Saturday 29 June 2019

India and U.S. on the cusp of a 21st century security alliance (Sunday Guardian)

By M D Nalapat

If the U.S.-India relationship is to move into high orbit, there will be need for India to begin a process of replacement of Russian weapons platforms with U.S. alternatives, now accessible to India where they were out of bounds in the past.

New Delhi: Just as the US and China arrived at a historic understanding in 1972 as a consequence of the meeting of minds and interests between President Richard M. Nixon and Chairman Mao Zedong, both Prime Minister Narendra Modi and President Donald J. Trump are poised at the cusp of what could be an equally consequential geopolitical shift. This would involve a defense and security partnership between the US and India designed to ensure dominance in the Indo-Pacific as well as in Space and the Virtual World. Because of the Belt & Road Initiative, China is well on the way towards gaining primacy within the Eurasian landmass. Efforts are on to extend such control to the oceans as well, through the Maritime Silk Road. In both these endeavours, Russia has emerged as the key ally of China, and the two have come together in a Sino-Russian security and defense partnership. Given the close association between Islamabad and Beijing, the prospects for India joining hands with China and Russia in the security and defense sphere are small. In contrast to the past, the US is now strategically growing ever more distant from Islamabad, Beijing and Moscow, and in the process, coming closer to India. However, within the Lutyens Zone, the past has continued to impact the policies of the present, in the shape of a continuation of the tight bonds between the Russian defense industries and the military in India. If the US-India relationship is to move into high orbit, there will be need for India to begin a process of replacement of Russian weapons platforms with US alternatives, now accessible to India where they were out of bounds in the past. After the just concluded Pompeo-Jaishankar and Trump-Modi meetings, there has been talk within the Lutyens Zone about how India has “stood its ground” on the proposed purchase of S-400 defensive missile systems from Russia. Some reports even had it that the issue was of such small significance that it did not even figure in the Osaka bilateral parleys between both the principals on the US and Indian side, as well as between key officials. As matters stand, it would appear that the Government of India has reduced to zero oil purchases from Iran while still going ahead with the S-400 deal in the belief that the concession on purchases from Iran would compensate for the Russian transaction. The reality is that (as first reported in The Sunday Guardian article titled “S-400 deal may shatter India’s Indo-Pacific advantage” on 5 May) purchase of S-400 systems by India would shut the door on a comprehensive strategic partnership with the US. It would shut the door on the transfer of advanced US weapons systems to India, a stand that was conveyed to the Indian side during the Pompeo visit. Although not a “deal-breaker” the way the S-400 purchase would be, the choice of Huawei as the partner for rolling out 5G in India would also be a limiting factor in India-US security linkages, given the intrusive nature of the technology in the lives of citizens. However, for India to look elsewhere, the alternative would need to be as efficient and cost-effective as that offered by Huawei.
Prime Minister Narendra Modi, in his interactions with President Barack Obama and now with President Trump, has ensured that both sides have reached a stage where both countries are standing on the cusp of a fundamental security and defence re-alignment that could change global geopolitics the way the 1972 Nixon-Mao understanding did. Today, the world has once again been divided into two competing blocs, one led by the US and the other by China. In 1972, the two blocs were led by the USSR and the US, a situation that ended with the meltdown of the former by 1992. During much of the US-USSR “Cold War”, in effect India was on the side of Moscow rather than Washington. Since the beginning of the 21st century, while the strategic goals of the US and China have begun to visibly diverge and continue to do so, once again (as during the 1950s) Russia and China have become the closest of security partners. Should India decide in Washington’s favour in the matter of a 21st century security partnership, that would more than compensate for the accretion of strength that has been gained by China as a consequence of the China-Russia security alliance. Both President Vladimir Putin as well as President Xi Jinping are looking at whether a newly rejuvenated (by the poll landslide) Prime Minister Narendra Modi will move closer to President Trump in his second term or return the country to the traditional Nehru-era policy of keeping away from Washington-centred alliance systems, both formally as well as in practice. Both Xi as well as Putin are aware that the commissioning of the S-400 system by India would free them of any anxiety that a comprehensive security partnership would develop between Delhi and Washington. Both will make intense efforts to convince Prime Minister Modi that India’s security interests are safe even without having to enter into a close relationship with the US, a stance that several within the Lutyens Zone concur with, given their memories of past situations. However, the reality is that in a world once again divided into two competing blocs, “non-alignment” would result in a loss of both extant opportunities as well as relevance.
The decision for India as to which bloc to get linked to has been made easier by the fact that for decades, Beijing has prevaricated on coming to an agreement on the border with India on the lines that took place between China and Myanmar and between China and Russia. Even on a matter as low down the food chain as India joining the Nuclear Suppliers Group, thus far there has not been a green light from Beijing, despite the gains of the Modi-Xi summit in Wuhan. The accretion of geopolitical heft consequent to a definitive understanding on security between Washington and Delhi may ensure that India gets taken more seriously by China.
Where India is concerned, despite the fact that the Pakistan economy is far smaller than India’s, the robust manner in which China has boosted the capacities of the Pakistan military has raised the threat level from GHQ Rawalpindi to very high levels. Given that the only target of the Pakistan military is India, there is a disconnect between the rising pitch of declarations of Sino-Indian friendship coming from Beijing and the steady acceleration of material and other assistance to the Pakistan military. The progress of work on the China-Pakistan Economic Corridor (the nomenclature of which remains unchanged even in the segment which passes through Pakistan-occupied Kashmir) is another indication that Pakistan has been given by far the highest priority by China within South Asia. The “all weather” linkages are visible even in capitals such as Colombo, Kathmandu, Male and Dacca, where the envoys of China and Pakistan meet frequently with each other in a context where GHQ Rawalpindi has given no sign of any letup in its asymmetric war against India. Now that Russia has joined hands with China as that superpower’s primary security partner, Moscow is coming ever closer to Islamabad, and is in the process of beginning sales of weapons systems to the forces commanded by GHQ Rawalpindi. Given the nature of much of policy formulation in India, there is still a propensity to ignore the immense changes in the geopolitical environment that have taken place just during the two decades of the present century, in particular the cementing of the Sino-Russian defense and security alliance. India is no match for China so far as the interests of Russia are concerned, except that Moscow would like to retain its dominant position within the military in India in the matter of weapons supplies, not just for reasons of commerce, but to ensure a comfortable (to Beijing and Moscow) distance in military matters between Washington and Delhi. President Putin has had the benefit of the fact that Moscow has been a reliable defense partner of India since the 1970s, despite a few hiccups along the way, especially during the Yeltsin period. During this period, the US has been unwilling to transfer advanced weapons systems to India, while Russia handed over even a nuclear submarine, besides providing what is at present the only window open to India to enter the age of hypersonic weaponry through modifications in the BrahMos missile. While this has been the past and remains the current reality, the trend line has shifted. The reason for such a change is the accelerating pace of the Sino-Russian alliance. This, taken in conjunction with the long-established China-Pakistan military nexus, opens the possibility of a diminution of future advanced military supplies from Russia to India. In contrast, the need for an alliance with India to counteract the density of the Sino-Russian partnership has cleared the path for the US to make India a platform for the manufacture of advanced weapons systems, the way China has made Pakistan a platform for the manufacture and assembly of advanced weapons systems, including sophisticated aircraft and missiles. However, such collaboration between Washington and Delhi would be stillborn, were Prime Minister Modi to give final approval to the plan for purchasing S-400 defensive missile systems from Russia.
While the US and India, given their compatible political systems, are potential security partners, in matters of trade, the “Zero Sum” approach of President Trump calls for India to stand its ground on a variety of issues, such as oil supplies from Iran to inter alia protect its investment and opportunities in Chabahar, which could shift China’s way in case India stops all oil purchases from Iran. Whether on the issue of pharmaceutical prices or the demand to give preferential treatment to US manufactures, a much closer fit on the defense and security side would result in the Pentagon counter-acting calls by the US Trade Representative or Department of Commerce to levy sanctions on India. To retain dominance in the Indo-Pacific and maintain primacy in space, cyber-space and underseas, a partnership with India is a necessary force-multiplier for the US. The friendly tone of the Pompeo visit as well as the friendly atmosphere that surrounded the Modi-Trump meeting indicate that this lesson has been clearly understood in Washington. However, both sides will need to make adjustments and compromises that are at odds with earlier policies. There are likely to be an increasing number of high-level contacts between Washington and New Delhi, including a much higher frequency of meetings between Trump and Modi than has been the case thus far, the bilateral summit meeting on the sidelines of the G 20 taking place after a gap of seventeen months. In the 1950s, India lost the chance to become a US ally. Both in the 1992-96 during the Narasimha Rao period as well as during 1998-2002 during the time when A.B. Vajpayee was the Prime Minister of India, it was Washington that failed to take advantage of the opportunity for a strong strategic relationship, preferring Pakistan to India on both occasions. In the era of two forceful leaders, Narendra Modi and Donald J. Trump, once again the door has been opened towards a close partnership in matters of defense and security between the US and India. Will this chance too repeat the dismal history of the past, or will history be made on a scale last seen in the Nixon-Mao handshake in 1972?

Sanders and Harris would vanquish Trump (Sunday Guardian)

By M D Nalapat

Bernie Sanders-Kamala Harris ticket would energise the Democratic Party base.

A mandate for systemic change, such as a Bernie Sanders-Kamala Harris Democratic Party ticket for the 2020 US Presidential polls, has the momentum needed to overcome Donald Trump’s many advantages. Although the 45th President of the US is frequently lampooned (mainly for his tweets), the fact is that he has relentlessly sought to fulfil the promises made by him in the 2016 campaign. Some of the methods used are unorthodox, but Trump did not emerge in politics through the conventional political process that almost all leading Republican or Democratic politicians in the US had. Several of the stances adopted by Trump are in reverse gear so far as political correctness is concerned, such as his obvious unconcern about the way the Department of Homeland Security is dealing with even infants who are in their custody as illegal immigrants. About the only member of the inner core of the Trump family who seems not to have led a privileged life from birth is the soft-spoken First Lady. However, Melania Trump has figured in the media in inverse proportion to her headline-generating husband, so that her modest life before becoming the spouse of the New York billionaire seldom gets mentioned. Overall, the present President of the US is a ruthless and brilliant tactician who grasps what needs to be said or done in order to succeed. In such a situation, the Presidential candidate favoured by the Clinton machine within the Democratic Party, Joe Biden, would soon be cut to pieces by Trump. Despite being the first choice of the Clintons, the former Vice-President was shredded just days ago by Kamala Harris, who drew attention to Biden’s past stance in favour of individuals and policies discriminating against the African-American community, which is still suffering from the error President Abraham Lincoln made in choosing a closet segregationist, Andrew Johnson, as his Vice-Presidential candidate in 1864. This “Veep pick” believed in racial supremacy, and sought to reverse moves towards justice for African-Americans soon after taking over as President after the murder of Lincoln. Had an individual closer to Lincoln’s own humanistic views on the subject of race been appointed, John Wilkes Booth may have hesitated in killing Lincoln. Given the thespian’s knowledge of politics, it is safe to assume that Booth knew that Johnson, who would succeed to the White House should President Lincoln die, was the opposite of the latter where matters of racial justice were concerned. It took a century of continuing prejudice and injustice before President Lyndon Johnson enacted the Civil Rights Act and thereby removed several of the discriminatory measures still extant against African-Americans. When compared with India’s affirmative actions in favour of the Dalit community, US moves to reverse the injustice done to African-Americans have been far less pronounced, even after the Johnson reforms. The eight years of President Barack Obama were suffused more with symbolism rather than substance where race relations were concerned, although the major healthcare reforms embodied in Obamacare was carried out in his time. President Trump has sought to roll back elements of Obamacare, while taking measures against Latino migrants that are impossible to succeed despite their cruel nature.
India is a country where the elite celebrates those who have harmed the interests of its people. Henry Kissinger and Bill Clinton (while in office) pursued policies that were hostile to India, and yet both were lionised during visits to India. In the US, it is ironic that the African-American community adores Bill Clinton, the US President who did more than almost any predecessor to empower Wall Street against Main Street, and whose measures resulted in jail for hundreds of thousands of African-Americans for petty misdemeanours conflated by such laws into major crimes. The US has displaced almost every other country in the world in the number if its citizens who are behind bars, often because of the “Three Strikes” Nixon-Clinton doctrine that specifies lengthy jail time for three offenses, no matter how petty. Despite himself having “smoked but not inhaled” marijuana, President Clinton refused to legalise non-toxic variants but instead retained the harsh provisions put in place by Nixon, who seemed to act as though prison was the most appropriate place to send minority groups to. The relative situation of African-Americans improved not at all under Clinton, yet the community seems in thrall to the Clintons. Until very late into the campaign to win the 2009 Democratic Party nomination for that year’s Presidential race, almost all major African-American associations backed Hillary Clinton over Barack Obama. Now, the same entities are supporting Clinton favourite Joe Biden in the race for the party nomination, despite African-Americans Cory Booker and Kamala Harris being in the contest, and Biden having been close in previous years to both policies and personalities opposing racial equality and justice, views and actions that he has yet to express regret for. Of course, the Clintons are diligent in their calculations, and if they find that Biden is likely to lose in the contest for the party nomination, will switch to another candidate who can be expected to follow the dictates of the Clintons in matters of policy and personnel the way Barack Obama did in his first term. What the Clintons wish to avoid is a situation in which those genuinely opposed to Wall Street (principally Elizabeth Warren, Kamala Harris and Bernie Sanders) get nominated. This despite the fact that in a contest pitting genuine votaries of change against Trump, the latter may lose. President Trump has been venting continously about “socialists” in the Democratic Party. However, Warren, Harris and Sanders may be better described as social democrats rather than as socialists. Given the manner in which Wall Street has been overwhelmingly favoured over Main Street, several million otherwise Democratic voters chose Trump in 2016 because of his proclaimed stance (in contrast to Hillary Clinton) against those involved in the business of “money making money”. Once elected, Trump turned to Wall Street to fill the top economic jobs in his administration, and surrounded himself with billionaires and a few mere millionaires. In 2020, it will be harder to convince those close to penury that Donald Trump is their champion and not a candidate such as Senators Warren, Harris or Sanders.
Given the mood of the US electorate, a Bernie Sanders-Kamala Harris ticket would energise the Democratic Party base the way Trump does his. It would be best for the Democratic nominee to indicate in advance the running mate. What is needed to be avoided is be to follow conventional logic and choose a running mate whose policy prescriptions are substantively different from those of the nominee. What happened after the death of Abraham Lincoln should be a warning that all future Presidential nominees need to heed. Every individual is mortal, and if a Head of State passes on and gets replaced by a person with opposing views on policy, it would be a travesty of the mandate. Joe Biden or Beto O’Rourke are betting that their being close to the Republicans on matters of policy will help secure more “independent” votes. They are wrong. Most voters want real, not cosmetic, change. This time around, what will count is genuine commitment to change from Reagan-Clinton-Bush-Obama-Trump policies that have reduced the relative income of the middle class, added to the number of poor, and vastly expanded the wealth of the handful of hyper-rich people having such outsize representation in Team Trump.

Friday 28 June 2019

Prof M D Nalapat remembers P V Narasimha Rao one of India's greatest ever PMs (PGurus)

From the first time he met him in 1973 to the last interview that he did of Sri P V Narasimha Rao in 2004, Prof. M D Nalapat shares his experience of this quiet achiever. Here is the article by Prof. Nalapat on Narasimha Rao's final humiliation

Wednesday 26 June 2019

What to expect at the G20 summit (CGTN)

This year's G20 summit will be held in Osaka, Japan this week. Chinese President Xi Jinping will attend the event. All eyes are on his meeting with his U.S. counterpart, Donald Trump. The expected meeting is seen as key in restarting talks over China-U.S. trade disputes.

Monday 24 June 2019

Freedom of Double standards (Organiser)

By M D Nalapat

The so-called Babri Masjid in Ayodhya was unused for prayer by the Shia community for decades. When it was destroyed in 1992 by an out-of-control assembly of activists, an international uproar ensued. Media in the US and Europe had almost entirely greeted with silence the forcible reduction of the Hindu minority in Pakistan from 38 per cent to less than 1 per cent since 1947, or the killings on an industrial scale of Hindus in Bangladesh (not usually by Bengalis but by settlers from other parts who in the Bangladesh freedom struggle remained loyal to the Pakistan army that was killing the Bengali segment of the local population by then) since 1951. They were in full cry after the collapse of the Babri Masjid, despite the fact that not a single member of the minority community lost his or her life during that incident. Especially in the 1990s, both BBC and CNN competed with each other to label those as ‘freedom fighters’ who had just months ago committed genocide against the Pandit in Kashmir valley. What such media were championing was the freedom of extremist elements to kill innocent and peaceful people of another faith.

After the destruction of the so-called Babri Masjid, more than 160 temples in Kashmir were attacked, with several being destroyed or converted into sites, some of the uses to which they were put being best not to describe. Neither in India nor elsewhere, barring a handful of publications that were promptly labelled ‘communal’, was there mention of such a crime against secularism, a concept that implies equality of treatment and equal rights to every faith. To this day, the destruction of nearly 300 places of worship in Kashmir has gone not only unpunished but ignored by successive governments, with not a single individual even charge-sheeted for the offence. This is in contrast to the Babri Masjid trial, where some of the most powerful politicians in the country are facing prosecution for being present in 1992 when the structure disappeared in a cloud of dust.
Freedom is universal. Freedom is indivisible. Especially in an era when the Knowledge Industry needs to power the creation of a hundred and twenty million more jobs in India over the next five years, freedom of expression (FOE) is essential for economic and social development. While there are exceptions to this, such as expression designed to encourage specific perversions such as child pornography, or which explicitly call for the violent overthrow of the elected order, overall FOE needs to be accepted as part of life in a democracy. Indeed, the advance of technology will make the censorship of views even more problematic. Hence, the need for state authorities to focus only on the few necessary exceptions to the principle of free speech, rather than act in the spirit of Jawaharlal Nehru, who insisted that the first amendment to the Constitution of India should be that section limiting freedom of speech.

A contrast to the United States, the other very large democracy, where the First Amendment is explicitly designed to protect freedom of expression. Not just the central government but the courts need to protect such freedoms rather than allow busybodies (including those in authority) to subject those indulging in free expression to the rigours of the judicial and police process, for this is a conveyer belt that often drains an individual into a shadow of his or her former self. What is striking in India is that so many ‘champions of free speech’ suddenly become deaf, dumb and blind whenever the rights of those with whom they disagree personally and politically are sought to be restricted. There has been much criticism of the manner in which the UP police have dealt with media persons involved in disseminating online and on television the views of a lady about Chief Minister Adityanath. Shri Adityanath, I personally feel, needs to reflect on the experience of another Chief Minister, Narendra Modi in Gujarat, who for more than a decade was subjected to the most vicious of trolling, yet emerged stronger politically with every such abuse. The Gujarat government sought no legal action against the media persons and their platforms who were heaping insults on Modi on a regular basis, but simply ignored them. Interestingly, after the 2014 Lok Sabha polls, several of those who were fierce critics of Modi underwent a transformation and became his admirers. Just before the 2019 Lok Sabha polls, there was again a crescendo of verbal attacks directed at Prime Minister Modi. The election results showed that these actually created empathy rather than alienation towards India's first Prime Minister from both an economically as well as a socially weak section of society.
But what is strange (or perhaps not) is the silence of those condemning the action of the UP police against media persons on the ruthless, the relentless, manner in which the Bengal, Karnataka or Kerala police - to take a few examples - have used the colonial laws so carefully preserved by Nehru and his successors to send nearly two hundred media persons to jail. Publicly calling a Chief Minister in these and some other states anything other than a saintly genius has become an occupation filled with the hazard of serving a long time in prison.
Nehru’s (First) Amendment (and the sooner this gets repealed the better) has been used with alacrity in several states, and yet those claiming to champion freedom of expression ignore both this enactment as well as the manner in which those with whose political and policy views they agree are using this to try and suppress views contrary to their own. For such individuals, it would seem that freedom of speech is subject to the restriction that what is said must be such that they agree with. The rights of those with contrary views get ignored, the way the destruction of temples, Gurudwaras and lives in Pakistan or lives and temples in Kashmir or arrests of media persons in Bengal, Karnataka and Kerala have been. A genuine champion of freedom of expression will fight for the right even of those with whose opinions they are in complete disagreement with. India has suffered much from the 1947 Partition. We must avoid the error of treating as separate entities those in sync with our views and those who hold contrary opinions. One country means equal rights and freedoms for all, including freedom of speech, whether it be in UP, Karnataka, Bengal or elsewhere. Those who ignore deeds of some while focusing on a few are doing a disservice to the ideals they themselves profess.

Saturday 22 June 2019

Trump-Modi-Xi ties set to define the coming decades (Sunday Guardian)

By M D Nalapat

In the case of US, India needs to be forthcoming on security matters, while being tough on commercial issues. In the case of China, India needs to be firm on matters concerning security, while ensuring leeway in purely commercial fields.

Yanan, China: The clay mountains of Shaanxi province are a universe away from New Delhi, where US Secretary of State Mike Pompeo is visiting, 25-27 June. The Global War on Terror (GWOT) is expected to figure high on Pompeo’s agenda in a context where there is disappointment in Washington about India not matching its tough words on terror with action on the ground in most theatres where terror groups that are clones of ISIS are active. Apart from not signing BECA (Basic Exchange and Cooperation Agreement) as yet, India is still considering the purchase of S-400 systems from Russia, a purchase that would doom future hi-tech cooperation between the US and India in the joint development of weapons platforms. Such US-India cooperation is especially welcome in the context of the fullscope manner in which China is developing Pakistan as a manufacturing hub for military aircraft, missiles and nuclear technology, while still blocking India’s entry into the Nuclear Suppliers Group. For this to happen, the S-400 bullet needs to be bitten and fast by India. After that, field cooperation could begin in Afghanistan and other theatres where terror groups are active. A robust security relationship with the US will assist in recruiting the Pentagon, the CIA and the State Department as allies against the US Trade Representative and the US Department of Commerce, both of whom wear outsize blinkers as they seek to implement measures that would destroy much of the small retail trade in India to the benefit of US tech giants. The USTR seems to feel little compunction in pressing for concessions on pharma and health pricing that would benefit a handful of US and European billionaires at the cost of tens of thousands of lives in India’s zone of poverty. In the case of the US, collaboration on matters of defence and security is desirable, while conceding to US demands on commercial matters is not. In the case of China, the situation is different. However, the fact that India will be the first country that President Xi Jinping visits after the 70th anniversary of the founding of the People’s Republic of China is significant. Those close to him say that Xi, who enjoys a good rapport with Narendra Modi, is seeking a return to the early 1950s period of a close rapport between China and India. Of course, during that period, it was India that gave almost all the concessions. This time around, as much the bigger power, it is China’s turn to be generous to a country that can emerge as its biggest market in Eurasia in the years ahead. The importance that China under Xi is giving to Modi can be gauged from the fact that the traditional heart of China, Xian, has been visited by such notables as Presidents Bush and Obama, yet the only pictures on the City Wall are those of Xi and Modi. In Wuhan as well, the Lake Guest House has pictures of the Prime Minister all over the surroundings and inside the Guest House.

Chinese authorities will be watching closely the signals emanating from Delhi on the Pompeo visit. They are now certain that the Trump administration is determined to roll back Chinese influence through downsizing economic growth. In such a context, the Indian market is a tempting prize. However, for the potential for India-China economic and commercial relations to be fully realised, Beijing will need to give more attention towards India’s core concerns than has been the case thus far.

Such calculations seem a world away from the mountain redoubt (where Chairman Mao Zedong sheltered for close to a decade during the war between the People’s Liberation Army and the Japanese). The hillsides are covered with trees planted since the 1980s. During the 1930s, the mountainsides were bare, offering targets to the Japanese air force as they dropped bombs on the dwellings carved out of the clay soil of the mountains. In the Soviet Union, Stalin’s successor Nikita S. Khruschev swiftly repudiated the legacy of the man who had dominated the USSR since the death of Lenin in 1924 till his death in 1953. This was despite the fact that Khruschev was a favourite of Stalin, who had repeatedly promoted the corpulent apparatchik in his climb to the top of the Communist Party of the Soviet Union (CPSU). In contrast, Deng Xiaoping, who soon emerged as the effective successor to Mao on the latter’s death in 1976, was several times punished by Mao, especially during the Cultural Revolution (1966-76). Despite this, Deng paid homage to Mao’s memory, aware that any effort at downsizing his role would damage the image of the Chinese Communist Party (CCP) the way Khruschev’s 1956 recital of Stalin’s despotic nature had the unintended effect of forever destroying the legitimacy and historical resonance of the CPSU. Since his assumption of office as General Secretary of the CCP in 2012, Xi Jinping has promoted a renaissance of “Mao Thought”, pointing to the manner in which the first leader of the People’s Republic of China (PRC) unified the country and made it a global force despite widespread poverty. Around the year, Chinese citizens come to Yanan to experience the surroundings (albeit far more leafy than before) in which Chairman Mao wrote some of his most important treatises and drew up strategies to confront the Japanese, while keeping at bay the forces of the Kuomintang (KMT) led by Generalissimo Chiang Kai-Shek. It was during the Yanan years that Mao emerged as supreme within the CCP, a position that he retained until his passing. Xi has patterned himself in Mao’s mould, working on policies that would project the PRC as not simply a Great Power but in time, the world’s most consequential country. In order to achieve this, he has placed emphasis on both a strong defensive as well as technological foundation.
However, there is already a superpower that has remained pre-eminent at least since the start of the 1939-45 war, and this is the United States, now led by its 45th President, Donald J. Trump. While the slogan of the billionaire-turned-politician is “Make America Great Again”, as the US is already a great country, what is probably meant is to “Keep America First”, rather than allow China to walk away with that prize. The battle between the USSR and the US was a contest between two systems, an economic model dominated by private industry that was adopted by policymakers in Washington, as opposed to the model where the state occupied the commanding heights, such as the case with the USSR and of course India under Jawaharlal Nehru and later Indira Gandhi. To this day, successive governments in India have been reluctant to let go of the privileges accruing to the policymaking establishment that flow with state control of a range of enterprises and resources, a chokehold maintained in the name of “public interest”. China is no exception. State-owned enterprises (SOEs) dominate much of the economy, although in recent days, the fact has dawned on the CCP core leadership that the private sector in China needs to be given more equitable treatment in view of the Trade War that has been ongoing with the US for the past year. China needs many more entrepreneurs such as Jack Ma and Ren Zhengfei if the country is to escape the constrictions that current US policy is seeking to enforce on its economy. Mao gave stress to two principles: that (a) China would always win over its foes and (b) that the battle would not be easy, but long and arduous, and the Chinese people are being prepared by Xi Jinping to face a long and difficult battle against the efforts of the US to weaken a system that has made China just a few steps away from overtaking the US as the world’s biggest economy. The battle between the Soviet and the US systems ended with the meltdown of the USSR in 1992, although long before that, it was clear that Central Planning was not working where living standards were concerned. Since the initial years of the 21st century, the world is once again witnessing a battle between two systems, the Chinese and the American. The Beijing Model is challenging the Washington Consensus. Once China overtakes the US in Gross National Product, the consequences for US soft power would be profound. Among the first casualties would be the US dollar, which would witness an acceleration away from it as the global currency of choice. US companies would no longer be able to set the terms of engagement with foreign companies the way they have been doing since 1945, despite the military disasters of Vietnam, Afghanistan and Iraq.
What is taking place between the US and China is not just about trade deficits or surpluses. It is about whether the US system will continue its dominance over the economies of the globe or fall behind China’s. The somewhat misleadingly labelled “Trade War” will continue for a considerable period of time, until one or the other system gives way to the other in terms of global reach and influence. Will the US dollar remain the dominant global currency, giving the US President the power to choke to near death the financial systems of countries that refuse to follow his diktats, for example that good quality and affordably priced oil from Iran should not be bought by India? Will the global supply chains for services and even manufactures be dominated by US logistics and commodity hubs? Will US soft power remain far ahead of its competitors the way it is in a world where US brands such as KFC, Pepsi or McDonald’s are ubiquitous despite doing nothing positive for the health of their customers? Will the switchboards of the internet remain almost entirely in US hands, so that a country of a billion plus people such as India has become the digital monopoly of Amazon, Facebook, Google or Twitter? President Trump cannot be faulted for seeking to slow down China’s rise in a manner that none of his predecessors dated to attempt, but in PRC President Xi Jinping, he has met a formidable opponent, who is determined that this is a war that Beijing and not Washington will win. Each of the swelling number of Chinese visitors to Yanan are there to get reminded of an earlier period in their country’s history when what seemed a hopeless struggle ended within a decade in a rout for the other side. Of course, in the conflict against Japan, both Mao and Roosevelt were on the same side, as many smiling photographs of US delegations visiting Mao and Zhou Enlai in their clay dwellings testify to. From the late 1960s onwards, it was the USSR that was the principal rival, and in the 1970s, China and the US once again allied with each other, this time to battle not Tokyo but Moscow. Now that Washington has emerged as the most potent challenger to what Xi terms the “Chinese Dream”, once again it is Moscow that has become the closest ally, with Vladimir Putin and Xi Jinping forming a Sino-Russian alliance that will soon cast a shadow across all of Europe and Asia. Both Moscow and Beijing seek to draw New Delhi into this grouping so as to ensure that a Washington-Delhi nexus does not take place that would have its ripple effects across both the seas of the Indo-Pacific as well as the Eurasian landmass, and it is expected that there will be much cordiality on display by both Putin and Xi when Narendra Modi heads to Tokyo for the G-20. Of course, while there, Modi is certain to meet not just the Russian and Chinese leaders, but Shinzo Abe and Donald Trump as well. Lutyens Zone strategists have talked about a “balancing act” between the two superpowers (the PRC and the US). Balancing on a wall has greater risk than playing hopscotch, where India jumps from one side to the other and back, depending on the need and the circumstance. That would be a much more difficult diplomatic game to play than the sterile construct of “balance” (or in other words, non-alignment), but also much more rewarding for the interests of this country. For both the US and China, India would need to differentiate the security parameters from the merely commercial. In the case of the US, India needs to be forthcoming on security matters while being tough on commercial issues. In the case of China, what is needed is to be firm on matters concerning security while ensuring leeway in the purely commercial fields.
Prime Minister Modi, assisted by External Affairs Minister S. Jaishankar and NSA Ajit Doval, will need to play a dexterous hand in the diplomacy that he is engaged in between Xi Jinping and Donald Trump. For the former, the path can be cleared for Chinese investment in India, including in 5G networks if the Huawei bid is competitive. Infra projects can be taken up, both in India as well as in the region. Tourism can be multiplied manifold. In the case of the US, India needs to reinforce its commitments in the Global War on Terror by ramping up its activities even while the US assists in building up its capabilities. Given the geopolitical situation, a move away from Russian to US defence platforms is desirable, indeed inevitable. This will be among the difficult decisions that will need to be taken by Prime Minister Modi within the year, so as to set the economy on a glide path to double digit growth, while building India’s capacities in matters of defence and security. The world is entering into a period when China, the US and India (followed by Russia) will be the most consequential of the world’s countries. The 1950s were a period of missed opportunities for India. That dismal history should not get repeated during the coming decade.

Why Congress collapsed against BJP (Sunday Guardian)

By M D Nalapat

The reason was not too much of Rahul Gandhi, but too little of the Rahul of the period before Sonia effectively took back the reins of leadership from his hands.

Several within the opposition are seeking consolation after their pitiful showing during the 2019 Lok Sabha polls by pointing to EVMs as the cause of the debacle. In order to materially change the overall result, there would need to have been a countrywide program substituting select EVMs with machines programmed to show a pre-determined result. No such effort seems to have come to the attention of the Election Commission of India, or indeed to anyone else, even in this age of smartphone cameras. Also, for EVM manipulation to succeed, there would need to be seamless human links forming a long chain of causation, beginning with those designing computer commands and ending in a system of booth management that would have to be flawless in implementation. Given that the BJP won massively even in states run partly or wholly by the Congress party, those accusing the BJP of EVM fraud are implying that such governments sabotaged themselves. Surely the Congress party had its own booth managers who would have been vigilant enough to expose any manipulation of the EVMs. A better hypothesis is that the BJP landslide was caused by a torrent of errors made by the opposition parties, principally the Congress, which lost almost all the Lok Sabha seats in which it was engaged in a direct battle with the BJP. Along with the charisma of Prime Minister Narendra Modi, it was the continuing unpopularity of the Congress that was responsible for the measly numbers won by the party in the present Lok Sabha. The assumption of leadership of the party by Rahul Gandhi failed to change voter perceptions about it at the national level.
Why did the Congress put up such a weak show? Rahul Gandhi sought to replicate the 2014 strategy of the BJP against his party by making corruption the centrepiece of his sallies against the Prime Minister and the government. The problem was his focus on just a single issue—Rafale—and the use of arguments that were designed to appeal to lawyers or to chartered accountants rather than to the overwhelming mass of voters in India. It did not help that the principal spokesperson against the BJP on the corruption issue was P. Chidambaram, who has himself been charge-sheeted in various criminal cases, and who (together with his family) can certainly not be described as less than immensely wealthy through ways that are under investigation. The leading lights of the Congress during the UPA decade, many of whom have become tainted in the public mind (and these days in the records of the investigative agencies), continued to remain the most visible faces of a party that was supposed to have undergone a generational facelift after Rahul Gandhi took charge as AICC president on 16 December 2017. Doing a repeat of the 1989 Bofors debacle was impossible unless the Congress party had examples other than Rafale. Also needed was another V.P. Singh (with his crusader image) to lead the charge, not former UPA ministers speckled with corruption charges. The Congress needed to move beyond a single issue and go after the BJP on a wide range of corruption charges, but the fact that such a slew of allegations was absent indicated to the voter that Team Rahul’s attacks on the BJP about corruption were not credible, especially in a context where the “changed” Rahul Congress appeared to voters to be the Sonia Congress with a few cosmetic changes. This “zero change” perception got reinforced when Sonia Gandhi once again took centrestage in pre-poll negotiations, and when she contested for the Lok Sabha once again, instead of handing over Rae Bareli to Priyanka. The latter’s refusal to contest in Varanasi was seen as a lack of confidence, which cost the Congress heavily. In the “new era” of Rahul, the voter saw only a UPA III, rather than genuine change.
Given the victory of Smriti Irani in Amethi, Rahul Gandhi may be happy that he chose to fight from a second constituency. However, that very move may have cost the AICC president the voting margin he needed for victory in Amethi. Choosing another constituency when Amethi had been such a reliable bastion was a slap in the face of voters there, and several responded by either abstaining or casting their votes for the BJP’s energetic candidate. Contesting from elsewhere cost Rahul Gandhi the Amethi Lok Sabha seat. In matters of overall strategy, the fatal error made by Rahul Gandhi was to suddenly retreat from what had been described as a “soft Hindutva” approach. He returned to the Sonia Gandhi policy matrix, focusing only on the minority vote. The “soft Hindutva” line had helped win Chhattisgarh, Rajasthan and Madhya Pradesh, while at the same time holding on to the minority vote, but was discarded in the run up to the Lok Sabha polls. The effects of Rahul’s imaginative visit to Mansarovar, his claim of being a “Shiv Bhakt”, the numerous visits to temples, got negated when Sonia Gandhi and her electoral strategy once again became the Congress line from the initial weeks of the Lok Sabha campaign. Neither Rahul nor Priyanka called for a Ram temple at Ayodhya, a touchstone issue for many voters, especially in the Hindi belt. Rahul could have won from anywhere in Kerala, but his choice of a constituency where the Indian Union Muslim League was ubiquitous further reinforced the perception of Congress as a “Minorities Only” party. It is no surprise that Rahul Gandhi wants to quit rather than remain the titular head of what is so visibly a party still run by Sonia Gandhi and her personnel, policy matrix and brand of politics. The reason the Congress party lost so comprehensively to the BJP was not too much of Rahul Gandhi, but too little of the Rahul of the period before Sonia effectively took back the reins of leadership from his hands.

Sunday 16 June 2019

China and Russia key to Iran regime survival (Sunday Guardian)

By M D Nalapat

US financial sanctions would be rendered ineffective by Chinese purchases of crude oil, military strangulation of Iran would get broken by Russian weaponry.

Hewing to the State Department line in reporting events means never acknowledging that mistakes have been made. Blood-curdling reports purporting to show Saddam Hussein was still in possession of huge stocks of chemical and biological weapons, became a staple in important newspapers across both sides of the Atlantic during the months prior to the 2003 war against Iraq waged by George W. Bush. Every now and again, individuals were trotted out who would testify that Saddam was the primary global facilitator of Al Qaeda, and even that he had the keystone role in planning and carrying out the 9/11 attacks on New York and Washington. To this day, tens of millions within the NATO alliance believe both in Saddam’s imaginary WMD mountain, as well as in his non-existent links with the terror groups that carried out the first major attack on the continental US since the war of independence with the British during 1775-1783. There were repeated declarations from officials in Iraq that the country’s WMD stockpiles had been destroyed, and yet the fiction persists that Saddam Hussein “pretended to have WMD” during the pre-war period when in fact he did not. Another example of lockstep reporting occurred during the 1990s, when President William Clinton made it a policy priority to force India to concede the Kashmir valley to the ultra-Wahhabi groups that were—and still are—active in that region. Clinton was among the most anti-India US Presidents ever, but that did not prevent the Lutyens Zone (with its customary masochism) from idolizing the man when he arrived on a short visit during the final months of his second term as President of the United States. The frenzy among the Page 3 set to physically get as close to him as possible was even greater than the rush of the Page 3 set towards the dressing room of Pakistan test captain Imran Khan during his tours in India. During the 1990s, whether it be the BBC or CNN, almost daily reports were carried about the glorious “freedom fighters” of Kashmir and the hateful Indian state. The fine print, about the “freedom fighters” wanting to convert Kashmir into a version of what Afghanistan became under the Taliban, went unread. The murder and forced expulsion of the Pandit community from the Kashmir Valley, as well as the organised takeover of their lands as well as the destruction of most of the temples in the vale, went unreported by those desperate to protect the “human rights” of terror groups to indulge in inhumane conduct. Once when the carnage in Syria, caused by the arming of ultra-Wahhabi groups by the GCC and its Atlantic Alliance partners, began its doleful course, a contribution on why Bashar Assad was, despite his numerous flaws, preferable to the armed groups seeking his overthrow was posted on the website of a prominent institute for Middle Eastern studies in Washington for only a few hours before it was taken down. Freedom of expression ended for those supervising that institute, soon after views the opposite of those being touted by the establishment of the day began to be aired.
It is now Iran that is the focus of Saddam-style Atlanticist media horror stories. The UAE is correct in assuming that the rash of mysterious attacks on ships in the Persian Gulf is state sponsored. But which state? Not Iran, but a rival state that seeks to provoke a conflict between the US and Iran. Looked at from the angle chosen by National Security Advisor John Bolton, there is logic in pressing for a military strike against the mullahs in Teheran now, before they reach a more advanced level of sophistication in their nuclear and missile systems. Assisted substantially by the boycott of Iran by several countries, the mullahs in Teheran seem to be in no hurry to hand over authority to the elected government. Hence a post-JCPOA nuclear Iran would almost certainly remain under the control of Ayatollah Ali Khamenei, as little a friend of liberal values as anti-Assad Middle Eastern “freedom fighters” funded by regional elites together with NATO. These militias have busied themselves decapitating Christians, Yazidis and moderate Sunnis. Of course, that Christians are safe in Syria only in the territories still controlled by Assad (or the Kurds) remains a matter that goes unmentioned, just as the genocidal impulses of the “freedom fighters” in Kashmir went unnoticed during the expulsion of the Pandits in 1990. A rising drumbeat of allegations is being mobilized against Teheran, presumably to get public opinion within the Atlantic Alliance to accept without protest a military strike on the country. Both Benjamin Netanyahu as well as Mike Pompeo would prefer taking out the Iranian mullah regime now rather than allowing the country’s talented scientists and engineers to go the North Korea way and actually become a nuclear and missile threat not just to Israel but also to Europe. Foreign Minister Javad Zarif seems to believe that the Europeans (especially the charming Foreign Policy chief of the EU) will be persuaded to bypass US sanctions. If they do, it will be in a cosmetic and not in any substantive way. The security establishment in the EU has as big an interest in preventing an Iran controlled by the Ayatollahs from emerging as a nuclear power as do Bolton and Pompeo, the difference being that the latter are open about their preference. The intention of those behind the mysterious incidents against Gulf shipping is not to launch an all-out war just yet but to build public opinion to accept the justification for such a war. What is likely is a calibrated series of moves designed to weaken the resistance of the Iranian regime, so that within a few years, the people of that country may once again take to the streets in the hundreds of thousands in opposition to Ayatollah Ali Khamenei and the system of governance created by his predecessor, Imam Khomeini.
Whether such a strategy will result in an Iran war or not depends on Russia and China. Should Moscow boost the military fightback capacity of Iran by selling the country deadly weapons, and Beijing take advantage of US sanctions to fill its refineries with cut price oil from Iran, there would be scant chance of weakening to terminal exhaustion the regime in Teheran. US financial sanctions would be rendered ineffective by Chinese purchases of crude oil, and the military strangulation of Iran would get broken by Russian weaponry, which has managed to retain its deadly edge despite the weaknesses of the economy. The key to whether or not there will be war over Iran lies in Moscow and Beijing more than it does in Riyadh and Washington.

Saturday 8 June 2019

$1 trillion external investment awaits Modi 2.0 policy matrix (Sunday Guardian)

By M D Nalapat

External investors are looking forward to the removal of several business-phobic regulations that serve only to be used as a lever to extract bribes.

Mumbai: The business community is looking towards the next five years with hope and expectation. The assurance of political stability in India caused by the victory of Prime Minister Narendra Modi in the 2019 Lok Sabha polls, coupled with geopolitical tailwinds, opens the door for around $1 trillion of external investment into India during his second term, not just from the United States or West Europe, but from West Asia and East Asia. Within the former zone, the Gulf Cooperation Council (GCC) countries in particular are eager to strengthen their economic base in India, which has historically been close to the region, and has become more so because of the rising network of daily flights that operates between GCC airports and different parts of India. The Prime Minister has established close personal and working relationships with lead players within the GCC, including the royals leading the UAE and Saudi Arabia. In East Asia, both sides of the Taiwan Straits are looking to India as an investment destination. What they and other external investors expect from Modi 2.0 is a welcoming and stable policy environment. Hence they are closely watching as the Central government unveils policy initiatives in the period before the Union Budget gets presented and a clear idea of the direction and components of economic policy is revealed. Also under the scanner will be the manner in which the Prime Minister’s Office (PMO) deals with the obstacles created to growth by numerous growth-stifling policies of previous governments. Although the education system remains a work in progress despite efforts at change made by the Human Resource Development (HRD) Ministry, the superb overall quality of the young in India has meant in practice that a period of retraining—at levels of remuneration that are low by global standards—of individual recruits that lasts between 6 to 18 months is sufficient to ensure good performance by them in allocated tasks. Overseas investors looking towards India are also heartened by the emphasis placed on infrastructure development. As important as the jobs directly generated by such expenditure is the cascading effect of job creation in multiple sectors and rise in productivity because of the impact of better transport and other physical assets. Both in the case of the US as well as China, a paradigm shift in the range and quality of infrastructure preceded the period of steady progress towards the status of emerging as the top global leaders in the economic sphere.
External investors are looking forward to the removal of several business-phobic UPA-era regulations still carried forward that serve only to be used as a lever to extract bribe. Such a move would be in line with the declared objectives of Prime Minister Modi. The advantage facing the Central government is that what is needed is less new policy than it is doing away with several toxic policies formulated in the past. Modi has several times underlined the need to do away with laws and attendant regulations that give power to a miscellany of officials to insert themselves at will into the functioning of enterprises to threaten their closure or prosecution. Many such interventions are not motivated by genuine issues of corporate governance or the public interest, but are simply a lever to extract bribes through coercion. Rather than follow the global norm of using financial penalties as the preferred method of dealing with most mismatches between a particular company’s practices and the relevant regulations, in India the emphasis has been on prosecution, including, in many cases, the option of jail time. This is the case even in the plethora of matters concerning the GST, where even the option of bail in cases where the authorities allege under-payment of GST has been taken away. Were every official both competent as well as honest, such provisions may be workable without much disruption. However, in a situation where corruption amongst administrative personnel is still present, the possibility of an official taking recourse to penal provisions without just cause may not be absent. In the context of the harsh tax and regulatory regime put in place by Sibal-Chidambaram during 2004-14, the ubiquity of GST and the complexities which remain may result in lapses in compliance that do not have mala fide motives. However, this need not prevent penal action by the authorities, who are sometimes prone to using a “one size fits all” approach towards enforcement. The power of summary arrest vested in the official machinery has created what may be termed the “Sibal-Chidambaram Fear Factor” within swathes of investors and entrepreneurs that has a dampening effect on new investment. In the case of alleged GST defaults, as in other routine cases of an economic nature, the view of external investors is that a warning should be the first option, only sometimes accompanied by a financial penalty. A fresh deliberate and avoidable delay in the payment of GST should be followed by more severe financial penalties. Only those within the GST system who are serially and grossly delinquent should be subjected to the full rigours of the criminal law in India. By giving the power to impose loss of liberty or property to thousands of officials against hundreds of thousands of individual businesspersons, several investors are likely to prefer to locate in countries with less draconian compliance mechanisms. The banking system is an example of the manner in which highly coercive regulations may be indiscriminately used. There is a universe of difference separating the wilful defaulter from an honest entrepreneur, who is unable to repay because of unexpected and adverse market conditions. The two should not be put on the same scale of retribution, else genuine investors will hesitate to build new projects or expand existing projects for fear that business conditions may change but they may still be held criminally responsible. Risk is inherent in business, as are losses. During the UPA period, banks were telephonically ordered to give “ever greening” loans to businesses that were clearly bankrupt. While such transactions need to be identified and punished, others where the circumstances were less clear need to be looked at differently. Investigating agencies need to use a sniper’s rifle to shoot down the few Big Fish whose conduct is genuinely and massively criminal, rather than adopt a machine gun “spray of bullets” approach, where every businessperson in the vicinity gets “gunned down” i.e. falls into the criminal procedure quicksand. Of course, misuse of authority by officials for corrupt purposes needs to be met with summary and condign punishment, so as to weed out the bad apples from the basket of senior officials. Investors are welcoming reports that the Prime Minister has ordered his entire team to identify and dismiss corrupt officials, as well as those who are indolent and incompetent.
Several intending international investors are heartened by the growth-friendly reputation of Prime Minister Narendra Modi, and are hopeful that the PMO will soon utilise the electoral expression of confidence by the people of India in the Prime Minister to ensure a regulatory environment in which it is no longer “as easy as cake” for an official to send a businessperson to jail merely on the basis of suspicions or unproven allegations of misconduct. Unfortunately, such has been the situation put in place during 2004-14, the Chidambaram-Sibal years. There are indeed those businesspersons who have been successful in corrupting senior level policymakers and gaining windfall profits as a result, and the Big Fish among them in particular need to be made an example of as a warning to others. However, this is not the same as continuing a UPA-era policy matrix that makes the investor constantly worry if an error by his accountant (or the enmity of a politician or an official to whom he has refused a bribe) places him on a conveyor towards penal servitude. Removing the “Sibal-Chidambaram Fear Factor” (of arbitrary coercive, condign action) among investors both foreign and domestic would significantly boost the attractiveness of India as a global investment destination for companies eager to tap into the abundant human resources of the country.
Around 80% of the losses caused to the national exchequer from corruption comes from less than 1% of depredators. However, by diverting attention to tens of thousands and even hundreds of thousands, several of whom may not be wilful depredators, but fall into financial difficulties because of market conditions, most of the time spent by agencies on their investigations gets expended on those other than the Big Fish, thereby enabling several Big Fish to escape. A former Union Finance Minister was expert in using complicit officials, bankers, stock exchange players and others to generate substantial sums of insider and illegal profit from colourable stock market and currency operations. Such methods are akin to match-fixing in cricket, but unlike in the case of at least a few instances of the latter, foreign exchange-fixing or insider manipulation of stock prices did not attract any serious penalty. Reports of the complicity of office-holders even in regulatory authorities such as SEBI need to be investigated. A former finance minister created a punitive policy matrix that seemed on the surface to be harsh on wrongdoing, but which had hidden “backdoors” through which he and his associates siphoned off billions of dollars in profit. Thus far, neither the former minister nor his easily identifiable official favourites and other associates have been seriously questioned, in the rare cases where they have been questioned at all, except on matters that relate to trifling sums of money rather than the billions of dollars they scammed through their control over important institutions. Those involved in stock exchange, foreign exchange and currency manipulations have largely escaped scrutiny, much less punishment. As have several big names involved in (as the Prime Minister said, often telephonically) making banks hand over additional tranches of money to businesses that were clearly bankrupt in all but name. A like situation prevailed with regard to the widespread under-invoicing of exports and over-invoicing of imports that take place on a daily basis in India. A few university students proficient in commerce and mathematics could, with ease, identify the approximate extent of leakage of moneys through finding out the difference between prices received and paid for various commodities in comparison to (those received by or paid to) corresponding sellers and buyers in third countries. However, there is faith within the global investment community in the integrity of Prime Minister Narendra Modi, who has emerged unscathed from the numerous attacks made on him by political rivals during the 2019 Lok Sabha campaign. It is, therefore, anticipated that the Central government will very soon ensure that those responsible for billion dollar evasions in external trade or other manipulations will finally be held accountable, no matter what their status or reach within the bureaucracy. Prime Minister Modi has clearly achieved mastery of knowledge about how the governance system in India works at the Central level. The decks are, therefore, clear for decisive penal action on big depredators that is needed to give confidence to investors that it is the market and not crony contacts that will decide the success or failure of a billion dollar business. Recent actions against some high-profile UPA-era ministers indicate that the process of VVIP accountability may finally be getting under way
Among the immediate positive steps taken by Modi 2.0 has been the speedy manner in which the government moved through changes in declared policy to re-assure those within the country and outside who were apprehensive that the English language (and its attendant advantages) would get downgraded. Across all sections of the country barring some language purists, the global advantages of fluency in English are recognised, hence the mushrooming of private schools in Uttar Pradesh and Bihar, to which even economically disadvantaged parents seek to enrol their children. In leading countries across the world (such as Germany or Japan), emphasis is being given in the 21st century at an early stage of schooling to the learning of English, widespread knowledge of which is among the few advantages that India has over China. Chief Minister Adityanath in UP has followed this global norm in his state, showing great foresight in initiating a policy of making English accessible to school students from a young age. Investors further suggest that a possible innovation would be the granting of dual citizenship to nationals of specified countries. Such a privilege is available to citizens in several democracies, and Modi giving that right to select foreign nationals (especially those of Indian origin), who are citizens of a friendly country such as the US or the UK, would be an expression of confidence in their fealty to the stability and progress of not merely their adopted but also the native land of their forbears.
Given the colonial mindset still prevalent within the administrative machinery, it is no surprise that coercion is given much more emphasis than persuasion in order to ensure compliance. In matters of policy, there is the stick and there is the carrot. Given the population of the country and the often ramshackle administrative structures present in many locations, there are limits to the effectiveness of the stick. In particular, when wielded by a corrupt official, the stick may often belabour the honest, but unlucky while sparing the crooked. The Sibal-Chidambaram era of harsher and harsher penalties for a growing number of perceived offenses saw a multiplication of reliance on the stick. In India, a much wider band of activities has come under the ambit of criminal law, including in many instances imprisonment, than is the case in other major democracies. The laws and practices regarding income-tax are an example. During the UPA period, even the weak safeguards against bureaucratic misuse got diluted. As during the colonial period, it was assumed by the machinery of government that the average citizen was a crook rather than honest. Certainly the proportion of the population that pays direct taxes is still unrealistically low. Over the past five years, there has been an intensive effort by North Block to raise the number of taxpayers, mainly through the use of the stick, While this has had some success, much more progress would ensue were tax slabs to undergo substantial revision rather than remain much the same in real terms as they were since the 1996-97 Union Budget got presented. Looking at some of the GST rates, which are the most variegated and complex in the world, it seems that some in North Block believe that India’s citizens should follow the example of Anna Hazare and Vinoba Bhave and reduce their physical wants to a minimum. Elements of what is commonly accepted elsewhere (and by the growing and aspiring middle class within India) as a tolerable lifestyle have been taxed as luxuries, despite the fact that such industries generate employment and revenue in much the same way as the others do. Or that few millennials wish to follow the frugal example set by Mahatma Gandhi, an example cast aside by his successors in favour of luxurious lifestyles in the Lutyens Zone as soon as the British left. In the 21st century, when a citizen is bombarded daily with images from across the world, the elements of what is regarded as constituting a reasonable lifestyle have changed substantially since the era of the Mahatma, or even the 1970s period of tax rates of 97.25%. Hyper-high GST rates on presumed “luxuries” imply a policy matrix that is opposed to a steady improvement in the lifestyles of citizens and represents an effort to make such a process as financially painful as possible. After the reform having being kept in the waiting room for more than a decade, the rollout of GST has been a signature achievement of Modi 1.0. However, a lower level of rates would assist far more than “Arrest at Sight” provisions in ensuring wider and willing compliance, thereby fulfilling Prime Minister Narendra Modi’s command to keep the GST “good and simple.
Apart from looking for a substantial rise in the income limits for direct tax slabs (so as to promote higher consumption), investors are also looking to the PMO and the Ministry of Finance for lowering corporate taxes. In the US, such a policy (which has been initiated by President Donald J. Trump) has resulted in more than a trillion dollars of corporate reserves returning to the US for investment in that country by its corporates. High corporate tax rates result in company managements shifting profits to overseas subsidiaries through adjustments in payments and receipts. Lower rates, together with further ease of compliance through additional rationalisation of GST would assist in unleashing the animal spirits needed to break the present cycle of lower investment. In this context, domestic investors are taking heart from recent decisions of the Reserve Bank of India, whose current leadership seems to be abandoning the institution’s unfortunate tradition of looking towards the City of London and Wall Street while formulating its policies, rather than to the needs of those residing near the various Mahatma Gandhi Margs across towns and cities in India. Successive RBI Governors have done their utmost to handicap domestic industry through high interest rates, to cheers from global financial firms eager to cash in on such rates, and it is after a long time that growth of jobs in India is being given precedence in Mint Road over the profits of financial entities headquartered in New York and London. Given that the domestic market in India is important to external investors, this recent change in stance by the RBI will be a helpful factor in attracting a minimum of $200 billion of annual external investment into India over the next five years. This will be in addition to the extra investment raised from domestic sources as a consequence of a Modi-fied approach towards the economy.
Among the numerous ways in which the interests of those holding foreign currency have been given much greater priority than those unfortunates holding only rupees is the welcome that has for long been jointly extended by Mint Road and North Block to “Money making money”, as distinct from the money making goods and services. It is extraordinary that funds that flow into India only to get the risk-free arbitrage advantage of higher interest rates (and which flow out at the slightest sign of volatility) have been pampered by both fiscal as well as monetary authorities over investors who are willing to put their money into jobs and services through investing in infrastructure and other physical assets. While a dollar-denominated deposit can be removed in less than a second from a bank in India, a bridge, airport or highway cannot. Using the various means that are open to them through laws and regulations crafted by politicians and officials belonging to the “Swiss Club” i.e., those with undeclared assets abroad, those involved in “Money making money” operations can and do usually conceal their identities. The same anonymity could be extended to those investing in sectors where money creates goods and services. This could apply both to external investors as well as to domestic. If a job-creating unit is set up, such investment needs to be made more welcome by the regulatory system than mere “Money making money”. Even where domestic investors are concerned, disclosure or anonymity schemes could be evolved that incentivise individuals with large hoards of cash (including in banks) to not hoard but invest the same in sectors that are productive and which generate jobs. Substantial private investment is at present wary of making investments as a consequence of (a) fear of the consequences of discovery, combined with (b) the immense range of punitive options available to officials who are not always honest. They need to be encouraged to invest, as relying on expenditure by government will not be enough to meet the job deficit. What is needed is to unlock for productive investment the immense hoards of liquidity that successive sweeps by the investigating authorities have yet to uncover, often because of the connivance of corrupt officials. Deng Xiaoping said that it did not matter whether a cat was black or white, as long as it caught mice. India needs a lot of cats, no matter their colour, to catch the many mice scurrying around stunting the economy. In the Sibal-Chidambaram system, every shopkeeper was sought to be converted into a police officer, recording details of those who spent money on items stocked within the shop. The consequence has been that several shopping malls are empty on most days, except for those who go there for their morning or evening walk. An increase in the velocity of circulation of cash will lead to taxes getting collected with each circuit made, hence the obsession with catching them at the initial stage itself should not be retained at the P. Chidambaram (PC or Police Constable) level, which puts a dampener on overall demand. As for supply, the ability to generate a greater flow of goods and services should not be hostage to the whims of officials but should be given an environment to be plentiful. Prime Minister Narendra Modi has asked his ministers and officials to make India the most welcoming location in the world for start-ups, and this is a command that needs to be accomplished at the earliest.
Now that Modi has won a second five-year term, that too in such a spectacular fashion, deep reservoirs of money are looking to India as a destination for investment, but strategies will need to be worked out to attract them away from alternative locations. These strategies, which may sometimes be specific to country or industry, have to be within an overall policy geared towards generating investment that accepts that a Vinoba Bhave lifestyle is not what the youth of India are looking for. Moves such as the introduction of Interest Free Banking would be helpful in the banking system attracting funds. Kuala Lumpur has profited immensely from the Interest Free Banking system, as have New York, Frankfurt and London, and it is time for Lucknow, Hyderabad and Kochi to follow. In the case of China, which for India is among the most important potential sources of investment, an advantage that India has is the excellent relationship that has been built up between President Xi Jinping and Prime Minister Narendra Modi. This could be leveraged in order to secure investment from China to help offset the trade deficit between the two countries. In addition, there are companies from several countries that are looking to shift from China, both because of the trade war with the US and the mounting cost of skilled labour in that country, and India could be a preferred destination for several of them. Home Minister Amit Shah has shown his skill in ensuring that the Prime Minister’s image be leveraged in order to secure a repeat victory for the BJP in the Lok Sabha polls. The Groups of Ministers in which Shah is present will hopefully turn their attention towards ensuring that an annual target of $200 billion of external investment into India gets met. This would be besides domestic investment from those who have held off because of the overhang of the Sibal-Chidambaram years and the fear this has engendered of some officials using the multiplying thicket of rules and penalties to extort bribes. Such (domestic) investment would not be a small number, but would cross $500 billion during the term of Modi 2.0. There is money in India, enough to power double digit growth, but much of this is either not being used or is flowing to overseas destinations through both banking as well as non-banking channels.
Prime Minister Modi has shown immense skill in balancing relations between Beijing and Washington, or between Tehran and Riyadh. This is fortunate, as in different ways, there is need for a close relationship with both the global superpowers, the US and China. What is needed to place the economy on a sustainable double digit growth trajectory is a matrix of 21st century policy initiatives that combine the external with the internal; the financial with security imperatives; the use of soft power and an occasional display of hard power. After his overwhelming victory in the 2019 Lok Sabha polls, the formulation and execution of a conceptually and administratively integrated policy for double digit growth is the challenge facing Modi 2.0, a challenge that those who know Narendra Damodardas Modi are confident will be met with ease by the Prime Minister.