governance, political economy, institutional development and economic regulation

Posts tagged ‘defence’

Indo-German Defence Pact- New beginnings for subaltern states.

Leyen

(photo credit:www.junglekey.fr)

Ursula Von Der Leyen, the scarily efficient and glamorous German Defence Minister, who is also incredibly mother to seven children, ticked all the required boxes for soaring rhetoric on a bilateral strategic partnership with India. Democracy, freedom, an open society, diversity and religious plurality being the ground for shared values.

Of course, she was careful to not mention the closest strategic arrangement yet between India and Germany, forged by Netaji Subhash Chandra Bose whose “Indian National Army” joined the “Axis” forces in World War II.  This fact is inconvenient on two counts.

First, Germany is still defensive about its authoritarian past under Hitler. Second, Netaji, whilst acceptable to the current BJP government, remains a big no- no to the Congress. He was Pandit Nehru’s rival within the Congress and had to quit. Displaying characteristic German caution, Ms. Leyen preferred to give the past a brush-over and concentrated on the future.

Today, the most visible link is the fascination of the Indian nouveau riche for high-end German cars- the Audi and its cheaper cousin the Volkswagen and the BMW stable- thereby uncharacteristically forsaking the “value for money” Japanese options.  The second common link is a taste for beer though German brands remain unrepresented in the Indian beer sweep stakes which is dominated by Dutch, American, UK, Australian and home grown Indian brands.

Human Rights and Democracy go together

To a direct question from a media representative whether a dodgy human rights record for India could sour any proposed strategic partnership with Germany, Ms. Leyen was quick to brightly aver that since the two countries were democracies,  safeguarding human rights was, by definition, of equal value for both. She could not have done better.

The response was in sharp contrast to the US Ambassador’s apprehension, recently voiced publicly, that freezing the activities of Ford Foundation and Greenpeace in India could chill Indo-American relations. But Ms. Leyen’s response also came as recognition of India’s long standing support for the rights of the exiled Tibetan community, resident in India. Chancellor Merkel has been an international exception in publicly snubbing China by maintaining warm relations with the Dalai Lama. PM Modi in turn has been quick to project the Indian origins of Buddhism.

Can Germany subvert NATO discipline?

For all the talk about a strategic partnership, it was not clear what the substance of this partnership could be. Germany and Japan (the defeated Axis powers of WW II) have both reaped the economic advantages of aligning with the victors and outsourcing their external protection to the US Nuclear umbrella for the last seven decades. Japan and Germany are the third and fourth largest economies, respectively, but on defense spend they rank a lowly eighth and ninth, behind the UK, France and even India (SIPRI 2015).

Is Germany seriously considering abandoning the US crutch and shouldering more of the defense burden versus Russia’s currently expansive ambitions in Europe? Would the additional fiscal burden be feasible given that the dodgy economies of Southern Europe are fast becoming Ms. Merkel’s subsidy problem?

This would be uncharacteristic for the cautious and pragmatic Ms. Merkel. Germany is increasingly dependent on natural gas imports, subsequent to it closing the nuclear power option. Russia is right next door with the largest reserves of gas and the pipeline infrastructure to supply it. It makes perfect sense for Ms. Merkel to continue to depend on the US for “protecting” Europe and avoid a direct face-off with Russia.

One lesson to learn from Germany is how aligning with a stronger partner for strategic purposes can free up public resources for development and growth. But it is unlikely that the context will ever fit the tough neighbourhood India is situated in and the compulsion of living with a “muscular” China.

Indo-German strategic partnership?

Indeed the question uppermost in Ms. Leyen’s mind was whether there was any future for an “alliance” with India, given our long standing adherence to the doctrine of non-alignment. It is unlikely that she will get a straight answer.

First, strictly defined “for-ever” alliances are now old hat. Germany, together with the UK, Netherlands, Denmark, the Nordics, Australia and New Zealand have ignored US chagrin at their participation in establishing the Asian Infrastructure Investment Bank- China’s counter to the Japan dominated Asian Development Bank.

Second, the past shows that alliances do not suit India. We are too large and too poor, to hang our hat exclusively on any one peg though it is not for want of trying. India has all the characteristics to be a natural ally for the rich, democratic world.  But the accident of history, or the perversity of diplomacy, has been that none of the rich, democratic countries (US, UK, EU) actually showed much interest in having an alliance with democratic India and its messy politics.

The rich, democratic world (G8) found it more convenient, during the extended “cold war years”, to team up with developing country dictators in Asia, Africa and South America in a global pact against Communism. Unfortunately, this also meant teaming up with elites and against the poor citizens of their allies in the developing world. This is what drove India into a strategic alliance with Russia in 1971 which has since lost its salience.

Make for India

Germany is today Europe’s powerhouse. India has shrugged off its mantle of lethargy. Demography is waiting to be exploited in India whilst ageing Germany needs skilled, temporary immigrants to drive their economy. This presents a huge opportunity for India’s unemployed but tech savvy youth.

Language will be a problem for Indian immigrants and this is one good reason why India should free up the language curriculum in schools and make it market oriented. Ms. Leyen is multi-lingual as must Indian kids become.

Around 12% of the German population has roots outside Germany but mostly in other European countries and Turkey. Ms. Leyen’s proposal for temporary migration, at scale, from India must be pursued.

A partnership with Germany will likely cater more to optics than substance. But the proposal to integrate the technical workforce in the two countries is a substantive addition via Indians making, for India and the world, in Germany.

A packed house turned out in the burning, mid-day heat of New Delhi to listen to Ms. Leyen and to get a glimpse of the endearing German ambassador and India buff- Michael Steiner.

Part of the curiosity was to see what the Germans had to offer in this new area of defense international co-operation. What was on offer publicly was underwhelming. Seeing and hearing the first woman Defence Minister of Germany was itself a novelty. But mostly, it was an opportunity to be with a possible future successor to Ms. Merkel once she decides Germany no longer needs her.

If this happens in 2017, PM Modi may be dealing with a powerful transatlantic woman-power tie up: Hilary Clinton in the US and Ms. Leyen in Germany – both of whom are likely to provide him stiff sartorial competition.

Modi.gov

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The Modi government is being formed on the back of a mandate for honest and effective governance. Fortunately, it inherits a raft of incomplete social and economic equity initiatives from the UPA II. These need to be continued, deepened and tweaked to deliver more bang for the buck.

But every government craves the opportunity to distinguish itself from their predecessors. The Vajpayee government is remembered for the inter-city state highways it built, state enterprise privatization, albeit stymied half way through and the blot of Godhra.

Clearly, everyone wants a full stop to future Godhras. But the mere absence of organized violence is rarely memorable even though it is immensely difficult to achieve in a tinderbox political environment. What then are the “headline” opportunities that Modi.gov could grab?

Infrastructure, coal and defence present themselves instantly. The former two, to build an enabling India. The last, to deter the many “spoilers” of an Indian development story.

Within infrastructure, the real opportunity is in the railways. China now exports railway projects and technology and we are, reportedly, keen to learn from them. But the truth is that we have not served our cause well over the last two decades. The last memorable Railway Minister was Madhavrao Sindhia; not just for his dashing, good looks but for ushering in the era of “fast Shatabdi trains” in 1988.

What has held railways back since then is the “fiefdom” the Ministry became for coalition partners interested only in distributing goodies. Should not the railways them be privatized to nip its politicisation in the bud? Certainly not. Out of all the infrastructure sectors, railway privatization is the trickiest. Secondly, as we have learnt from the power sector, it makes little sense to privatize a sector, in which tariff setting is highly politicized, before it is stabilised.

The Rakesh Mohan committee on railways (2001) laid down a blue print for the sustained financial viability of a railway system performing on par with international standards of efficiency. More than a decade since, the situation has only degraded further: antiquated track and rolling stock; poor customer orientation; declining service and safety standards; distorted tariffs which are either not remunerative or are not competitive with air and road options.  

The target should be to restore, the low proportion of freight and passenger traffic presently carried by railways, to more economically and environmentally efficient levels with a push towards rapid electrification of rail tracks.

Convert the Railway Ministry into a set of publicly owned companies with core expertise in production of rolling stock; freight or passenger traffic with self-owned rolling stock and track and facility maintenance. These companies should be Board managed and have only an arms-length relationship with their administrative Ministry, which should be the Ministry of Transport. Corporatisation will distance railways from being the “freebie-bag” it has become. This has happened, in the case of National Thermal Power Corporation and POWERGRID, both power sector publicly owned companies, where sound technical and financial decisions are taken by professionals.

Coal, whilst actually being one step ahead of railways, since Coal India is already corporatized, seems even more degraded. The next step should be to privatize it and closely review the vast unused or sparsely developed mining areas which have been allotted to these companies. This could be the Maggie Thatcher moment for Modi.

Abolish the largely discredited Ministry of Coal, as an independent entity; merge it along with oil and gas into a Ministry of Extractive Energy Sources. Appoint a savvy, industry friendly, politician; a Sharad Pawar clone, to restore positive energy into the fractured government-energy industry relationship and watch this sector take off.

Defence is the third big area, which India has pussy footed around for too long. Revamping the structure of our defence forces to be lean and mean with less tail and more teeth; modernization of weaponry, aircraft and warships; minimum levels of usable ammunition stocks and efficient procurement processes; integration of operations across the three services and para-military units; compensating defence personnel handsomely, for putting their life on the line, and re-integrating then productively in civilian life, post retirement, should be near term goals. Opening up defence production to the private sector, including foreign investors can kick start a dormant, defence industry led, domestic supply chain, mini, revolution.

The ideal Minister to manage this mini revolution would be the personable and upright, economist, writer and investigative journalist; Arun Shourie, who displayed nerves of steel as Minister Disinvestment in the NDA and navigated both, the political perils of rapid economic decision making and the roving eye of the CAG, with equal dexterity and success.

The Modi.gov reform and restore agenda is likely to be fairly full. The challenge is to isolate the few lead stories which could be the bell weather for its commitment and credibility to work in national interest; its ability to kick start the economy and generate productive jobs for the educated unemployed.  

Railways, defence and coal are not low hanging fruit. All three have deeply embedded elite interests; the risk of failure is high and the likely adverse fall-out significant. Reforming them is not for the faint hearted. But that is precisely why they are good choices to announce ones arrival. The one that succeeds at reforming the three would have bent and strung Shiva’s bow.   

Aside

Politics and theater

Parliament disgraced it self yet again. The statement of the PM on the economic situation was a welcome window into the minds of the policracy. Perhaps it is the Shatrughan or Babbar effect, but may of the honorable members believe that they magnify their own self image by copying a fiery, rightious Bachan, a braggart Sanjay Dutt or a stylishly, thughish Pran, If we wantd to see imitation actors we would watch movies instead. Pity none of them can dance though. It would have been good to see Manmohan deliver his economic sermon break dancing to a Hritesh number. The nearest any member comes to this is the redoubtable Rajiv Shukla who vitrually goes into an attarctive “wave” dance the minute the opposition shouts at the PM.

It was not clear what the government wanted to achieve yesterday. Statements made in the house are assurances of delivery (promises) which are monitored. No new promises were announced by the PM. He merely repeated what Chidambaram had already assured the house. Worse the manner in which he read the speech out had less credibility than the assured delivery style of the practised lawyer, Chidamram. The opposition oddly thought it necessary to shout down a “maun” PM. Possibly they have become so used to not hearing him at all, that that the merest squeak out of him is tantamount to an aggressive barrage.

Yes unbridled corruption is a mjor failing of the present government but that is the election plank of the Aam Admi party which is invisible in Parliament. Only those in power can be corrupt. The UPA is in. The BJP is out, so we can’t compare apples and oranges. Corrupt sons and sons in law are not a chink of the Congress alone.

I wish the opposition had cornered the PM on the three key constraints to unlocking growth and good governance. One is the recent sense of “entitlement” of the “policracy” to massive corruption. The potential and many would say the impunity, to be corrupt, erodes the possibility of shrinking Delhi in economic decision making and the transfer functions and finance to the States. On corruption it is only the record of the left parties which is relatively clean but unfortunately, unlike their brethern in China, they join the populist bandwagon here and shed crocodile tears for the poor, with little regard for the disastrous economic outcomes of populism. In fact the left is very much like our PM….honest but ineffective and the new India does not endorse that.

 Second, we need to correct  the extravagant spending on defence of around 20% of the budget. This is a major drag which comparative developing countries in East Asia (excluding China), Latin America and Africa do not face. Since the defence sector is notoriously non transparent, little is know of how much public finance leaks…..but the growing political clout of arms dealers makes it apparent that it is they, who are king makers and not the other way around.
 Third, the dynamic economic record of some state level leaders (Modi, Nitish, Patnaik etc) has a major medium term constraint. ALL of them follow the centralised Delhi model of not devolving functions and finance downwards,  to where the real action is, at the local level. That is the third quiet revolution still to happen in India but is completely ignored by all parties.
India does not lack economic or technical expertise in the public sector, skilled labour or private entrpreneurship. What we lack is a honest, formally endorsed leader at the national level. The best cooperatives, like Amul, grow because of honest, pragmatic and enigmatic leaders, like Kurien. If INFOSYS today needs to recall Murhty, to rescue it, shouldn’t India also reach back in time and get an oldie (albeit preferably, one without a child-in-waiting), who has the experience, the rectitude and the fire in the belly to lead? India is a young country but sometimes, it is only the exprienced who can deliver what the young want.

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