Tuesday, 06 August 2013 06:23





Saudi Arabia’s Nitaqat blues

The recent labour reforms in Saudi Arabia will not trigger a major reverse migration to India. Goat Days, a novel by the Malayalam writer Benyamin shows what it means to be an illegal worker in Saudi Arabia. After years of hard labour under the hot Arabian sun, detention and jail, Najeeb, a real-life character, is forced to return home to Kerala, penniless and broken.

Najeeb is an extreme case. But thousands of Indians now face the prospect of forced return from Saudi Arabia after working there illegally for several years. If they don’t get out by July 3, they could be thrown into jail.

The three-month grace period for enforcing the Nitaqat (Arabic for ranges or categories), which aims to replace a section of the large expatriate work force in the country with locals, ends on July 3. The ‘Saudi-isation’ programme, announced in June 2011 in the wake of the Arab Spring, was to have taken effect in April this year. But King Abdulla decreed a three-month extension. There are more than two million Indians working, legally as well as illegally, in the kingdom. The authorities find them hard working and disciplined. Most of them are from Kerala. The illegal workers from India are of two kinds: those who arrived on a ‘free visa’ and those who arrived on a ‘visit visa’ and overstayed. Under Saudi law, every foreign worker has to have a ‘sponsor’; he cannot work for another. A worker hired for a particular job cannot change his profession.

But violations of these rules are common. Most ‘free visa’ (actually, there is no such thing as a free visa) workers are those who have jumped sponsorship and professions, and are hence illegal expat workers.

In the run-up to the deadline, the authorities have also launched a drive against illegal workers. Saudi Arabia, the world’s biggest oil producer and exporter and a fast-growing economy, has an estimated nine million ‘legal’ expat workers. Plus, at least two million illegal workers who do not possess valid papers. Non-Saudis make up nearly 40 per cent of the country’s total estimated population of 290 million. That percentage is a big worry for the government.

What is Nitaqat?

The Nitaqat is a carrot-and-stick incentive programme for companies and businesses to hire more Saudis across a spectrum of jobs. It categorises firms into four colour ranges: blue (premium), green, yellow and red. For example, if a company has 40 per cent Saudis on its under-500-member staff, it is in the blue (premium) category and will enjoy privileges in importing foreign manpower.

If the company has only 12-39 per cent Saudi staff, it will be in the green category and its hiring privileges will be fewer. If a company’s Saudi employees’ percentage is only 6-11 per cent, it will fall in the yellow range, and hence will need to do some extra hiring to fall in line with the Nitaqat. If the percentage is between 0 and 5, the company is in real trouble: for instance, its foreign staff’s work permits would not be renewed.

Meaning: the company will have to fold up. A firm should have at least one Saudi employee, if it has under 10 employees, otherwise, it will fall into the red category. In April this year, there were 2.25 lakh firms and business entities that did not have a single Saudi employee.

Expats from India working for ‘red’ companies will have to leave. Where possible, they can move to ‘green’ and ‘blue’ companies if jobs are available. The Saudi government has relaxed ‘sponsorship’ rules so that workers in the red companies can seek a transfer without the permission of the sponsor (current employer). Several thousand Indians have made use of this provision.

It’s Political, Too

In a country with one of the highest unemployment rates in the world, particularly educated unemployment, Nitaqat looks quite fair.

But, it is also a political tool — aimed to forestall a likely ‘youthquake’ in the wake of the Arab Spring.

“Nitaqat is more political than economic,” says the filmmaker and former CPI(M) MLA P.T. Kunhimohammed, who anchors a weekly TV programme that handles non-resident Keralite (NRK) issues. “It shows the Saudi authorities are worried over unemployed youths’ frustrations. At the same time, in a pan-Arab sense, it hints at the assertion of the Arab self.”

Effect on India

How do the Nitaqat and the drive to flush out illegal expats impact India? Thousands will return. Already, some 70,000 people, mostly blue-collar workers, have applied for the Emergency Certificate from the Indian embassy — the highest number of 26,000 is from those hailing from Uttar Pradesh.

The EC is required for those who do not have valid papers to get an exit pass from the Saudi Passport Department.

The Government of India is planning to send special flights to Saudi Arabia to fly back the illegal workers on July 3. State governments have been asked to draw up plans for their rehabilitation.

“The impact of the Nitaqat on India, especially on Kerala, is not as bad as feared,” says R.S. Kannan, Additional Secretary in the NRK Affairs Department. “Initially, we had anticipated a big influx like during the Kuwait war.” Though Kerala has the largest single expat community in Saudi Arabia hardly 6,000 persons had applied for EC, he noted.

One major reason was that the Saudi government had relaxed many rules and facilitated the regularisation of a large number of illegal workers. Previously, those leaving the country on an exit pass could never return to Saudi Arabia. But, the authorities have agreed to allow them to come back again with a valid work visa, if they leave voluntarily now.

Prof. Irudaya Rajan of Centre for Development Studies, Thiruvananthapruam, says the Nitaqat is unlikely to slow down remittances from the Gulf.

Impact on Indian Business

Indian policymakers have looked at the impact of Nitaqat only in terms of job loss, reverse migration and remittances. Indians in Saudi Arabia are not workers only, they are investors and job providers, too. There is a large community of small and tiny entrepreneurs (who often run their businesses technically in the names of Saudis.) This community will take a hit.

Take the case of Radhakrishnan Nair from Perinthalmanna who runs a laundry business in a Saudi city. “I have eight people working for me - /**-  all are Indians,” he says.

“Their average monthly wage is under 1000 Saudi Riyals. Now, to escape the red category, I have to hire a Saudi and pay him a statutory minimum monthly pay of 3000 riyals.” It is hard to find a Saudi ready to do manual work, and at the minimum wage. “Even if I find one, he would work fewer hours, less efficiently and ask for higher wages,” Nair said. “All told, hiring one Saudi would mean hiring six Indian workers.”

Nair points out that most tiny and small businesses run by Indians would run up high wage bill, and hence higher cost of operation. K.V. Shamsudeen, who has lived in the UAE for four decades and who is a frequent commentator on NRI issues, believes that since Saudi Arabia is developing fast, there will still be opportunities for Indians at the blue-collar and technical and professional levels. Educated Saudis would prefer white-collar jobs.

Interestingly, the protagonist in Goat Days, in real life, goes back to Saudi Arabia looking for a better life.

Waiting for Maoists to encircle Delhi

Without a political consensus between the Union Government and the Maoist-affected States, and without breaking the nexus between the States and the Maoists, the insurgency cannot be effectively tackled

The ambush by Maoists on July 2 in Jharkhand reflects the total ill-preparedness of the country against the insurgents. Like the avoidable monsoon tragedy in Uttarakhand, the all-weather Maoist threat afflicting the country will not be resolved anytime soon. Like the monsoon’s invasion of India’s pride, the Delhi international airport, the Maoists will shortly migrate from rural to urban areas. Prime Minister Manmohan Singh will then have at least one more chance — at the next Chief Ministers’ meeting — of sombrely declaring that the Maoists pose the gravest internal security challenge to India. This ritualistic twice-a-year reiteration of the threat since 2004 is a record stuck in its groove, which refuses to break.

The recent Darbha ambush in Chhattisgarh, meant to be a wake-up call for the sleepaholic establishment, will pass by, even though it was called by Prime Minister Singh as an assault on democracy that eliminated the Congress’s political core from the State. Nothing, it seems, will shake the Government from its stupor till the Maoists arrive in Delhi, which is their political objective, with the war cry: “Dilli ghere lebo, ghere lebo” (We will besiege Delhi). The tangible cost that India incurs from shadow-boxing the Maoists is more than one per cent of its GDP, according to an estimate.

Why not blame the British? After all, it were they who decided in 1925 to preserve the social fabric and culture of the tribals in the forested Dandakaranya belt — approximately 1,23,000 sq km bordering seven of the nine Maoist-affected States. Like in the Federally Administered Tribal Areas in Pakistan, the British did not extend the administration to Dandakaranya. The Maoists have fully secured 40,000 sq km of this area where they run a parallel administration calling it a ‘liberated zone’. Abujhmad in Chhattisgarh, which the security forces tried to penetrate recently, was found impregnable, covered by three layers of mines and defences — much like the departed Prabhakaran’s sanctum sanctorum in Wanni in Sri Lanka. Colombo displayed political will and national unity to reclaim the liberated zone.

By contrast, New Delhi shied away from mounting a surgical operation in Chhattisgarh in 2005 following an unmanned aerial vehicle detecting a big, hot Maoist camp which, even after the Prime Minister and the Home Minister showed extreme enthusiasm to tackle, was not removed. That is why, while the drains in Delhi may get de- clogged, the Maoist wound will become cancerous. The reasons for this diagnosis are varied and many. The Maoists are waging a full-blown insurgency to capture political power. It is not, and never was, a law and order policing problem — which is a State responsibility under the Constitution. Internal security is a national issue subsuming considerations of federal autonomy, and needs to be brought on the concurrent list. Justice AK Patnaik recently said that Maoism is due to oversight of Schedule V and VI of the Constitution regarding rights of tribals and forest dwellers over forest land and its produce. While Schedule VI applies to the North-East, the complaint is that Governors have failed to exercise their authority under Schedule V in protecting tribal rights but no one has challenged their exalted omission. Only last month, Union Minister for Tribal Affairs Kishore Chandra Deo wrote a letter to Governors over violations of Article 244 of Schedule V in the failure towards protection of tribal rights. The Law Minister must clarify whether Schedule V as later modified is defective in law and, therefore, non- implementable?

It is apparent that State intelligence and police forces do not have the requisite capability and motivation to subdue the Maoists. Neither do, at present, the Central police forces. Without a political consensus between the Union Government and the Maoist-affected States, without putting aside differences between the ruling party at the Centre and those in the States, and breaking the nexus between the States and the Maoists, no headway can be made. Clearly, there are constitutional, political and capability problems which include the lack of a unified counter-Maoist grid and strategy, backed by a unified command. Special Forces are required as also a more creative employment of the Army and the Air Force, for a breakthrough. The Army was used in West Bengal in 1969 — a full Infantry Division and the Parachute Brigade — to form the outer cordon for the police to defeat the Naxals in the Birbhum forest areas.

The big myth surrounding the Maoists is that they are fighting for the rights of tribals. They’re doing nothing of the sort; they’re are only promoting their political interests. When the Maoists in Nepal with whom they have fraternal links, abandoned the bullet for the ballot and urged the Naxals to join the political mainstream, they were chastised by their Indian counterparts for betraying the people’s armed struggle. The pro-tribal mirage of the Maoists is backed by a platoon of intellectuals who glibly talk of the ‘alternate narrative’: The Maoist understanding of democracy and sustainable development etc, and being Gandhians with guns. This is a load of gibberish. Maoists are anti- development and have excelled in depriving tribals of what little development State and Union Governments are able and willing to provide. They have demolished schools, health and welfare facilities, roads and culverts, bombed drinking water and sanitation projects... the list is endless.

These Gandhians have stuck grenades and IEDs in the skulls and abdomens of dead soldiers. This variety of barbarity was excelled only by Attila the Hun. The misguided intellectuals have put an undeserved halo around their heroes. The recent consensus in the all-party resolution on dealing with the Maoists was impressive, but it cannot hide the intrinsic institutional handicaps which continue to debilitate State and Central responses. Neither in Jammu & Kashmir nor in the North-East did the Union of India allow the creation of ‘liberated zones’ at any time. Sopore in Kashmir briefly enjoyed this status, but it was promptly cleared by the Army and the BSF. Freeing the 40,000 sq km area, which is equal to the Chinese territorial claim in Ladakh, from the Maoists must be a priority task to re-integrate the tribals. You do not need an all-party resolution like the one against Pakistan and China to reclaim every inch of territory lost.

It is time to implement earnestly a Government policy of focussed security operations, governance and development; restoration of land to and rights of tribals, and political engagement at an appropriate time. But first, we must rectify the deficiencies and defects in the response mechanism in a time-specific schedule.

Restoring nature’s shock absorbers

There have been two dominant responses to the tragedy in Uttarakhand and Himachal Pradesh. One, that this is a freak event and may never happen again. The other, united political opinion that environmental norms were violated in construction and planning, which has exacerbated the scale of the disaster.

With loss and tragedy at its heart, the debate on appropriate planning in seismically and hydrologically sensitive areas has been rekindled, with the need to relook the very idea of a zone that is “ecologically sensitive.” Ricocheting between the Centre and State, are proposals for declaring Eco-Sensitive Zones (ESZ), which in the past were shot down on grounds of impeding development. Further, ESZ guidelines so far have had a focus around protected areas. There is a need to broaden the scope of ESZs in order to plan for both man and nature.

As buffer

This week, the National Green Tribunal issued a show cause notice to Uttarakhand, asking the State “whether permissions to construct are backed by any data study or master/zonal development plans” in the light of the flash floods, and asserting that the issue of rampant construction needs to be looked at “in the larger public interest.” In 2002, the National Board for Wildlife, under the chairmanship of the Prime Minister, discussed the concept of the ESZ the idea being to create a “shock absorber” or a “zone of transition” around national parks, sanctuaries and protected areas. States were free to declare such areas in other places as well. Construed by several States as a no go for development, they have still not come forward to declare an ESZ around all their protected areas. In 2006, the Supreme Court reminded the States to declare these zones, saying that non-compliance would have the Court stepping in to enforce a default 10 kilometre ESZ around protected areas. Still met with a sullen silence, the Ministry of Environment and Forests (MoEF) issued “Guidelines for the declaration of ESZ around National Parks and Wildlife Sanctuaries” in 2011, adding, diplomatically, that ESZs were in their nature “regulatory” and not “prohibitory.” As further reconciliation, it said that these zones were site-specific, and need not have the same prescription over all protected areas.

The concept was placed under the aegis of the Environment (Protection) Act (EPA) (1986), which has a central focus on checking pollution. Not surprisingly then, successful ESZ notifications so far have, on paper, pertained mostly to major polluting sources and extractive industries being kept out from protected sanctuaries. Very few notifications have been made to tackle difficult and multi-departmental questions of what, how much and where to build in places which are not protected areas but are ecologically sensitive; some would argue that these are areas which urgently need “zones of transition” in the absence of any active environment protection. ESZ declarations for areas such as Pachmarhi and Matheran are exceptions, and they consider planning for a mosaic of human settlements, municipal layouts and protected areas.

Impact assessments

The concept of a “shock absorber” in ESZ guidelines is an important one which needs more application, even in regions beyond protected areas. What should be planning processes around natural — and thus potentially stochastic [having a random probability pattern] systems — such as rivers? How are plans to avert a loss of life and infrastructure around fragile areas to be? Can the meaning of “sensitive” be better defined? Some of the answers exist in the current Environmental Impact Assessment (EIA) Notification (2006). For considering projects such as new development, change in land use, and erecting structures, the EIA asks some pertinent questions: whether the project causes a temporary or permanent change in land use or topography and if this use will increase in the future; whether the area is under legislation for ecological, landscape, cultural or related values; whether the area is susceptible to natural hazards. Then, it asks about the cumulative impact of the project and places considering “consequential development” as a factor to be examined.

These, sadly, have often been overlooked in clearing development projects across India. But they provide a template to examine the question of what and where is sensitive and how we need to plan not just for the present but in the future too.

This is where the second concept of “regulation” in the 2011 ESZ guidelines assumes significance. The moot point is that States have the sovereignty to build, but this needs to be done within a sustainable and clear framework. A compelling issue is that of water and rivers. With so many rivers, we still have no clear policy on river beds and flood plains — most moratoriums or regulations on building in these sensitive areas come from court orders. Water and hydrological systems are now referred to globally as “natural infrastructure.” The idea is that systems such as rivers perform a range of ecosystem services — water provision, storage and flood control. If left to perform as per natural workings, chances are that there will be self-regulation within the system. The rationale for not building on river beds and flood plains (an example is the Delhi High Court ordering the demolition of structures within 300 metres of the Yamuna), is that the flood plain needs to be able to “flood” (and thus absorb) excess water.

This area needs to be kept inviolate. A River Regulation Zone policy, on the lines of the existing Coastal Regulation Zone Notification, needs to be revived. Uttarakhand and Himachal Pradesh are both seismically active zones. With fast flowing and turbulent rivers, they are also States which have riverine natural infrastructure — which require inviolate spaces or “shock absorbers” — but which are not factored into planning. Buildings on river beds or flood plains have become easy casualties to floods.

Planning ahead Natural systems are stochastic and we are always exposed to the danger of natural disaster. In a manner then, we can never be fully prepared for freak events. This also leads us to the reality that planning for areas which are environmentally sensitive, stochastic, or prone to breakdown, has to be active. Re-examining the regulation, if not prohibition, of building activity and change in land use in such areas needs to be done immediately.

The MoEF has to take the lead in reframing sensitive zone directives for all States under the EPA and EIA notification, considering more than just protected areas as cores. The term “sensitive” needs to be better defined, with inputs from the National Disaster Management Authority (NDMA) and Ministry of Earth Sciences. The NDMA has plotted a hazard map for India, considering the probability of seismic activity. Severe seismic activity zones, considering inviolate and permissible construction zones in biologically rich and active areas, along with answering the concerns raised by the EIA notification, can form the foundation for identifying sensitive zones and laying down due processes for them. Issues like where can man-made infrastructure come up, which zones can be urbanisable, the height of buildings and where topography can be consciously changed in ESZs need to be addressed. For rivers and mountains, we need to consider the cumulative impact of mining, extraction, quarrying and channelization through levees. Past activity can set the tone for setting up sensitive zones.

A more evolved and harder ESZ regime is no longer a choice, but a necessity.

A dozen alternatives to food subsidy for improved welfare of the poor

The government is rushing in with its version of manna from heaven where angels already jostle against other angels stumbling under loads of subsidised grain for the poor. To implement what it considers to be food security for the people and electoral security for itself, the UPA would foist an additional subsidy burden on the exchequer whose size is estimated to range from an unrealistic Rs 25,000 crore to a probable Rs 80,000 crore, over and above the Budget allocation of Rs 85,000 crore in 2012-13. Can we think of better ways of spending such huge sums to advance public welfare? Here, we list a dozen.

Any number of empirical studies show that hunger is no longer a major worry for the vast majority of Indians (4 per cent are hungry), but malnutrition is (over 40 per cent are malnourished).  A large number of states already distribute very cheap grain. People at large stand to gain very little from the Centre also getting into the act.

The UPA stands to lose politically, too. When the Centre now takes on, say, the Rs 10,000 crore an Opposition-ruled state spends from its budget on cheap grain, the state's budget now gets an additional Rs 10,000 crore to splurge on populist schemes with which to woo the voters. The credit for a well-run, ongoing cheap grain scheme will not shift to the Centre or its political masters either.

People starve to death during famines not because of a shortage of grain but because the famine dries up work, depriving people of purchasing power to buy grain. The rural employment guarantee scheme already ensures that people have access to work, regardless of anything. Therefore, they already have food security of the basic kind.

To really improve welfare, people need access to nutrition, safe drinking water, rural power, roads that connect villages to markets in towns, affordable healthcare, relevant information, schools where teachers actually teach and make use of technology a trifle more advanced than chalk on blackboard, governance and law and order.

Not by Bread Alone

So, if the government is willing to spare an additional Rs 50,000 crore for welfare of the masses, here are a few things it could usefully spend on, to raise welfare far more effectively than sending more money down the FCI drain.

More roads of the all-weather, motorable kind. Only good roads that connect villages to towns and towns to cities can price signals carry across the system and boost production.

Roads are not enough. The farmer needs freedom to sell to those who offer the best price, taken away by the middleman-centred Agricultural Produce Market Committee (APMC) Act. So, let the Centre use spare cash to bribe states to scrap the APMC Act, or amend it to exclude perishables. Let the funds go to build climate-controlled warehouses and modern grain silos â•” storage capacity is short by nearly 30 million tonnes.

Climate-controlled storage is viable only when unbroken, reliable rural power is a reality. Spend some money on building transmission infrastructure. The rural electrification mission has a skewed focus on the distribution network, laying the ground for huge losses when power does start flowing to rural India.

Rural power available during the day will diversify the economic structure, enable new agro- processing industry, raise incomes for both farmers and workers and create a new flood of rural prosperity, to feed whose demand urban industry will strive and thrive. It will also shake up the caste hierarchy and social power distribution. Incidentally, you would need to abandon state monopoly in coal and break up Coal India, to allow India's abundant supplies of coal to be feed all the power generation capacity that lies idle today.

Climate-controlled storage and transport links to towns will boost vegetable, fruit, milk, poultry and meat production, boosting nutrition all around and reining in food inflation.

Spend, But on What?

Start 50 medical colleges, to end the shortage of doctors and the corrupting, sapping queue for MD and higher degrees. Introduce shorter courses for licensed medical practitioner to staff primary health centres.

Start teacher training colleges, to produce teachers who know how to teach. Appoint them to individual schools, rather than to a state cadre. No transfer possible means only locals would apply and stay put.

Administrative Reform, Too

Place administrative and disciplinary control over school and healthcare staff under panchayats. Absenteeism will disappear.

Build and launch a dozen communication satellites with high-capacity Ka-band transponders, to supplement and compete with terrestrial cable to make cheap high-speed broadband ubiquitous.

Appoint 20,000 new judges at all levels, build court houses, overhaul court procedure, ensure disposal of all cases beyond final appeal within a couple of years. Hire policemen.

Announce a cash prize of Rs 1,000 crore each for new vaccines and cures for widely-prevalent diseases, on the condition that the intellectual property would vest with the state. If there is cash to spare, more ideas will crop up.

Seeking the Asian Google

On the internet, Asia punches below its weight

Asia has close to 50 per cent of the world's internet users, some of the fastest broadband speeds globally and the most rapid growth in mobile broadband of any region worldwide. Yet, where are the Asian internet giants that should be competing in the global arena with the likes of Amazon, eBay, Twitter and Facebook?

The Economist Intelligence Unit has tried to find the answer to this question by interviewing local internet content providers and platforms across the region. Do Asia's internet businesses want to build up their presence in Western markets, or are they focused on dominating within Asia? What do they see as their highest potential path for growth? What is holding them back? The findings are published in a white paper released this week.

It is difficult to generalise across a region as vast as Asia. Indeed, the research identifies a clear north-south divide in terms of the inclination of consumers to buy goods and services — notably content — online, as well as the sophistication of companies in monetising their businesses.

Generally, though, we found that Asian internet businesses remain focused on their home markets, either because these markets are potentially huge or because they feel they need to build scale before venturing abroad. Owing to the sheer size and market opportunity available in India and China, there is little incentive for home-grown entrepreneurs from these countries to look outside.

For example, Hari Nair, the CEO of Indian online travel startup HolidayIQ, points out that there are 500 million leisure-related domestic trips made in the country each year. This makes developing an internationally focused service targeting foreign holidaymakers (of which India received only about 6.6 million last year) seem far less exciting. Others with overseas ambitions tend to remain regionally focused, believing Western markets to be too competitive and difficult to navigate.

The issue certainly isn't a lack of demand for Asian content and platforms. The most obvious example is Gangnam Style, the Korean rap song that became a worldwide sensation and garnered an unprecedented 1.5 billion YouTube views. But those Asian internet companies that have built an international business have done so almost by accident — they've launched a product in the home market and it has been discovered by users overseas through viral traffic or rankings on app stores. Line, a messaging service, was created for the Japanese market by a Korean company. But it found unexpected demand from the Middle East and South America and has since launched a major international expansion strategy. StepOut.com, an India-based dating site, started out as a venture called Ignighter.com in New York, run by two Americans. The take-up in the US was slow but the site began attracting droves of customers in India, where there were many matrimonial sites but few focused on dating. StepOut.com has since shifted its operations to Mumbai. Now, 10 per cent of its customers are in Southeast Asia.

What hinders these businesses from growing larger? The number-one answer across most of the region is the payments infrastructure. There are several challenges — credit card penetration is low, there is limited ability to use debit cards online and there is a general reluctance to conduct transactions online. In some markets, such as India, some businesses continue to rely on offline channels for revenue collection, such as through ATM machines or convenience stores, or even in-person collection of payments.

In many markets, the payments situation compounds the more general difficulties of monetisation. Online advertising budgets — while growing — remain small and skewed towards the larger players. While e-commerce is growing rapidly, finding the winning business model remains difficult in many markets. Outside of north Asia, entrepreneurs report that internet users are reluctant to pay for intangible items such as content. This is particularly so when there is pirated content easily available. Some larger foreign players,

such as music-streaming service Spotify, are convinced that consumers will pay if more content is made available at a reasonable cost. They have recently launched their services in some of the most piracy-prone markets in the region.

Regulation of internet business is also proving a challenge. It is on the rise in many countries and governments are focusing more on control than enablement, failing to understand the negative impact on the sector. In some markets, such as Vietnam, regulation is mostly undeveloped, which can be seen as a blessing since it allows companies to move quickly and freely. In others, such as South Korea and Taiwan, there are stricter regulations, which operators say hamper their businesses. In South Korea, for example, online games companies are expected to block access to under 16s between midnight and 6 am, while the government has simultaneously introduced a law prohibiting online sites from collecting personal data, which leaves gaming sites with no way to verify the age of their users. In India and Thailand, poorly worded and confusingly interpreted laws on liability for carrying illegal or even merely controversial content cause a great deal of uncertainty for businesses as well as high administrative costs.

One ironic upside to the surge in regulation is that it is encouraging companies in the industry to become more collaborative, if only in the name of protecting their interests. In many countries, internet entrepreneurs who would normally be suspicious of each other, are banding together to push the industry's agenda.

Border stand-off~II

In the recent India-China stand-off, the conflict was blown out of proportion, and self-seeking political leaders made comments which ran counter to India’s long-term interests.

What lessons can one draw from the two crises? First, given the nature of the terrain through which the India-China LAC passes, allegations about incursions are likely to recur unless urgent steps are taken to delineate the LAC and demarcate it on the ground. This can be done through the setting up of joint working groups to survey the areas. Second, the media should be more circumspect in reporting news and organising ‘talk’ shows, whenever tensions develop in India’s relations with its neighbours. There is a tendency among some of the ‘strategic experts’ to go ballistic and bay for the blood of the ‘enemy’, egged on by the anchor, rather than explain the perceptions of the two sides in a conflict situation which would promote a better understanding of the conflict among the public and also enable the policy-makers to take decisions based on sound deliberations.

In the recent India-China stand-off, the conflict was blown out of proportion, and self-seeking political leaders made comments which ran counter to India’s long-term interests. It goes to the credit of the government that the face-off between India and China could be settled through diplomatic negotiations, though the terms of settlement are not known. The India-China minuet on the border has continued for far too long and needs to be brought to an end, if relations between the two states are to be stabilised. Unfortunately, this is not happening because the settlement of the border conflict has become hostage to domestic political considerations, both for India and China, besides being influenced by geo-political factors.

When the British left India, there was no agreed border between India and China delineated on the map and demarcated either in the western sector or in the eastern sector. After independence, one of the basic assumptions of the Government of India’s policy on the border issue was that a series of unilateral assertions on the extent of India’s border would be enough to give it sanctity, without realising that this could be gained only through mutual agreement. When the Chinese (PLA) forces entered Tibet in 1950, Nehru told Parliament in reply to a question on a new Chinese map ~ “Our maps show that the McMahon Line is our boundary, and that is our boundary-map or no map ...and we stand by that boundary”. He was referring to the boundary in the eastern sector of the India-China border, though the Chinese ~ whether Communists or nationalists ~ had never accepted the legality of the McMahon Line. In fact, even many British officials had expressed serious reservations about its legality.

In the western sector, independent India’s claim was based on the views of the ‘Forward School’ strategist Sir John Ardagh, who had suggested in 1897 that the boundary between the north and eastern part of Kashmir and Tibet should be along the crest of the Kuenlun range. The idea was shot down by Lord Elgin, the then Viceroy and his advisers on the ground that this would not be of any strategic advantage to India. The boundary formally proposed by the Foreign Department of the Government of India and presented to the Chinese authorities in Beijing in 1899 by Sir Claude MacDonald, the British envoy to China (known as the Macartney-MacDonald Line), put forth a less ambitious claim of territory north of the Karakoram range and east of the Karakoram Pass, that left to China the whole of the Karakash valley and almost all of Aksai Chin proper, while it left on the Indian side the Lingzi Tang salt plains, the whole of the Chang Chenmo valley and Chip Chap river further north. Although the Chinese had not formally accepted the proposal, they did not reject it either because they themselves, through a unilateral move in 1892, had declared that the Karakoram ranges constitute the limit of Chinese territory.

The boundary proposal submitted to the Chinese authorities by the British in 1899 remained the de facto boundary between China (Tibet) and the eastern part of Jammu and Kashmir (Ladakh) till the end of British imperial rule in India. From that perspective, the Tibet-Xinxiang highway built by the Chinese through the Aksai Chin area during the 1950s was well within Chinese territory and as much was claimed by Zhou En Lai in his letter to Nehru in January 1959. Since the boundary line proposed in 1899 was not precisely laid down either then or later, Indians claimed a boundary alignment in the western sector, as depicted in the Survey of India maps published in 1954, that roughly corresponded to the ‘maximalist’ view of the ‘Forward School’ strategists. The Chinese contested this claim. The root cause of the India-China border conflict may thus be attributed to the lack of any mutually agreed border, delineated and demarcated on the ground. As the border disputes intensified rapidly after 1954, the year the India- China agreement over Tibet was signed, both sides were engaged in the exchange of letters/notes stating their respective positions on the border, and subsequently set up posts in areas which they claimed as their own. The news about the border skirmishes near the Kongka pass in the western sector and Longju in the east, in 1959 and the concurrent leakage of the news about the highway built by the Chinese brought the matter in the public domain. Interestingly, Nehru’s position on the Aksai Chin area was still tentative. He made a clear distinction between the McMahon Line, calling it ‘a fixed line’ with minor variations, and the boundary in Ladakh. Replying to a debate in the Rajya Sabha on 12 September 1959, he said: “The Aksai Chin is on our maps, undoubtedly. But it is matter for arguments as to what part of it belongs to us and what part of it belongs to somebody else...the matter has been challenged for a hundred years.” Two days earlier, on 10 September, referring to the Aksai Chin highway Nehru told the Rajya Sabha that the government had ‘discovered’ it in 1958 ~ “We did not know where it was...we just are not within 100 miles of that area. It is an uninhabitable area, 17000 feet high and it had not been under any kind of administration. Nobody has been present there. It is a territory where not even a blade of grass grows.”

If the Prime Minister was candid enough to admit that the Aksai Chin was a disputed territory, why did he change his position later? For, in 1960 when relations between the two states plummeted to a new low, Zhou-en Lai made an attempt to settle the border dispute peacefully through a package deal. He had told Nehru that though China had never recognised the legality of the McMahon Line in the eastern sector, it was prepared to accept the McMahon Line alignments, as a possible boundary in the eastern sector, provided India recognised China’s legitimate claims in the western sector, which primarily referred to the Aksai Chin area. But India’s claim seemed to be as firm in the eastern sector as in the western sector. As late as September 1959, Nehru might have considered a compromise in the western sector. However, the border clash at the Kongka pass in that year and the Chinese criticism of India’s decision to offer political asylum to the Dalai Lama in the wake of the crackdown in Tibet, sealed that possibility. Moreover, the government’s decision to publish the diplomatic exchanges with Beijing, under parliamentary pressure, limited the scope for manoeuvre in negotiating with the Chinese, as any compromise settlement would be branded by the critics as a sell-out.

Zhou-en Lai’s offer certainly merited careful consideration. The Chinese did not have any firm basis to claim territories in the eastern sector, and would be willing to accept the McMahon Line alignment, with minor modifications, since it followed the watershed principle. In the western sector their claims had a firmer basis. Had Nehru accepted the offer, the border war of 1962 might have been averted. Deng Xiao-peng had renewed the offer in 1979, with some modifications, that reflected the realities on the ground; but India was not ready. The Chinese claims to major parts of Aksai Chin have now become non-negotiable, both because of historical reasons discussed earlier, and the fact that this area connects two of China’s rebellious provinces. To strengthen their bargaining position in the western sector, they exerted pressure on India by claiming large tracts of territory in the eastern sector, where their claim is weak except perhaps in Tawang. Neither country wants a war. Overall peace and tranquillity has been maintained along the border. Yet the boundary problem has become intertwined with other issues and can be resolved only if both sides realise, as John Lal wrote in 1998, that the Himalayan crest “is the clearest possible dividing line” and that the crest-line must be established jointly through mutually agreed processes.

Army not for civil war

The armed forces are not meant to be deployed to suppress, kill and maim their own countrymen. they are recruited,  trained and deployed to fight the "enemy", the external enemy and the forces waging war against the State... The mobilization of the armed forces in the countryside would do more damage to the troops than save or secure the nation per se.

As a civilian, one writes with considerable trepidation and reluctance on a subject ~ "Maoist terror" ~ which angels fear to tread or tread with fear, if at all. All the more so when Isaac Sushil Kumar, who had served as Naval chief from December 30, 1998 to December 30, 2001, has declared that "inducting the armed forces into the fray has to be viewed as an operational imperative".

The key expressions appear to be "armed forces" and "operational imperative". That is understandable because the Admiral starts his thoughts with "war", the first principle of which is "selection and maintenance of the aim". The veteran top sailor makes it a case of "war against the Union of India by the Naxal-Maoist rebels....to topple the government in power."

In juxtaposition, one would like to pose a counter-question ~ Does the Government of India also think it to be a "war" against the "Naxal-Maoist rebels"? And secondly, is this the first-ever war the Government of India (would be) fighting in the history of 66 years of independent India against an "internal foe"? If the answer is 'no', then what should be the specific and projected "selection and maintenance of the aim" to fight this unprecedented "war"? And if the answer is "yes", this is not the first war to be fought by the nation and that in similar situations of grave threat to national security, the armed forces did come into play and gave the country victory. In that event, the retired Admiral deserves compliments, and his suggestions need to be taken very seriously and implemented accordingly.

However, there appears to exist several practical difficulties in the proposed war scenario of the veteran naval chief. The menace of the "Naxal- Maoist rebels" has existed for more than four decades. And, that has not been the "only war" of its kind to be waged "against the Union of India". The list of such internal wars in which the military is involved is rather long. But the striking feature is that those "wars" were fought essentially in the border states where the army and air force are deployed in strength and in sprawling static garrisons such as Jammu & Kashmir, Punjab, West Bengal, Assam, Manipur, Mizoram, Nagaland. These border states have been affected by relentless cross-border infiltration, with the non-state actors waging a war against the State.

According to the Admiral, "the display of sophisticated firepower even suggests cross-border support for their cause". That, indeed, is a point. However, there is a technical snag owing to distant topography and the location of Maoist operations. The turbulent areas are quite a distance from Pakistan, China, Nepal, Bhutan, Bangladesh and Myanmar. Hence, they appear too remote an area for a possible and effective cross-border support base and too deep inside the mainland Indian territory. Hence, the "cross border support", if any, is likely to emanate more from the ideological and theoretical brass than the operational leaders of adjacent, hostile cross-border terrain.

How are these rebel groups obtaining "sophisticated fire power"? Who is organizing the logistics? What are the states doing? Who is masterminding and manning the command, control, communication, intelligence, surveillance and reconnaissance to stop the logistics and provisions moving from the "cross-border" areas to several hundred kilometres deep inside the jungles and countryside of the Indian peninsula?

From all accounts, the rebel groups have sympathisers and supporters among the established non-rebel political groups which use the Naxal- Maoist bands to counter each other to gain political space for electoral politics in the remote areas. This was quite clear during the recent Chhattisgarh massacre of several prominent political personalities.

However, one is in agreement with the former Navy chief that "this is now a widespread national security problem that requires a well-conceived national strategy". Ironically, given the political cauldron, this "national security problem" appears to be confronted with several visibly anti-national actors and factors in the countryside. And that would make the old sailor's suggestion extremely difficult and dangerous to implement in the long-term perspective ~ "There is no reason why the armed forces with their superior resources and experience in counter-insurgency operations cannot be brought in to bolster the effort of our police and paramilitary units".

Let us be realistic. The armed forces are not meant to be deployed to suppress, kill and maim their own countrymen. Essentially and fundamentally they are recruited, trained and deployed to fight the "enemy", the external enemy and the forces waging war against the State. Combatants of the armed forces, referred to as "other ranks", which constitute 90 per cent of the fighting units, hail from the countryside; the same countryside which is facing the festering problem of Maoist insurgency. The present threat is undoubtedly grave and can have serious security implications for the nation's polity. Nevertheless, the mobilisation of the armed forces in the countryside would do more damage to the troops than save or secure the nation per se.

According to Military Balance 2013 (published by the International Institute for Strategic Studies, London), India has a 65000-strong Rashtriya Rifles, the Assam Rifles with 63900 troops, the Border Security Force with 230000 men, a 229700-strong Central Reserve Police, the Indo-Tibetan Border Police with 36300 troops, National Security Guards with 7350 men, the Sashastra Seema Bal with 31550 combatants, the Special Frontier Force with 10000 soldiers and the state armed police with a strength of 450000 constabulary. The strength of the Indian army stands at 1129900 personnel.

Therefore, the question arises as to why the armed forces should be engaged in a task which is not theirs'? And why should the paramilitary forces not be allowed to do the job which is theirs'? Why this shifting of responsibility? If the armed forces are to fill the gap because of the inability of paramilitary forces, then the decline in the standard and quality of the armed forces in inevitable.

This will weaken the country's international border. Can the paramilitary forces be deployed to face the armed forces of the enemy country invading our borders should the army fail to stop the invaders. Recently, there were three mutinies in the barracks of the Indian army, involving the 45 Armoured Regiment in Punjab, the 226 Artillery Regiment in Ladakh, and the 16 Light Cavalry in the Jammu sector owing to command failure. It bears recall that the Sikh Regiments had revolted in several cantonments in June 1984 in the aftermath of the army operation within the Golden Temple.

The army is not meant to be deployed deep inside one's own territory for a "civil war"-type combat. The armed forces are trained and nurtured to fight the external enemy on the border, which is far from the madding crowd or the countryside of the soldier's family and friends.

Food Bill: Is a rights-based approach feasible? Yes

The rights-based approach of the Food Security Bill is eminently feasible, provided it is combined with credible provisions for ensuring accountability.Fiscal feasibility is not currently a pressing concern as the total cost of the Bill is only around 1 per cent of the GDP and only an additional 4 million tonnes of grain are required compared to current procurement. I will dwell instead on other aspects.

Where social barriers and structures of power prevent people from accessing the most fundamental of human needs, as in many parts of India, legal entitlements give people something to fight for. The Right to Information Act (2005) and the National Rural Employment Guarantee Act (2005) have demonstrated that collective action can galvanise around these legal entitlements and empower people to make demands on the state, for what are anyway expressly the state's constitutional responsibilities. Often, these are small initiatives that work locally but make all the difference to the lives of people who might have little recourse to alternatives.

When Dalit and tribal women in UP's Sitapur and MP's Badwani districts get unemployment allowance in the MGNREGS or a corrupt official gets sacked (in Bihar) or is asked to return money embezzled through petty corruption - post-office officials in Pakur (Jharkhand), panchayat officials in Surguja (Chhattisgarh) or Boudh (Odisha) – these demonstrate the power of legal entitlements to dislodge entrenched systemic failures.

The attacks on activists who expose corruption underscore the lengths the nexus of corrupt actors is willing to go to preserve a status quo when challenged through legal force. Admittedly, tangible results from previous rights-based initiatives are varied, from very impressive, as with the RTI Act and midday meals, to very limited (so far), as with the Right to Education Act. The successes, however, are a reminder of the transformative power of a rights-based approach.

The entitlements under the PDS in the Food Security Bill offer an opportunity for people, especially in resource-constrained settings, to ensure that they do not go hungry. Maternity entitlements and children's access to food are long-neglected needs of those who are typically far removed from policy making and positions of power. Whether these materialise depends heavily on

complementary efforts, legal, administrative or institutional, that provide redressal mechanisms. A roadmap for successful implementation exists in some States (TN, Kerala, HP). Commonsense technological solutions can aid this process, as AP and Chhattisgarh have demonstrated for the MGNREGA and PDS, respectively.

The general perception that rights-based approaches yield laws that are honoured in their breach stems mainly from a failure of accountability. When the latter are in place and combined with political will, a rights-based approach can go beyond achieving proximate goals. It can bring about a new work culture in government functioning and a sense of collective responsibility. In being deeply cynical about a rights-based approach, we inadvertently contribute to conditions that cause it to fail.


Entitlement to food security confers a right that is more specific and far-reaching than what is in MGNREGA or the Right to Education (RTE) legislations.

The MGNREGA does not promise anyone the right to a job. It merely guarantees 100 days of wage employment in a year, provided the person concerned is willing to do unskilled manual labour.

The RTE, likewise, only casts an obligation on the Government to ensure formal schooling and completion of elementary education by all children in the 6-14 years age group. But there are no binding conditions in respect of quality. And since over 90 per cent of habitations in India have primary schools within one kilometre distance, the RTE doesn't really present insurmountable challenges.

This is not so with the National Food Security Ordinance, which provides legal entitlement to a monthly quota of 5 kg of wheat or rice per person at Rs 2 and Rs 3/kg to two-thirds of the country's population. It is a right that is much more tangible and practically exercisable by most people.

Currently, the grain that is channelised through the public distribution system (PDS) is made available to the targeted beneficiaries more as a service rendered by a benevolent state. Some States - Kerala, Tamil Nadu, Chhattisgarh - do a greatjob of it, while most - particularly in the Hindi heartland, housing the bulk of India's poor – do not have even a semblance of a functioning PDS.

The present system, moreover, places no obligation to deliver grain. Ration shop dealers, too, can turn off consumers by claiming supplies have not come from the top" and merrily diverting to the open market.

But the moment access to grain becomes a 'right', the game changes completely. It creates fertile ground for NGOs to identify any district or block where no PDS exists - there are scores or them - and file petitions in courts about people being denied their 'right'.

Over time, as awareness spreads about the new 'right' - the NGOs and the media will ensure it happens - it would also unleash additional demand for PDS grain that was hitherto suppressed only because of people's low expectations of getting it in the first place.

Further, even farmers, who earlier retained a part of the grain they produced for self- consumption, will choose to sell almost 100 per cent and meet captive family requirements largely from the PDS. Since the latter is to anyway cover three-fourths of the rural population, it will lead to a situation where the country's entire grain production potentially becomes marketable surplus!

All this raises practical questions of implementation, only to highlight what granting of a legally enforceable right entails when it

concerns food.

How are States and district administrations going to deal with the public interest litigations that are bound to follow?

Similarly, will the Government procure the entire wheat that farmers would offer to sell at the minimum support price of Rs 13.5/kg, only to give a part of it back to them at Rs 2? These are serious concerns that cannot be wished away, much as one supports the idea of giving citizens their right to food.

Six steps to a transition

If the former king of Bhutan, King Jigme Singye Wangchuck, were to contribute to a "How To" series, his book would be titled:  How to retain power for the monarchy in a world where democracy is king".

First, remove, but legally, those among your people who could become nuisances. Bhutan's 7,00,000 people comprise three main groups – the Ngalongs of western mountains and the "easterner" Sharchhops, who are Buddhist, and the Lhotshampas of the south, who are ethnic Nepali and many of whom practice Hinduism. The previous citizenship acts integrated Lhotshampas into the Bhutanese mainstream, but in the 1980s, they began to be perceived as a threat to the political order. A process of disenfranchisement that mainly affected them, began. In the early 1990s, Lhotshampas rose up in protest, but to no avail. The Bhutanisation of the people was in full swing, and the undesirables were expelled.

Second, start the move to democracy with a clean slate. Hand over the throne to your son. That was how the transition from an absolutist monarchy to a constitutional monarchy and parliamentary democracy in Bhutan began in December 2006. This move coincided and contrasted with the developments in neighbouring Nepal, which stripped its monarch of most powers.

Which takes us to the third step. Give a gift to your people before they demand it as a right. Announce the move to parliamentary democracy. But first, do what good lawyers do: never ask a question to which you don't already know the answer. Have a test election to test the way the wind blows, if you can. The 2008 elections saw a landslide victory for Druk Phuensum Tshogpa, leading some to point out the absence of an opposition.

The fourth step is simple. Follow the principle that one should give a gift that one would like to receive. Create a constitution with the help of experts, not a popularly elected constituent assembly, and include restrictions that would favour representatives from the elites. Retain your influence over key appointments. At the same time, to show evenhandedness, institute curbs on the monarch's powers. The king of Bhutan has to step down at the age of 65 and can be removed by a two-third majority.

Fifth, remove the irritants in the election process. With 75 per cent Buddhist, 22 per cent Hindu and 2 per cent Christian citizens, religion is a significant feature of public life. Add to this the cleavage between ethnic Nepalis, who are Hindu, and ethnic Bhutanese, who are Buddhist, and we get a simmering cauldron of grievances. So, the election law prohibits discussion of ethnicity and religion.

Sixth, let the government function. They will make mistakes and you will reap the rewards. The performance of the first democratically elected government is a mixed bag. The 2010 official survey found that while internet connectivity had increased and the primary school enrolment rate had improved to 100 per cent, a quarter of the people live on less than $1.25 a day, and 70 percent live without electricity.

The test of whether you have followed the steps in spirit and letter will come with the second election. Bhutan's citizens have voted in the second parliamentary elections from April to June 2013, and the two parties with the largest vote share will face off today. The DPT is expected to win again. If there are no nasty surprises, and if warring factions within your country come to you for advice, and if your country is hailed by the UNDP as having made a successful transition, then you can rest on your laurels. You have delivered a peaceful transition with security to your subject-citizens.

Making bankers pay for failed gambles

The RBI should adopt some of the bold and far-reaching proposals made by a British parliamentary panel for making banks and boards accountable.

The financial sector in the West imploded in 2007, causing a downturn in the world economy from which it is yet to recover. How to prevent recurrent banking crises has been uppermost in the minds of policymakers ever since. Progress has been painfully slow and there is a sense also that the reforms implemented thus far do not go far enough.

It has been left to the United Kingdom's Parliamentary Commission on Banking Standards to grasp the nettle. Its two-volume report contains some of the boldest and most far-reaching proposals made so far. The RBI would do well to embrace some of these proposals as part of India's ongoing reforms in the banking sector.

The report breaks new ground in several respects. One, it proposes a mechanism by which individual bankers can be held liable for negligence or serious lapses. Two, it makes several recommendations for improving the functioning of boards of directors of banks. Three, it moves further on tightening incentives for bankers than the proposals currently on the table. Four, it puts the onus on regulators to respond quickly to perceptions of serious inadequacies in standards or culture at any bank.

Lack of accountability

Several large banks collapsed or were on the verge of collapse in the financial crisis and had to be bailed out by taxpayers. Top managers at the banks lost their jobs but exited in a golden parachute, with hefty severance payments or pensions. The public in the West is outraged that hardly any banker has gone to jail or otherwise been held accountable.

The U.K. Commission attempts to tackle this issue head on. It proposes a Senior Persons regime which will ensure that "the key responsibilities within banks are assigned to specific individuals who are aware of those responsibilities and have formally accepted them." By thus assigning responsibilities in clear terms to specific individuals, the report lays the ground for enforcement action in the event of serious problems. Those at the top will find it difficult hereafter to disclaim responsibility for actions that result in serious harm to the bank.

The Commission wants regulators to review the responsibilities to Senior Persons from time to time and ask for responsibilities to be redistributed within the bank where, for instance, a bank undergoes rapid expansion. It asks that Senior Persons relinquishing office prepare a handover certificate outlining how they have exercised their responsibilities and indicating areas that their successors should be aware of. These are sound management practices that banks should have instituted on their own; that they  have to be now told to do so is a reflection on how banks have been run.

The Commission also proposes a Licensing Regime for a wider set of people than those covered by the Senior Persons regime.  The broader regime would cover almost anybody whose actions could harm the bank, its reputation or its customers. All persons covered by the Licensing Regime would be subject to a set of Banking Standards Rules. These Rules would "encapsulate expectations of behaviour." The Commission believes that the Senior Persons regime and the Licensing Regime together should enable regulators to hold individual bankers to account.

Bank boards were found to be ineffective in the years leading up to the financial crisis. The Commission makes wide-ranging recommendations to improve the functioning of boards. It notes that shareholders own too small a piece of banks to have the incentives to seriously monitor management. They also tend to be focused on short-term performance of banks. It is the boards, therefore, that must bear the primary responsibility for oversight of banks.

The financial crisis highlighted serious flaws in bank boards: overly dominant CEOs; weak Chairmen who tended to become cheerleaders for CEOs; lack of expertise amongst independent directors; and a failure on the part of independent directors to challenge the executive. The Commission raises the issue of whether the Nominations Committee, which selects independent directors, should be headed by the Chairman or by a Senior Independent Director. Boards tend to be self-selecting and self-perpetuating. The Commission would like banks above a certain size to advertise the position of independent director.

These are useful suggestions but they do not go far enough. Independent directors cannot exercise independence as long as they are all chosen by the management. (The Nominations Committee typically rubber-stamps the choices of the CEO or the controlling shareholder). Other stakeholders -institutional shareholders, retail shareholders, employees - must have a say in the appointment of independent directors.

The Commission recommends that the Senior Independent Director be asked to make an annual assessment of the performance of the Chairman. It wants him to explain to regulators how he has satisfied himself that the Chairman has fulfilled his role. Board members will be covered by the Senior Persons regime. An independent director or the Chairman must assume specific responsibility for the firm's whistle-blowing regime. Regulators themselves must go through whistleblower reports both to be aware about concerns being reported and to ensure that whistleblowers are being treated fairly.

The Commission might have gone further. We need a review of the performance of every independent director, not just that of the Chairman. Such a review can be done by peers on the board. Regulators must go through the minutes of board meetings and judge whether discussions are properly minuted and any meaningful discussions are taking place in the first instance.

The financial crisis highlighted how executive pay can become a source of systemic risk. Managers can take huge risks knowing that if their gambles work out, they stand to be hugely rewarded; if their gambles fail, it is the taxpayer who bleeds. Moreover, managers can easily show short-term performance and walk away with rewards whereas the risks reveal themselves over a longer period.

The Commission proposes several reforms to address the issue of performance incentives in banking. One, the creation of a separate set of regulatory accounts for determining remuneration, both at the company level and at the level of business units. Two, the rejection of the use of narrow measures such as return on equity for setting remuneration. Three, bank remuneration committees must disclose the measures used to determine remuneration (something that is sadly missing in annual reports of companies). Four, a significant part of variable remuneration should be deferred - and for up to 10 years.

One advantage with deferring compensation over a long period is that it allows remuneration to be recouped where required. The Commission would also like the regulator to explore the possibility of recovering remuneration already paid in cases where individuals are subject to enforcement action. It also recommends legislation to ensure that, where banks receive taxpayer support, all deferred compensation and unvested pensions are cancelled.

In the realm of regulation, the Commission's innovation is the proposed creation of what it terms 'special measures' for regulators to deal with banks that are seen to be wanting in standards or culture. The Commission would like the regulators' concerns on this account to be authenticated by an independent auditor. Once this happens, the regulators should have the powers to secure a commitment from the bank that it will take the necessary rectification measures and subject itself to intense monitoring.

The Commission also wants the U.K. to have a leverage ratio - the ratio of equity to assets – higher than the 3 per cent proposed under international norms. It wants the appropriate regulatory authority, not the U.K. government, to set the leverage norm. Finally, it proposes a number of measures to make the regulators themselves accountable to parliament.

Word of caution

Banks are apt to use their lobbying power with politicians to dilute regulations or regulatory actions. The Commission exhorts the  Governor of the Bank of England to warn parliament or the public when this happens. Mervyn King, who has just stepped down as Governor, has already heeded this piece of advice.

Several commissions have gone into the financial crisis and proposed reforms. These relate mostly to issues of capital, scope and size in banking. It has taken a parliamentary commission to look into the inner workings of banks and focus resolutely on the accountability of bankers and bank boards. The Commission's report goes to show that banking reform is too important to be left to regulators and bankers and that parliament, as the representative of the wider interests of society at large, has a great deal to contribute.

The RBI should consider taking many of these proposals on board. Indian banking has been dominated thus far by public sector banks, which are intrinsically risk averse and more amenable to direction by government and the regulator. This has made for a certain stability in Indian banking.

The situation is changing. The role of the private sector has grown and will grow further in the years to come, especially with a new set of players due to be given bank licences. Bankers' accountability, incentives, the role of boards, culture and standards in banking - all these issues will loom larger than before. It is wise to put in place measures that will ensure that stability in Indian banking is not undermined by the quest for greater efficiency.

Breaking China code needs firm leadership

India will have to live with an unresolved border dispute while Beijing dictates the terms of relations in other fields. Dismantling  the status quo will depend on how soon India can catch up militarily and strategically

After back-to-back visits - probably the most intense in recent history and uncannily coinciding with the change of leadership in China and in the aftermath of the Depsang intrusion - by the Indian Ministers for External Affairs and Defence, the National Security Adviser and the Chinese Premier, it is clear that resolution of the India-China border dispute is firmly on the back-burner and the current focus is on maintaining a peaceful border. The three- stage Special Representatives' dialogue for evolving a mutually acceptable border solution has failed, like previous efforts to define the Line of Actual Control. Consequently, the SRs are engaged in strengthening Confidence-Building Measures and agreeing on a new Border Defence Cooperation Agreement. External Affairs Minister Salman Khurshid recently said, "It does not help to hasten resolution (of the border) if you are are not  ready". This, after 15 rounds of SR talks, 18 points of consensus, several serious differences, including Chinese reneging on previous agreements like not disturbing settled populations, are out in the open! In short, the Chinese are asking for concessions in Arunachal Pradesh (read: Tawang) for concessions they will make in Ladakh.

Chinese interlocutors I met recently in Beijing confirmed that neither side is ready to make concessions due to the absence of a strong leadership which can make compromises – they call this a "weak domestic situation" - and public opinion being against concessions. Not mentioned here is presumably the rigid stance of the People's Liberation Army, which Depsang demonstrated, leading to speculation that the party does not control the gun due to differences between the state and the PLA, as the latter reports to the party.

At another level, Chinese Foreign Minister Wang Yi waxed eloquent at the recent Asean Regional Forum meet about the success of the 16th round of SR talks held between "two brothers". He described Premier Li Keqiang's visit to India like "sowing seeds in spring and reaping fruits in autumn between natural strategic partners". Mr Khurshid appeared to match these sentiments when he said, "Every step we have taken with China over the years is a positive step. There is no reason for alarm or discomfort". These inanities stand out in sharp contrast to the China-Pakistan relationship as being between "iron brothers", which keeps India anchored to South Asia.

The inventory of Chinese taunts, insults and lies is huge. The Depsang intrusion remains unexplained and, in the words of National Security Adviser Shivshankar Menon, "Explanation was not asked for". Major General Luo Yuan's tirade and warning issued on the eve of Defence Minister AK Antony's Beijing visit last week is unprecedented. But then, this is part of a pattern that began in 2006 when the Chinese decided not 'to hide their strength and bide time'. In 2010, on the eve of then President Hu Jintao's visit to India, Chinese Ambassador Sun Yuxi told CNN IBN, "What you call Arunachal Pradesh, the whole of that area is disputed." That same year, then Premier Wen Jiabao, who had famously said that, "India and China are friends 99 per cent of the time over 2,000 years", had promised that the trade imbalance would be corrected. In 2013, Premier Li repeated those words in New Delhi, and there is no doubt that his successor will say the same.

In 2010, China unilaterally reduced the length of its border with India from 4,000km to 2,000km, excising all of the Jammu & Kashmir border.

Despite the unfriendly Chinese sentiments and actions, Indian leaders ritually reiterate Tibet is part of China, though in the last two Joint Statements, this admission was missing. Further, our leaders even say they will not join any multilateral organisation to contain China. Why, when China does not lose any opportunity to do down India, regionally and multilaterally? Next time, when the Chinese describe Arunachal Pradesh as 'South Tibet', India should say, "But Tibet is not part of China". When they mention the capacity to muster 34 divisions, and flag 1962, New Delhi should remind them of Nathu La in 1967 and say, "We have the Dalai Lama who is equal to 100 divisions".

Before Mr Antony's visit, the new chief of the Defence Research and Development Organisation, Mr Avinash Chander, explained India's quest for a swift second strike and Agni 5 acquiring Intercontinental Ballistic Missile range – strategic signaling to China about deterrence parity. Raising the Strike Corp and additional offensive formations in the north to close the capability gap were  carried by newspapers that led to the Chinese General's strategic indiscretions.

Mr Antony's passage to China was to repair defence ties ruptured in 2009 when the Northern Army Commander in Kashmir was given a paper visa which led to suspension of counter-terrorism exercises. These will be resumed next year and defence relations expanded with contacts between the two Air Forces and increased exchange in ship visits. Keen on joint exercises in the Indian Ocean, the Chinese have sought maritime cooperation including search-and-rescue and anti-piracy missions. More contact across increased number of border points and joint patrols are also slated.

The new Chinese leadership has emphatically returned the focus of engagement to the undefined border, probably by contriving Depsang or the PLA staging it anyway. Hence, the need for strengthening mechanisms for peace and stability on the border. On top of the existing 1993 and 1996 border CBMs, 2003 SR dialogue and 2012 joint mechanism on border, territorial and sovereignty issues and core interests, there is now the Border Defence Cooperation Agreement which is a synthesis of previous protocols intended to freeze the border dispute, to resolve which neither side is ready. Importantly, the word 'stability' has been added to 'peace and tranquility'.

But a codified perception of each other's LAC, the lack of which has led to transgressions, is missing. Till 2003, both sides attempted an exchange of maps reflecting their LAC. In 2000, an agreement was reached on the Central Sector where the Chinese studied the Indian map without showing their own. It was then decided to shift from cartography to a political resolution, skipping a delineation of the LAC. That enterprise too has failed.

India will have to live with an unresolved border dispute while China dictates the terms of relations in other fields. Breaking the status quo will depend on how soon India can catch up militarily and strategically, and invent a leadership to face up to the Chinese. The question to ask is: Why is the Government of India not ready to negotiate the border dispute? The unpreparedness is due to lack of strategic thinking and foresight.

Indo-US dialogue

Though the fourth Indo-US Strategic Dialogue between US Secretary of State John Kerry and External Affairs Minister Salman  Khurshid turned out to be a lacklustre affair, the Americans succeeded in extracting from India an assurance that an agreement between Westinghouse and the Nuclear Power Corporation of India would be reached by September and the nuclear liability law diluted to the extent the US seeks. Kerry did not hide America's disappointment at not being able to reap the fruits of the Indo-US civil nuclear agreement which gave New Delhi special exemptions by the Nuclear Suppliers Group and the International Atomic Energy Agency. Westinghouse was to supply six nuclear reactors for the 6,000 MW, multi-billion dollar Mithivirdi power project in Gujarat, and General Electric, another US giant, the plants for the 10,000 MW Kovvada nuclear power project in Andhra Pradesh. Both sites are mired in environmental and safety concerns and stiff resistance by the local people. While the GE reactor design has not yet been cleared by the US nuclear regulator, Westinghouse has been allowed to share confidential technical information with India's Department of Atomic Energy and the Atomic Energy Regulatory Board. Both Westinghouse and GE get their major equipment and components manufactured by Japanese companies under the US-Japan Industrial Agreements and India would have to enter into a separate agreement with Japan to give effect to the Indo-US civil nuclear agreement. Japan is in no mood to sign such agreements unless India signs the Comprehensive Nuclear Test Ban Treaty and the Non-proliferation of Nuclear Weapons Treaty.

America is at a loss to find markets for nuclear power machinery and equipment manufactured in the wake of a nuclear renaissance ushered in by President Obama during his first term in office when the Nuclear Regulatory Commission received applications for 24 reactors to add to the existing 104. After the 1979 radioactive leak from the Three Mile Island nuclear power plant in Pennsylvania, no new plant has come up. The moratorium was broken in 2007 and massive construction began to add 24 reactors. Fukushima put paid to America's nuclear renaissance and half-built nuclear power plants dot the US skyline. Far from adding new plants, even the existing ones are closing down as the Federal appeals court froze 19 reactor licences because of on-site storage of spent fuel which posed "dangerous, long-term health and environmental risks." With the US Department of Energy scrapping a plan to bury spent nuclear fuel in Nevada, the power plants have no option but to store the stuff on site. It is ironic that the US, unable to cope with hazards posed by the nuclear energy industry and escalating costs, should try to burden India with its unsold reactors. A document prepared by the DAE in 2008 titled "A strategy for the growth of electricity in India," has set a target of 275,000 MW nuclear power capacity by the year 2050, which seems sheer madness. The September deadline for NPCIL to conclude a works agreement with Westinghouse for the Mithivirdi nuclear power plant is rather intriguing.

Ill-equipped CRPF

Any expression of surprise or concern in the home ministry over the CRPF decision to "ground" 50-odd mine-protected vehicles deployed in the Maoist-dominated belt would be dishonest and hypocritical. Years ago "supercop" KPS Gill had condemned those vehicles as poorly fabricated, too fragile to counter the impact of explosive devices, and warned that the personnel they were ferrying would be trapped, probably killed. Nobody took heed. And so now it has been decided that the risk of mass injury would be reduced if foot patrols were conducted ~ yet that would make for slower movement of jawans and leave them virtually unprotected. In the short term that may be a tactically sound decision, but it speaks volumes for the manner in which paramilitary personnel are condemned to be cannon fodder for an adversary known to employ sophisticated weaponry, and now well-versed (courtesy the LTTE?) in the business of planting explosives deep under the road surface. It is no comfort that some lives have been "saved" by shunning the low-grade vehicles ~ many jawans on foot patrols have also been gunned down. Not all that long ago when the IED threat was "live" in Jammu and Kashmir the Army was provided a fleet of highly specialised pre-used/refurbished specialised trucks procured from South Africa ~ a grim reminder of the difference between olive-green and khaki. At a recent interaction with industrialists, key paramilitary officers made no secret of the local "market" meeting few their requirements ~ not even quality helmets. They spoke of cumbersome flak jackets, indeed even of the packs of pre-cooked food being so heavy that the jawans often declined to carry them into the field. Is this acceptable? When the Prime Minister, and virtually all political leaders declare the Maoist threat to be "grave" ~ and it has not developed  overnight ~ what has prevented the home ministry from looking to the international market, and setting up a task force to galvanise industry into adequately equipping the paramilitary and police? The volumes of the purchases would make economic sense. The real problem is that the paramilitary lacks the clout to pressure netas and babus into action. Financial constraints would be a weak alibi. When 70 per cent of defence equipment is "got abroad", why must the paramilitary be denied critical requirements? North Block's indifference is a crying shame.

Missing ingredient in the school lunch

This week, 23 children lost their lives after having a mid-day meal served at a school in Bihar's Saran district. Preliminary reports suggest that the school lacked a storage facility for foodgrain which led to contamination and this horrific tragedy. Among other causes, a poison theory has also been floated. Whatever reason is conclusively established, it is a reminder that the world's largest intervention against hunger still remains a deplorable tale of apathy, indifference and a failure of proper implementation. In the same week, even in better performing Tamil Nadu, 170 schoolgirls in Neyveli district were admitted to a general hospital on complaints of nausea and giddiness after eating a mid-day meal.


A crucial welfare scheme such as the mid-day meal that reaches out to more than 12 crore children every day cannot run without the strong commitment of implementation officials and bureaucracy. It also needs a strong, public accountability system. Ultimately, parents should be trained to monitor the quality, infrastructure for supply-cum-storage, and nutritional standards of the food grain being served, as well as being provided a platform where they can hold the implementing agency accountable.

In March 2013, at the behest of the Union Ministry of Human Resource Development, a pilot social audit of the meal scheme was done by the Society for Social Audit, Accountability and Transparency (SSAAT) of the Andhra Pradesh government's Rural Development Department – in 40 schools in the State's Khammam and Chittoor districts.


SSAAT is an independent society that has conducted social audits of the Mahatma Gandhi National Rural Employment Guarantee scheme (MGNREGS) in 22 districts of Andhra Pradesh since 2006. Social audit is a tool for public vigilance and for generating awareness and ensuring transparency and accountability in government welfare schemes. To achieve this, it has trained more than one lakh rural youth as village social auditors. The training includes methods to obtain documents by using Right to Information (RTI), explanations of government orders and other nuances of welfare schemes, cross-verifying government records such as muster rolls, measurement books, etc.

For the mid-day meal scheme audit, SSAAT trained parents who were already on school management committees, which are mandated under the Right to Education Act, 2009. The SASMCs (social auditors in school management committees) verified the quality of rice and food served to children, inspected the cooking area, the adequacy of cooking cost per child and the appointment of a cook-cum-helper (CCH)and other facilities provided in the school.

In almost all schools, the quantity and quality of rice, pulses and other food items on the menu, and facilities were found far from adequate and the desired nutritional standards. These observations and findings are similar to previous surveys done on mid-day meal scheme implementation in other parts of the country.

By participating in a social audit, parents directly questioned the system and suggested ways for better implementation of this much celebrated intervention against hunger. For 15 days, over 240 SASMCs went door to door and from school to school, reaching out to more than 2,000 parents and 40 CCHs to ensure 4,657 students had better mid-day meals.


Their findings were consolidated in a report that was read out at a public hearing or people's open forum that was attended by senior mid-day meal scheme officials from the State and Centre, district education officers, principals, teachers, parents and the media. In the public hearing, parents were vocal about basic issues like the poor quality of rice, pulses, vegetables and inadequate quantities of eggs being served, a lack of potable drinking water and clean toilet facilities in the school. They appreciated that they were directly presenting their views and grievances to the representatives of the implementing agencies.

Despite their concerns, they did not fail to take note of its benefits and positive aspects. They did not need to worry any more about providing at least one meal for their children and their regular attendance in school. Women who are employed as cooks are from the local community and know the children and parents personally. This familiarity is a source of relief for parents and is an employment opportunity for the women.

CAG report

In the public hearing, the women appointed as cooks also voiced their grievances about low salaries and untimely payments, and issues of expensive cylinders (Chittoor district). They asserted that the cooking cost of Rs.4.00 per child (at the primary level) and Rs.4.65 per child (at the upper primary level) provided by the government was very inadequate. Here, it is interesting to note that the Comptroller and Auditor General (CAG) of India's report on State Finances for Andhra Pradesh (2011- 12), pointed out that the government was able to spend only Rs.673 crore against an allocation of Rs.1,112 crore for providing mid-day meals to children, which translates into a mere 61 per cent absorption and usage of funds. The impact of this underspending was evident in the social audit findings, which showed that budget allocation and expenditure directly impact the quality of the implementation of the scheme at grass-roots level.

After the public hearing in Chittoor district, the Central government made the decision to increase the honorarium of the CCH from Rs.1,000 to Rs.1,500 per month and the cooking cost from Rs.4.00 to Rs.4.25 per child (primary level) and Rs.4.65 to Rs.5.00 (upper primary level). The aim of the scheme is to fulfil multiple objectives while ensuring adequate calories and nutrition to pre- primary and primary school students. From breaking caste barriers - as all children sit and eat together - to providing employment to women, the mid-day meal scheme achieves much more than just being a school lunch programme. There is no formula for successful implementation either – it has worked well in places where it is wholly administered by the State, and has been a disaster where it is being implemented in partnerships with non-governmental organisations. So, the government must encourage social audits in partnership with the beneficiaries, facilitated by agencies that have the expertise in training community in monitoring.

With ordinances such as the "Right to Food" being discussed in Parliament and the cost of its implementation to the exchequer, it becomes important to strengthen monitoring institutions at grass-roots level. The intended beneficiaries are encouraged to demand transparency and accountability from those who are responsible for delivering these benefits. This will be possible only if the government guarantees four rights to the people who engage in a social audit exercise - provide them access to information, ensure that they can engage in verification, provide a platform to voice their findings and grievances and ensure that they can do this entire exercise in a threat-free environment.

Judicial over-reach: Liberty a gift of the law?

Two judgments which vitally affect democracy were delivered by the same bench of the Supreme Court last week. While one is comforting, the other is disturbing. But there is no "judicial overreach" in these two cases.

In the first case the court was examining the constitutional validity of a law, and in the second case it was interpreting its provisions. That is what the court is meant for. In the "disqualification" case the court examined the validity of section 8(4) of the Representation of the People Act, 1951, which treated sitting members of Parliament or a state legislature differently from aspiring candidates in the matter of disqualification. Sitting members were given a breather by protecting them on filing an appeal or revision against their  conviction. In the case of aspiring candidates there was no such leeway; they are disqualified on conviction.

The Law and Liberty

The provision has remained in force for nearly 62 years now. This is because laws don't come up routinely for examination before the courts after they are passed. A bright lawyer and the right petitioner have to meet at an ordained time before a law is challenged. In this case, the challenge was mounted by the petitioners only in 2005. The Court held that Parliament did not have the power to legislate differently for the two categories.

Articles 102 and 191 of the Constitution gave Parliament the power to pass a law for disqualification "for being chosen as, and for being, a member...." In other words, the grant of legislative power itself was circumscribed by the requirement that both categories have to be treated similarly.

As a result of this judgment, our public life will definitely get cleaner. But there are so many instances of wrong convictions which are overturned in appeal. Will disqualification upon conviction not be harsh? If a conviction is so untenable, the conviction itself can be stayed by a superior court, and the disqualification will not operate. It must be remembered that the presumption of innocence operates only till conviction. If members have to vacate their seats and ultimately get acquitted in appeal, the individuals concerned would have suffered for no fault of theirs. But this is a small price to pay for the larger good.

But the "no contest from jail" judgment has frightening implications. As a result of this judgment, even persons in lawful custody of the police as undertrials will be debarred from standing for elections. Here again, the Court was interpreting long standing provisions of the Representation of the People Act, 1951.

The Patna High Court had ruled in 2004 (again in a petition filed that very year) that a person who is not an elector cannot contest an election; that "a right to vote is a statutory right. The law gives it, the law takes it away." Incidentally, this terse enunciation evokes memories of forgettable times when, in the habeas corpus case, Chief Justice AN Ray wrote "Liberty is the gift of the law!"

In a disappointingly brief judgment of seven paragraphs (brevity is not always evident in the Court's judgments), the Supreme Court merely upheld the Patna High Court's view by saying it did not find any infirmity in it.

Reasonably Legal

Unquestionably, the rights to vote and stand for elections are statutory and not fundamental. But surely a law which takes away those rights must be reasonable. A black-marketeer under preventive detention can stand for election, but a person booked for a political offence like sedition cannot. A wise and experienced court ought to have done some loud thinking. Surely, it was conscious of the great scope for abuse, with inconvenient opponents being thrown into jail on trumped up or frivolous charges.

These are not alarmist apprehensions, they are facts of life. With the general election looming large, one wonders what ideas are cooking in rival camps. If the court could not interpret the law liberally without doing violence to its language, it ought to have at least reflected on its reasonableness and recommended a change in the law.

Again, Thursday's order of the Allahabad High Court prohibiting "caste based" rallies causes some disquiet. Both the purist and the politician would be justified in ringing the alarm bell. The Fundamental Right to assemble peaceably without arms can only be restricted by law, which itself must be in the interest of the sovereignty and integrity of India or public order. If the state does not have the power to pass a law to ban caste based rallies, surely the court and the Election Commission cannot do so.

Appealing to voters on the basis of caste or religion are electoral offences and elections are often challenged and set aside on these grounds. So the Court need not have worried. This is overreach; the High Court is perilously close to entering the "political thicket."

Time to resurrect G5

When the Group of 20, or G20, was formed in the aftermath of the global financial and economic crisis of 2008, it was already clear that an effective response to the challenges posed by globalization required a co-ordinated, collaborative response from both the advanced, industrialised economies and major emerging market economies. When the first G20 summit was convened by the United States in Washington in September 2008, it became clear that the old G8 global "steering committee" of the world's most advanced economies could no longer serve as the pre-eminent forum for managing the global economy.

In fact, the G20 proved to be a most effective platform for crisis management, through co- ordinated policy measures such as the adoption of fiscal stimulus measures, the maintenance of the consensus on an open trade and investment regime, and the initiation of work on a number of structural reforms, particularly in the banking sector. At the third G20 summit, in Pittsburgh in September 2009, the leaders agreed that the G20 would henceforth serve as "the premier forum for international economic co-operation".

At that time, there was a fairly widespread assumption, actively encouraged by the US, that the G8 had become somewhat redundant and could even be wound up. However, Canada, Japan and Italy argued strongly in favour of maintaining the G8 as a forum where advanced, industrial economies could continue to consult with each other on matters of mutual interest, particularly political and development issues.

In contrast to the decision taken to persevere with the G8, the newly institutionalised G5, comprising Brazil, China, India, Mexico and South Africa, decided to disband before the convening of the G20 summit in Toronto in June 2010. The reasons were that the G5, which took shape as "outreach" countries, meeting on the sidelines of the G8 summits from 2005 (the G8 +G5 summit at Gleneagles) to 2009 (the G8+G5 summit at L'Aquila), was now an equal participant in the G20. There was, therefore, no reason to persist with an "outreach" group. Furthermore, since the G5 was relevant in the context of enabling a platform for the advanced, industrial economies and the major emerging economies to interact and consult with one another, this was already available in the G20 process.

In retrospect, it would appear that the G5 countries were somewhat hasty in disbanding their grouping. They were influenced by the   group's genesis as "outreach" countries' meeting on the sidelines of the G8 summits upon invitation. Perhaps there was an association of the G5, with a "second class" status, vis-à-vis the traditional advanced economies. However, they may have failed to realise the importance and influential role of the group as an entity in its own right rather than as a mere appendage of the G8 process. By the time the G8+G5 summit took place in L'Aquila in 2009, the G5 countries were meeting independently and issuing summit statements covering issues of the day. A consultative process at the official level had also been established to enable consensus positions to be formulated on such issues in advance of the meeting of leaders. There was no reason why the G5 could not have continued to meet independently of the G8 or the G20 process. As a forum of the most important emerging economies, it had begun to acquire a certain standing and role in the global governance architecture.

Since January 2010, when a decision was taken to disband the G5, the G8 has continued with its annual summits. With the immediate crisis in the global economy receding and/or changing character, the role of the G20 has been diminishing. It proved to be a good crisis manager, but it has not lived up to its expectations of becoming the "premier forum for international economic co- operation". In matters relating to monetary, financial and fiscal policies, we have witnessed a steady reversion to unilateral decision making. In global trade, the pursuit of the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership threatens to undermine a rule-based multilateral trade regime under the World Trade Organisation. The quantitative easing programme unleashed by the US, and now by Japan, has confronted developing countries with volatile capital movements. Even a hint that such massive injections of liquidity may be retired in the near future is leading to a sudden and significant outflow of portfolio investments from developing economies. The G20 has been mostly a silent witness to these new challenges threatening the global economy.

Since 2011, there has been a visible revival in the G8's role. While the G20 has been mostly quiescent, the G8 countries have strengthened and consolidated their role in dealing with issues that confront them as advanced economies. Russia is an outlier in the group and its role is now marginal - sometimes by choice, sometimes by compulsion. In the G20, the G8 minus Russia will begin to play an enhanced role as an influential group. In contrast, the BRICS group - Brazil, Russia, India, China and South Africa - has less in common precisely because Russia is an outlier here as well.

In contrast, the G5 had begun to acquire a certain distinct personality and a comfort level with members working with one another in the 2005- 2010 period. Given the reality of the G8 revival and the lack of a strong, coherent and effective countervailing coalition within both the G20 and other fora, the revival of the G5 could help safeguard the interests of the emerging economies in an increasingly polarised global economic order.

The BRICS group may stay, but the G5 could be a more effective and influential instrument in the service of emerging market economies.

Arab turmoil may spring surprises

The wave of revolutions in the Middle East hascreated an irreversible trend: throughout the region people now expect better governance, and demand to be heard. The clock can no longer be turned back, writes Jonathan Eyal.

Can it get any worse? The military coup in Egypt, the Arab world's most populous country, threatens to bring down with it the entire political transition launched in the wake of the 2011 revolts across the Middle East. Meanwhile, Syria is disintegrating as rivals Saudi Arabia and Iran rush to settle their strategic scores.

That's certainly not how the Middle East was predicted to be when the so-called Arab Spring first captivated the world. Still, it may be too early to conclude that the region is destined to lapse into a new dark age of violence and economic decay. For it is downright insulting to argue that Arab nations are incapable of emerging from their current predicament.

All observers agree that the political, economic and social problems facing the Middle East are huge. Since the region emerged as a collection of newly independent states soon after the end of World War II, every political ideology has been tried there, only to be discredited.

Communism attracted a few intellectuals, but its anti-religious message was rejected as too alien by pious Muslims. Socialism became a set of slogans without much meaning. And democracy, with its complicated procedures of electioneering and endless quarrels between parties, seemed too vulgar to Arabs, especially as it was practised in the West, where the emphasis was more on personal liberty than on equality. It is not surprising, therefore, that the only ideological framework which retained its appeal is Islam, and that Islamic-based parties are invariably the first beneficiaries from any political upheaval.

The discrediting of all political ideas also went hand in hand with the failure of all economic models. State-guided management proved a disaster: repeated efforts to diversify national economies away from raw materials and subsistence farming came to nothing. But capitalism, introduced during the 1980s, resulted only in the rise of a narrow stratum of millionaires who parked their ill-gotten cash overseas. Meanwhile, high birth rates and relentless migration from the countryside to towns created an explosive mix of young people, both poor and aspirational, aware of their terrible condition but unable to change it. The region has the highest level of youth unemployment in the world; female labour participation (at 25 per cent) is also the world's worst.

Rearranging same elite

Seen from this perspective, the surprise is not that the wave of revolution duly came but that it has taken so long before it swept through the region. The real question should not be about what went wrong, but what could have gone right in the region over the past three years, given such a grim legacy.

To make matters worse, what the Middle East experienced over the past few years was not a true political transition, but merely the decapitation of previous regimes, the removal of top leaders without changing governance structures. Tunisian president Zine el Abidine Ben Ali was forced to flee when he was deserted by the police, his mainstay. Egyptian president Hosni Mubarak had to go when his country's generals dumped him. In both cases, the world was treated to exhilarating images of crowds storming palaces. But what looked like a historic, French-style revolution was, in effect, a political elite merely rearranging its ranks.

Once the lid of authoritarianism was lifted, political struggles developed not over social or economic programmes but over ethnic identity and the role of religion. This was not a battle that was either fair or enlightening, but a power grab in which Islamic-based parties always held the upper hand. They had spent decades preparing for such a moment, and had the necessary organisation to grab power.

What they did not have, however, is any knowledge of how to run economies or, more basically, what to do when power fell into their lap. It is noticeable that the post-revolutionary governments of Tunisia, Libya and Egypt all continued to behave as though they were still in opposition, fighting the battles of the past rather than preparing for those of the future.

They also had no understanding of how to harness others to help them govern. Egyptian president Mohamed Mursi could have retained his huge popularity had he offered political opponents places in the government. Quite apart from disarming the opposition, that would have spread responsibility for the unpopular economic measures that needed to be taken. Instead, he alienated everyone, postponed every economic decision and assumed all the responsibility for what followed. In the short span of a year, president Mursi and his Muslim Brotherhood transformed themselves into a "ballotocracy": They believed and acted as though they were entitled to do as they pleased just because they won one ballot. They never realised that elections are not a guarantee of effective government but merely a prelude to one. And that ballots merely select those who take decisions, rather than give rulers blank cheques.

West's neglect, dangers ahead

Western governments did not help matters either. They rushed to embrace new Arab leaders just because they were new. They did not raise the alarm when those leaders rammed through constitutions without a shred of consultation,  or proceeded to rule without parliaments, as was the case with president Mursi's government. When Eastern Europe underwent a similarly difficult process of transformation at the end of the Cold War two decades ago, Western advisers were there, providing daily guidance on any piece of legislation or regulation, as well as plenty of financial credits and trade opportunities. None of this was available in the Middle East.

International Monetary Fund analysis suggests that all countries undergoing political upheavals experience significant short-term falls in output for, on average, two years beyond the event and increased unemployment which starts to recover only after four to five years.

Still, what happened in Egypt was on an altogether different scale. The country's currency reserves halved, unemployment rates doubled and the share of the Egyptian population living under the international poverty threshold shot up to 55 per cent from 40 per cent. No wonder the military coup which removed president Mursi was hailed by so many ordinary Egyptians.

History is full of examples where an initially popular military intervention ends up producing a hated government. And matters in Egypt could get far worse: into the breach could step radical Salafists whose narrative was ignored two years ago by the massed youth, but who may now get their chance. If the Muslim Brotherhood ever returns to power, it may well conclude that the only way to remain in control is to copy the example of the mullahs in Iran, who after their revolution immediately dismantled the old military and created two parallel structures permanently competing with each other in order to preclude any coups.

Prosperity required

But there are grounds for a more optimistic view of the Middle East. What has happened in Egypt is that political Islam -- or the use of the faith for political purposes -- has revealed its limitations. Islam can provide a guidance to a way of life and a system of values. But it cannot be the "answer to everything" as Egypt's Muslim Brotherhood claims, and certainly not for leaders who are not even aware of what the question is.

This does not necessarily mean that political Islam is now redundant. Rather, it merely indicates that Islamic leaders cannot derive their legitimacy from the Quran alone; they also have to deliver economic prosperity.

Turkey has shown the way in this regard: Its government has been in power for more than a decade and has put to rest Turkey's own history of military coups because it doubled the country's national wealth.

Although it seems like the Middle East is relapsing into its old authoritarian traits, the wave of revolutions has created an irreversible trend: throughout the region people now expect better governance, and demand to be consulted. At least in this respect, the clock cannot be turned back.

Professor Rami Khouri from the American University of Beirut in Lebanon speaks for many Arabs when he chides the West for its simplistic views of the current situation.

"Some assume that Arabs and their political cultures can only be in black or white – democracy or military rule, and nothing in between, and others assume that the future of 350 million Arabs will be definitively set for decades by developments this week, or the next month," he complains.

What everyone forgets, Khouri adds, is "the force of human agency and the powerful corrective measures that come with time". In short, don't give up on the Middle East.

Fiscal consolidation, a joke

Food, fertiliser and fuel subsidies will overshoot the Budget provision by over Rs 1 lakh crore.

There has been much ado about fiscal consolidation ever since P. Chidambaram took over the reins of the Finance Ministry. During 2012-13, he achieved a fiscal deficit of 5.2 per cent against a target of 5.3 per cent and is aiming at 4.8 per cent during the current year.

Last year, one major factor at work was compression in investment, that was fortuitous as key ministries simply could not spend the allocated funds. Another factor was substantial under- provision for subsidies, even under revised estimates. Against a Budget allocation of Rs 5,21,025 crore for planned expenditure (PE), the revised estimate was Rs 4,29,187 crore. The short spending was Rs 92,000 crore.

The revised estimate for fertiliser subsidy, Rs 65,974 crore, was short of requirement (Rs 102,207 crore as per the Fertiliser Minister's statement in Parliament) by Rs 36,233 crore. For food subsidy too, there was huge under-provision of Rs 32,000 crore.

The fortuitous savings in PE and under- provision for subsidy put together add up to Rs 160,233 crore (92,000+36,233+32,000). But for these, fiscal deficit for 2012-13 would have been higher by 1.6 per cent of GDP.

The impact of subsidy

Under-recoveries on sale of petroleum products during the year were Rs 160,000 crore. Of this, upstream oil PSUs viz., ONGC/OIL were 'directed' to cough up Rs 60,000 crore. This too cannot be branded as saving in the true sense of the term. For 2013-14, allocation for food subsidy is Rs 90,000 crore. This includes Rs 80,000 crore under targeted PDS and Rs 10,000 crore under Food Security Act (FSA). Post promulgation of ordinance, the Government has increased this by Rs 35,000 crore.

To bolster its credentials as provider of 'nutritional' security, the Government intends providing subsidy on pulses and oilseeds under FSA. That will further bloat subsidy; being a post facto decision, its impact is not captured in the Budget estimate.

The provision for fertiliser subsidy during 2013- 14 is pegged at Rs 65,971 crore. On the basis that requirement would be at last year's level (no steps hinted in Budget or outside to rein in subsidy), there would be shortfall of about Rs 35,000 crore. The Ministry of Petroleum and Natural Gas (MPNG) is seeking to re-prioritise allocation of domestic gas from RIL's KG-D6 fields to treat power on par with fertiliser. This will result in reduced availability for fertiliser by10 mmscmd.

Replacing this with imported LNG - to keep plants running - @ $20 per mBtu as against $4.2 per mBtu charged on domestic gas would result in an extra outgo of Rs 14,000 crore. Thus, actual subsidy outgo could exceed budget by Rs 49,000 crore (35,000+14,000).

The allocation for fuel subsidy is Rs 65,000 crore. In May, this was revised to Rs 80,000 crore.

Now, thanks to rupee depreciation and increase in crude price, this is estimated at Rs 120,000 crore or Rs 55,000 crore more than budget provision!

Thus, in respect of food, fertiliser and fuel all put together, expected requirement for subsidy during current fiscal will be Rs 139,000 crore (35000+49,000+55,000) higher than Budget provision. This translates into a slippage of 1.2 per cent GDP.

Going forward, the Finance Minister has drawn a roadmap for reducing fiscal deficit by 0.6 per cent per annum to reach 3.0 per cent for 2016-17. That gives target of 4.2 per cent for 2014-15 and 3.6 per cent for 2015-16. Alas, the situation on ground zero would be much worse!

In 2014-15, the full impact of the Food Security Act will come into play. According to the Chairman, CACP, food subsidy requirement of implementing it would be Rs 6,80,000 crore over a three-year period or Rs 2,25,000 crore per annum. This is a big jump of Rs 1,00,000 crore over likely outgo for current year.

As regards fertiliser, doubling of domestic gas price from $4.2 per mBtu to $8.4 per mBtu from April 2014 (applicable to supplies from all sources) - based on the Rangarajan Committee recommendations - will increase subsidy on urea by Rs 14,500 crore.

On the fuel front too, with continuing rupee depreciation (underlying precarious fundamentals in regard to trade deficit, inflation, interest rate et al do not bode well for abatement of its slide) and crude price beginning to move north, subsidy scenario will only worsen.

DBT, a game changer

Clearly, viewed over a five-year time horizon viz., 2012-13 to 2016-17, far from much trumpeted fiscal consolidation, we only see progressive fiscal de-stabilisation. And, the overriding reason for this is lack of will to actually bring about reforms.

Implementation of direct benefit transfer (DBT) can be a game changer. Imagine, if Government gives food subsidy only to 25 per cent (persons below poverty line as per Planning Commission) through DBT.

By excluding 42 per cent (FSA seeks to cover 67 per cent) alone, there could be saving of Rs 94,500 crore (225000x0.42).

Additionally, the Government will not have to spend on storage.

Likewise, in fertilisers, giving direct subsidy to poor/small and marginal farmers can generate substantial saving by eliminating the better-off from the ambit.

At present, MRP of urea is Rs 5,360 per tonne, which is less than half of cost from a most efficient gas-based plant and one-fifth the cost of imported urea. This is atrocious!

Urea price can be raised by 50 per cent without any adverse impact on consumption. This will generate over Rs 8,000 crore per annum saving in subsidy.

Once controls are removed, competition will drive down prices, thereby necessitating less subsidy to poor farmers.

In fuel, the steps taken so far - cap on subsidized LPG cylinder, small lots increase in diesel price - are merely cosmetic changes.

These won't make any dent (look at diesel under-recovery, it is already back to where it was in January 2013).

Here again, DBT covering all products viz., LPG, diesel, kerosene is the way forward.

To realise the full potential of DBT in unleashing desired saving in subsidy, Government must not give any money to its agencies (all suppliers including state-owned should recover cost from market prices). Its obligation is only to poor which is met on crediting subsidy to his account.

The day Government implements DBT in letter and spirit, there will be drastic and sustained cut in subsidies. And fiscal consolidation will happen.

Coup, denial and myth-making

The coup did not advance democracy in Egypt. Coups against elected governments cannot have such an effect

One of the most remarkable things about the military coup d'etat in Egypt is the combination of denial and myth-making it has prompted. The US government denies that a military coup even took place. American law requires cessation of certain forms of economic assistance to countries that have suffered coups, and the Obama administration wishes to avoid offending the Egyptian military.

Some observers also refuse to call the massacre of July 8 a massacre, though troops sprayed participants in a sit-in with machine-gun fire, killing 55 people and injuring hundreds of others who were protesting the coup against Mohammed Morsi. Perhaps most remarkably, many observers believe that the military coup advances the cause of democracy in Egypt.

It is important to establish some facts. First, the action of July 3 was a military coup. When the army issues an ultimatum stating that it will depose an elected government in 48 hours unless that government meets certain demands, and then makes good on its threat and arrests the elected president and several hundred of his associates and suspends the constitution, a military coup has taken place. The fact that the coup apparently enjoyed substantial popular support does not make it less of a coup. Some coups are popular.

The action of July 3, moreover, differed starkly from what took place in February 2011. In 2011, the military withdrew its support from Hosni Mubarak after having sustained him in power for three decades. In July 2013, the military staged a premeditated coup d'etat; in February 2011 it merely delivered a coup de grace. In 2011, the military was ending its own reign, which had lasted for nearly six decades; in 2013, it re-established it. The Mubarak government was never elected. It was effectively a military government. It inherited power from the unelected government of Anwar Sadat in 1981, which in turn inherited power from the government of Gamal Abdel Nasser in 1970, which came to power in a military coup in 1952. Mubarak, Sadat, and Nasser were all military officers. They ruled by virtue of their control over the armed forces and the secret police, not authority gained at the ballot box. The military's cessation of support for Mubarak in February 2011 commenced the military's withdrawal from power, not its seizure of power. On July 3, 2013, the military took power back.

The military has appointed Adly Mansour as interim president, thus showing that it wishes to put a civilian face on the regime. Given the illegitimacy of military rule in the 21st century and the need to keep the aid pipeline open, it is unsurprising that the military chose not to place a uniformed general in the office of the presidency. But Mansour, who served as a justice on the Egyptian Supreme Constitutional Court for two decades, is the military's man.

Second, the slaughter of scores of demonstrators and the wounding of hundreds of others by army troops on July 8 was a massacre. That the dead and wounded were Islamists does not alter the fact. The attack on the demonstrators has been accompanied by arrests of hundreds of leaders of the Muslim Brotherhood, whose only crime is apparently their political affiliation. The violence and the arrests reprise the behaviour of the military and the secret police under Mubarak; in fact, they represent little else than a reversion to pre-2011 business.

Third, the coup did not advance democracy in Egypt. Coups against elected governments do not and cannot have such an effect. When public opinion turns against elected officials in a democracy, the people toss leaders out in the next election. They do not call the military out of the barracks to depose and arrest their elected officials. In rare cases in which an elected government is engaged in mass violence against the citizenry or is committed to liquidating opposition and cancelling future elections - the "one person, one vote, one time" scenario of Nazi infamy - a military coup may be justified. But the Brotherhood, despite the anti-Jewish and anti-Christian bigotry of some of its officials, committed no atrocities and showed no inclination to shut down the political system. Despite fears that it would re-enact Iran in 1979, when the revolutionary government of Ayatollah Ruhollah Khomeini snuffed out dissent, the Morsi government tolerated opposition in the corridors or power, the media, and the streets.

Much attention has been focused on Morsi and his intransigent incompetence. But July 3, 2013 is about much more than Morsi and the Brotherhood. It is about the future of democracy in Egypt. An ominous precedent has been established: the military reserves the right to depose a democratically elected government and scrap a constitution that was adopted overwhelmingly by the people in a free referendum. Another inauspicious precedent is being established as well: key foreign powers will support coup-makers. If necessary, they will simply shut their eyes and deny that a coup took place.

For many Egyptians, to support a coup against leaders who they themselves brought to power at the ballot box only a year or two ago, may be distressing, but it is explicable. Egyptians have less than two years’ experience with free elections, free media, and free association. They are also caught in the grinder of an economic downturn that the Morsi government only exacerbated. But for outside observers to refrain from condemning the coup, the round-up of Brotherhood leaders, and the massacre of Morsi supporters, is unconscionable. It sets a dangerous precedent that only diminishes the hope for robust democratisation in the Arab world.

Demanding transparency in political finance

Building on the work by RTI activists, India needs to set up a mechanism that can make for accountability on the sources and utilisation of party funds

Throughout the world, political parties collect funds to build and sustain the organisation, to train party cadres and fight elections. Recognising that they are the main link to the citizens (as voters) and, by implication, the mainstay of democracy, many countries, including India, have helped cushion their expenses at public cost. But the major share of funding still comes from voluntary contribution. Undeniably the sources of such funding influence voting behaviour and that is why the subject impacts directly on democratic rights.  Surprisingly when all important institutions of governance, including Parliament, the judiciary and certainly the executive, have attracted intense public attention, the financing of political parties has been left relatively untouched. Until recently.

CIC order

In 2011, two resolute RTI querists – the Association for Democratic Rights, an NGO, and an individual, Subhash Aggarwal - appealed to the Central Information Commission since political parties had refused to share information although by all accounts they were public bodies. The appeals were upheld in an order dated June 3, issued by the full bench of CIC, which ruled that six national political parties needed to provide information as sought by establishing the RTI apparatus as required. The logic: they were recipients of valuable state resources in the form of land, accommodation, and tax exemptions which amounted to "substantial funding" by the public exchequer. Accordingly, they were to be treated as public bodies and made answerable as such.

The day the order was announced, everyone knew that most political parties would come together to annul the damage done by the CIC. They would either seek judicial intervention or introduce fresh legislation to overturn the CIC's order. Knowing this, the applicants forthwith filed a caveat to forestall the grant of a stay against the order. All newspapers have since reported that a bill has even been kept in readiness to be introduced in the forthcoming session of Parliament seeking to exclude political parties from the ambit of RTI.

The major points of discord are: first, unfurling the RTI umbrella over political parties has implications for political strategy and functioning as once conceded, even information on the distribution or denial of ticket can be sought - clearly a situation that is untenable given the competitiveness, secrecy and intricacy of political decision-making. Second, political parties do not maintain the documentation needed to respond to wide-ranging RTI queries and they cannot be expected to establish a new organisation only to fulfil the sweeping questions that will come under the RTI. Third, if the argument that political parties received "substantial funding" is applied equitably, it would apply to all similarly placed NGOs. The ensuing demands for information from all such bodies would explode the scope of CIC's functions and belie the prime objective of the RTI which was to provide information on government functioning. Fourth, when it is well known and publicly admitted that most political funding comes from black money sources and in cash, it is impossible to declare whose contribution it was without first cleaning up the "number two" monopoly.

In their place the arguments are not without validity. But none of them addresses the fundamental need to regulate political finance -

something that progressive countries enforced decades ago. According to the International Institute for Democracy and Electoral Assistance (IDEA) Handbook 2003 and its current website, in nearly 60 countries, which include the United States, the United Kingdom, Japan, Canada, France, Germany and Thailand, political parties are bound to disclose all contributions beyond a specified threshold. India is not among them. Alongside there exists a ban on making anonymous donations to political parties in more than 45 countries which include all the above countries. Again India is not among them. Happily, India does have a provision for public disclosure of expenditure by political candidates but even so, there is no ceiling on party election expenditure - only candidates' expenses. That leaves enormous scope for gargantuan indirect spending on elections so blithely admitted to by Gopinath Munde who now faces the wrath of the Election Commission for publicly pitching a figure of Rs 8 crore spent on his own election against the stipulated limit of Rs 25 lakh.

Our political parties appear to see the whole business of being pulled under the RTI as brinkmanship. They rest sanguine in the knowledge that civil society in general and RTI activists in particular can do little harm as the latter's sphere of influence is essentially urban, middle-class and, for that very reason, circumscribed. Ultimately with no bridges to the people and little influence, they are secure in the knowledge that civil society would have no option but to pursue the public interest litigation route. That alternative despite some resounding successes is exasperatingly slow.

Preventing abuse

Against this backdrop, is the almost universal position of political parties which refuse to give information at least on their funding to be accepted meekly? No, because at stake behind the demand for public disclosure of political finances are two important considerations: prevention of abuse (by using soiled money); the need to promote healthy political competition which requires sharing the sources and quantum of funding of each party with the voter.

Undoubtedly, the stalwarts in the RTI fraternity have done a great job by bringing the subject of political finance into prominence. That conceded, India now needs a law to bring it on a par with progressive countries world-wide. That means mandating disclosure and reporting rules that provide clarity about political funds - their sources and their utilisation.

We need a body akin to what has been set up in the U.S. under the Federal Election Campaign Act 1974 which created an enforcement agency called the Federal Election Commission. This body supervises all financial transactions by political bodies that have solicited or spent money to support or defeat federal candidates. The organization verifies all reports presented, and discloses the same to the public and the media. Ideally our Election Commission should be empowered to do exactly this, by law. If this were done there is no need for individual parties to give responses under RTI.

An opportunity

Every right-minded political party should look on the CIC verdict as an opportunity - not a threat. In fact, were even two national parties to voluntarily adopt a common reporting system it would remove clouds of opacity, greatly enhance public faith and demonstrate a concern for ethical standards. Others would perforce have to follow suit. Indeed this is a priceless moment for the political system to collectively break itself loose from criminal elements, unaccounted and excessive money power and to remove illegitimacy from the power game.

Political parties should pledge to support a law to ban anonymous donations and cash contributions beyond a threshold and put a ceiling on election related expenses of individual political parties. The Election Commission or a new statutory body should have full authority to oversee the inflow and outflow of political finance and institute legal action if scrutiny is stone-walled. As a public body, it should suo motu give information collected by it on its website and also arrange for regular media briefings based on the declarations made by political parties. But it should have no compunction in resorting to the use of Section 8 of RTI if the information sought by querists goes beyond the subject of political finance - so relieving political parties from the rigmarole of RTI and free to steer their internal political strategies in secrecy.

But first voters need the reassurance that political parties are concerned enough to unite to clean the mess. The present opportunity and its timing can be used to augur the much-needed change. If it is merely used to remove the irritant called RTI, it will show that self-preservation is more important to political parties than bringing transparency into their financial dealings. When half the countries in the world have a strict code and laws on political finance, insist on full public disclosure and impose ceilings on party election expenditure, should the Indian voter be forced to accept any less? When the model code of conduct for elections could be evolved so successfully simply through consensus, why not a model code for political finance?

China grows down

For more than three decades, China's gross domestic product (GDP) has grown by an average of more than 10 per cent annually. But former premier Wen Jiabao rightly described this impressive growth performance as "unstable, unbalanced, uncoordinated, and unsustainable," highlighting the many economic, social and environmental costs and challenges that have accompanied it. Now China must choose between the export-based, investment- driven growth model of the past and a new, more viable economic order.

Cheap credit and perverse incentives - such as promotions for officials who contribute most to GDP growth - have led to massive but redundant investment, which, in turn, has contributed to excess capacity in manufacturing and infrastructure. This model is not only inefficient; channeling government resources to support investment also undermines China's social development.

Given this, China's leaders have decided to stop using GDP growth as the primary criterion for evaluating officials' performance. Indeed, the 12th five-year plan, which extends until 2015, aims to shift China's economy to a new, more sustainable growth model based on quality and innovation, and accepts that annual GDP growth will likely fall to seven per cent during the transition.

Most discussion of growth models nowadays is based on work by the Nobel laureate Robert Solow. In the Solow Model, GDP growth is determined by the factor inputs of land, labour and capital, together with the economy's total factor productivity (TFP, or the change in output not accounted for by changes in the volume of inputs, but by factors like technological innovation and institutional reform).

Since 1978, China, by implementing major reforms, has achieved three periods of high TFP growth, each lasting five to seven years. First, in the early 1980s, following the introduction of the rural household-responsibility system, which boosted agricultural productivity and released a large amount of unskilled labour to work in the higher-productivity urban and industrial sectors, annual TFP growth accelerated to three or four per cent.

The second such period followed Deng Xiaoping's southern tour in 1992, during which he emphasised the need to shift to a market-based - albeit state-controlled - system by opening China's economy to foreign direct investment and establishing special economic zones to help develop export-oriented industries. This time, TFP growth soared to five or six per cent, partly owing to the "catching-up" process facilitated by China's adoption of foreign technology and know-how.

Finally, after major reforms of state-owned enterprises and the tax system, China acceded to the World Trade Organisation in 2001. With the country fully integrated into global supply chains, TFP growth hit four per cent, where it remained until 2007. Since then, however, the TFP growth rate has fallen by almost half.

Indeed, China's economy has experienced a significant - and ongoing - growth slowdown in the wake of the global economic crisis that erupted five years ago. By 2012, human capital's contribution to China's GDP growth fell almost to zero, with fixed capital accumulation accounting for roughly 60 per cent of total growth. Large- scale, debt-funded capital investments have raised the country's credit-to-GDP ratio to nearly 200 per cent, increasing the financial system's vulnerability - a development reflected in the recent spike in interbank interest rates.

In order to achieve more balanced and sustainable GDP growth, China's leaders must implement a set of deep, comprehensive and long- lasting institutional reforms aimed at boosting TFP. In particular, the reforms should be designed to facilitate China's transition from its traditional supply-based growth model, which assumes that building hard infrastructure leads automatically to demand growth.

In fact, GDP growth may be slowing precisely because existing investment in manufacturing and infrastructure, undertaken largely by local governments and state-owned enterprises, does not match the pattern of domestic demand. As a result, China now faces the problem of short-term excess capacity.

Improving the quality of GDP growth will depend on Chinese leaders' willingness to enact market-oriented reforms. Rather than directly driving investment, the state must emphasise its regulatory and enforcement functions, including setting and overseeing standards, building an effective property rights infrastructure, and managing macroeconomic conditions. At the same time, the state must improve the quality and delivery of education, health care and security, while minimising corruption and administrative abuses.

In short, China must shift its focus from meeting GDP growth targets to creating an environment that fosters innovation and competition, thereby enabling market forces to set prices and allocate resources more effectively. The state would thus become an intermediary agent, facilitating the development of a sustainable economic order in which less is more - that is, a system in which less intervention creates more opportunities for creativity.

State-owned enterprises undoubtedly played an important role in China's previous growth model, delivering the infrastructure and services that were deemed necessary for the global manufacturing supply chain to function. But access to cheap credit from state-controlled banks creates an incentive for state-owned enterprises to generate surplus capacity, which increases systemic risk in the economy. To correct China's excess-capacity problem would require the relevant enterprises, whether state-owned enterprises or private firms, to exit the market.

Unless China's leaders implement major structural reforms aimed at establishing a market- based growth model, they will be unable to avoid the "middle-income trap" that has prevented so many developing economies from attaining advanced country status. The deceleration in GDP growth that such reforms would cause would be more than offset by increased market dynamism and overall economic stability.

Education must be as local as it is global

As India moves from an agrarian society to a knowledge-based economy, the resultant chaos can be confounding, if the curriculum here is imitative of post-industrial societies. Learning has to correspond to local conditions. But that cannot be at the cost of classical postulates

Industrial revolution in its present incarnation is an ongoing process that began around the third quarter of 19th century. It is different from several industrial revolutions that preceded it as there has always been a break in the continuity of those other revolutions. It is this longitudinal perspective on the evolution of industrial revolutions that is necessary to appreciate what is currently happening.

However, it is a latitudinal perspective on industrial revolution that could make it is still more interesting a phenomenon to observe. A good question to ask would be how has the industrial revolution affected different parts of the world? It is here that a comparative perspective is not only helpful but also critical to understanding some of the processes. The effect of the industrial revolution, say, in Brazil is different from the effect of the industrial revolution in China. Indeed each of the BRIC countries have been affected differently. The comparative study of the impact of the industrial revolution in different parts of the world throws up a very interesting paradigm which needs to be examined.

Exploring it would show that impact of industrial revolution in different parts of the globe in the primary and secondary stages have a wide range of variation. This variation tends to be smoother and made common in the tertiary or the maturity phase.

Thus it is, that, in the primary and the secondary stage of impact, the political orientations are wide and the debate on the frameworks of social interventions are large. They often convert themselves into political battles and in the tertiary situation, modes of governance become more important instrument of channelising energy.

By the same token if a given region does not experience any industrial revolution then political norms are bound to be different and the developmental trajectory would be quite unique in that region. Perhaps impact of industrial revolution is one of the largest symbolic variables in studying social unrest, turmoil or trajectory of the developmental processes. This would also affect the nature of knowledge management in each territory and the structure and the processes of educational interventions.

Illustratively, it is difficult to move directly from agrarian society to a knowledge-based economy. The chaos can be many times more confounding if the sources of curriculum and content of learning is imitative of what is taught in industrial or post- industrial societies. The sheer irrelevance of what is sought to be taught in the educational institutions of a society to what it needs will cause dissonance.

It will be so in managing aspirations and creating a situation where use of such learning is forever crippling to an individual's ability to adapt to local conditions.

There is a case, therefore, to revisit the curriculum and the method of instruction keeping in mind not only an international reference point but also the demands of the local context. Even so there are classical postulates which remain the postulates of 'learning to learn' and define characteristics of a good human being. These would continue to be relevant.

Also, there needs to be a recognition of the process that the objectives, while being defined in material terms, cannot overlook the objectives in rarified terms, of happiness or a sense of fulfillment.

The material and the contentment component have a third variable which gets intertwined with the rest of the processes and that demand is of security. Obviously, material well-being and emotional happiness cannot flourish in an atmosphere of insecurity. This perspective can be appreciated, but how to achieve it remains a core planning objective. Somewhere the ability to anticipate, mitigate and manage risks becomes important. However, dealing with risks as a concept, is itself a relatively new territory of exploration. To that extent the intellectual challenge and excitement of today is as large and intense as it was in the renaissance period.

What the poverty numbers don't say

What caused the steep fall in poverty reported by the Planning Commission? The evidence is mixed

Earlier this week, the Planning Commission released estimates of the incidence of poverty in 2011-12. As in virtually the entire literature on the measurement of poverty in India, these estimates are based on data on per capita consumption expenditure collected by the National Sample Survey Organisation. The estimates show that there has been a quite dramatic fall in the level of poverty. The number of people below the poverty line – the threshold level of per capita expenditure below which a person is deemed poor - has declined from 37 to 22 per cent in the seven years between 2004- 05 and 2011-12. This is the fastest rate of poverty reduction that has been experienced in India. Moreover, the gains have been distributed across a large number of states, with several backward states such as Bihar and Uttar Pradesh also achieving significant reductions in the level of poverty.

Of course, many people will question the significance of these estimates by arguing that the Planning Commission's specification of the poverty line is set at an absurdly low level, the implication being that a correct - and hence higher - specification of the poverty line would mean that a much larger number of people are below the appropriate poverty line, and should be counted amongst the poor. It is, of course, a tautology that a higher poverty line will imply a greater level of poverty. However, this is a criticism about the estimated level of poverty in 2011-12, and is completely silent about the trend in the incidence of poverty.

A debate about what is the appropriate poverty line is, except for one reason, about as puerile as any discussion can be. There is no "correct" level, because any specification is essentially subjective and arbitrary. What is undeniably true is that a vast number of Indians are poor by any yardstick - one does not need the NSS data to establish this, given that we see large numbers of the poor in our everyday lives.

A short digression is in order. Perhaps the only reason the specification of the poverty line has real significance is that the government often ties social benefits to whether individuals are poor or not. Readers will recall that this was precisely the reason why there was such a public outcry a short while ago about the fact that the Planning Commission poverty line is only Rs 32 per day per capita. A vast majority felt that individuals with per capita expenditures well above that deserve welfare benefits. Fortunately, the new food security bill, by eliminating the distinction between "below the poverty line" and "above the poverty line", will have taken a big step in making the specification of the poverty line somewhat irrelevant.

The obvious fact that a sizeable fraction of society is poor does not mean that the NSS data are useless or that the poverty estimates based on them are of no interest. This is because it is more important to find out how the incidence of poverty is changing over time. Have the benefits of the high rates of growth accrued entirely to the rich, as some would like us to believe? Or has growth trickled down effectively to the poorest of the poor?

Tentative conclusions can be drawn about these trends from the NSS data. Consider, for instance, the latest estimates of the Planning Commission, which show a large reduction in poverty in the seven years after 2004-05. Suppose the poverty line is set at a level higher than that used by the Planning Commission. Then, both the base level of poverty, that is, the poverty level in 2004-05, as well as poverty in the terminal year, would have been higher. Unless the change in the distribution of consumption expenditure has been extremely perverse, the dramatic reduction in poverty according to the Planning Commission estimate also guarantees that there would be a sizeable reduction even if the poverty line were set a higher level.

What factors can explain the steep fall in the incidence of poverty? Obviously, the answer has important implications for public policy. The first four years of the seven-year period witnessed a high growth rate. If the trickle-down process was the major explanatory factor, this would provide strong support to those who argue that the government should focus almost entirely on removing constraints to the growth process. "Eschew expenditure in the social sectors in view of the large leakages and press hard on the growth pedal," they would argue. On the other hand, if there is little evidence in support of the trickle- down process, that would provide ammunition to the advocates of policy initiatives such as the food security bill.

Unfortunately, the evidence is so mixed that no firm conclusions can possibly be drawn. Consider, first, the time profiles of growth and poverty reduction. The reduction in poverty has been higher in the latter two years of the seven-year period precisely at a time when the Indian economy was in the grip of the post-2008 global recession. So, there is no tight connection between growth rates and poverty reduction. Despite this, those who believe in the trickle-down process can still claim - not without justification - that the high growth witnessed in the first four years had a lagged effect on the incomes of the poor.

Second, there is no data on the "what if" outcomes. We do not know how the distribution of consumption expenditure would have evolved if there was no NREGA. Real wages have increased quite significantly during this period, and this must have been an important factor in reducing rural poverty. Is this because the demand for labour has increased due to high growth rates? Or is the increase in rural wages due to the effects of NREGA?

Sorting through counterfactuals requires sophisticated econometrics. At this stage, we simply do not know. In the absence of hard knowledge, prudence dictates that we walk on both feet and focus on growth with a human face.

Needed: Better 'hospitals' to nurse sick units

The Corporate Debt Restructuring Cell has fared much better than the BIFR.

Though the Board for Industrial and Financial Reconstruction (BIFR) and the Corporate Debt Restructuring Cell (CDR) are working on the same problem - restructuring debt, ensuring the safety of bank resources and keeping the precious industrial assets in use - they seem to be poles apart in terms of powers, operations, efficiency and delivery.

The CDR mechanism is focused on timely restructuring of debt of 'genuine' cases, while BIFR tries to find remedies for sick companies, which have seen an erosion of their total capital base. In the case of CDR, the accounts would be frozen or guarded against any legal action for 90-180 days from both sides, allowing the CDR Cell to evolve a revival package. Besides, borrowers can look for special rebates on interest rate and deferred repayment options.

Debtors also approach BIFR for exemption on statutory dues, such as corporate and state-level taxes.

Losing steam

The BIFR has been losing steam since 2003 when the CDR mechanism became well known. But the trend became even starker in 2005, when only 180 cases were registered with BIFR, down from the peak of 559 in 2002. This tapered off to just 80 cases by 2012.

From its inception in 1987 until October 2010, BIFR registered 5,687 cases, consisting of 5,469 from the private sector, 94 from Central PSUs and from 124 State PSUs. They had an overall initial investment of Rs 76,729.7 crore, accumulated losses of Rs 1,52,165.34 crore, and were employing 25,99,985 people.

Of them, a total of 899 companies (including those where net worth became positive at the inquiry stage itself) were revived by October 2010 - 861 private, 17 CPSUs, 21 SPSUs, respectively. Revived units had a net worth of Rs 11,945.88 crore and were employing 7,74,909 people. It had recommended the winding up of 1,262 companies and termed 2,327 cases "non-maintainable".

The figures reflect that BIFR had been successful in saving only 15.81 per cent of companies registered with it, and about 29.80 per cent of the jobs.

A poor performance by any standard for an institution that had completed 23 years by 2010. On the other hand, the number of cases referred to the CDR Cell over the last four years have more than doubled - to 522 - with an aggregate debt of Rs 2,98,141 crore by March 2013. In the first eight years since its inception in 2001, there were only 225 references with an aggregate debt of Rs 95,815 crore. The CDR Cell has approved 401 cases with an aggregate debt of Rs 2,29,013 crore, including those withdrawn or exited. It has rejected or closed 88 cases carrying a debt of Rs 37,045 crore, leaving only 33 cases with an aggregate debt of Rs 32,083 crore for restructuring. That is, a scorching pace of resolution at 76.82 per cent of the total cases.

Despite the Reserve Bank of India issuing  norms for opening a CDR kind of window for SMEs in 2005, it remains a non-starter, with many banks yet to formulate such a scheme internally. The guidelines asked banks to evolve the scheme internally on the same lines as applicable to large companies, and suggested a 60-day lag for working out and implementing a package from the date of request from an SME.

If these two prongs - for large corporate and SMEs segments - of CDR are implemented, the importance of BIFR should nosedive.  Sectorwise, textiles, iron and steel, and sugar have the highest number of companies drawn into the CDR mechanism, with 74, 59 and 27 companies respectively. Aggregated debtwise, iron and steel, followed by infrastructure and power topped the chart with a share of 23 per cent, 9.57 per cent and 8.06 per cent respectively in the total debt of Rs 2,29,014 crore of 401 companies that were restructured.

The Government and the RBI should think of some remedies for revival of these major industries struggling with high debt but contributing immensely to the exchequer. If necessary, a committee should be appointed to look into the reasons for sickness.

Some limitations Compared to BIFR, the CDR mechanism is an efficient system and quick in resolving cases at a much earlier stage. However, the restriction of referring only syndicated (debt involving more than one bank) loans of 'Rs 10 crore or above', is proving to be a big limitation.

The Sick Industrial Companies Act (SICA), under which BIFR was set up, applies to industries specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, (IDR Act), except the industries relating to ships and other vessels drawn by power. That is a major limitation, though there are other qualifications too that are necessary for entry into BIFR.

The Government could consider lifting or relaxing these limitations in light of visible benefits from these schemes for the economy as a whole. Banks should promptly appoint nominee independent directors to the board of the debtor company at the time of making the reference to CDR instead of waiting till the CDR package is finalised.

Steps like ensuring CDR mechanism for SMEs and entrusting the job of liquidation of sick units to BIFR itself will help expedite matters.

Informal economy

Women workers in the informal sector must emerge from the shadows... It is imperative to reform the manner in which cities are planned and built, and move towards a concept of inclusive cities with space and livelihood opportunities for even the most marginalized workers.

A large majority of people in the developing nations are below the poverty line. They are deprived of adequate access to such basic needs as health, education, housing, food, security, employment, justice and equality. Sustainable livelihood and social and political participation of the vulnerable groups are the major problems of developing nations. Governments have failed to guarantee the fundamental rights.

In India, almost 94 per cent of women workers are engaged in the informal sector; about 20 per cent of the women work in urban centres. Nearly 50 per cent are the sole bread-earners of their families. Another startling fact is that out of all women workers, a mere 7.5 per cent are members of registered trade unions. Many have to work unpaid even outside their homes for five to eight hours to help their families. Most of them lack proper training; they have very few options in terms of gainful employment. In a word, women workers in the informal sector are poor, perhaps the poorest among the poor, uneducated and weak.

The informal economy is now an important source of livelihood for many in the developing countries, affected by poverty and unemployment. Both micro and macro studies have illustrated that the informal economy is growing rapidly, and forms an integral part of the modern capitalist economies, particularly in developing and Third World countries. Informal employment takes the form of 72 per cent of non-agricultural employment in sub-Saharan Africa, 65 per cent in Asia and 51 per cent in Latin America. The fluctuation of global markets, the impact of globalization and the dependence on capitalist intensive technology have contributed to the growth of the informal sector. Lack of employment, minimal education, chronic poverty and cultural and religious constraints have forced many women to engage in this type of work.

Home-based work is generally considered to be an economic activity undertaken within the periphery of the residence of the producer and the worker. The usual activities are sewing of garments and stitching of embroidery and laces, rolling of cigarettes, weaving carpets, peeling of shrimp, preparing food, polishing plastic, processing insurance claims, and assembling artificial flowers, umbrellas, and jewellery.

There is little need for expensive capital equipment that has to be shared by workers. This rules out production economies. Strong social networks prevent individual workers from violating contracts, facilitating lower transactions costs. The output is standardized and monitored by both the buyer and seller. Another feature is that transactions are fairly frequent.

The country has numerous home-based women workers subsisting on meagre earnings, little or no legal and social protection or benefits. Because they work in isolation, they are vulnerable to exploitation by contractors and sub-contractors. Irregular work orders, arbitrary rejection of goods and delayed payments are also common. Unable to invest in new machinery or training, their productivity suffers. As they work out of home, they are directly affected by urban housing, health and environmental issues.

Scant attention has been paid to the nature of the contract between the home-based worker and the contractor. The contract is neither explicit nor coded; it is based on a verbal understanding and trust between the parties. Not that informal contracts are undesirable; they can be beneficial to all concerned. However, it can have negative implications in the absence of either outdoor options for the home-based worker or an impartial enforcing entity. This is the crux of the problem. Given the poor economic conditions, it is unlikely that significant options can be generated. Moreover, given our experience with government functionaries, it is also unlikely that swift and impartial justice can be expected.

Many women toil in crowded homes with poor lighting. There is no space to store raw material or finished goods, the roof leaks, or the fragile structure cannot withstand strong winds. There is no proper drainage or garbage disposal facility. Poorly designed roads and drains result in the backflow of dirty monsoon water, damaging goods and supplies and disrupting production. Poor housing not only affects the family's health, but also its income. The lack of urban services such as electricity, water supply, sanitation and transportation directly impacts the residential environment and livelihood. Precious hours with income-generating potential are spent in collecting water; the cost of transporting raw material and/ or finished goods. This further depletes the poor earnings. Power supply, if at all, is often inadequate.

Many home-based workers depend on illegal connections. Another matter of serious concern is occupational health and safety. Home-based workers are often overworked and exposed to dangerous chemicals. It is difficult to keep track of injuries or health issues as these are seldom categorised as workplace incidents.

Women workers in the informal sector must emerge from the shadows. Policy-makers must address the problems of home-based workers, who can have a direct impact on poverty alleviation and employment generation. Home-made products such as handicrafts and textiles have an export potential too. Effective zoning regulations can facilitate home-based work. Unless home-based production is categorised as permissible in residential areas, unchecked use of zoning regulations will stigmatize urban workers as informal, if not illegal.

They can even run the risk of socio-economic exclusion and exploitation. Therefore, it is imperative to reform the manner in which cities are planned and built, and move towards a concept of inclusive cities ~ with space and livelihood opportunities for even the most marginalized workers.