Wednesday 27 February 2013

Democracy best served diluted (CNN)

By Madhav Nalapat, Special to CNN
Editor’s note: Madhav Nalapat holds the UNESCO Peace Chair at Manipal University in India. The views expressed are his own.
Despite the 2008 economic crash and lingering possibility of a Eurozone collapse, the West still clings to its one-size-fits-all mentality – especially when it comes to political systems. Democracy is still almost inevitably defined in terms of the Western model, with periodic elections to choose representatives to a parliament or head of state. Local variants, such as Afghanistan’s Loya Jirga system, are dismissed as not really democratic. But this “universalization” of the Western approach – especially for countries embarking on the path of democratization – is misguided.
I was an early believer in the Middle East democracy project, with the caveat that first there needs to be a comprehensive reform of school curricula. The present fare offered to young minds, especially in Saudi Arabia, is a mishmash of confused ideas cloaked in theology. The result is that the education system fosters minds that are in many cases unable to properly grasp reality, ones that instead too often focus on vague concepts that get superimposed onto the real world. It’s little wonder that conspiracy theories are so prevalent in the region.
The deepening of democracy within the Middle East should therefore start in the classroom, not the ballot box. Yet the reality is that this can best be done by a ruling elite free of the fear of the vote. This is not to argue that democracy is ultimately harmful, but merely to suggest that the proper societal and economic foundations should be laid first.
Rather than looking toward the U.S. or French models, states within the Arab world would be better off looking east, and drawing some lessons from the experience of South Korea and Taiwan, which set in place the forward-looking structures necessary for economic success before subjecting rulers to the ballot box.
Indeed, one need not look very far to see the dangers of doing otherwise – Egypt highlights the consequences of transitioning to a Western-style democratic model without an intermediate period of building up institutions and mindsets promoting democratic values. Although elected by the public, President Mohamed Morsy is a prisoner of conventional Egyptian experience, with the only departure from his predecessor being that he sees the Muslim Brotherhood as the natural core of governance, rather than the military-security apparatus patronized by Hosni Mubarak. So long as Morsy persists with such an approach to governance, Egypt is likely to continue on its present unstable path.
Likewise, the ruling family in another Middle East giant, Saudi Arabia, needs to abandon its longstanding policy of pandering to extreme religious interests and switch support to the modernizers. To a certain extent, King Abdullah has already embarked on such a path, but it is at far too stately a pace, one that needs to be accelerated if the kingdom is to survive the aftershocks of the unfolding disaster in Syria.
Finally, while Moammar Gadhafi was reprehensible while alive, his fall has had disastrous consequences for his country, with arms from Libya flowing to groups that are ideological cousins of the Taliban.
Democracy is a beverage best served diluted, at least until the body gets accustomed to its headiness. Sometimes the processes of democracy are used by the many to trample on the rights of the few, something seen not just in the Middle East but in faraway Malaysia, where halal food dominates despite a third of the population being Christian, Hindu or Buddhist. Yet despite its relative economic prosperity, Malaysia’s religious tensions also point to future strife and even conflict.
For long term stability, countries must take the long view and allow a period for the introduction of secular and rational curricula in schools, the creation of institutions that conform to democratic norms, and the awakening of minds numbed by the ceaseless barrage of, for example, Wahabi cant.
Until such a period of adjustment takes place in the Middle East, democracy taken neat will do enormous harm to the nation drinking it.

Sunday 24 February 2013

India must look beyond the 5% world to a 100% universe (Sunday Guardian)

Indian Small Arms System (INSAS) rifles have received cold shoulder from procurement boards who prefer foreign equipment instead.
ibhav Upadhyaya has spent two decades — or close to half — of his life seeking to build a partnership between the two countries that he loves, India and Japan. He has visited that ancient and aloof country several dozen times, forging friendships that stretch from commoners to Prime Ministers. To every discussant, Vibhav talks about the "5%" world, by which he means the way in which the West has succeeded in bending the rest of the globe to conform to its interests, thereby jettisoning those of the remaining 95%. Certainly, the West has been hyper-successful in India, especially in the field of economic policy. Into its seventh decade of existence as the somewhat diminished title holder to the subcontinental British Empire, this country still has to beg or buy almost all its critical technologies from Western countries, including in national defence. Especially since the 1980s, any pretence of seeking self-sufficiency has been given up, with indigenous lines of manufacture such as the HF-24 aircraft, the Indian Small Arms System (INSAS) rifle, the Vijayanta tank and the Dhruva helicopter being given the cold shoulder by procurement boards hungry for French, British, US, Russian and other foreign equipment, usually purchases at prices far above those offered to buyers other than those unique purchasers, the oil-rich countries of the Gulf. Of course, Indian private companies are shunned, while foreign entities are welcomed.
The manner in which the "5%" world has succeeded in harnessing India to the cause of its betterment, despite frequent protestations of third world solidarity from South Block, can be gleaned from the policies of the Reserve Bank of India and the Ministry of Finance, not to mention that trusted ally of the World Bank, the Prime Minister's Office. These institutions are thought-led by birds of passage who take leave of absence from universities and other entities in the NATO bloc to take charge of major sectors of policymaking in India. Because they so often succeed in bending this country's policies to fit the interests of the "5%" world, these peripatetic "experts" usually land on more delectable perches when they return home to campuses in the US, the UK or other civilised countries after lording it over the natives in India. That Manmohan Singh loves and trusts those who have — like him — been educated abroad is perhaps one reason why he has presided over a halving of the rate of economic growth since he took office in 2004, and why Indian business is now migrating overseas rather than endure the hell that operating in India has once more become. The man who the PMO ensured got a second term in office after having damped growth during his first, RBI Governor Subba Rao, has implemented a set of measures that follow in the wake of his predecessor Yaga Reddy. Under the two, Indian companies have become severely handicapped by high borrowing costs and other regulations, while large foreign-owned entities in India take away billions of dollars each year in the guise of "royalties" or as transfer pricing. While Barack Obama has ensured accountability to banks fuelling speculation, these entities operate in India without any hindrance. By their interventions in the share and commodity markets, they have created volatility in the first and hugely elevated prices in the second. Of course, hardly any tax gets levied on the huge profits of these financial buccaneers, who operate with an impunity that would have been the envy of the East India Company in its early years.
Into its seventh decade of existence, this country still has to beg or buy almost all its critical technologies from Western countries, including in national defence.
Vibhav would like India and Japan to work together to create an international economic order that is "100%" i.e. which works for the benefit of all, rather than the few. Given the fact that Japan is very much a part of the "5%" world, and that India's policymakers have for centuries been content to allow this country to hobble along in the wake of the global order where a few gobble up many times more resources than the rest of the globe put together, perhaps his optimism is premature. However, what is clear is that a policy matrix needs to evolve in India that helps create a "100%" world. But for this to happen, the present 5%-oriented policy framework will need to get dismantled, much as Mao Zedong cleared the way for Deng Xiaoping by his Cultural Revolution.

Friday 22 February 2013

Antony wakes up too late (PO)

M D Nalapat

Friday, February 22, 2013 - During the seven years when he has been Defense Minister, A K Antony has presided over a flood of imports from foreign countries, principally Russia, the US and France. Under his watch, India has become the largest importer of defense equipment in the world, making Delhi the haunt of a collection of arms dealers who use money, wine and women to hook their customers into purchasing super-costly equipment for the Army, Navy and Air Force. Apart from the policies of the Reserve Bank of India (an agency determined to handicap Indian business from competing with foreign companies, and which permits massive speculation and money transfers from India in guises such as “royalty payments”), it is the flood of project-based imports into India that has led to a crash in the value of the Indian rupee, thereby benefitting those with secret offshore accounts, who can get more rupees for every euro or dollar earlier sent abroad through illicit channels. That there is a strong vested interest within the influential group having illegal foreign accounts to have a crashing rupee is obvious, and so long as cheats and crooks dominate the setting of policy, this state of affairs will continue

When the 1977 general elections saw the defeat of the Congress Party led by Indira Gandhi, Antony was among those who believed that the “only man in her cabinet” ( to quote satirist Aubrey Menen) was politically finished. He abandoned Indira Gandhi in 1978 but was surprised to see her return to power just two years later. By 1982 he was getting desperate, aware that he needed to return to favour with Indira Gandhi in order to survive. This columnist was instrumental in getting his wish fulfilled, by interceding with (then Congress General Secretary) Rajiv Gandhi and Rajiv’s dynamic right-hand man, Vijay Dhar, to ensure a “homecoming” for Antony in 1982. Since then, the soft-spoken Kerala politician has not looked back, being richly rewarded in the form of several ministerial and other positions by the Nehru family, including many by the latest head of the Rajiv Gandhi branch of the Nehru family, Sonia Gandhi. In turn, Antony is completely loyal to Sonia, even to the extent of avoiding contact with critics of the lady.

When this columnist’s mother Kamala Suraiya was lying in a hospital bed in Pune four years ago watching with calm the Day of Judgment approaching, she wanted to see Antony (whom she loved as a younger brother) one last time. The Defense Minister, aware that Kamala Suraiya was a critic of Sonia Gandhi, and therefore perhaps wary that Sonia may look askance on a high-profile visit to the dying poetess on her sickbed, stayed away, not even enquiring about her health at the hospital. Such devotion and loyalty to Sonia Gandhi has served Antony well, although he has done nothing to prevent high-cost acquisitions that have more than a whiff of scandal about their purchase, while keeping the Indian private sector out of defense production

The beginnings of massive corruption in government procurement dates back to 1998,when the genial A B Vajpayee (a friend and admirer of Sonia Gandhi) became PM. In the Agusta Westland helicopter deal, the way for the expensive rotary machine to get inducted into the VVIP fleet of a country where 300 million people go hungry to bed each night, it was Vajpayee’s right-hand man, whose influence came from the trust placed in him by the PM’s “foster” son-in-law Ranjan Bhattacharya, who tweaked specifications to allow Westland to compete. The operational ceiling for the helicopter was reduced from 18,000 feet to 15,000 feet. What Mishra ignored was that India was already producing a helicopter that had a ceiling of 20,000 feet, the Dhruva Advanced Light Helicopter. This indigenous machine was ignored by both the Vajpayee as well as the Manmohan Singh governments in view of the obvious benefits of sourcing equipment from foreign suppliers rather than from a state-owned enterprise. If the field of defense production had been opened to the Indian private sector in 2006 when Antony was given charge of the Defense portfolio, and if the money spent on foreign equipment was diverted to indigenous items, by now India would have had a flourishing defense industry of its own, as China does. Instead, the country is almost totally dependent on foreign suppliers for equipment and spare parts

The Dhruva is not the only indigenously manufactured item of equipment that has been cast aside by politicians and officials hungry for the benefits of overseas purchases. The INSAS rifle was manufactured after years of effort, but once inducted into service, no further improvements were made, and the rifle is being replaced with foreign substitutes rather than getting upgraded. Apart from the Vijayanta tank, which again was quickly dumped soon after development, an excellent aircraft, the HF-24,was locally manufactured more than two decades ago, again to be dumped in the wastebasket in favour of foreign acquistions. The record will show that India has paid as much for items such as Jaguar or Mirage aircraft as the Gulf countries have, and much more than when the same machines have been supplied to countries where graft is not a way of life. Both Francois Hollande and David Cameron have made visits to Delhi in recent days, not even bothering to disguise the fact that what they are seeking is for India to spend tens of billions of the dollars earned by its citizens working in the Gulf on equiment for the three services. Several companies in Europe and elsewhere are running because of orders from India. If Antony were to initiate an enquiry into the gamut of defense purchases by his ministry, and the way indigenous items have been cast aside because of sweeteners offered by foreign manufacturers, he would - finally - be doing the country some service

However, this is unlikely. “Saint” Antony is a prisoner of the system, which seeks more and more acquisitions from abroad at the cost of domestic capacity. In 2013,the gap between India and China in the field of defense production is immense. It need not have been so, but for greed and a refusal to permit private industry in India to enter the field of defense production. The Dhruva helicopter, the INSAS rifle, the HF-24 fighter, the Vijayanta tank and many more such items stand as mute testimony to this country’s neglect of its own sinews. Had the US the good sense to permit the sale of missiles to India, it would have been able to choke to death this country’s missile manufacturing capability in a way that all its sanctions have failed to do.

Sunday 17 February 2013

Economy takes a turn for worse (Sunday Guardian)

Union Finance Minister P. Chidambaram unveiled a "dream budget" in 1997, which reduced income-tax to a level that made evasion a worse option than compliance. For five years, the economy had been enjoying the benefits of the liberalisation started under P.V. Narasimha Rao and greenfield sectors such as telecom and information technology were throwing up shoots. New players entered the corporate sector, enabled to compete with more established players through the level playing field created by de-regulation. Sixteen years later, the dream is evolving into a nightmare, with a sharp increase in the number of domestic players seeking the safety of NRI status in London, Dubai and Singapore. While FDI flows appear robust, much of this is accounted for by "round-tripping", where illicit funds leave the country and return through financial intermediaries based in offshore tax havens.
Business leaders are reluctant to go public about the present state of affairs, largely out of fear of the consequences of such criticism. Many owe huge amounts to the domestic banking industry, while others have run afoul of tax and exchange regulations in their quest to compete globally, and are afraid of investigation and prosecution. Others are wary of the many ways in which rules can be tweaked by an administration to incorrectly implicate them in situations where much of their attention gets diverted from business to proving their innocence through a legal system that usually takes decades to deliver final justice. Officials are wary of the unpredictability of the Indian voter, and hesitate to go public about their misgivings, for fear of reprisal. However, both are voluble to those they trust to keep their views confidential
Both officials as well as businesspersons are unhappy at what they see as "policy framed on the basis of television talk shows". In a climate where the political executive is over-concerned about the "image" presented to television audiences, policies get changed with a swiftness not seen in the overall administration. Just a week of negative coverage has sufficed to shelve the Agusta Westland helicopter deal, where half the money has been paid but only three of 12 machines have been delivered, or half the number already paid for. "Even if policy is tough, we can adjust to it. What is killing sentiment is the uncertainty. Nothing is certain any more, even after all the approvals have been secured", a businessperson who has established a global presence lamented. Another pointed to the "lack of clarity" about key approvals, such as environmental clearance, with "criteria getting changed, sometimes by the week". Land acquisition has also become "a swamp", according to a third businessperson, who said that "collectively, those domestic businessmen with the capacity are investing in markets other than India, which has become a country where an agitation by a few hundreds can halt a billion-dollar project".
Thanks significantly to the RBI's monetary tightening and interest rate hikes, a senior official estimates that "bank debt restructuring will cross Rs 400,000 cr, or the same as the total subsidy bill of the government". Diminishing optimism about the Indian market has combined with rising incapacity to compete globally (because of new imposts and regulations) to create (in the words of the SBI chairman) "a lack of demand for Indian companies". This is precisely the time when a nervous finance ministry has tightened its screws on the corporate sector through a flurry of demands and penalties. "How can we flog a dying horse and expect it to run?" a senior official lamented, pointing out that "a lack of buoyancy in the economy has made efforts at boosting revenue much more difficult to attain".
The official was critical of the government's tendency to "look only at Foreign Institutional Investors (FIIs) while framing policy", pointing out that "those who make several hundred crores a year from speculation in shares and commodities in India seldom pay even 5% tax on their earnings". He wanted a flat tax of "at least 15%" to be levied on the remittance of cash gains made by FIIs from India, saying that the fear of negative sentiment is "misplaced", because "the revenue benefits of such a tax will outweigh that significantly". He pointed out that for years, the government "seems interested only in money flows into India rather than investment in machinery or infrastructure". Another official warned that "in a situation where even domestic players are getting out of the infra sector, to expect large FDI inflows is unrealistic", pointing out that "in the house construction sector, whose 30% annual growth cushioned UPA-I, growth has almost disappeared". Telecom and power are other sectors that have slid into crisis since 2007, with huge loans outstanding to banks by the former and a loss of nearly Rs 3,00,000 cr by players in the latter (power) field, both in generation and in distribution.
A senior official pointed to the "absence or unreliability of records" as the reason why "so many probes are continuing interminably", giving the example of Coalgate, "where many records are either illegible or absent". At the same time, "decisions get taken without reasons being provided". He gave as an example the recent blacklisting of four domestic infra companies from a port project "on security grounds", asking why, if the promoter of one of the impugned companies was a threat to security", banks continue to lend him huge amounts of cash and Cabinet ministers attend his family functions". A senior official who has attended several high-level meetings on the economy, laments that "there is a day-to-day approach, without a long term overall strategy" over much of the policy-making matrix.
Just as Prime Minister Manmohan Singh seems to have blotted his historical copybook by his failure to prevent the economy from sliding into lower and lower levels of growth, will the finance minister be able to repeat his 1997 feat and turn around expectations and reality, or will 2013 be Chidambaram's nightmare budget?

Friday 15 February 2013

Westland defence scandal hits MoD (PO)

M D Nalapat

Friday, February 15, 2013 - Although China in 1949 was half the economic size of India, the situation got reversed by 1989,and in 2013,the economy of the other superpower is four times that of its southern neighbour. The change in fortune is a reflection not only of the success of China but the failure (of those in charge in) India to choose policy pathways which promote growth. The usual excuse for poor performance is that “the poor need attention”, and consequently the better-off have to be satisfied with less attention. In actual fact, while the better-off have widened their lead over the others, the poor have largely been ignored.

The highways of India are a telling example of such skewed priorities. There are no pedestrian walkways, and consequently those too poor to own a means of transport have to risk their lives each time they step on a road, or cross a street. Only a few overhead crossing points are provided, thereby making pedestrians gamble with death by crossing in the middle of traffic. The poor are remembered only in words, the only favored group in India being the holders of unaccounted cash. These are protected from the high tax rates in the country, and can buy their way out of most situations. Politicians and officials form the overwhelming proportion of the holders of unaccounted wealth in India, with many of them linked directly to businesses that thrive as a result of government patronage. Unaccounted wealth began to multiply rapidly after 1998,during the period when A B Vajpayee was Prime Minister. The main “fixer” was a prominent “son-in-law” who stayed at the official residence of his relative and became a multibillionaire in a short while, with scarcely any media attention given to his rising wealth. Interestingly, the gentleman in question was close to a prominent opposition family as well, so that once that family got elected to run the country, it has protected the lucky son-in-law from accountability for his dizzying wealth.

Among the ways in which money diverted to foreign bank accounts was made was by forcing petroleum exporters to levy a premium on their sales to India, the extra cash going to hidden accounts. This is the reason why the price of hydrocarbons supplied to India is usually much higher than the same feedstock supplied to (far richer) European countries. Machinery purchases are another way of illegal enrichment, with prices artificially boosted so as to generate illegal cash hoards abroad. In this manner, several crooked businesspersons get back their actual investment in a project almost immediately. Political pressure ensures that credit flows from nationalized banks, which often are forced to write down much of the money owed to them, because of malfeasance. While such shenanigans have been going on for decades in India, and indeed centuries, they have reached levels the past six years that have never been seen since the British left.

National defense is a lucrative source of illicit money flows. An example is the used aircraft carrier bought by India from Russia, which is costing the country nearly $4 billion after including maintenance and interest costs. This is more than a hundred times what China paid for a similar carrier, much of the difference apparently going to pad pockets in both Russia as well as India. Other examples are the huge outlays spent on refit of Mirage aircraft, as well as the $20 billion purchase of fighter aircraft from France that no other country except India has bought, and which proved of dubious value to Paris even against the miserably inferior air force of Colonel Kaddafy in Libya.

For that price, as General V K Singh ( former Chief of Army Staff) said, India could have bought the whole aircraft manufacturing company, rather than get placed in a situation where it will bleed each year from higher and higher demands for spare parts and maintenance. The best defense for a country, in fact a needed pre-condition for effective defense, is a strong economy. By its reckless purchases of high-priced defense items, the Manmohan Singh ministry has helped the Reserve Bank of India to reduce India’s rate of growth to half what it was six years ago. Of course, RBI Governor D Subbarao is a favourite of the PMO, and was given an extension two years ago despite his toxic policy of super-high interest rates designed to weaken domestic industries. Subbarao claims that it was “concern for the poor” that made him raise rates, even though even a college student of economics knows that in the Indian economy, high interest rates fuel rather than dampen inflation. Manmohan Singh seems determined to go down in history as a disaster, a wish that he is in the process of actualizing.

Given the fact that the highest levels in policymaking in India are implicated in Defense purchases, and that the rot extends not only to the ruling parties but also to the Opposition (who both join hands to ensure that officers with a record of facilatating deals get promoted), it is no surprise that only a few smaller fry get in trouble as a consequence of (rare) exposure of corruption in defense purchases. However, the action by the Italian authorities (who are obviously of a different cut than Silvio Berlusconi) in arresting the CEO of Finnmecanica has torn off the shroud which covered at least one deal, the $1 billion purchase of helicopters from Agusta Westand for the VIP Sqadron of the Air Force. A former Air Force chief has been mentioned in thois context. His defense is that he did not give any recommendation in favour of the helicopters. Of course, often money gets paid not to get a positive rcommendation but to prevent a negative one.

survey of the lifestyle of former Air Force chief Tyagi will show whether his home and his doings fit his pension. Indeed, there are cases of former high officials enjoying lifestyles that would burn up their annual pensions in a day. A former Army Chief who claims to be close to top politicians has extensive family conections with foreign business interests, and a lifestyle that is regal in its opulence. However, naturally, he has not only escaped censure but even official attention by the Income-tax and other agencies. A comprehensive audit of the lifestyles of retired officials (both civil and military) and that of their offspring is all that is needed to fix the needle of suspicion, but of course, this will never be allowed to happen. Many at the top are merrily ruining the future of the 1.2 billion people of India, and making sure that the money they make gets sent abroad so that they can safely leave when the country sinks into chaos. Such people are unlikely to be shamed into accountability just because an Italian CEO has been sent to jail in his country for bribery connected with a deal involving sale of helicopters to India.