2

Clearly, China has something to be chuffed about. Its model of socialism with “Chinese characteristics” cut away the romantic nonsense of socialist collectivism and recognizes that private enterprise and (less strongly) markets, create wealth, rather than good intentioned, tight, public-sector management. By combining private enterprise with a strong government and political stability, the Chinese model borrows the best from different ideologies. China gets an A for creating national wealth and for distributing it – poverty was down to just 2 percent in 2014 versus 21.2 percent in India (per World Bank definition $1.9 PPP (2011) per person per day).

But a more benign social policy beckons 

dissent

But the jury is out on whether an authoritarian State can nurture citizen centric growth. How long can the iron hand of the Chinese Communist Party (CCP) continue to rule China absolutely? Will the Chinese middle class not replicate the autonomy and democracy movement of Hong Kong? These are current concerns. This much is evident, from the new Xi doctrine, spelt out on October 18 in Beijing, which espouses that the CCP must provide for the “happiness” of citizens;  remain closely in touch with their aspirations and monitor citizens perceptions better.

Bhutan: Democratising for happiness

king

China’s tiny, neighbor, Bhutan could teach China a lesson or two on whether “happiness” mixes well with absolutism. King Jigme Singye Wangchuck voluntarily abdicated in 2006, in the hope, that this would help Bhutan evolve into a modern, egalitarian, democratic country, whilst retaining its trade mark of happiness. The Bhutan constitutional monarchy is revered, like the British monarchy, which is widely respected and admired.

Wealth alone does not breed content

The Chinese quest for a prosperous, satisfied and happy populace living under the hegemony and parental control of the CCP, is self-defeating. The spirit of liberty and competition is not divisible. A market led economy cannot be sustained under monopolized political power. Where markets rule, they drive the political process. Where the State rules it drives business. Innovation does not thrive in eco-systems, where the freedom of thought is absent. China is much admired as the factory of the world. But it has grown because worker rights do not exist, access to legal rights is limited and public interest is expected to mirror the CCPs interest.

India and China: different strokes

Unlike China, India is determinedly heterogenous and multi-party. It lends itself to decentralized, democratic governance. It is tempting to infer, therefore, that India illustrates the value of democracy even in a poor, developing country.  The recent Pew survey showed that 85 percent of Indians trust the government, even though, 40 percent of the population is vulnerable to poverty; governments have been negligent in providing public services and human development indicators are worse than in sub-Saharan Africa. But, disturbingly, the very same Pew Survey also shows that 55 percent of citizens are comfortable with a more autocratic, “strong” government.

Nationalism rules

This swing towards authoritarian governments is not isolated to India. It is an international trend in reaction to the economic limitations of the open economy, liberal, democratic model for development, particularly with respect to containing growing inequality. It is not surprising, therefore, that President Xi Jinping should advise developing countries to look closely at the Chinese model, which comes with dollops of loan assistance, as an alternative to the more standard western model of development, advocated by the Multilateral Financial Institutions.

The country cousins meet

Xi and Modi

Prime Minister Modi was not just sharing dhoklas with President Xi in Ahmedabad way back in September 2014. There seems to have been a meeting of minds there. Like Modi’s vision of modernity, rooted in tradition, the Xi doctrine, also evokes the five thousand old civilization of China. Both leaders focus heavily on external and domestic threats to security. Both advocate much stronger oversight of the media, the internet and educational institutions, to regulate disruptive dissent. Like Xi, Prime Minister Modi has used the first three years to implement structural reforms. His high decibel war on corruption is expected to minimize the financial “fire power” of the mafia; bridle political opposition and improve public sector outcomes. Implementation of the long-delayed Goods and Services tax (GST) shall, like Bollywood, bind us more tightly and provide incentives to integrate further. Regions which are seamlessly connected for commerce tend to remain together. Like Xi, Modi views infrastructure as a “glue”. For Xi it is a glue to foster Chinese hegemony over its near abroad. For Modi it is a “glue” to bind the nation.

The Xi doctrine seeks to realize the ”China Dream” – a vision of a prosperous, environmentally clean country at the center of the world, contributing positively to mankind, by 2049 – the centenary of the founding of the Republic of China. There will be much to learn from China. There are two immediate take-aways. First, that it is futile to copy the political systems of other countries mindlessly. Second, that even authoritarian governments need to listen to the people.

lagislature

Indira Gandhi, turned away from absolutism and towards democracy, in 1977, by choosing to call for elections. This ended the two-year old national emergency. She gained personally and politically from this astute move. But it took an entire decade, till 1991, for the democratic apparatus to be used effectively, in public interest. We have not looked back since. India’s political architecture is finely tuned to the risk averse nature of its citizens. It charts the middle path to progress and shuns extreme options.

China will do well to study this option closely, as it seeks to move center stage in world affairs and looks for domestic pathways, to transform from being a single minded, ruthlessly efficient, economic, power-house to a house, fostering happy Chinese.

Also available at https://blogs.timesofindia.indiatimes.com/opinion-india/xi-and-modi-joined-at-the-hip/

Tag Cloud

%d bloggers like this: