Monday 27 June 2011

Double double-cross on nuclear deal (Sunday Guardian)

US President George W. Bush raises his glass for a toast with Indian Prime Minister Manmohan Singh at the White House in 2005
hen George W. Bush and Manmohan Singh announced that they would jointly work to ensure that India get freed of the innumerable restraints that were placed after the 1974 Pokhran mini-explosion, the spin from South Block and Shastri Bhavan was that the country would finally get freed of the fetters first imposed by Jimmy Carter nearly four decades back. That India would be treated as a "de facto" nuclear weapons state and that the country would be given a clean waiver from the restrictions imposed by the Nuclear Suppliers Group. In 2008, the NSG did approve a waiver that, at face value, amounted to exempting India from the non-proliferation treaty. The champagne corks were pulled out and the establishment celebrated.
The question is: did they celebrate a clean waiver, or simply that they had succeeded in hoodwinking the public — including, it must be admitted, this columnist — into believing that India had escaped much of the NPT's restraints and could now go about developing both its indigenous as well as its imported program? Friends within the atomic energy and nuclear weapons fraternity warned then that the benefits were created by smoke and mirrors, and that in effect, the Singh-Bush deal would gradually but inevitably de-nuclearise India and so degrade the nuclear deterrent that it would be valueless even against North Korea, much less a Pakistan armed by China. After Barack Obama became President of the United States nearly three years ago, the future ought to have been obvious. Senator Obama was among the few lawmakers in that chamber implacably opposed to the nuclear deal. Believing as he did that only the West had the divine right to possess advanced nuclear technology. China was the exception, there in this privileged club by sufferance, because the country could not be rolled back the way puny India could be.
The French — that fortunate country so much beloved of our defence procurers — were the first to indicate that all was not well. They stonewalled informal soundings about reprocessing technology, hinting that such "advanced technology" was not permissible for India. This despite the fact that Homi Jehangir Bhabha had ensured more than four decades back that India could undertake such a task. The Russians showed the other boot, giving the country processed uranium pellets as feedstock (as the Chinese earlier had) rather than unprocessed uranium that could (with ease) get processed in India. Incidentally, although there is no legal obligation on India to be so forbearing, the country's political establishment — whether Congress blue or BJP saffron or Third Front polka-dotted — has refused since the 1970s for the country's scientists to reprocess the pools of spent uranium, especially at the Tarapur plant. Such a feedstock could have done away with the shortage of uranium that has plagued the Indian program, but the order to do so was never given.
Interestingly, whenever efforts were made to recover some of this country's 60,000 tons of natural uranium, miscellaneous NGOs would spring up and block the same, using the country's judicial system as well as political parties and the media. In states such as Meghalaya, the Manmohan Singh government has practically given up trying to extract sufficient uranium. Of course, "shortage of uranium" has been put forward as the main justification for the Singh-Bush deal.
Now that the NSG had given a "clean waiver", this shortage ought to have disappeared through imports. It has, but on the same conditions as apply to non-nuclear weapons signatories of the NPT. In other words, India gets placed — in practice — in the same queue as Lesotho or Guatemala when it comes to the import of nuclear technology or materiel. Hardly what was promised to the country when the nuclear deal was rushed through the political system.
Worse, the CIRUS reactor has been mothballed, thus severely affecting feedstock for the small supply of nuclear weapons available to India against potential and present threats. Since 2008, a series of incremental but consequential changes in the design and operation of reactors in India will mean the shrinking to near-zero of the country's stock of plutonium, thereby ending the nuclear weapons program. This at a time when Pakistan, North Korea and in the future Iran will become more and more nuclear-capable, unconcerned as they are with pleasing the many friends of Montek Singh Ahluwalia. Within a few years, the indigenous three-stage program will wither away to insignificance, and the country will become totally dependent on imported feedstock and technology. The French, the Russians and the Americans will be laughing all the way to the bank, while the Chinese will be smirking at the de-fanging of a country that once saw itself as a serious competitor to the PRC.
There has been a double double-cross on the nuclear deal. The first was when the US under Barack Obama and his Euro-centric team began pushing India into the non-nuclear weapons pen through changes in regulations following the nuke deal. These alterations mean that the benefits from the deal have disappeared but the costs continue and multiply. Worst of all, the dream of self-sufficiency through the use of thorium via fast-breeder reactors will vanish. What Indira Gandhi and Rajiv Gandhi preserved, Sonia Gandhi is throwing away.

Saturday 25 June 2011

Why India is escaping more terror strikes (PO)

M D Nalapat
Those who planned the 26/11 terror attack in Mumbai in 2008 were aware that the Mumbai police is widely regarded as being among the most corrupt in the world. Although all levels of the force are routinely said to accept money in exchange for official favours,a distinction has to be made between juniors and seniors. Harm gets done to the national interest only when the higher rungs of the police become corrupt, which is the case in Mumbai. Like their counterparts in Colombia or Mexico, many of whom are on the payroll of the narco mafia, too many top policemen in Mumbai are reported to think nothing of accepting money and other gifts from the underworld, including that section which funds and facilitates terror attacks. Just as corruption in the force has helped narco traffickers to use Colombia and Mexico as safe havens for their operations, terror networks in India use their corrupt contacts in the Mumbai police to facilitate their

There is a difference between corruption that causes harm to national security and other types of graft. In an economy and a society at the stage that India is in, it is utopian to visualize a situation when corruption will disappear the way that it has in Finland, Sweden or Norway ( but certainly not in Spain, Italy or France, in each of which large pools of corrupt officials thrive, including at the highest levels). Hence, the war on corruption must principally target (1) the higher levels of the administrative structure and (2) those forms of graft that immediately impact national security. In the case of Mumbai,this is represented by the senior officers of the police force who accept cash from narco traffickers, even though they are aware that many of them are also associated with terrorist networks operating in India and overseas. Indeed, narcotics and terror go hand-in-hand in South Asia, as the results of the poppy trade in Afghanistan have made clear.

In the case of 26/11, key sources within the security establishment say that at least two senior police officers of Maharashtra state ( of which Mumbai is the capital) have been in the pay of a Dubai-based operator since the middle of the 1990s. They say that this is the reason why the Mumbai accomplices of the 26/11 plotters have escaped detection. Instructions were given “from the top to ignore any possible local leads to the conspiracy”. Even in the identification of the external players, almost all the detective work was done by the FBI, with the Indian authorities playing second fiddle. In particular,the grave security lapses by the Mumbai police that allowed the 26/11 terrorists to continue on their destructive path for three days has yet to be addressed. Not a single top official – including those guilty of clear dereliction of duty and worse - has been cashiered. Instead, a few have been promoted and all shielded. The reason behind this is the influence that a certain businessman based in Karachi has over key politicians in the central and state level.

Monday 20 June 2011

UPA sabotages India’s thorium energy quest (Org.)

M D Nalapat

Over the past decades, despite severe international sanctions led by the US and China, Indian nuclear scientists such as Dr P K Iyengar and Dr Anil Kakodkar have ensured that this country secures the capability of becoming a major player in the energy market, provided that the Three Stage Programme devised by Homi Jehangir Bhabha in the 1960s gets implemented. However, over the past four years, the UPA has quietly sought to abandon the Three Stage Programme in favour of a massive programme of purchasing foreign reactors that give zero benefit to local technology and very little to local industry.

Interestingly, each time an effort is made to recover sufficient uranium for the nuclear industry, a slew of NGOs emerge that block mining. Although the Manmohan Singh government has evidence that many of these are funded by interests hostile to the indigenous nuclear industry, yet—clearly under pressure from 10 Janpath—it has succumbed to blackmail and refused to mine uranium, especially in Meghalaya. As a result, the PHWR reactors of the Department of Atomic Energy have for long been forced to operate at below 70 per cent of capacity, thereby depriving the country of energy.

Sadly, since 2001, the establishment in India has slowed down the Indian reprocessing programme, the result being that vast pools of irradiated natural uranium have built up,that are a safety hazard and which—once processed—can serve as feedstock for a nuclear energy programme. Because of a tendency of successive governments to succumb to US-China pressure, the Fast Breeder reactor has not yet been fully operationalised, mainly because of lack of fuel. Incidentally, the US, China and the EU are using every means of pressure at their disposal to prevent India from mastering the Fast Breeder Reactor technology, because they know that once such a Rubicon gets passed, India would become one of the key countries in international nuclear commerce. What is a mystery is why governmernts in India have agreed to such anti-Indian diktats for so long, and now appear poised to even scrap the Three Stage Programme altogether.

For the past fifteen years, the Department of Atomic Energy has been working on Advanced Heavy Water Reactors(AHWR) and Compact High Temperature Reactor (CHTR), both being thorium-based. Once these get operationalised, the country would be able to do without costly imports of nuclear plants as well as petro-product feedstock. Of course, this would cut into several Swiss bank accounts held by VVIPs in India, which is why the indigenous AWHR and CHTR programmes are being sabotaged by the Sonia-led UPA.

Will Sonia trump Saint Antony? (Sunday Guardian)

M D Nalapat

t was Pramod Mahajan who came up with the concept of "India Shining". And in his case, such a claim was certainly true. From a lower-middle class background, the BJP's Mr Fix-it entered the higher rungs of the economic elite. Of course, because of the need to pretend that he was still penurious by the standards of his business friends, a lot of such wealth would have been distributed amongst various names. Some claim that the marital adventures of his only son was motivated more by a desire to husband the wealth left behind by Mahajan than by romance, although this is something that is difficult to prove, and may indeed be wrong. The lady in question was admittedly a charmer, as the Mahajan family well knew.
Decades ago, during 1977-78, when Indira Gandhi was out of office and needing vast amounts of money for her political comeback, the oxygen for her return was provided by D. Devaraj Urs, the urbane Chief Minister of Karnataka. Urs took care of her needs almost as comprehensively as another Karnataka CM, Ramakrishna Hegde, ministered to V.P. Singh.
After all, it needs to be remembered that just as it took a lot of money to keep M.K. Gandhi in poverty, it takes a lot of cash to run a noticeable anti-corruption campaign.

Saturday 18 June 2011

Supreme power with zero responsibility (PO)

M D Nalapat

In times past, a section of society was treated as “untouchable” by the rest. They were not allowed to approach the others, and if by mistake one of them made physical contact with the “touchable” part of society, the unfortunate individual was put to death. In the south, a section of society was not merely “untouchable” but “unseeable”. This lowest of the low was forced to ring bells or shout out their location, so that others may be warned to keep away. They were not allowed to use the same paths as others did, having to content themselves with moving around inside fields and jungles, out of sight of others. The rigid stratification of society - which after a while became based on birth - helped weaken the different kingdoms within the country such that they became easy prey for invaders from Afghanistan, Arabia, Central Asia and the territory that is modern-day Iran

One of the few benefits of British rule was the springing up of reform movements within the Hindu religion, many led by thinkers from Bengal. Raja Rammohun Roy and others like him understood that there was no way India could expel the British, unless society itself became more just. For millenia, learning had been confined to a small proportion of the total population. The rest were given no opportunity to study. This state of affairs continued till the Mughal era, when several from the lower orders of society discovered that they could vastly improve their status by adopting the faith of their conquerors. Of course, such individuals could not dream of equality with the Mughal princes and their retinue,just as later on Christian converts in India were still treated as inferior to the British,despite both having the same faith. However, the treatment given to them was far better than the discrimination they had endured when they were in their previous faith, a factor that encouraged a steady flow of converts for several centuries

Ever since the 1857 uprising, the British in India were reluctant to force social change,or to impose their systems and standards on those who did not want them. Hence the country had to wait till independence in 1947 for laws to get passed that criminalized discrimination on the basis of caste.

Monday 13 June 2011

Life After Bin Laden (The Diplomat)

By M. D. Nalapat
The Diplomat speaks with Indian Decade contributor and UNESCO Peace Chair Madhav Nalapat about the implications of Osama bin Laden's death and the future of islamic extremism.

You've written before about alleged links between Pakistan’s Inter-Services Intelligence and terrorists, specifically in relation to the Mumbai attacks in 2008. Do you expect the attention focused on Pakistan's intelligence services following the killing of Osama bin Laden to bring sufficient pressure for change?

Days after the Mumbai attack, sources tracking events in Pakistan told me that the ISI was behind the carnage, and that the Pakistan military had assisted in the training and logistics of the attack. Because of this information, I was the first to write authoritatively on the ISI's involvement, which was denied by the United States for more than a year after the terrorist outrage happened.

Successive US administrations have, for the previous 60 years, believed that they can use Pakistan for their own purposes. Military assistance given since the 1950s to ‘fight communism’ was used solely against India, with Pakistan joining hands with China since 1963 -- nine years before President Richard Nixon established a strategic partnership with Beijing. Even the CIA can’t believe that the Pakistan establishment was unaware of A.Q. Khan's activities, yet it acts otherwise, exactly as it has over the bin Laden execution.

Yes, the Pakistani military can be forced to support rather than sabotage US interests. However, this will come about only when carrots get replaced by sticks, and when officers known to be assisting groups such as Lashkar-e-Taiba get sanctioned by the United States the way the Iranian Revolutionary Guard has been, and prosecuted in the International Court the way the Serbians have been.

Thus far, there’s no sign of this happening. Indeed, the United States is rapidly losing the very ability to alter the behaviour of the Pakistan military. For the past decade, I’ve pointed to the growing influence of China within the Pakistan military. By around 2005, I’d say, Beijing had overtaken the US in overall influence, and is now far ahead. The Pakistan military is becoming like the Burmese military, a tributary of the People’s Liberation Army. Hence, to expect change post-bin Laden is to live on illusions.

Do Pakistan’s protestations that they didn't know bin Laden was there have any credibility?

Sunday 12 June 2011

Still slaves, even after ‘Independence’ (Sunday Guardian)

By M. D. Nalapat

Police officers beat a man during a protest in Ratnagiri, Maharashtra on 19 April: ‘If the notables close to Dus Number visit a police chowki in rural India or a government office in the exurbs as ordinary citizens, they will soon come to understand the
martya Sen, Sunil Khilnani and the other notables close to Dus Number may not notice this, but India is hardly a democracy for the 99%-plus of the population sans access to money and its Siamese twin, power.
Although the Congress party claimed to be opposed to the British Raj, they have retained each and every one of the accoutrements of the colonial authority, including the laws and the administrative structure. Not coincidentally, such an institutional framework sucks away rights and authority from citizens and places them in the hands of the — admittedly elected — political executive. Hopefully, some day Sen and Khilnani will wander away from the air-conditioned environs of British-built Delhi and visit a police chowki in rural India or a government office in the exurbs, not as favourites of Dus Number, but as ordinary citizens. If they escape arrest or worse, they will soon come to understand the reality of democracy, Nehru-style.
During the Raj, any Indian needed the permission of the white masters to undertake most activities. Any that was seen as detrimental to the interests of the few hundred thousand British in India and their fellows at home was banned. Has anything changed since then? Circa 2011, the permission of one agency of the government or the other is mandatory for any activity, including those regarded as routine in genuine democracies. The home ministry and the HRD ministry, in particular, have worked in tandem to snuff out independence and initiative in thinking in our institutions of learning. If Jairam Ramesh is correct that the IITs and the IIMs are not of the standard that he is used to in his peregrinations abroad, the reason lies in his own government which has tasked a 76-year-old (Professor Yash Pal) to come up with a roadmap for a 21st century education system. Hopefully, the good professor will suggest policies that are internationally in sync with the values and needs of the 1960s, rather than the 1930s.
Several hundred thousand officials in India have — individually — the power to take away liberty and assets of a citizen. Many of them exercise such discretion in a manner that is designed to quicken the flow of funds to unnamed accounts in tax havens. It is characteristic of Dus Number that it got set up a committee to examine how black money could be eliminated, that was staffed entirely by exactly the same team that has presided over the biggest accumulation of black money in the nation's history. Naturally, these worthies would like even more extreme punishments to those they finger as wrongdoers (for a consideration of course, or the lack of it). They know that each turn of the thumbnail screw will increase the bribes that need to be paid to them and to their political seniors to escape torture. A Baba Ramdev and an Anna Hazare, with their prattle about death sentences, suit their purposes perfectly.
We have a Reserve Bank of India that cannot get beyond undergraduate textbooks in economics, and which ignores the fact that the single biggest cause of inflation in India is corruption; a defect that no increase in interest rates will touch. The RBI has allowed the same US and European financial entities responsible for cheating investors of more than $4 trillion to set up shop in India and fleece unwary investors. Today, India has become as much a haven for commodity speculators as is the US and the UK, including in foodgrains. Instead of seeking to bring such elements to book as international criminals, Dus Number gives them access to the Prime Minister and the Finance Minister.
ust as the authoritarianism of the 1970s led to the 1977 reaction against Indira Gandhi, the reversal of the — far too slow and incomplete — liberalisation of 1992-2004 by the UPA has created a public backlash against the state and its instruments. The people of India are even more circumscribed by the state as they were pre-1947. The ersatz democracy created by politicians unwilling to shed colonial-era powers needs to get replaced by a structure of administrative governance that returns to the people the rights they would enjoy in a democracy. There is a contradiction between the Constitution of India and the colonial-era criminal and civil procedure code and between the rights given to the people under the Constitution and the British-era administrative structure of Nehruvian India. That the people of the country are finally realising that they are still slaves is the only harbinger of hope.

Friday 10 June 2011

Corrupts made accountable (PO)

M. D. Nalapat
M A Jinnah, the founder of Pakistan, was a tactical genius who succeeded in dividing the Subcontinent in two. Unlike the Congress leadership, Jinnah understood that World War II would have so weakened the UK that freedom for India would be inevitable, even without the exhaustive - and exhausting - agitations launched by the Congress Party. After the fatal tactical error of withdrawing from government both nationally and regionally in 1939, the Congress Party began to rapidly lose the support that it had hitherto enjoyed within the British establishment. In contrast, the Muslim League under its leader M A Jinnah supported a British establishment that he knew was in a severely weakened state. Jinnah kept away from the freedom struggle because he saw that independence was a foregone conclusion. Instead, through gaining the goodwill of London, he ensured the backing – both open and quiet - of the British government in his single-minded pursuit of Pakistan.

Interestingly, as soon as the Union Jack was pulled down at midnight of August 15,1947, the new government of “free” India retained the entire framework of colonial rule. It retained the colonial administrative structure and the legal framework of the colonial past. Indeed, within five years of gaining control, Nehru began to introduce more and more restrictions on the non-governmental sector in India. Much of private industry - which had flourished during World war II as a result of military orders - was nationalised. Tax rates were brought up to absurd levels, reaching 97.75% by the 1970s. After three decades of Nehru family rule, almost any activity needed prior governmental permission. Finally, in 1977, in a reaction to such colonial-style control, the electorate reacted and threw out the Congress Party led by Indira Gandhi. Since then, no subsequent government dared to add on to the web of regulations and prohibitions, or to once again show the contempt for public opinion that was demonstrated by Indira Gandhi during 1975 and 1976, a time when several citizens (including this columnist) faced police incarceration. Of course, it was only in the 1990s that a few steps were taken to liberalise the economy, steps that were added on to till 2004, when the Congress Party once again came to power as the lead actor in a coalition.

From the final decades of the 18th century to almost the first half of the 20th century, a small number of British and other colonialists skimmed the cream from the Indian national product. Several stately homes in the UK were built out of the money gained from stints in India. Even jewels of historical value, such as a Koh-i-noor, were taken away and made the property of inhabitants of the conquering power. This loot by a relatively small and distinct segment of society finally roused tens of millions in the Subcontinent to protest, and to revolt. Even in the armed forces, anger grew at the double standards practiced on those not of the “Master Race”. The career prospects and salaries of those from the UK were way higher than that given to those unfortunate enough to have been born in India.

Since 1947,has there really been a change?

Europe should pass IMF baton to Asia (China Daily)

By M.D. Nalapat (China Daily)

Europe should pass IMF baton to Asia
At the Copenhagen Climate Change Conference in December 2009, the European Union (EU) said it had the right to maintain its people's standard of living even if that was unsustainable for the planet. The cure the EU suggested was that China, India, Brazil, South Africa and other emerging economies accept severe emission cuts even at the cost of retarding their growth significantly.

In effect, that meant the standard of living of people in the emerging economies ought to be frozen or even lowered, so that European and other developed countries could continue on their environmentally debilitating trajectory.

Surprising the developed world that banked on disunity among Asian powers, China and India joined hands to block such an unfair outcome.

The developed world's was a "zero-sum" approach, in which it gained at the expense of countries that it had colonized.

Interestingly, we are seeing the return of "trusteeship", in which outside powers gain control of poorer countries - as is the case in Iraq and Afghanistan. Countries such as Libya that refuse to accept such hegemony find themselves under military attack.

Such zero-sum tactics are harmful to the entire world, and eventually to Europe, a continent whose people can justifiably take pride in their cultural and scientific achievements. The zero-sum mindset reflects excess of confidence, and in the case of the EU, this zeal has been the cause of the present financial crisis that it finds itself in.

In 1990, West Germany incorporated East Germany on terms that reflected raw emotion rather than cold economic logic. The two countries' currencies were taken as equal, when in fact the value of East Germany's ostmark was far lower than West Germany's deutschmark.

After the unification, the western part of Germany financed a massive program of investment in the eastern part's infrastructure, hoping to shorten to a few years a process that should have been allowed to proceed at its natural speed and taken about two decades to complete.

The EU followed the example of West Germany when it granted membership to former Warsaw Pact countries - once again on terms that reflected hope rather than rationality. Huge sums have been spent on countries in the eastern part of the EU. These investments would have generated far greater returns were they directed at emerging powerhouses such as China and India. The consequence of such policies has been the present financial crisis that threatens to send Greece, Ireland, Portugal and Spain into default.

Indeed, a close examination of the public finances of Italy and even France shows that they, too, are far less healthy than the international rating agencies make them out to be. The reality is that Europe as a whole is close to bankruptcy, and as a result, policymakers there are looking at surpluses in emerging markets to bail them out.

It is in the context of the EU's desperate search for outside funds to bail member states out of self-created catastrophe that the managing directorship of the International Monetary Fund (IMF) becomes relevant.
The poor record of Europe in public finance makes it obvious that policymakers there ought not to be trusted with the world's funds, the way they have been for decades.

If the IMF's top post has to go to a European, he/she needs to be warned against pouring the funds available with the IMF down the bottomless pit that is Greece or Portugal. The IMF has imposed very stiff conditions on countries in Africa, South America and Asia that it has lent money to. But in the case of Greece, little due diligence seems to have been carried out before massive loans were sanctioned to it.

Presumably, this is the result of the former IMF managing director giving all the importance to EU economic interests rather than the global good that he was mandated to ensure. The IMF needs to reflect this reality and ensure that emerging economies get the prominence in its decision-making that is proportionate to their contribution to the world economy.

The IMF should no longer function in a way that gives one continent such potent power over its functioning. The rest of the world needs to tell the EU that its members will have to swallow the same bitter pills that people in Asia, Africa and South America have been subjected to for so long, rather than be accommodated and mollycoddled while the rest of the world is denied of its rights.

The author is the vice-chair of Manipal Advanced Research Group, and UNESCO Peace Chair and professor of geopolitics at Manipal University, India.

Wednesday 8 June 2011

India’s corrupt protecting the terrorists (Org.)

By M D Nalapat

PALANIAPPAN Chidambaram deserves credit for being open about acknowledging that the sole task of the government is to collect money from the people. This principle got completely enshrined in policy once Sonia Maino chose him as the Union Finance Minister in 2004. From then onwards, the collection agencies of the Government of India were set targets that they were asked to fulfill by using the coercive means at their disposal to the fullest. Anything beyond the target set could be shared among the officials, and this was no small figure, as the financial machinery of government was empowered by Chidambaram to confiscate, imprison and harass at will. As in the time of the British Raj, the country has been bled since 1947 for the benefit of its new rulers. And now the Nehru Era has given way to what may be described as the Maino Era.

That Sonia Maino has very little time for her so-called relatives on the Nehru side of the family is no secret. These unfortunates seldom get invited to Number Ten, and almost never to the holidays in the Maldives or off the coasts of Spain and France that are the locations for get-togethers with the extended branch of the Maino family. As for the Vadras, this clan too have been placed in the same bracket as the Nehrus, which is as a group to be largely ignored socially, even as one Maino after the other gets VVIP treatment in India courtesy the individual who is the fount of their prominence and prosperity, the charming and steely Sonia Maino. Under what provision of the Constitution of India the extended Mainos are given VVIP privileges at airports and elsewhere is not clear, but there must surely be some such provision that is not visible to the naked eye.

What is very clear is that the Maino Era has converted India into a land of scams. A few of these have come to light, although the overwhelming majority still remain hidden, locked up in the records of agencies that regard their foremost duty as the care, feeding and protection of a single clan.

Sunday 5 June 2011

The IMF needs to outgrow Europe (Sunday Guardian)

Union Minister of Commerce and Industry Anand Sharma with French Minister for Economy, Finance and Industry Christine Lagarde at a meeting in Paris last week. PTI
fter the obligatory disapproving coughs, Dr Manmohan Singh is likely to accept the replacement of one French managing director of the IMF with another. When Christine Lagarde comes to Delhi, she will enter a city teeming with Francophiles, a species that is particularly strong within the Ministry of Defence. She will converse in French with Sonia Gandhi, and perhaps even find time for a celebrated import from her own country, NAC member Jean Dreze. Given the lack of unanimity within The Rest, it is almost certain The West will once again lead the IMF, the way it does every "international" institution set up after the 1944 Bretton Woods conference. And since the demise of the USSR in 1992, the UN system too has come under western tutelage, as evidenced by UN Security Council resolutions that give colonial-era powers to "Coalitions of the Willing" in countries in Asia and Africa. Of course, perhaps by coincidence, such "coalitions" invariably comprise members of Nato, or are dominated by them.
However, allowing the top job at the IMF to remain the monopoly of Europe is a bad idea, one that is likely to prove expensive for Asia, as it watches the money it saves getting diverted into the bottomless pit that passes for public finance in at least a third of EU members. What Lagarde and the rest of her backers seek is money from Asia, and lots of it, to reduce the burden on the EU taxpayer, as the effort continues to make Spain, Portugal, Ireland and Greece borrow their way out of fiscal collapse. Lagarde's top nine priorities out of a total of ten will be Europe, hardly the mindset expected in the head of an "international" bank. While the IMF may function as a lender to these four economies, this needs to be done on a cold-blooded estimate of what they need to do to avoid default. Thus far, in contrast with the bitter medicine that it has forced economies in South America, Asia and Africa to swallow, the IMF has been noticeably kinder towards Greece and the rest of the PIGS, a policy that needs to change.
The reality is that the expansion of the EU on the terms decided upon by the earlier members has proved too expensive to afford. This ruinous policy was initiated by Helmut Kohl two decades back, when he broke every canon of modern economic theory to treat the East German currency as equal to that of West Germany. Had Kohl fixed a more realistic exchange value, the eastern part of a reunited Germany would have developed much faster than it has. And as for the other countries of East Europe, the massive EU effort to enable parity between their social and other infrastructure and that of western Europe placed the tribal loyalty of ethnicity well above reason. Rather than concentrating solely on East Europe, had West Europe given attention to emerging economies in Asia and elsewhere, its returns would have been far higher. East Europe needed to come out of its backwardness at a pace dictated not by emotion but by the logic of economic reality, a process that would have taken about two decades, or the same time as elapsed between the World War II destruction of Japan and Germany and the re-emergence of the two powers. The attempt to telescope this essential process of economic evolution has weakened the financial sinews of the western members of the alliance, and has reduced their relative presence across the world, something that Nato bombs and missiles rained down on the recalcitrant seems unlikely to reverse.
What the IMF under Lagarde will attempt would be for the EU to use this so-called "international" umbrella as a means for channelling savings from Asia and other locations towards the EU's stricken members. But the problems of Europe are too big to be eliminated by savings from Asia, a continent that has already been cheated of more than $2 trillion in savings and investments as a result of the 2008 financial crisis, a disaster in the making of which it had no role. Rather than repeat the mistake made by West Europe since the 1990s, of pumping investment funds into East Europe rather than into locations that have today emerged as the engines of international growth, investors in Asia need to focus on themselves and on markets in Africa and South America.
If the Iraq and Afghanistan wars have bankrupted the US in a way that the Vietnam War could not, the reason lies in the fact that Bush-Cheney sought to funnel all procurement into US entities, rather than make use of production platforms in Asia. Since the 1990s, the EU has made the same mistake as the Pentagon, only on an even bigger scale. By looking only inwards, the EU has reached a stage when several countries within it are certain to default, even while the only hope that it has for economic stability lies in an Asia that has been ignored for too long. Madame Lagarde at the IMF would be more of the same. More of the same policies that have brought the EU to the edge of financial meltdown. Prime Minister Singh needs to do more than politely cough. India needs to throw its weight behind an "emerging economy" candidate, for it is the move away from a Europe-centric approach that is the best policy for the IMF to follow.

Friday 3 June 2011

A political storm across India (PO)

By M. D. Nalapat

Although Prime Minister Manmohan Singh has a personal commitment towards a peaceful resolution of outstanding issues with Pakistan, he is no Indira Gandhi and hence may not be able to fulfil his vision. The first - and thus far only - woman PM of India had a substantial political base, one that she demonstrated in both 1969 as well as 1978. Both those times, she split the Congress Party, and while in 1969,more than 40% of the party remained with her rivals rather than cross over to her side, in 1978 about 80% of the party cadre joined her in preference to those she was opposed to. Since that time, the Congress Party has been synonymous with the Nehru family, and neither its cadres nor its leaders would even dream of looking beyond The Family for the top leadership were Manmohan Singh to ever split the party in the way that Indira Gandhi did, it is doubtful if even 1% of the cadre would come over to his side. The rest would remain loyal to the Nehru family, now represented by Sonia Gandhi, who has established her control over the Congress Party and the Union Government efficiently and smoothly. Of course, Prime Minister Singh is himself loyal to the Congress President, and hence the question of his walking away does not arise. The problem that he faces is that this lack of a political base makes it difficult for him to implement the policies that he favours.

From 2004 onwards, economic reform has slowed to a crawl, and can even be said to have been reversed by the many new restrictions that have been introduced by dirigiste ministers eager to strengthen their (lucrative) roster of discretionary powers. Had economic reform of the type favoured by Manmohan Singh been pursued by the United Progressive Alliance (UPA), the country’s rate of growth would have been closer to 15% than the 9% presently achieved. Much of the demand in the economy has come because of money held abroad by Indian nationals, that is returning to the country because of the fear that foreign financial institutions may collapse. These funds are helping to keep the stock market from collapsing, and are ensuring a steady rise in property prices India is one of the few countries where regulators were unable to distinguish between short-term and long-term funds. The same treatment is given to both investments in the stock and money market (that can be withdrawn any time) and money invested in plant and machinery, that is tied to the enterprise.