Home Essay/Articles IMPORTANT EDITORIALS OF VARIOUS NEWSPAPERS (AUGUST : 2013)
IMPORTANT EDITORIALS OF VARIOUS NEWSPAPERS (AUGUST : 2013)
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Monday, 09 September 2013 10:37


IMPORTANT EDITORIALS OF VARIOUS NEWSPAPERS (AUGUST : 2013)


Is creation of Telangana a positive step?

Yes

Telangana contributes a larger share to Andhra Pradesh revenues than the rest of Andhra Pradesh, while receiving a lower share of  expenditures Telangana is workable as a separate State. Even with a lower population (3.5 crore against the rest of Andhra Pradesh's 4.9 crore), Telangana contributes a larger share to Andhra Pradesh revenues than the rest of Andhra Pradesh, while receiving a lower share of expenditures.

If we take annual averages for 2003-06, Telangana accounts for an annual revenue of about Rs 9900 crore, against approximately Rs 11,000 crore from the rest of AP. Telangana's expenditure is about Rs 5,300 crore, against residual AP's Rs 7,000 crore. Therefore, Telangana's generates an annual revenue surplus of about Rs 4,600 crore, against rest of AP's Rs 4,000 crore. A balance of Rs 4,600 crore will usher in financial stability in the new State. The neglected development of the State can then be addressed.

The first task in Telangana is restoration of its tank irrigation which has been allowed to collapse. The second is the cultivation of fallow unirrigated lands, where major efforts need to be made to introduce mechanisation of ploughings and orchard crops, requiring minimal irrigation.

The third effort is to link all Telangana villages through a robust rural road network to district headquarters. The fourth is to set up   vocational training centres with hostel facilities at every district.

The fifth item will take time but a complete mapping of each survey number of agricultural land, with its fertility and potential identified and advice and help given to farmers to increase their productivity and profitability. The sixth item is the development of market centres at the district level with banking and insurance facilities. Above all, there is a need to connect all villages to 24 hour electrical supply, as has been done in Gujarat and other States. These steps will initiate growth in Telangana and help meet the aspirations of the people.

There are two other main critical elements need careful handling. These involve the development of Singareni Collieries to increase coal production and to generate power based on pithead power plants. Singareni covers four districts of Telangana and its resources should be used to develop human resources and potential among the families of its workers as well as those who live in its area. It vast lands can be developed into orchards Telangana industry needs only a few conditions - reliable and cheap power supply, minimal red

tape and efficient and helpful regulation. Above all, Telangana should provide clean government and eliminate all corruption demand from State officials. If this is done, industrialists will flock to Telangana and exiting units will expand.

The last item is the healthy development of Hyderabad city and its hinterland. These will ensure that Telangana will become a more prosperous region.

No

The Congress party's decision to divide Andhra Pradesh will have far reaching consequences for the Indian polity. The Congress party's decision to divide Andhra Pradesh will have far reaching consequences for the Indian polity. It is likely to cause severe convulsions throughout the country.

Clamour for creation of many new States is likely to overwhelm the political discourse in the coming months and years.

If the Congress implements its recent Working Committee resolution, it will have ushered in a departure from the principle of  linguistic State as the essential and defining architecture of the Indian Republic. If the party has an alternative framework, the process perhaps will be less painful.

But if it had stumbled on this decision only on account of electoral considerations and a flawed understanding of the character and strength of the Telangana agitation, there is cause for anxiety.

Its unexplained move away from the 2001 position of establishing a fresh States' Reorganisation Commission (SRC) to look into the various demands for Statehood, suggests the party has applied its mind to the question only from an electoral point of view.

The Congress decision in favour of creating Telangana State comes in the wake of several polls forecasting a steep decline in its tally in Andhra Pradesh and many parts of the country. Perhaps its strategists are going for a calculated gamble.

However, the separatist platform is likely to yield only meagre returns in Telangana while the losses are going to be substantial in the coastal and Rayalaseema regions.

Since 2004, the electoral performance of political parties that adopted a separatist platform has been unconvincing, save a few by-elections.

The claims and assertions of the Telangana separatists are unsupported by economic data, history, political developments, and cultural narrative. Every economic and human development indicator shows that the region has registered impressive progress.

In many sectors, its development is equal or and in some even better than the other two regions. The claim that it is a long standing demand is more in the nature of folklore than a historical fact.

The last time any demand for statehood was raised from the region was in 1969.

The fact that the separatists of '69 were quiet when there was a demand for separation from the other two regions in 1972, is sufficient to show that the demand is less deep than is made out.

Congress electoral gambit might not pay off. But it will surely ensure the opening up of a huge can of worms across the country and is likely to consume the country's political and administrative energies.

Our acid test

Regulating access to acids is important to deal with attacks. But it may not be enough

Acid attacks, especially on women, are an issue of increasing concern. In order to deal with such attacks, a three-pronged approach is currently under formulation. The first is providing stringent punishment to perpetrators, not only as proportionate punishment for their action but also to deter potential offenders. The second approach is to prevent attacks by regulating access to acids. The third is constructing a compensation scheme for victims.

The Indian Penal Code did not have specific provisions to criminalise and punish acid attacks until earlier this year. If a person is convicted for throwing acid on another, and thereby causing temporary or permanent damage or deformity, a minimum imprisonment of 10 years and a maximum of life imprisonment is now provided.

Even if throwing acid does not result in injury, the perpetrator can receive a minimum punishment of five years, and a maximum of seven years imprisonment. If injury occurs, the court can order the perpetrator to pay compensation covering the victim's reasonable medical expenses. By providing stringent punishments, the law aims to deter people from throwing acid on others. This approach is

based on the assumption that people think rationally and evaluate their options before committing an offence. However, in an offence such as acid- throwing, where offenders generally act out of a misplaced sense of vengeance or spite, stringent punishment might, by itself, not be effective because the crime is not necessarily rational. In this context, preventing the crime by regulating the sale and possession of acids becomes important.

A writ petition was filed in the Supreme Court in 2006, seeking the formulation of rules for regulating the sale and possession of acids. On July 16 this year, the Central government informed the SC that acids will be designated as "poison" under the Poisons Act, 1919. The Poisons Act empowers state governments to regulate the sale and possession of poisons. The government can require licences to be obtained to sell poisons; regulate people to whom poisons can be sold, including the maximum quantity for one person; and require that sales records be maintained. Punishment can be provided for violating rules. The court directed states that had not formulated rules specific to acids to do so within three months, in accordance with the model rules submitted by the Central government. In the interim, the court issued directions that would take effect immediately.

The court prohibited over-the-counter sale of acid unless certain steps were taken by the seller. Acid can only be sold to a person aged 18 or above, and only on production of a government-issued photo ID that also has the person's address. Further, the buyer has to specify the reason for purchasing acid. These details, as also the quantity of acid sold, have to be recorded in a register maintained by the seller. Only after satisfying these conditions can a sale be made. Violation of these norms would lead to a fine of up to Rs 50,000 for the seller. The court also required the seller to declare all stocks of acid to the jurisdictional sub-divisional magistrate (SDM) within 15 days. If the seller fails to do so, the SDM can confiscate the stock and also impose a fine up to Rs 50,000. Recognising that research laboratories, educational institutions, hospitals, etc require acid for their work, the court issued guidelines for them too. Such an entity will designate a person to be in charge of possession and safekeeping of acid on its premises. That person shall be held accountable if directions are violated. Anyone leaving the area or room where acid is used or stored will be compulsorily checked. A register of usage will also be maintained, and filed with the SDM.

Another important matter on which the court issued directions is victim-compensation. As noted earlier, an offender may be ordered to pay compensation. However, this is only after he/she is convicted. Taking note of this, the Code of Criminal Procedure (CrPC) was amended in 2009, adding Section 357A, under which state governments are required to formulate a victim- compensation scheme. Compensation need not depend on whether the perpetrator is apprehended and tried, and whether conviction ensues. It can also supplement the compensation the convict is ordered to pay. The SC noted that states that have put in place a victim-compensation scheme have stipulated varying amounts of compensation. It ruled that the amount will not be less than Rs 3 lakh, of which Rs 1 lakh shall be paid within 15 days of the incident. The balance has to be disbursed within two months. Through this approach, the court has ensured victims of acid attacks get immediate and necessary medical care, and that lack of financial resources does not impede treatment. The compensation scheme is also important since it recognises the state's responsibility to provide compensation for failing to prevent the crime.

The SC's directions and the steps being taken are welcome. However, will regulating access to acids work? Bangladesh enacted similar provisions in 2002. Statistics show that the regulation of sales reduced the number of acid-throwing cases, although it did not completely eliminate them. The enforcement of rules remains a challenge. How does one ensure that sellers do not violate these rules?

Deterrence might not be effective when it comes to individuals who throw acid on others. However, it might deter individuals from selling acid solely for financial gain. Hence, if stringent punishment is provided for selling acid in violation of the regulations, it could be an effective check against acid attacks. Another method could be to hold the seller responsible for abetting the crime, if acid sold illegally is used in an attack. Such deterrent punishments might also ensure that black- marketing of acids to thwart the regulations does not take place.

While regulating access to acid, the government also has to take note that acid has legitimate uses. It has to ensure that regulating retail sale and possession does not have an adverse impact on people who legitimately possess and use acid for work. Hence, the long-term strategy should focus on developing a comprehensive policy to deal specifically with acids, and not just as an adjunct to poisons.

Creation of a new state holds many opportunities for Telangana and Seemandhra

The decision of the UPA and the Congress Working Committee to accede to the long-standing demand for a separate Telangana state from Andhra Pradesh ends uncertainty holding up development and opens up opportunities for harmonious and inclusive development of both states.

But it is necessary to avoid short-term and sectarian considerations while drawing up their boundaries to exploit the long-term opportunities for development provided by the need for building the new capital of Andhra Pradesh.

The idea of including two districts of Rayalaseema, Kurnool and Anantapur in Telangana is apparently kept open, however slender may be the chances for such a proposal. Like Telangana, Rayalaseema acquired a distinct regional identity of its own because of agro-climatic, historical and political factors. Therefore, any attempt to divide it is bound to meet stiff resistance from the people of Rayalaseema.

Don't Split Rayalaseema

Notwithstanding its enterprising elite, Rayalaseema is the most backward region in the present state. Its development requires a concerted plan for the whole of this homogeneous region as well as the necessary institutional arrangements and political clout that are possible only when the four districts of the region are together in one state.

One hopes that short-term political advantages arising from the demographics of religion and caste (See The Contested Ideas of Rayala Telangana, ET, July 30) will not be allowed to favour a decision that could hamper the development of this backward region and, indeed, of both the new states. An issue of concern following the creation of Telangana state is the possible impact on Seemandhra's economy after its separation from Hyderabad.

Another is the prospects for education and employment for Seemandhra youth in Hyderabad and security of investments, properties, jobs and livelihoods of those from Seemandhra settled in Hyderabad and other districts of Telangana.

Little Economic Impact

In the current phase of globalisation, the character of Hyderabad underwent a major change with its phenomenal growth and increased links with the national and global economy that, as brought out by the Srikrishna Committee on Andhra Pradesh, now predominate over its links with the state economy. A striking feature brought out by the committee is the concentration of IT and ITeS almost solely in Hyderabad accounting for 99% of these exports from the state.

But, of the 94 groups identified separately for investments in Hyderabad and adjoining Ranga Reddy districts, as many as 74 are from outside Andhra Pradesh. Even in construction and real estate, finance and business services, private Andhra-based investors are not dominant. The committee's narrative of key cities in Andhra suggests that the economic interdependence between them may be limited. Hyderabad and each urban centre in coastal Andhra and Rayalaseema have their own economic hinterland and growth drivers.

While Hyderabad is much larger than other cities in the state, the latter are not solely dependent on Hyderabad for market linkages and other services. Thus, the adverse impact, if any, on the economy of Seemandhra on account of separation of Telangana with Hyderabad as its capital is not going to be significant.

The Promise of Growth

The second issue is the protection of the interests of Seemandhra migrants, especially youth, for education and employment in Hyderabad. The proposed measures to protect such interests could be similar to the decision to retain Hyderabad as the joint capital for 10 years. In any case, the issue would call for a dialogue between leaders across regions with a spirit of accommodation.

Construction of a new world-class capital for Seemandhra holds the greatest promise, among other things, for easing pressure on education and employment of the youth. India is on the threshold of rapid urbanisation. Construction of a new capital for Andhra could be a major source for reviving growth and increasing employment. It also provides an opportunity for constructing an eco-friendly, energy-efficient and slum-free city with public transport and safeguards for easy mobility for pedestrians.

Would the people of Telangana be hostile to the businesses in Hyderabad owned by people from coastal Andhra? Several business persons in Hyderabad hailing from Andhra interviewed immediately after the decision to bifurcate the state reportedly expressed relief over the ending of "uncertainty". Hardly any apprehensions were ventilated. The current regional conflicts relate to the distribution of benefits from public investment and employment.

Private enterprise was unaffected by separatist agitations. Conflicts of interest arise when state power is used by the politico-business elite from the Andhra region to deny alevel playing field to commerce and industry in Telangana. Source: Economic Times

Egypt can learn from Pakistan

Both the Pakistani and Egyptian armies have wielded state power for extended periods of time. But while the Egyptian army has remained at odds with Islamist parties, the Pakistani army forged alliances with such groups for strategic reasons. Egypt must learn from the Pakistani experience, writes Ayesha Jalal.

The interconnectedness of today's world can hardly be over emphasised. Political, economic and social effects of actions in a particular part of the world spiral out of control, leaving none of us anywhere untouched. There are many countries which have gone through a period of military rule en route to 'democratic' aspirations. In South Asia, Pakistan has been one of these examples. There are no straight parallels, but the quickly changing events in Egypt also point to a wider debate about 'fledgling democracies' and 'struggling democracies'.

Egypt has been under militarised rule since 1952. In 2011, the uprising against Hosni Mubarak saw the Muslim Brotherhood come to power. In 2013, the Egyptian army ousted the first civilian President of the country, Mohammed Mursi. While the geostrategic context has been different, both the Pakistani and Egyptian armies have wielded state power for extended periods of time. With support from the United States and key European countries, they have entrenched themselves in the national economy through authoritarian methods and the pursuit of externally stimulated development policies. But whereas the Egyptian army has remained at odds with Islamist parties like the Muslim Brotherhood, the Pakistan army for strategic reasons forged an alliance with the Jamaat-i-Islami after 1977 and, following the Soviet invasion of Afghanistan, also with groups like the Deobandi orientated Jamiat-i-Ulema-i-Islam.

There could be warnings for the Egyptians in the Pakistani military model. The army invariably intervenes in the name of saving the  country from corrupt and inefficient politicians but ends up staying at the helm to ensure its own institutional interests, political, economic and strategic. To think that an army seizes state power to protect and promote democracy, as many Pakistanis believed in 1999 at the time of Musharraf's coup, is a fallacy that Egyptians would do well to take serious note of.

The current discourse around Egypt has been that of a great schism between pro-military, anti- military, pro-Mursi, and anti-Mursi' supporters.

However, we cannot afford to pin it down to such simplistic divisions. The situation in Egypt is far more complicated than an anti-military and pro- military divide between Mursi's supporters and opponents. To see it in such terms would be as detrimental to Egypt's democratic future as it proved to be for Pakistan when people felt they had to choose between General Musharraf's 'enlightened moderation' and the Taliban's benighted rule.

Egyptian General Abdel Fattah El Sisi, the head of the army, has now urged Egyptians to strengthen a military "mandate" to stop what he called "violence and terrorism". According to the Health Ministry of Egypt, the deadly clashes this weekend took 72 lives and injuring hundreds.

Human Rights Watch condemned the violence, stating "a shocking willingness by the police and by certain politicians to ratchet up violence against pro-Mursi protesters," in its report.

Today's Egypt is reminiscent not so much of the days of Ayub's guided democracy as of Musharraf's 'Pakistan first' rhetoric that equated the perpetuation of the general's rule with the battle against extremists operating under the umbrella of the Tehrik-i-Taliban Pakistan (TTP). What Pakistanis got in the process was another extended bout of military authoritarianism and more internal instability, violence and uncertainty than they had ever witnessed before.

Democratic transitions following military rule are inherently messy. The civil-military nexus in Pakistan remains strained even after the recent elections resulted in the first constitutional change from one civilian government to the other. The army still calls the shots on foreign and defence policies and has considerable say in internal security matters.

Only time will tell whether the newly elected government of Mian Nawaz Sharif has learnt from mistakes made during its previous term and will strengthen elected institutions, most notably parliament, without provoking the army to take over. The prognosis is not altogether hopeless.

Unlike the past occasions, Pakistan today has an assertive judiciary; a vibrant media and a vocal if divided civil society that are bound to oppose any unconstitutional move by the army. But the ability to prevent a military coup does not necessarily translate into civilian supremacy.

The problems plaguing Egypt are rooted in the authoritarianism embedded in the state structure and the kinds of patronage networks the military high command has created for the benefit of sections of the dominant social classes. This system has clearly not worked for the vast majority of Egyptians who demonstrated this failure by taking to the streets and bringing down Mubarak.

It was clear then that the downfall of Mubarak did not mean the end of his regime's entrenched interests in Egypt. Without uninterrupted democratic processes, and the emergence of political parties with strong links at the grassroots, it will be impossible for Egyptians to reverse the army's supremacy and establish an elected government that is both responsive and accountable to the  demands of the people. Egypt is most definitely on the brink, which way it goes from here, is up to its people to decide.

This Tigerland Needs Protection

Giving Pilibhit the status of a tiger reserve is essential, not just to protect the vital reserve for posterity but also to mitigate and address the severe human-wildlife conflict. As things stand, the tiger lives in dangerous territory there

Even the tigers that you don't see provide for as thrilling, as magical, an experience as an actual physical 'sighting'. I recall such an 'encounter' that took place a few years ago. It was late, night had long fallen, and a half-moon cast its pale silvery hue over the dense Pilibhit forest as I drove past herds of startled cheetal, a madly hopping hare, and a small cat which was probably a leopard cat that streaked past in a flash, to reach the Navadia forest rest house in Haripur range.

After a simple dinner, and exhausted with the long journey, I settled down for the night, huddled under the blanket for warmth. But no sooner did my eyes shut came that unmistakable rumble, reverberating through the jungle... aauungh, aauungh... Tiger! I shot up, bolt upright. Any vestige of sleep and exhaustion vanishing as the excitement, rather the euphoria, took over. It was answered by another, fainter call, as though from further away. Probably two tigers. A tiger and a tigress? Possibly a courting pair...

Almost overriding the thrill of the encounter, though, was a nagging worry... for this land of the tiger is notsecure, lacking the legal cover of a 'protected area'.

Welcome to Pilibhit Reserve Forest in Uttar Pradesh. Spread over 750 sq km, Pilibhit is part of the 'Terai' (Sanskrit for lowlands), a green strip of tall alluvial grasslands and Sal forests at the base of the Himalayas in northern India and western Nepal. Encompassing the Shivaliks and parts of the Gangetic Plain, the Terai Arc stretches about 800 km from Kalesar Wildlife Sanctuary in Haryana to Parsa Wildlife Reserve in Nepal, comprising a network of other protected areas like Rajaji, Corbett, Dudhwa, Suhelwa, Valmiki in India and Shuklaphanta, Bardia, Chitwan in Nepal; connected, by vital but increasingly fragmented wildlife corridors. The Terai is one of the most diverse regions and also amongst the most imperiled, cursed with one of the densest human populations in the world.

Historically, the Terai was sparsely populated, heavily forested, supporting a spectacular diversity of Asia's wildlife. The region was extremely malaria- prone, and, therefore, virtually uninhabitable, so much so that one British officer remarked that "for the plainsmen, sleeping in the Terai in the monsoon meant certain death."

Then came DDT. This deadly pesticide was used heavily in the 1950s in a massive effort to eradicate malaria, making the area habitable. And so was cleared one of the richest, most biodiverse forests...paving the way for settlements, cultivation. The priority was to increase agriculture production, given that India then was food deficient. Gun licences were also doled out to exterminate 'pests', thus, giving a free license to hunters. The region saw a sudden influx of refugees from what is now Pakistan, post India's partition, and the new migrants, an enterprising and resilient lot brought yet more area under the plough.

This large-scale conversion to agriculture destroyed prime natural habitats. The protected areas and forests of the Terai Arc today are the last remnants of these once vast pristine forests.

Pilibhit is a vital link in the Terai Arc, connecting India's Dudhwa Tiger Reserve and Nepal's Suklaphanta National Park through the Lagga Bagga forests. It is also a prime tiger habitat, believed to be supporting about 30 tigers, including breeding tigresses, according to a recent survey by the Uttar Pradesh Forest department along with WWF India. With a density of about four tigers per 100sq km, Pilibhit is today better placed than many existing tiger reserves. Recognising its potential as a rich tiger habitat, India's National Tiger Conservation Authority had given 'in-principle' approval for the declaration of a 'Pilibhit Tiger Reserve' in 2008, though the reserves awaits notification by the State Government.

The importance of Pilibhit forest is well beyond its not insignificant size. Protecting Pilibhit will help consolidate a contiguous block of forest of about 5,000 sq km of prime tiger habitat connecting Shuklaphanta in Nepal to Kishanpur and Katarniaghat in Uttar Pradesh, Dudhwa and onward to Surai, and the recently-notified Nandhaur Wildlife Sanctuary in Uttarakhand.

This forest is a haven for other equally endangered wildlife. The 'madly hopping hare' who escorted our vehicle was the hispid hare. Short ears, stout legs, bristly hair, shy, secretive, and very rare - we were extremely lucky that it decided to act as our sentinel. Its range is largely restricted to southern Nepal, North Bengal, Assam, Bangladesh, and this part of India, primarily Pilibhit. Another prized inhabitant of this forest is the Bengal florican, a critically endangered bird, with a global population under a thousand. Once widely distributed in India, Nepal and Bangladesh, about 300 remain today in the grasslands of Uttar Pradesh, Assam and West Bengal. Vultures, whose populations have crashed alarmingly across the country, are reported to be recovering here.

A recent census by the forest department showed that there are approximately 75 vultures in the region, a jump from about 50, counted two years back. Pilibhit also supports a small population of the majestic 'twelve-tined' barasingha or the swamp deer. It sees the occasional transient elephant and rhino. There have been some 'new' or rather newly-recorded residents as well. The camera trapping exercise in 2010 revealed the presence of the rusty-spotted cat, the smallest member of the cat family and endemic to the Indian sub-continent. Another first was the four-horned antelope, or the choushinga, hitherto unrecorded in these forests, or anywhere this north  of the country.

Pilibhit is a miracle. Even though a non- protected area, it is evidently, one of the richest in Terai - a testimony to its history of protection coupled with the strong connectivity it enjoys.

Yet, its future is very precarious. Wildlife protection is not a priority in 'territorial' commercially harvested forests such as Pilibhit. Commercial exploitation of forests harms the fragile ecology, besides being a major disturbance to wildlife. Commercial plantations, which form the core of reserve forests, could well be a death knell for grassland dependent species such as the florican and the hispid hare. Reserve forests are also very vulnerable to non-forest uses, and exploitation for development and other purposes.

There are other issues - the gravest being that of severe human-wildlife conflict. The Pilibhit forest is abutted by sugarcane fields, into which tigers frequently stray. To the tiger seeking cover, or the tigress looking for a safe spot to give birth to cubs, sugarcane fields are like a natural extension of the grasslands and forests. The tall grasses offer perfect camouflage, excellent cover, prey in the form of wild pig, nilgai and cattle. The crop is hardly disturbed for at least six months - until harvest time in winter. Farmers frequently surprise tigers within the cane, and that is when human-tiger conflict peaks, many a time with fatal consequences.

Giving Pilibhit the status of a tiger reserve is essential, not just to protect this vital tigerland for posterity but also to mitigate and address the severe human-wildlife conflict.

Industrial zones: Get the location right

Industrial zones should be located in areas withthe requisite labour skills. This is generally overlooked.

As the government steps up its efforts to boost the manufacturing sector, it is falling back on one of the conceptualisations of the pre-liberalisation era: townships built around manufacturing centres.

The earlier townships may have been predominantly in the public sector and the ones that are now being proposed have a much more prominent role for private investors. But they share several strategic elements in the approach to expanding manufacturing — including the weakness of underestimating the importance of location.

The earlier public sector townships had more success than it is now fashionable to give them credit for. In addition to creating a manufacturing base in a largely backward economy, their emphasis on education and health facilities for their workers had several longer-term benefits.

The children of these workers who had access to these facilities went on to join the educated manpower that powered the boom in IT and other technology centres.

The political potential of these high-wage and high-benefit islands was soon recognised by those who could influence policy.

Governments began to tap this potential by setting up townships in areas where political support was needed. And these needs ranged from gathering votes in poverty-stricken areas to trying to make the Indian state more acceptable in areas of political strife, including Kashmir.

Not surprisingly the costs of these townships increased, often ensuring that the products manufactured there were no longer economically competitive.

The Impact

In a welcome change from simply scoffing at all that was done in the pre-liberalisation era, the recent manufacturing policy provides the pride of place to townships. In a positive move, the case for industrial clusters has been expanded into one for entire townships.

The size of the National Investment and Manufacturing Zones (NIMZs) is to be a minimum 5,000 hectares and some States have planned much larger areas for their NIMZs.

These zones are to also provide housing for workers, thereby going well beyond merely gathering land for industry. And since workers’ housing cannot go without education and health facilities, it is possible that the NIMZs could have as beneficial an impact on future manpower as the public sector townships once did.

What is less comforting is that the new policy shows just as much indifference to the costs of inefficient location as the approach before liberalisation did. It seems to assume that there is no longer any pressure to set these units up in areas that are politically, rather than economically, viable.

Yet State governments today do compete quite aggressively with each other to attract investment. They could then end up offering expensive concessions to industries to invest in areas that are not the most efficient location for them.

The scope in the new policy for viability gap funding, in fact, raises the possibility that the concessions could extend to direct subsidies. The chances of such inappropriate location of NIMZs are enhanced by the new manufacturing policy, ignoring the wide differences across the country in the availability and skills of labour.

The policy seems to assume that labour in India is now mobile enough to move from one part of the country to another. And a large number of workers from the north and the east of the country do seek work in the west and the south. But this mobility only takes place when workers know jobs are available at a particular site.

A new NIMZ will only attract labour if manufacturers have already set up shop, and manufacturers are quite unlikely to move into new townships without adequate labour being available.

It is then quite possible for a NIMZ township to look very attractive in brochures but come up short simply because it is located in an area that does not have the appropriate labour force.

Start with Local Labour

In breaking out of this vicious circle of the absence of labour inhibiting investment and the absence of investment making it difficult to attract labour to a township, it would help if the NIMZ is located in an area where labour is locally available.

If there is labour with a particular skill set available locally, it will attract industries seeking workers with those skills.

Once these industries are set up the township could become a magnet for labour elsewhere with the same sets of skills. In other words, locally available labour is necessary to kick-start a township, after which the cycle of labour and industry attracting each other can take off.

The availability of labour with the appropriate skills in adequate numbers is not the only dimension of the costs of production that is affected by location.

Access to other resources, including land at affordable prices, is also a potentially critical factor in the competitiveness of a manufacturing unit.

The successful NIMZs are likely to be the ones that are located at points where the manpower, resource and other advantages are significant enough to minimise the viability gap funding.

At the same time, by explicitly opting for location neutrality, the new manufacturing policy has kept wide open the possibility of several NIMZs failing simply because of inadequate attention being paid to the adverse impact of location on their competitiveness.

Parliamentary supremacy under attack

The executive’s attempts to circumvent the legislature and the growing influence of money power in deciding elections have eroded people’s legitimate aspirations.

Parliament is the custodian of the Constitution of India. The Preamble to the Constitution proclaims the supremacy of the people of the country. They exercise their supremacy through their elected representatives who are the Members of Parliament.

Nowadays, the non-functioning of Parliament is making headlines . And rightly so. The 15th Lok Sabha could be termed the least productive in the annals of Indian Parliament. As per the statistics prepared by the Lok Sabha secretariat, only 1,157 hours of sittings took place until the 12th session of the 15th Lok Sabha. This is far behind the record of the 14th Lok Sabha, which had 1,736 hours and 55 minutes of sittings. In fact, the first Lok Sabha held 677 sittings of about 3,784 hours during its 14 sessions. The story is no different in the Rajya Sabha, the Upper House of Parliament. For the first time in its history, the Upper House returned the budget without any discussion.

UID Bill in Abeyance

However this is not the only thing corroding the functioning of democracy. The executive has taken most policy decisions without the concurrence of the supreme legislative body of our country. A classic example of this is the Aadhar, a much hyped programme of the UPA government. The Aadhar card is regarded as a pre-requisite for getting all government benefits. Without the Aadhar number, a student would not get any benefit from the Central and State governments. Direct Benefit Transfer is based on Aadhar numbers. Bank accounts are to be linked to it. But what is the legislative backing for Aadhar? The UID bill is supposed to be the law for the implementation of Aadhar. But the Parliamentary Standing Committee had submitted its reports with serious objections to most provisions of the bill. The government has kept it in cold storage and is not ready to move the bill in Parliament in any form for consideration and passing.

But Aadhar has already become a reality and an unavoidable part of the life of an Indian citizen. This covert approach of the government was also visible when it introduced the contributory pension scheme for Central and State government employees. All the State governments in our country are collecting the contribution from crores of their employees for the Pension Fund. But we find that the bill relating to it is still pending in Parliament.

What is the legality of collecting hundreds of crores of rupees during all these years? These are only a few instances of the government bypassing Parliament for implementing major policy decisions.

The Constitution clearly defines and demarcates the powers of different organs of the democratic system. When Parliament passes a law, it becomes the law of the land. All citizens of the country are bound to adhere to it. But this constitutional mandate is observed more in its violation.

Unanimous decision overruled

While presenting the Union Budget 2012-13, the then Finance Minister Pranab Mukherjee had introduced retrospective taxation. Both Houses passed the Finance Bill unanimously with these provisions. But when P. Chidambaram became the Finance Minister, the scene dramatically changed. He constituted a one-man committee to review this new tax reform. Within a week of submission of the report by Parthasarathi Shome, the tax expert, the government decided to defer the retrospective taxation for three years. Can the unanimous decision of the supreme legislative body of this country be overruled by an expert?

Usurpation

Parliamentary committees are considered a miniature of Parliament. Usually, the committees consist of Members of Parliament representing most political parties. In developed democracies, only Parliament can overrule the decision of the parliamentary committees. But in India, the executive has the right to adopt or reject the recommendations of a parliamentary committee. If the government incorporates a new clause in a bill, which was not there in the original bill, it should again send it to the committee for its consideration. But contrary to this constitutional convention practised hitherto, for the first time in the history of the Indian republic, the government constituted an expert committee to evaluate the recommendations of a Parliamentary Standing Committee. To our surprise, when the Parliamentary Standing Committee on Finance submitted its report on Direct Tax Code, we found the Finance Ministry immediately constituting a committee on this report. Though the ministry gave some explanations when the controversy erupted, can it be considered fair or just? Was it not usurpation of parliamentary authority and a way of curbing the voice of the people?

All these are nothing but clear indications of a plan to undermine the legislative powers of Parliament. This is further highlighted in other policy issues too. Before the 1990s, the common man in India would eagerly wait before his TV set or radio for the announcement of budget proposals in order to learn about the changes in tax rates, changes in prices of different commodities, rail fares, etc. But nowadays, no one is serious about the budget. Of late, we find that not only Parliament but also the executive has no power in the pricing of petroleum products. The government has handed over the power to oil companies. According to the last Railway Budget, the train fares would be decided by a regulatory authority.

The government is now preparing to pass the Constitution Amendment Bill for Implementing Goods and Services Tax. As per the draft bill, Parliament has no power to decide the tax rates.

The GST Council has the powers to decide the tax rate for the Centre and the States. With Parliament and the Legislative Assemblies having no say in these processes, would the budget become a time pass exercise? Are people’s representatives being robbed of their constitutionally conferred responsibilities? After serious protests from different sections of society, the government made a change to this clause in the bill, rendering the powers of the GST Council recommendatory. But there is little doubt that these recommendations will tie the hands of forthcoming Finance Ministers and thus lead to further dilution of the financial powers of Parliament.

Another serious threat to the parliamentary system in India is the steep decline in the representative nature of Indian society in this fundamental institution. As per Election Watch statistics, as many as 306 MPs in the 15th Lok Sabha are crorepatis. This is more than a 100 per cent increase over the 14th Lok Sabha. The average asset of an MP is nearly Rs 5.8 crore. Is it not a farce that they are the representatives of a society where the daily consumption of more than 77 per cent of people is below Rs. 20? Another statistic is that 32 per cent of the candidates who have assets of more than Rs 5 crore won in last Lok Sabha elections. The winning chance of the candidates with assets between Rs 50 lakh and Rs 5 crore is 18.5 per cent; for those with assets below Rs 10 lakh, it is only 2.6 per cent. This clearly indicates that money power is one of the major factors in the election system of a liberalized economy.

The Indian democratic system has a progressive nature up to a certain extent. But it has been attacked by the same class that runs the state. Defending the representative nature of Parliament and protecting its legislative supremacy are responsibilities to which we are constitutionally wedded. Parliament is the vehicle through which people’s aspirations and needs can be met. It is the mechanism to establish the rule of law and distributive justice. Denying and depriving it of its powers and responsibilities can only lead to the erosion of the legitimate aspirations of the people themselves.

China-India poverty: a matter of record

India's poverty and inclusive growth record is much better than China's, and levels of poverty in the two countries are not very different

This article attempts to document the record on poverty reduction in both China and India. That China has grown substantially faster than India is a matter of record and great pride for China. That the welfare of the poor in China has also improved at a much faster rate than India is also conventional wisdom as articulated by various scholars at international institutions like the UN, World Bank, Asian Development Bank, etc, and these findings have been supported and endorsed by Nobel laureates like Amartya Sen, for example, in "Why India Trails China" (New York Times, June 19).

There are several household surveys of consumption in India, and such surveys are led by the official National Sample Survey (NSS) conducted every few years. These data are publicly available. Unfortunately, while everyone applauds China's GDP growth rate, no one, with the possible exception of the World Bank, has access to household unit- level data. In other words, we have to take the official government view on household income and consumption growth, etc. Given the very large transparent accumulation of foreign reserves of more than $ 3.5 trillion, there is little doubt that GDP level, and GDP growth, in China is extraordinarily high.

The story of how much trickle-down there has been in China is documented below.

There was an important non-government household survey conducted jointly by Texas A&M University, US, and the Southwestern University of Finance and Economics in Chengdu, China, in 2011. The survey results were widely reported in the international press in December 2012. One of the results was that the Gini index of income inequality in China was a high 0.61, much higher than government-reported results of a Gini of 0.48. Unlike official Chinese household data, the explicit stated policy of the survey organisers was that researchers worldwide could access these data. Somewhat strangely, repeated applications to the website chfsdata.org have not met with success. The results for China reported below are obtained from the World Bank website, iresearch.worldbank.org/ PovcalNet/index.htm.

The Indian data are based on the NSS consumer and expenditure surveys for the years 1999-2000 and 2011-12 and for China for 1999 and 2010. The table reports the head count ratio of poverty for the World Bank's poverty line for developing countries like China and India, that is, PPP $1.25 per capita per day, which also just happens to be India's official (Tendulkar) poverty line. For India, two estimates of poverty are presented (survey details for the China surveys are not known). The two estimates are the standard official measure of consumption (what is called the mixed recall period and referred to as Type I) and the mixed recall period with perishable items like vegetables, fruits, meat, etc measured with a recall period of seven days (referred to as Type II, the recall refers to memory recall of items purchased over the last 7, 30 or 365 days).

China's record: spectacular growth in per capita GDP, per capita consumption, and poverty decline. From a poverty level of 35.6 per cent of the population in 1999, China reduced it to 11.6 per cent in 2010, for an average pace of decline of 2.2 percentage points a year. Both survey and national accounts (NA) consumption growth in China were near identical during this decade, at 6.7 and 7.3 per cent per annum respectively, that is, the survey-measured consumption growth was higher. If the efficiency of growth is (crudely) defined as the decline in head count ratio per unit of consumption growth, then China's efficiency for the decade 1999 to 2010 was around -0.3, that is, for each 10 per cent growth, poverty in China was reduced by 3 percentage points.

Another term for efficiency could be inclusiveness of growth. The poverty level for India in 1999-2000 and 2011-12 were 42.9 and 21.9 per cent, respectively. This gives an average pace of decline of 1.8 percentage points per annum, somewhat below the 2.2 per cent average recorded in China. But note the low level of household consumption growth observed in India — only 2.8 per cent per annum. This yields an efficiency- inclusive index of 0.6, twice the level observed in China. Also note that survey consumption growth in India (2.8 per cent per year) is considerably below national accounts growth (4.8 per cent per year).

If nothing else is changed but just the collection of household data on consumption, India shows a pace of poverty decline almost identical to China — 2.1 ppt a year for Type 2 recall data compared to 2.2 ppt for China. This yields an efficiency index for India one and a half times higher than China — that is, 10 per cent growth in average consumption reduces poverty in China by 0.3 percentage points, in India by 0.74 percentage points.

Another way of looking at the respective growth rates is by looking at the survey "capture" of consumption, that is, the ratio of survey consumption to NA consumption. For China, this capture averaged a high 71 per cent, 1999-2004 and 74 per cent, 2004-2010. This survey capture for China is among the highest in the world. The survey capture in India averaged 53 per cent in the early 2000s and 51 per cent, 2004-2011, and 46 per cent in the recently concluded 2011-12 survey. In striking contrast to China, this survey capture level for India is among the lowest ever recorded for developing countries.

The low survey estimate for mean consumption in India and high survey estimate for China have strong implications for our assessment of poverty levels in the two countries. If India had the Chinese average of survey capture in 1999 and 2011 (about 75 per cent rather than 50 per cent), it would mean that per capita consumption levels in India were 50 per cent higher than those observed, which means that poverty levels in India in 2011-12 would be substantially below China's in 2010, at any reasonable range of poverty lines, for example, PPP $1.25, $2 or $2.5 per person per day.

Another measure of the efficiency of growth is the change in inequality. Using the Gini as one measure of inequality (the Gini is equal to 0 if everybody has the same income and 1 if 1 person has all the income), it is observed that inequality in China increased marginally (6 per cent) between 1999 and 2010. In India, nominal Gini increased by 12.5 per cent; however, the real Gini (consumption adjusted by rural-urban price differences) increased by only 6 per cent. Indeed, if one goes back to 1983, NSS data suggest that real inequality in India has stayed constant for nearly 30 years (Gini of 0.303 in 1983 and 0.317 in 2011-12), whereas the World Bank estimates that inequality in China has increased by more than 50 per cent — and much more, if the "banned" China CHFS survey is considered accurate.

No matter how one slices the data, it is the case that growth in India has been substantially more inclusive and pro-poor than China — and that the bottom one-third of the population have had a higher standard of living than China, despite the substantially higher GDP per capita level (and growth) in China. So before the international organisations, and/or scholars like Amartya Sen lecture India about the example of China, it would help if they were less political, and less ideologically biased, and it would help even more if they looked at the data before leaping to unsubstantiated conclusions.

India must Revisit Ties with Nepal

India-New Nepal relations which are special due to the open border, cultural affinity and kinship, require recalibration to accommodate each other’s interests and concerns

Gopalji Gurung is Kathmandu’s unknown strategic thinker. Ask him why Nepali Congress President Sushil Koirala is currently in India on Union Government’s invitation following visits in the last four months of Maoist supremo Prachanda, Nepali Congress and Communist Party of Nepal (Unified Marxist-Leninist) former Prime Ministers Sher Bahadur Deupa and Madhav Nepal? India wants to distribute its eggs in different baskets by engaging all stake-holders. Ask him whether the second election in five years to a Constituent Assembly—which is a world record—will be held on November 19 this year, and he says, “There are three views. Yes, no, and should be held but may not”. The majority is in the ‘yes’ court. This is backed by the establishment, India, European Union and others including, suprisingly, China.

Elaborate security preparations have been made with Nepal Army, armed police and police is ready to deal with spoilers, and violence which is expected from the breakaway Maoists, led by Kiran Mohan Baidya and the Tarai-based terrorist groups, which are principally of nuisance value. Prachanda Maoists, the mother group that spearheaded the peoples’ war are hoping to talk the Kiran lot into elections in the larger effort at power consolidation. A letter has finally been sent to Mr Baidya inviting him for unconditional dialogue by the four-party high level political committee which is guiding the ad hoc election caretaker Government.

The nay-sayers contend that without resolving the differences that broke up the previous CA and settling new electoral issues, elections will come a cropper. At least, it will yield a democratically- elected Government, they concede. Present estimates expect the Prachanda Maoists to emerge as the single largest party with UML a distant second, followed by NC and Madhesi parties. According to Himalmagazine, surprisingly, Mr Sushil Koirala is the favourite for Prime Minister, upstaging Mr Prachanda and his party’s senior leader and former Prime Minister Babu Ram Bhattarai.

Most want an election to end the impasse but are pessimistic about it. The Kiran people are expected to be the principal spoilers obstructing and boycotting instead of contesting election. Mr Baidya says an armed revolt to capture power is necessary but impossible under present circumstances. But he is flexible. A return to the mother party, which at one time was ruled out by Mr Prachanda himself, is possible though not probable. Some sort of an electoral alliance could be on the cards. Mr Prachanda, a proven manager of internal dissent, is wary about Mr Bhattarai’s intentions and wants to make up with Mr Baidya. The real differences between Mr Prachanda and Mr Baidya, his mentor, is less ideological and more to do with loaves of power and perks which have not been equitably divided. Power is a big aphrodasiac.

The Kiran line is that the split was due to Mr Prachanda abandoning the people’s struggle. Further, very likely there will be no election; even if election is held, there will be no Constitution; and even if a Constitution gets written it will not solve the people’s problems. Mr Gurung says the three conditions stipulated by Mr Baidya—round-table conference, change in date of election and resignation of Prime Minister as Chief Justice—are negotiable to placate Mr Baidya and work around them. In short, there is light at the end of the tunnel.

According to the presidential decree, election ought to be held by mid-December. Any change of date beyond this deadline will require a fresh presidential ordinance.

The twin problems confronting Nepal are the absence of a strong leader like the late and legendary Girija Koirala who could force a political consensus and ensure formation of a stable Government. Dismantling monarchy without installing an alternate political pillar has created instability and a political void which has been occupied by external forces.

Constitution-drafting has hit a cul de sac. Since 1728, says Mr Gurung about 800 Constitutions have been written of which 50 per cent failed. Whereas political stability is paramount for a sound Constitution, Nepalese politicians have jostled for power, Government-formation and appointment of Prime Minister—rather than focus on the constitutional process. Reverting to the 1990 Constitution, which late Foreign Minister Rishikesh Shah described as ‘mischievous’ because the King retained real power, is an unlikely option. As political parties do not wish to be seen to be making compromises on their stated positions on federalism, it is best left to an experts’ group and/or a referendum. The Maoists who yielded on integrating Armies prior to completion of the Constitution, are committed to Madhesis, marginalised groups and jan jatis who were their main support base for ethnicity- based federal structure. They can’t back down. After prospects for election and a new Constitution, India figures prominently in the Kathmandu discourse. This is nothing new, only its crescendo has risen. The Indian embassy and intelligence agencies are accused of interference in Nepal’s internal affairs, ‘adventurism’ (whatever that might mean) micromanaging the elections and drafting of the Constitution. Substantiating Indian interference, the names of former Foreign Secretary Shyam Saran and academic SD Muni, who is known to be close to Mr Bhattarai, are commonly cited; their writings and pronouncements of how New Delhi aided or obstructed the Maoists with having their way. Neither the Indian embassy nor intelligence agencies (read Research &Analysis Wing) are reported to be in touch with the estranged Baidya people who are known to be anti-India and against Indian expansionism. They want Nepal’s sovereignty and strategic autonomy back. The Kiran- ites wear Nepali nationalism on their sleeves and, therefore, their current overtures towards monarchy which was regarded as the symbol of Nepali nationhood. The anti-India sentiment, more contrived than real, evaporates at the open India- Nepal border. That is why during the 10-year long civil war, Nepalese fled to India, not Kathmandu or China, explains Mr Gurung.

The Nepal Army, once derided, is the only institution regarded as legitimate and therefore, respected. Maoist leader CP Gajurel said, “We should talk to the Army about the election imbroglio” and many other political leaders have claimed support of the NA. Monarchy may be drawing curious crowds but is nowhere near being restored. China is now the number two country after India and has spread its wings in every nook and corner including domestic politics.

India-New Nepal relations which are special due to the open border, cultural affinity and kinship, require recalibration to accomodate each others’ contemporary interests and concerns. Vital for transition to New Nepal is election to CA, and New Delhi and the only partially transformed Kiran-ites mending their relations, says Mr Gurung.

China in Myanmar

The natural gas pipeline that connects China to Bay of Bengal through Myanmar has been operationalised very recently. This is a historic development, and fulfills a cherished Chinese ambition to connect the People's Republic to the Indian Ocean as part of its two-ocean strategy. There are lessons in these developments for India as well.

Media reports of the twenty-fifth anniversary of the democratic uprising in Myanmar have obscured a more important development. The natural gas pipeline that connects China to Bay of Bengal through Myanmar has been operationalized very recently. This is a historic development, and fulfills a cherished Chinese ambition to connect the People’s Republic to the Indian Ocean as part of its two- ocean strategy. The Indian Ocean is critical for China, because 80 per cent of its oil imports traverse the Malacca Straits. Therefore, China is establishing a network of relationships with Indian Ocean littoral states while developing secure and diverse energy routes.“The new pipeline cannot completely eliminate the Malacca Straits as a significant transit zone, but it is a part of China’s overall strategy to reduce excessive dependence on this route. The pipeline starts at Kyaukpyu in Myanmar and terminates in Kunming in China and its completion in just three years indicates the policy consistency and determination of Beijing to ensure that its economic momentum continues to receive necessary energy resources. China is also building an oil pipeline alongside the existing gas pipeline which will begin operations next year. These two pipelines will not only carry energy resources from the gas fields in the Bay of Bengal but also transport oil from the Middle East which can be off-loaded at Kyaukpyu and conveyed to Kunming. With a capacity to deliver 22 million tons of oil and 12 billion cubic meters of natural gas each year, these pipelines are being described by China as its fourth largest strategic energy asset.“The completion of this pipeline assumes even greater significance, given the fact that the Myitsone Dam, which was being constructed by Chinese companies in northern Myanmar, had to be suspended in 2011. Numerous concerns were advanced against the construction of the pipeline, including environmental damage, absence of proportionate benefits to local communities and the criticism that natural gas from Myanmar’s offshore fields was being supplied to China while the country itself was experiencing blackouts. In spite of such anxieties, the project went ahead unimpeded, clearly demonstrating China’s continuing strong influence in Myanmar. “China has been making efforts in Myanmar to improve its image through corporate social responsibility activities. For instance, Chinese media have been making the case that the pipeline companies have spent some $ 20 million for social sector development in Myanmar and made provisions for schools and health clinics. After local protests against the Chinese-backed Letpadaung copper mine project, the profit-sharing agreement was renegotiated by which the Myanmar government received a larger share of the profits and greater allocations to CSR activities were made. With this re-negotiation, it is not surprising that there are demands to re-negotiate all the Chinese projects that were signed during the previous military rule. “For the Myanmar government, such re-negotiation may appear attractive not only from the perspective of equity and the necessity to achieve environmental standards, but also because it results in providing greater resources at its disposal. Given the current political transition, the availability of such additional resources would enable Naypiydaw to expand expenditure on welfare schemes without reducing the budget for institutions associated with the military. The domestic compulsions of allocating adequate resources to various political constituencies will inspire some circles within Myanmar’s political system to press for re-negotiation of contracts with greater vigour, and such demands for re-negotiation could lead to souring the relations between Myanmar and China.“With its huge investments in Myanmar, China is being compelled to take account of the ethnic conflicts in that country. Rarely do such Chinese interventions receive general approbation, and the responses to China’s efforts to promote ethnic reconciliation have been mixed. For instance, China played a significant role in prevailing on the Myanmar government and the Kachin Independence Organisation to begin negotiations on a ceasefire agreement and the  talks did result in a successful ceasefire agreement recently. However, the negotiations were delayed because China reportedly was uncomfortable with the presence of other international observers such as from the USA and UK. In the final discussions, the only international presence other than that of China itself was that of the United Nations, which did not go down well with some of the stakeholders involved.“Given the Myanmarese in clination for re-negotiation of contracts and the tentative ethnic peace process, China has evinced some hesitation in making major new investments in Myanmar: it is reported that China’s investments in Myanmar during 2012-13 declined to $407 million compared to $4.35 billion during the previous fiscal years. The Chinese experience in Myanmar underlines a lesson for new investors from other parts of the world, namely that the capacity to influence the current Myanmarese élite does not necessarily translate  into sustainable business opportunity in the long- run.“There are lessons in these developments for India as well. Firstly, one of the reasons for the emergence of China as a dominant player in Myanmar is because India’s connectivity network with Myanmar is lamentably poor. As a businessman in Mandalay complained, “If I place an order with Chinese business houses, the goods  will be delivered in one or two days, but if I place an order with India, it may take months.” Secondly, steps to ensure easy movement of goods across the India-Myanmar border  must be initiated and the north-eastern state governments must be closely associated with such measures. Thirdly, it must be remembered that large numbers of Indians were expelled  from Myanmar in the 1960s, allegedly for unethical  business practices.

Whatever the merits of such reasoning, the residual presence of such negative perceptions must be recognized and addressed through creative public diplomacy campaigns.

The wrong way to food security

The bill is the UPA's attempt to camouflage poor performance with propaganda

Let no one misunderstand this, and I state this at the very outset. The Bharatiya Janata Party is not opposed to a food security law. Indeed, the BJP will support the bill in Parliament, with some amendments, when it comes up for discussion. But we are concerned about the manner in which the law is going to be implemented. We also do not mind if the Congress believes that it is a political game changer that will help it navigate the electoral battle in 2014, or whenever elections are held.

We must appreciate that the current situation of high food prices, huge stocks of foodgrains, the sight of tonnes of foodgrains rotting in the open and the poor being deprived of two square meals is a complex amalgam of constant policy failures for decades. Even while paying lip service to the farmer and the consumer in the name of the much- harassed aam aadmi, the UPA government has failed to come up with a coherent food and farm policy that protects the people's interests. The result has been that farmers do not get remunerative prices for their produce and at the same time, consumers pay exorbitant prices for their daily needs. Above all, there is the endemic problem of reducing any debate into an NDA vs UPA contest. Now let's get real. Ten years is a long time, and the UPA masters should muster the courage to own up to their track record instead of taking shelter behind the statistics of the NDA period.

It is the primary responsibility of the state to ensure that the elementary needs of its people - food, shelter and health - are fulfilled. Towards this end, a law that makes it a right for the people to have access to foodgrains is welcome. However, there are issues to be considered and resolved.

As someone engaged in public policy and keen to promote the politics of development, I am still not able to fathom the reason behind the UPA's refusal to even take a look at the Chhattisgarh model of food security. It has been lauded by independent experts and has worked well for several years now. Among its strong features are: sensible use of technology, like full computerization of PDS and the use of GPS devices for tracking the movement of vehicles carrying grains; greater transparency through public scrutiny of all records; and a higher level of accountability, with local bodies such as gram panchayats having precedence in running PDS outlets.

But then the UPA does not believe in a proven format of good governance. It wants to introduce a public welfare measure with an eye on EVM machines. My limited concern is, should we play politics with the hunger of the poor? Should we also look at our votes when we provide food to the people? Must we always play politics?

When you play politics, your real intent is laid bare before the people. This bill is a clear indication that the UPA is only interested in getting propaganda mileage on food security, and is not really committed to the task of ridding the country of hunger.

Let us look at this aspect. The manner in which the targeted beneficiaries are chosen exposes the Manmohan Singh-Sonia Gandhi team's game. This is perhaps the first law under which the number of beneficiaries to be covered in each state has been decided, instead of creating eligibility criteria. The guidelines for the eligibility criteria have not been decided by the Central government, but have been left to the states. This would create anomalies in implementation. So, a group of people eligible for benefits under the act in one state may find that they are not covered under it in another state. The impact of this provision is that in one stroke, 1.47 crore people who were getting the benefit of subsidised foodgrains in Gujarat have been taken out of this scheme. This is because the Centre shall determine the number of persons that shall be covered in each state in urban and rural areas. In the case of Gujarat, before the food security ordinance was enacted, 5.11 crore people came under the subsidised foodgrains scheme. After the Central law was put in place, the number declined to 3.66 crore. So, the food security bill has actually deprived 1.47 crore people in Gujarat of subsidized foodgrains.

I am of the firm view that the difference between the cycles of production and consumption of the farm produce is at the root of anomalies in the pricing structure. The crop comes once in a year, but it is consumed throughout the year. So, unless there is an adequate storage and release mechanism, prices would not be optimal for either the farmer or the consumer. An effective policy would require the government to buy the grains when prices are low to help farmers, and release them into the market when the prices go up, to help consumers. But the government has missed out on both occasions. Its policies serve neither the farmer nor the consumer.

The development of ample storage facilities, cold storage and the use of technology to enhance the shelf life of perishable foodgrains and vegetables is the only option. Sadly, the government has shown a complete lack of imagination in evolving people- friendly solutions that would lead to win-win situations. It would be a good, workable idea to encourage farmers to build proper storage facilities, rather than to leave the entire procurement and storage business to the Food Corporation of India, which has made a mess of it. Farmers could use their lands as their share of investment in the storage facility, be offered credit on soft terms to build it and then the place could be hired by the government. A cluster of villages would then get a storage facility near farms, reducing transportation costs and saving the grains from rotting.

Similarly, the government has been waiting for FDI in multibrand retail to set up the back-end infrastructure for the farm sector. But what prevents it from launching a scheme that involves local vegetable growers coming together to have cold storage facilities and chains that prevent the wastage of national produce on the fields? We have seen farmers throwing away potatoes, bananas and other produce on the streets simply because they do not have access to cold storage facilities.

The government has also shown a marked aversion to encouraging agricultural exports. It is scared of formulating a policy approach that strikes a balance between domestic needs and export markets. But careful and skilled handling of the situation can ensure that farmers benefit from tapping export markets as well.

In a nation that runs on a federal structure, lawmakers have the responsibility to take into consideration all the diversities before putting into place any legal framework. But when politics takes precedence over governance and people's welfare is overshadowed by propaganda, such flaws are an inevitable outcome. The food security bill is yet another manifestation of the UPA's intent to camouflage poor performance with much-hyped propaganda. But then, people are able to see through it.

Nip this in the bud

Genetically modified crops, whose ecological effects are irreversible, could become a mainstay of Indian agriculture thanks to collusion between the government and the biotech industry

The final report of the Supreme Court-appointed Technical Expert Committee (TEC) on field trials of genetically modified crops is packed with revelations on what is wrong with institutional governance and regulation in India when it comes to GMOs (genetically-modified organisms). The report's release late last month came days before biotech giant Monsanto decided not to submit any further applications for GMOs to the European Union; a decision forced by non-acceptance on scientific grounds and rejection by civil society.

Remarkable consensus

The TEC Final Report (FR) is the fourth official report which exposes the lack of integrity, independence and scientific expertise in assessing GMO risk. It is the third official report barring GM crops or their field trials singularly or collectively.

This consensus is remarkable, given the regulatory oversight and fraud that otherwise dog our agri- institutions. The pervasive conflict of interest embedded in those bodies makes sound and rigorous regulation of GMOs all but impossible.

The four reports are: The 'Jairam Ramesh Report' of February 2010, imposing an indefinite moratorium on Bt Brinjal, overturning the apex Regulator's approval to commercialise it; the Sopory Committee Report (August 2012); the Parliamentary Standing Committee (PSC) Report on GM crops (August 2012) and now the TEC Final Report (June- July 2013). The TEC recommends that in general, there should be an indefinite stoppage of all open field trials (environmental release) of GM crops, conditional on systemic corrections, including comprehensive and rigorous risk assessment protocols. The report includes a specific focus on Bt food crops.

It also calls for a ban on the environmental release of any GMO where India is the centre of origin or diversity. It also says herbicide tolerant (HT) crops, targeted for introduction by the regulator, should not be open field-tested. The TEC "finds them completely unsuitable in the Indian context as HT crops are likely to exert a highly adverse impact over time on sustainable agriculture, rural livelihoods, and environment."

The PSC report which preceded that of the TEC was no less scathing: it was " [...] convinced that these developments are not merely slippages due to oversight or human error but indicative of collusion of a worst kind [...] field trials under any garb should be discontinued forthwith".

Sound science and factual data form the basis of the TEC decisions. There is practical and ethical sense too. The TEC insists that the government bring in independence, scientific expertise, transparency, rigour and participative democracy into GMO regulation and policy. The accent is on bio-safety.

Assessment and performance

GMOs produce "unintended effects" that are not immediately apparent and may take years to detect. This is a laboratory-based, potent technology, described by WHO as "unnatural." The risk assessment (RA) protocols for GMOs are an evolving process to be performed by qualified and experienced experts who must be responsive to the latest scientific knowledge. The fact is that GMOs involve us in a big experiment in the idea that human agencies can perform adequate risk assessment, which, it is expected, will deliver safety at every level/dimension of their impact on us - the environment, farming systems, preservation of biodiversity, human and animal safety.

After 20 years since the first GM crop was commercialised in the U.S., there is increasing evidence, not less, of the health and environment risks from these crops. Furthermore, we now have 20 years of crop statistics from the U.S., of two kinds of crops that currently make up over 95 per cent of all GM crops cultivated globally, (like Bt cotton) Bt and HT crops. The statistics demonstrate declining yields. GM yields are significantly lower than yields from non-GM crops. Pesticide use, the great "industry" claim on these GM crops, instead of coming down, has gone up exponentially. In India, notwithstanding the hype of the industry, the regulators and the Ministry of Agriculture (MoA), Bt cotton yield is levelling off to levels barely higher than they were before the introduction of Bt.

It takes roughly $150 million to produce a GMO against $1 million through conventional breeding techniques. So where is the advantage and why are we experimenting given all the attendant risks?

We have hard evidence from every U.N. study and particularly the World Bank-funded International Assessment of Agricultural Knowledge and Science for Development Report, which India signed in 2008. The IAASTD was the work of over 400 scientists and took four years to complete. It was twice peer reviewed. The report states we must look to small-holder, traditional farming to deliver food security in third world countries through agri-ecological systems which are sustainable.

Governments must invest in these systems. This is the clear evidence.

Conflict of interest

The response to the TEC Final Report came immediately, with the Ministry of Agriculture strongly opposing the report. The MoA is a vendor of GM crops and has no mandate for regulating GMOs. The same Ministry had lobbied and fought to include an additional member on the TEC after its interim report had been submitted. That 'new' member came in with several conflicts of interest, his links to the GM crops lobby being widely known. His entry was in fact a breach of the Supreme Court's mandate for an independent TEC and provoked me to file an affidavit in the court, drawing attention to this. Oddly enough, he did not sign the final report, or even put up a note of dissent. This allowed the final report, then, to be unanimous; as indeed was the TEC's Interim Report submitted by the original five members.

The Indian Council of Agriculture Research (ICAR) promotes PPPs (Public-Private-Partnerships) with the biotechnology industry. It does this with the active backing of the Ministry of Science and Technology. The MoA has handed Monsanto and the industry access to our agri-research public institutions placing them in a position to seriously influence agri-policy in India. You cannot have a conflict of interest larger or more alarming than this one. Today, Monsanto decides which Bt cotton hybrids are planted - and where. Monsanto owns over 90 per cent of planted cotton seed, all of it Bt cotton.

All the other staggering scams rocking the nation do have the possibility of recovery and reversal. The GM scam will be of a scale hitherto unknown. It will also not be reversible because environmental contamination over time will be indelible. We have had the National Academies of Science give a clean chit of biosafety to GM crops - doing that by using paragraphs lifted wholesale from the industry's own literature! Likewise, Ministers in the PMO who know nothing about the risks of GMOs have similarly sung the virtues of Bt Brinjal and its safety to an erstwhile Minister of Health. They have used, literally, "cut & paste" evidence from the biotech lobby's "puff" material.

Are these officials then, "un-caged corporate parrots?"

Along with the GM-vendor Ministries of Agriculture and Science & Technology, these are the expert inputs that the Prime Minister relies on when he pleads for "structured debate, analysis and enlightenment." The worrying truth is that these values are absent in what emanates from either the PMO or the President.

Ministries, least of all "promoting" Ministries, should not have the authority to allow the novel technology of GMOs into Indian agriculture bypassing authentic democratic processes. Those processes require the widest possible – and transparent - consultation across India. With GMOs we must proceed carefully, always anchored in the principle of bio-safety. Science and technology may be mere informants into this process. After all, it is every woman, man and child, and our animals, an entire nation that will quite literally have to eat the outcome of a GM policy that delivers up our agriculture to it: if a GMO is unsafe, it will remain irreversibly unsafe. And it will remain in the environment and that is another dimension of impact.

Will the Companies Bill treat 'sick' firms better?

The new Companies Act has some refreshing provisions to deal with bankruptcy issues

India is a growing market where businesses use both capital and debt for their financial needs. But sadly, the laws on insolvency and bankruptcy haven't kept pace and debt providers, in recovery proceedings against defaulters, find it strenuous to deal with inadequate and outdated laws. Though some legal headway has been made in the past, it is not enough.

Chief Economic Advisor Raghuram Rajan's 2008 report on financial sector reforms had expressed concerns on slow procedures for bankruptcy and liquidation in India. Rajan will soon be heading the Reserve Bank of India. It is interesting that the announcement of his appointment has more or less coincided with the Companies Bill, 2012 getting the nod of the Rajya Sabha as well.

The Bill, set to soon become an Act, has provisions to modernise our laws on bankruptcy, liquidation and the revival of sick units, although it does suffer some few defects.

Currently, India has a dual legal system: While the revival of sick companies is looked into by the Board for Industrial and Financial Reconstruction (BIFR), their liquidation falls under the domain of high courts. Hereafter, both these functions will vest with the National Company Law Tribunal (NCLT), which should ease the process.

Also, the new test of sickness will be the inability of a company to pay secured creditors, instead of erosion of 50 per cent of its 'net worth'. That makes it more realistic, since a positive net worth does not always mean the ability to repay debts. These provisions will, moreover, apply to all companies and not only to industrial companies as is the case now.

Negatives And Positives

One defect in the new law is that it gives the right for approaching the NCLT only to secured and not unsecured creditors. Secured creditors representing 50 per cent or more of outstanding debt can file for declaring a company 'sick' if it fails to pay the debt within 30 days of demand. The only limited right (or little say) that unsecured creditors have is to approve by a one- fourth vote in value whenever the scheme of revival and rehabilitation comes up. However, this right is minimal. It would have been proper if the rights given to secured creditors were also extended to unsecured creditors.

But coming to the positives, currently once an application is filed with the BIFR, all proceedings against a company declared sick are automatically stayed. No suit remains or is proceeded with for recovery of money or for the enforcement of security against the company. The experience till now shows that this provision has been misused. Many promoters and companies file applications with the BIFR just to seek a stay of proceedings against them.

This will now stop, as the new Companies law provides that such a stay is possible only if the NCLT orders it (on a case by case basis); also, this provision will apply only for 120 days. If the NCLT thinks the company will be able to pay its debts within a reasonable time, it will give that much time through an order.

Further, if the secured creditors representing three-fourth the value of outstanding debt vote that it is not possible to revive the company, then it will be wound up.

On the other hand, if the secured creditors resolve that the company be revived, a scheme of revival and rehabilitation will be prepared by an administrator appointed for the job. The company administrator will be selected from a data bank consisting of professionals with relevant experience in the field.

Rehabilitate And Liquidate

That again is a good move. The new legislation also provides that in case it is found to be difficult to implement the scheme, the company may be wound up if the secured creditors so decide. Besides, the entire process has been made time bound to ensure the speedy disposal of cases. The new law also provides for a 'rehabilitation and insolvency fund' for sick companies. This will comprise grants from the Central Government, amounts deposited by the company, and funding from other sources.

As far as liquidation is concerned, the Bill that has been passed doesn't differ much from the Companies Act, 1956. Also, contrary to one's expectations, the process has not been made simpler and nothing substantial has changed. This, even though a new concept of summary procedure for liquidation has been introduced, which will simplify the process for small companies with assets of book value not exceeding Rs 1 crore.

Liquidators may be appointed from a panel of professionals. Any creditor (not necessarily a secured creditor) can file for winding up if the company fails to pay debts exceeding Rs 1 lakh within 21 days of demand. The concept of a winding-up committee has also been introduced.

One provision that has been talked a lot about is the payment of two years' salary as compensation to employees on winding up of a company. But, interestingly, a reading of the fineprint of the Bill only says that if salaries are due for two years, their payment will be given priority over other debts (including secured debts). Some clarity may be required on this.

Hungry India

Had the malnourished in India formed a country, it would have been the world's fifth largest... The National Food Security Bill (NFSB) suffers from the one-size-fits-all approach. Its predetermined entitlements seem to be based on the assumption that the same level of hunger is prevailing across the country. This is contrary to reality.

The first essential component of social justice is adequate food for all mankind. Food is the moral right of all who are born into the world" ~ Norman Borlaug

Food security and the right to food are the two major political and social issues in India today. A democratic government cannot afford to ignore the public outcry. The country's success in preventing a famine in the period since 1947 can be attributed to the inherent force of democracy. But its overall record in fighting hunger and malnutrition seems to be quite terrible. Hunger is endemic and the poor response of the government is also well- documented. And it is a cruel irony that widespread hunger is reported in parallel with abundant foodgrain. Food rots in the absence of storage facilities, and yet the people don't get their share.

India is among the 29 countries with the highest level of endemic hunger, malnourished children and poorly fed women. As Amartya Sen has written in Poverty and Famines: "Starvation is the characteristic of some people not having enough food to eat. It is not the characteristic of there being not enough to eat."

Endemic hunger works silently. Contrary to the image of protruding bellies, sunken faces, peeling skin and receding hairline, it is not easily visible.

While famine appears with climatic swiftness, hunger persists in rural as well as urban households and arouses our consciousness only when there is a troubling media report of starvation death. It has been estimated that the number of hungry people in India today is more than what the country's entire population was in 1947. Indeed, ours is a hungry country despite a booming economy and the expenditure amounting to crores on subsidising foodgrain and other social welfare programmes.

The Global Hunger Index (GHI) presents an incisive survey. It is a multi-dimensional statistical tool, adopted and developed by the International Food Policy Research Institute (IFPRI), comprising three equally important indices ~ the proportion of people undernourished, child mortality, and the proportion of underweight children. In the 2012 list of 79 countries, India was ranked 65th ~ behind China which ranked second, Pakistan 57th and Sri Lanka 37th. This apart, the India State Hunger Index (ISHI) 2008 revealed that the extent of hunger varies from state to state. As per ISHI, not a single state is either low or moderate in terms of its index score and 12 of the 17 states surveyed fall in the 'alarming' category. Madhya Pradesh has been placed in the 'extremely alarming' category.

In 2007, the National Sample Survey Organisation (NSSO) came out with another revealing report on food scarcity in households in as many as 17 states. The households were classified into three categories: (1) those with adequate food throughout the year; (2) those that make do with inadequate food during certain months of the year; and (3) those with inadequate food throughout the year. West Bengal had the highest percentage of households (10.6 per cent) that did not get enough food to eat during some months of the year. The second in the scale was Odisha. Surprisingly, Bihar (2 per cent) and Jharkhand (0.6 per cent) fared better than West Bengal. Among the category of households that were hungry throughout the year, Assam topped the list with 3.6 per cent. Odisha and West Bengal jointly occupied the second position, each having 1.3 per cent starving rural households at any time of the year. Seasonal starvation in rural Bengal peaked during February and March and the worst sufferers were agricultural labourers (23.3 per cent) and non-agricultural workers (8.9 per cent).

India's performance in eradicating under nutrition seems to be abysmal, with the levels of child under nutrition exceptionally high. Had the malnourished in India formed a country, it would have been the world's fifth largest ~ almost the size of Indonesia. According to the State of Food Insecurity in the World 2012 (FAO, IFAD and WFP), India has the largest number of undernourished people in the world ~ 217 million (17.5% of its population) as of 2012. In January 2011, the Prime Minister released the much publicised Hunger and Malnutrition (HUNGaMA) survey report with the lament: "The problem of malnutrition is a matter of national shame."

There is enough evidence to indicate that more people die of malnutrition than from famines. Hunger affects the normal functioning and development of the body and results in ailments that drastically reduce the body's ability to resist infections. Malnutrition can even affect the child's concentration in school. It impairs an adult's performance in the workplace. Hunger thus traps individuals and households in a vicious cycle of health problems and a diminishing capacity to learn and work. It can turn out to be a killer in due course of time. The consequences of malnutrition transcend generations; stunted mothers are likely to have underweight children. These damaging effects extend to communities and economics affecting the development potential of nations. An FAO study of developing countries over 30 years found that if countries with high rates of undernourishment had increased food intake to an adequate level, their economic output, or gross domestic product (GDP), would have risen by 45 per cent. The loss in labour productivity due to hunger can reduce the per capita GDP by 6 to 10 per cent, according to a UN task force on hunger.

To make India hunger-free, the UPA-II government has promulgated an Ordinance to implement the National Food Security Bill (NFSB). The government claims that the Bill marks a shift from a welfare-based to a right-based approach. Yet the narrow definition of food security assumes that the individual is a passive recipient of a dole... and not a claimant of entitlement. The Bill suffers from the one-size-fits-all approach. Its predetermined entitlements seem to be based on the assumption that the same level of hunger is prevailing across the country. This is contrary to reality. The selection of the target groups is central to the implementation of the 'quasi-universal' bill, but the stakeholders are clueless as to how to identify beneficiaries under the NFSB so that they could fit into the eligibility criteria for 67 per cent of the population and all hungry individuals could be covered. Moreover, the existing Public Distribution System (PDS) has been selected as the delivery mechanism. This is the most serious flaw.

Institutional corruption is so deeply entrenched that mere revamp and reform can hardly make the system free from corruption.

The key issue is to make foodgrain available to the needy. The delivery mechanism should be left to the respective states. The presently centralized PDS needs to be de-centralised. Such a system rests on the principle of localised procurement, storage and distribution, and the involvement of local communities. would make it truly participatory. If the Bill is to be effective, the target groups will have to be identified and data collected on hunger and malnutrition.

There is a proverb that "a hungry man is an angry man". It would be useful to recall Mahatma Gandhi's statement ~ "There are people in the world so hungry, that God cannot appear to them except in the form of bread." The National Food Security Bill provides a chance to launch a frontal attack on endemic hunger and to realise the Mahatma's wish that the "God of bread" should be present in every household. We cannot miss the opportunity.

Taking The Joke Of Reservation Too Far

The Cabinet move to nullify the SC order on quota for super-specialty faculty posts smacks of mischievous intent, aiming to produce a mediocre lot of doctors entrusted with highly-skilled, life-saving jobs

India is a unique country where certain politically powerful citizens would rather be considered "backward" in order to avail affirmative action. The core of this is reservations, conceived to achieve a utopian social order which even after six deadlines of a decade each has proved elusive.

Ironically, reservation is one of the few issues - the other prominent one being the criminalization of politics - which generates absolute consensus among political parties. When the Supreme Court ruled that convicted persons cannot fight elections even if their sentences are under appeal, the political class sank all differences to rise to save the "supremacy" of Parliament -whatever that means.

And therefore, amid burning issues like Pakistani incursions and communal violence in Kishtwar, the Supreme Court's July 18 order, which struck down quotas for faculty posts in super- specialty sections in AIIMS and other medical colleges, hogged the attention of Parliament last Wednesday. Showing utter contempt for the apex court, MPs of various parties exhorted the government to bring a Constitutional Amendment Bill to annul the SC ruling. Thankfully, the government has chosen a due process of seeking a review of the judgment. But as the SC order is rational - explicitly stating that highly skilled medical posts should go to only the meritorious irrespective of caste, religion or class they belong to - the apex court is unlikely to toe the government line.

Quota for nation-building

The stated objective of the reservation policy is "nation building" by enhancing opportunities to the underprivileged communities so that they get their rightful place in the mainstream. But most often, in our country, identities like caste and "the minority" define and give direction to the political discourse. Also, as the political class treats human capital as votes, the historically deprived section is stuck where it was.

Given the heterogeneity of the groups chosen, the fruits of affirmative action are usually stolen by undeserving candidates. Although some are able to climb the socio-economic ladder, most lag behind. The problem lies in fluid definition of the deprived classes.

Politically correct backward classes

Though there is no nationwide accepted definition of 'backward class', the term 'socially and educationally backward classes' has been used in the Constitution, without mentioning any particular religion. There are some inherent contradictions in selecting such groups by the Mandal Commission, which termed all those so-called low castes among Hindus as socially backward classes.

Here caste was synonymous with social backwardness. Ironically, when there is no historical evidence of castes among Muslims, Christians, etc, how did groups from these religions come to be termed socially backward? There are several interesting cases where norms were tweaked for political interests. The Nitish Kumar Government made headlines in 2008 by including Muslim upper-caste Syed Mallicks (ashrafs) in the OBC list.

At that time the JD(U) was in alliance with the BJP, and therefore it needed some exemplary action to appease the Muslim leadership. The Nitish move had clearly attacked the Justice Sachar Committee's report which ruled that the ashrafs, as opposed to the pasmanda Muslims, are 'without any social disabilities'.

In another travesty of social justice, the UPA government announced to carve out 4 per cent quota from among OBC for Muslims just ahead of the Uttar Pradesh election in December 2011. Of course, the Election Commission stayed the order citing infringement of the Model Code of Conduct.

Later Justice Sachar himself criticised the UPA's move, saying, "Such promises will not help the backward section of minorities. It is like befooling them. These people are making tall claims just to win elections".

Has reservation helped?

Indeed, the reservation policy has helped a lot of people. But as per the Constitution of India, "representation", the term used for affirmative action, is not given to anyone in his individual capacity, but as a representative of the underprivileged community. Ironically, the targeted groups are not homogenous. Therefore the actual fruits of reservation are grabbed by the well-to-do and those who have already availed it.

Over the past 63 years, we have seen examples of communities who are still forced to indulge in "impure" work. A large population of illiterate masses in the villages continue to suffer and are still outside the mainstream economically, socially and politically. Our reservation policy does not aim to benefit them, as either they fail numerically to constitute a substantial vote-bank, or they still believe in the hollow promises of their well-bred brethren for a bright future.

Dr Ambedkar had said: "In every country the intellectual class is the most influential class. The masses are largely imitative and follow the intellectual class." But the bitter truth is that the so-called intellectuals among these communities look at their own society with disdain and seldom try to directly involve themselves with the oppressed masses to help them join the mainstream.

Even in his book, Annihilation of Castes, Ambedkar admits: "Our educated elite always fly away from the society." Almost 57 years ago, during his last days, a heart-broken Ambedkar had confided in his secretary, Nanak Chand Rattu: "Whatever I have been able to achieve is being enjoyed by the educated few, who with their deceitful performances have proved to be the worthless lot, with no sympathy for their downtrodden brethren." As the political class has nurtured and manipulated castes and 'the minority', the affirmative action has done the opposite – it solidified caste consciousness.

For the sake of mediocrity

A survey undertaken by National Sample Survey Organisation in 1999, before the second Mandal (93rd Amendment), found that 23.5 percent of all university seats were already filled with the OBC, just 8.5 per cent less than OBC share of the population. So it is debatable whether the 93rd Constitutional Amendment was warranted.

Coming back to the recent case, the SC quashed reservation for the faculty posts in super-specialty sections of medical colleges, and triggered a volley of accusation of being anti-Dalit, anti-OBC, etc.

There are many pitfalls in the debate on quotas, as any critical comment on affirmative action evokes hostile responses from the champions of reservations. Their prime bugbear is the concept of "merit". Going through the SC order it doesn't take much intelligence to understand what super- specialty means. In simplest term, a super-specialty in medical sciences may be a highly skilled life- saving job, like brain surgery or open heart surgery or mind-boggling R&D.

It's true that some members of reserved categories are more meritorious than the usual lot - just as it is with the so-called forwards (not all Brahmins are scientists), and can compete with general categories. But the vast majority needs affirmative action as support. But does a person who has availed the quota once and jumped to the creamy layer still need quotas? Where should quotas end? The support can't continue to the end of eternity, because it carries three dangers - institutionalisation of mediocrity, the end of competitiveness and finally, the utter waste of national resources.

The way forward

Towards the second half of the 2000s, the demand for reservations in the private sector began to get articulated. This was inevitable since after the launch of economic liberalisation, government gradually exited from business and industry and more jobs opened in the private than public sector.

The contention of the reservation brigade is that the private sector discriminates against them. The fact is quite the contrary: private companies value only merit because their main aim is profit, not correcting or reinforcing social order. Therefore, wholesale privatisation is one of the solutions from this flawed social engineering.

But this is not a foolproof solution as a political decision may change the situation anytime. In the game of vote-bank politics what matters most is the ability to change the political discourse. The underprivileged from the non-reserved categories need to show themselves as a reckoning force only then political masters would heed their concerns and amend the flawed model. The Mandal parties' distain for the Indian judiciary is obvious as the judiciary has played a constructive role in safe- guarding social justice but at the same time it has curbed the vote-bank adventurism.

In Manusmriti - the law book of Brahmins which is responsible for the caste system - all the laws were based on caste and no merit was ever considered. The reservation policy in Independent India is doing the same, albeit in the name of social engineering.

As historical blunders committed by Manu can't be corrected with another opportunistic model of affirmative action, India awaits the birth of neo- Dalits from among the general category.

Nuclear deterrence is overrated

The real risks and costs of having these weapons, both monetary and human, far outweigh their security benefits

The Indian Navy has figured in three recent, global news items. The launch of the indigenously developed aircraft carrier, INS Vikrant, expected to be operational by 2018, makes India only the fifth country after the United States, Russia, the United Kingdom and France to have such capability.

The diesel-electric submarine INSSindhurakshak caught fire and exploded, causing the tragic death of 18 crew. In the early hours of August 10, the reactor on the nuclear powered submarine INS Arihant ("slayer of enemies"), with underwater ballistic launch capability, went critical.

Prime Minister Manmohan Singh and his wife, Gursharan Kaur, launched the 6,000-tonneArihant in Visakhapatnam on July 26, 2009. In time, it was said, with a fleet of five nuclear-powered submarines and three to four aircraft carrier battle groups, a 35-squadron air force and land-based weapons systems, India would emerge as a major force in the Indian Ocean, from the Middle East to Southeast Asia.

The strategic rationale is to acquire and consolidate the three legs of land, air and sea-based nuclear weapons to underpin the policy of nuclear deterrence. Unfortunately, however, the whole concept of nuclear deterrence is deeply flawed.

Desensitised

Nuclear weapons are uniquely destructive and hence uniquely threatening to our common security. There is a compelling need to challenge and overcome the reigning complacency on the nuclear risks and dangers, to sensitise policy communities to the urgency and gravity of nuclear threats and the availability of non-nuclear alternatives as anchors of national and international security.

A nuclear catastrophe could destroy us any time. Because we have learnt to live with nuclear weapons for 68 years, we have become desensitized to the gravity and immediacy of the threat. The tyranny of complacency could yet exact a fearful price if we sleepwalk our way into a nuclear Armageddon. It really is long past time to lift the shroud of the mushroom cloud from the international body politic.

The normative taboo against this most indiscriminately inhumane weapon ever invented is so comprehensive and powerful that under no conceivable circumstances will its use against a non- nuclear state compensate for the political costs. This explains why nuclear powers have accepted defeat at the hands of non-nuclear states rather than escalate armed conflict to the nuclear level.

Nor can they be used for defence against nuclear-armed rivals. The mutual vulnerability of such rivals to second-strike retaliatory capability is so robust for the foreseeable future that any escalation through the nuclear threshold would be mutual national suicide.

Their only purpose and role, therefore, is mutual deterrence. In order to deter an attack by a more powerful nuclear adversary, a nuclear armed state must convince its stronger opponent of the ability and will to use nuclear weapons if attacked. But if the attack does occur, escalating to nuclear weapons will worsen the scale of military devastation even for the side initiating nuclear strikes. Because the stronger party believes this, the existence of nuclear weapons may add an extra element of caution, but does not guarantee immunity for the weaker party.

If Mumbai or Delhi was hit by another major terrorist attack which India believed had Pakistan connections, the pressure for some form of retaliation could overwhelm any caution about Pakistan having nuclear weapons.

Limited India-Pakistan war

The putative security benefits of nuclear deterrence have to be assessed against the real risks, costs and constraints, including human and system errors. Modelling by atmospheric scientists shows that a limited, regional India-Pakistan nuclear war using 50 Hiroshima-size bombs each would, in addition to direct blast, heat and radiation deaths, severely disrupt global food production and markets and cause a nuclear war-induced famine that kills up to a billion people around the world.

The extra caution induced by the bomb means that the subcontinent's nuclearisation raised the threshold of tolerance of Pakistan's hostile mischief, like provocations on the Line of Control and cover for cross-border terrorism. Yet, India did not need to buy deterrence against China. The best available evidence shows that China's nuclear weapons, doctrine, posture and deployment patterns are designed neither to coerce others nor to fight a nuclear war with the expectation of winning, but solely to counter any attempt at nuclear blackmail.

The role of nuclear weapons in having preserved the long peace of the Cold War is debatable. How do we assess the relative weight and potency of nuclear weapons, west European integration, and west European democratisation as explanatory variables in that long peace? There is no evidence that either side had the intention to attack but was deterred from doing so by the other side's nuclear weapons. Moscow's dramatic territorial expansion across eastern Europe behind Soviet Red Army lines took place in the years of U.S. atomic monopoly, 1945-49. Conversely, the Soviet Union imploded after, although not because of, gaining strategic parity.

Historical evidence

To those who nonetheless profess faith in the essential logic of nuclear deterrence, a simple question: are you prepared to prove your faith by supporting the acquisition of nuclear weapons by Iran in order to contribute to the peace and stability of the Middle East, which presently has only one nuclear-armed state?

It is equally contestable that nuclear weapons buy immunity for small states against attack by the powerful. The biggest elements of caution in attacking North Korea - if anyone has such intention - lies in uncertainty about how China would respond, followed by worries about the Democratic People's Republic of Korea's conventional capability to hit populated parts of South Korea. Pyongyang's puny arsenal of useable nuclear weapons is a distant third factor in the deterrence calculus.

Against the contestable claims of utility, there is considerable historical evidence that we averted a nuclear catastrophe during the Cold War as much owing to good luck as wise management. The 1962 Cuban missile crisis is the most graphic example of this. Australia's most respected strategic analyst, former Deputy Defence Secretary Paul Dibb, argues that Moscow and Washington also came close to a nuclear war in 1983. Frighteningly, Washington was not even aware of this scare at the time and any nuclear war then would have used much more destructive firepower than in 1962.

Compared to the sophistication and reliability of the command and control systems of the two Cold War rivals, those of some of the contemporary nuclear-armed states are dangerously frail and brittle.

Nor do nuclear weapons buy defence on the cheap: the Arihant cannot substitute for the loss of the Sindhurakshak. They can lead to the creation of a national security state with a premium on governmental secretiveness and reduced public accountability. In terms of opportunity costs, heavy military expenditure amounts to stealing from the poor. Nuclear weapons do not help to combat India's real threats of Maoist insurgency, terrorism, poverty, illiteracy, malnutrition and corruption.

Across the border especially, there is the added risk of proliferation to extremist elements through leakage, theft, state collapse and state capture.

NPT

The Nuclear Non-proliferation Treaty (NPT) has kept the nuclear nightmare at bay for 45 years.

The number of countries with nuclear weapons is still, just, in single digit. There has been substantial progress in reducing the numbers of nuclear warheads. But the threat is still acute with a combined stockpile of 17,000 nuclear weapons, 2,000 of them on high alert. The NPT's three-way bargain between non-proliferation, disarmament and peaceful uses is under strain. The Conference on Disarmament cannot agree on a work plan.

The Comprehensive Test-Ban Treaty has not entered into force. Negotiations on a fissile materials cut- off treaty are no nearer to starting. The export control regime was damaged by the India-U.S. civil nuclear agreement.

The net result? The world is perched precariously on the edge of the nuclear precipice. As long as anyone has nuclear weapons, others will want them; as long as nuclear weapons exist, they will be used again some day by design, accident, miscalculation or rogue launch; any nuclear exchange anywhere would have catastrophic consequences for the whole world. We need authoritative road maps to walk us back from the nuclear cliff to the relative safety of a progressively, less-heavily nuclearised, and eventually, a denuclearised world.

Our goal should be to make the transition from a world in which nuclear weapons are seen by some countries as central to maintaining security, to one where they become increasingly marginal, and eventually entirely unnecessary. Like chemical and biological weapons of mass destruction, nuclear weapons too cannot be disinvented. But like them, nuclear weapons too can be controlled, regulated, restricted and outlawed under an international regime that ensures strict compliance through effective and credible inspection, verification and enforcement.

Mid-day meals - an unpalatable scheme

Better than mid-day meals are cash transfers, enabling children to bring homemade food.

After the tragic death of the 25 innocent school children in Bihar, who ate poisoned, instead of healthy, food provided by the State funded mid- day meal programme, the Odisha Government is reported to have opted for an elaborate protocol - intended to ensure that school children get only wholesome food.

As per this protocol, the cook; her helper and a Member of the School Committee would first taste the prepared food with the Head Master/Mistress as the witness. Only after that would the other children be served the food.

This protocol raised a few questions in my mind.

What if there is a subversion of the protocol? The cook could prepare a special exclusive meal with care that would be for her; her helper, the Member of the School Committee and perhaps the Head Master/Mistress.

If this works well, the watchdog body would, in fact, look forward to the daily treat instead of tasting the food with fear. The students could be offered the usual, ordinary, meal prepared with scant regard for human life.

CASH TRANSFER

If there is no such special treatment and the watchdog body, in fact, tastes the food that has been cooked for the children; how long would the hungry children have to wait to be convinced that the food does not contain lethal dose?

Will this elaborate procedure not make the mid- day meal schedule a very complex and long one that would even make inroads into the study hours of the children? I would like a school to teach students, rather than become an ill-managed canteen.

I thought of a simpler solution and suggested direct cash transfer to the parents of the school children with the hope that the parents would spend the money on packing mid-day meals for their children and send them schools with homemade food.

I was almost immediately challenged. The money meant for the children will be used by the fathers for buying liquor. Another school would dismiss my idea and say that the parents would never convert the money to food for their own children.

Two thoughts continue to disturb me. Can parents be villains in every case and would always deprive their children of the mid-day meal even after getting State funds?

PATRONISING ATTITUDE

Are all fathers drunkards who would buy liquor for themselves rather than use the money for the children? Both the arguments sounded highly patronising and showed the parents in bad light.

For years, people are used to government executing various schemes. Associated with their implementation are government servants, politicians and NGOs. There has been a huge transaction cost.

A small portion of the entitled benefits reaches the beneficiary.

Direct cash transfer would do away with this chain. It will show the full value of the beneficiary's entitlement. This is a discomforting development. This sense of insecurity among the associates invents a drunkard father or an insensitive parent.

It is, therefore, most unlikely that India's style of governance would ever opt for the rational. It would prefer to tread the path of irrationality as that gives room for corruption. Occasional death and perennially unhealthy food, and never the warmth of homemade food are, therefore, in store for Bharat's school children.

India can convert a crisis into an opportunity

India can convert a crisis into an opportunity. Our current account deficit has swollen, but we can find structural solutions to reduce the gap. I have two initiatives to suggest.

Exports have to focus on manufactured goods. India missed the bus on garment exports initially, by letting China, Bangladesh and Vietnam capture most of a $50-billion shift from high-cost to low- cost countries after the quota dismantling in 2005.

Now, India's share of exports has gone up from 3% to 3.2% only, while that of China has jumped from 28% to 37%.

But we have another chance to at least double our garment exports and create two million additional jobs. India is competitively well-positioned due to its huge textile infrastructure and large pool of low-wage workers, unmatched by any other country except China. We can now produce fabric and garments at prices competitive with China's. Yet, China's exports are 11 times that of India. To get there, the government has to take some policy decisions.

PICKING UP THE THREAD

One of the most important changes relates to rigid labour laws. Garment exports have a thin margin of 3-4% of revenue. There are no long-term contracts. Every quarter, a garment exporter starts on a clean slate and has to compete globally for the next quarter's business. Besides, there is seasonality of demand.

How can anyone achieve profitability with fluctuating and uncertain demand but constant fixed labour costs? The only way is to constrain your business to the level of the lowest season. This is highly suboptimal. Rigid labour laws hurt garment workers by keeping organised employment lower than its potential. Flexible labour laws will result in higher exports, employment and wages through productivity improvement. The government can also divert some NREGA funds to train workers in sewing operations to be absorbed by the garment industry.

A Ray of Hope

On the import side, the biggest culprit contributing to the current account deficit is the inelastic demand for oil imports. A solution that kills many birds with one stone is for the government to facilitate the development of solar power in a big way under public-private partnership (PPA). This will cost next to nothing.

The government should act as a credit enhancer to tie up $50 billion from multilateral agencies in the US, Japan and China to import solar panels.

This will enable development of 50 gigawatts (GW) of solar power.

It should assure solar developers that anyone who signs a valid power purchase agreement with any state electricity board (SEB) will automatically get a low-interest rupee loan for 70% of the total project cost at the same interest rate in rupees as the dollar interest rate at which the government has borrowed.

The government can guarantee SEB payments on the solar PPAs against any state default and adjust that against disbursement to states. This will reduce the perceived risks for early movers and investors.

The central government's risk will be diversified across 28 states. It can also encourage insurers like LIC to provide takeout financing for fully- commissioned projects. This enables recycling of equity to be deployed for the next project, and provides a steady yield stream for insurers, ideal for their requirements.

SUN IS THE LIMIT

It should offer a Rs 1 per kilowatt-hour (kWh) subsidy to SEBs if they pay solar generator on time.

This can be funded by the Renewable Energy Fund, already substantially built up through a cess on coal production. Together, these will enable developers to offer solar power at a rate of Rs 5 per kWh, which will fall further over time from technological enhancements. Solar is competitive even now as it displaces peak power, generated with diesel on the margin costing Rs 14 per kWh, while solar costs Rs 8 per kWh. The latest long- term bids from thermal power plants were north of Rs 5 per kWh and will rise over time.

The benefits of this solar initiative to the country will be enormous.

It could generate net savings of $500 billion over the next 25 years, from reduced diesel consumption. A rapid solar build-up will supplement thermal power, which has slowed down. A solar plant can be built in 6-9 months against 48-60 months for a thermal plant.

This will work because the government borrows to facilitate solar power development at 4% dollar interest cost, while the returns in dollar terms on solar investment for the Indian economy are in excess of 17-18% per year. That is because 80% of solar generation happens during peak demand and will save on diesel power.

Rahm Emanuel, the mayor of Chicago, once said, "You never let a serious crisis go to waste. It's an opportunity to do things you think you could not do before."

We can take advantage of two crises. Historically low interest rates produced by the global financial crisis to finance solar power, and our crisis of governance that has beaten down the rupee, to boost garment exports. Is our leadership capable of this? Yes, it is.

Growing Importance Of Maritime Security

The Indian Navy, which receives a paltry 15per cent to 18 per cent share of the defence budget, requires a hike to accelerate its key programmes. But the plunging rupee could be an obstacle

India and the Indian Navy, this month, witnessed both tragedy and triumph. Tragedy because of the accidental sinking of the submarine, Sindhurakshak, taking along with it 18 sailors; triumph due to the home-grown development of the nuclear-powered submarine, Arihant (destroyer of the enemy, in Sanskrit) and the launch of the aircraft carrier, Vikrant II. Both these vessels are likely to become operational by or before 2020 and will mean extended strategic deterrence, especially the Arihant, which will constitute the most reliable and survivable sea-based leg of the nuclear triad.

Of the three services, the Indian Navy is the most self-reliant. Its maritime indigenization programme is reflected by the fact that of the 47 ships on order, 45 are being designed and built in India including roughly 80 per cent of the hulls and half the engines. All this at a time when no country bar Russia -and even Moscow has altered the rules of collaboration - will part with critical technology.

The Arihant is the first variant of India's most secretive Advance Technology Vessel strategic programme; at least two more including the Aridaman, are in the pipeline. The nuclear- propulsion project 'S', which predates the 1974 Peaceful Nuclear Explosion, became active in 1984.

For naval experience, the Soviet Union in 1988 leased for three years, the Charlie I Class nuclear submarine,Chakra I. The Indian Navy forfeited the acquired skills of operating nuclear powered submarine till Chakra II arrived four years late this year on a 10-year-lease costing one billion dollars as part of a eight billion dollar defence package which includes the Vikramaditya (Gorshkov) aircraft carrier, MiG 29, Kamov helicopters and Arihant's nuclear propulsion technology.

Chakra II is an Akula II class nuclear-powered submarine with 28 nuclear Cruise missiles with a range of 3,000km, but their employment is embargoed. The Arihant will carry the 750km K15 ballistic missile ideal as a strategic patrol deterrent.

If India means business, to become a lead player in the Indian Ocean Region, it would require nuclear attack boats for sea control and denial. A Hunter killer submarine was last used in the Falklands to sink the Argentinian frigate, Belgrano.

The loss of the recently refurbished Sindhurakshak is a big blow for the depleted and aging submarine fleet. According to the Navy plan, following the Cabinet Committee on Security's ruling in 1999 to acquire 24 conventional submarines, not one has materialised to date. The German HDW submarine plant was mysteriously closed down and allied skills buried alongside. As an interim measure, we could lease two Kilo-class submarines from Russia to fill the void. Otherwise, at best, we could field only eight submarines in war.

The 40,000 tonne Vikrant which floated out this month, will be operational by 2020. It is designed and being built with Indian steel at Karwar and will become the Western Fleet's flagship with 12 MiG 29s, 12 Light Combat Aircraft and 10 anti-ship helicopters on-board. At present, the 40-year old Viraat (HMSHermes) operates in the tradition which has made India the only IOR country to have operated an aircraft carrier since 1961 when it acquired Vikrant I (HMS Hercules) and became a blue water force.Vikramaditya will come into service by next year, though for the first three years it will be without any anti-ship missiles.

By 2020, two battle carrier groups, one for each coast, will be operational withViraat probably retired by then. By 2030, the third indigenous aircraft carrier will provide the necessary reserve- and-refit cushion for minimum two battle carrier groups operational at any time.

The future induction of the Arihant with Chakra II as a back- up and the Vikrant are potent combat force multipliers that will increase the strategic reach and endurance of the Navy and allow it to fulfil its mandated mission of protection of national assets and maintenance of peace in the IOR. These assets include a 7,500km coastline, 1,200 islands, 22 million sqkm of Exclusive Economic Zones and the transit of 70 per cent of trade and 80 per cent of energy supplies.

The three-dimensional Indian Navy has a two- ocean policy with its primary task in the IOR and secondary task in the Asia-Pacific Region. It is the key defence and diplomacy instrument of India's Look East policy. It was, therefore, regrettable, that the Government, in order not to annoy China, chose to obfuscate Navy chief Admiral DK Joshi's clear message last Navy Day that the Indian Navy has a task in the South China Sea. Last year there was a serious breach of the naval perimeter in the Bay of Bengal - INS Airavat, India's amphibious assault ship, was buzzed by People's Liberation Army helicopters off Da Nang in Vietnam and merchant ships abandoned in the Arabian Sea which are a floating threat.

These unsavoury developments require the Navy to do its own rebalancing of strategic maritime posture. At the same time, consider if there is an opportunity to creatively put pressure on the PLA Navy in the IOR to deter the PLA Border Defence Forces from assertive and aggressive actions on the Line of Actual Control. A group of strategic thinkers have suggested exploiting the Navy's advantage at sea and strengthening it.

In the late 1980s the Navy was the sword arm of decision. So overawed were neighbours, especially Indonesia which objected to India rebuilding a disused World War II airstrip in the Andaman and Nicobar Islands, that TIME magazine carried Vikrant I on its cover. The Navy assisted President Albert Rene of Seychelles thwart a coup in 1986, it helped Mozambique squash an internal power struggle in 1987 and that same year also prevented a political upheaval in Mauritius.

Its on- and off-shore presence in Sri Lanka and Maldives in 1987 and 1988 maintained regime stability in those countries.

More than two decades later, India is seen to  be in relative political and economic decline in the IOR. Its offshore presence is being diluted by China's onshore presence in India's neighbourhood and the IOR. For Beijing, building on its anti-piracy operations for a permanent presence in the IOR, it needs both on- and off-shore presence in Mozambique, Seychelles and other island states.

The Indian Navy, which receives a paltry 15 to 18 per cent share of the defence budget, requires a hike to accelerate its strategic programmes. But with the rupee likely to touch Rs 70 to the dollar any time, that would be difficult. Giving it a higher strategic priority is the alternative.

India's elusive 'shale gale'

The government's proposal to treat shale gas and oil on a par with conventional hydrocarbons masks many critical impediments to actually exploiting the resource in India

The ministry of petroleum and natural gas' recent proposal to theCabinet Committee on Economic Affairs (CCEA) regarding the development of shale gas and shale oil raises more questions than answers. In a nutshell, the proposal accords the same status as conventional hydrocarbons to production from shale gas and shale oil. This would mean that the upstream national oil companies (NOCs) ONGC and Oil India would avail of income tax and customs exemptions as well as pay royalties of 10 and 20 per cent respectively on any shale gas and shale oil that they produce, much the same as oil and gas from nominated conventional oil and gas blocks. Also, production from shale formations will realise the same prices as conventional production.

Where the proposal does differ in the treatment of conventional and shale resources is that in the case of the latter, NOCs will have to submit a minimum work programme and a field development plan, failure to abide by which would result in significant financial penalties. Prior to sending the proposal to the CCEA, a Memorandum of Understanding had also been agreed between the ministry and the Department of Energy in the US that envisioned joint assessment of shale resources in India, with the US imparting training to Indian geoscientists and engineers and providing guidance on developing an appropriate regulatory framework for shale resources.

This decision, coming on the back of the CCEA's recent nod to the increase in gas prices looks like a progressive move towards better utilisation of India's hydrocarbon resources. It is encouraging to see that the government is taking cognisance of the immense potential of shale resources, albeit belatedly. The "shale gale" has had a completely transformational effect on the US energy landscape, and has also significantly impacted global markets for coal, natural gas and liquefied natural gas and to a lesser extent, crude oil. Since 2008, the year when volumes from shale oil and gas first spiked significantly in the US, production from shale resources has boosted US dry gas output by almost 25 per cent to 65.59 billion cubic feet per day in 2012. Similarly, US oil production has increased by an average of 500,000 barrels per day (bpd) in each of the last five years since 2008, with the highest increase coming last year at 760,000 bpd. The majority of that increase has been driven by "tight oil" production from shale formations. Scratch deeper, however, and one finds that the ministry's proposal sheds no light whatsoever on how the very real and sizeable impediments to shale resource development will be tackled in a country like India. Let's start with resource size.

The US Energy Information Administration's 2013 study titled "Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41 Countries Outside the United States" does not rank India inside the Top 10 nations in terms of technically recoverable reserves (TRR) of either shale gas or shale oil. According to the report, India's unproved TRR of shale oil were estimated to be 3.8 billion barrels. Similarly, the unproved TRR for shale gas stands at 96 trillion cubic feet (tcf). Contrast that with Argentina, a top five country in the report for both shale oil and gas, where the corresponding figures are 27 billion barrels of oil and 802 tcf of gas. Argentina's state- owned energy champion YPF signed a $1.24-billion agreement with oil supermajor Chevron in July 2013 to tap the shale resources of the Vaca Muerta ("Dead Cow") shale formation in the Patagonian plateau. In other words, India's shale formations are far from world-class.

Let us assume that India's reserves and its geology - shale formation heterogeneity, rock porosity and consequently well productivity –all lend themselves favourably to commercial extraction of shale resources. Does our upstream energy sector have an ecosystem that will be able to successfully harness this bounty? The short answer is no. A close examination of the shale revolution in the US reveals that a number of factors, a few of which are unique to that country, have played a major role in bringing prodigious quantities of shale oil and gas on stream. These include a liberalised pipeline system that has been allowing third parties access for the last four decades; a deep and liquid financial market in oil and especially gas, allowing smaller and medium- sized producers to use financial tools to hedge the risk of volatile prices and lock in viable prices for the hydrocarbons they extract; perhaps the deepest pool of capital in the Western world – US institutional investors; a drilling and oil services industry large enough to provide the rigs, qualified engineers and entrepreneurs (indeed, the leaders of the US shale revolution have not been the supermajors but mid-sized firms and independents such as Hess, Chesapeake Energy, Continental Resources and Whiting Petroluem) who were able to exploit the opportunity that hydraulic fracturing or "fracking" threw up; the only land rights system in the world that gives the owners of land ownership of the minerals and hydrocarbons that lie underneath it; plenty of empty space and large areas that are not densely populated (such as the Barnet and Haynesville shale formations in Texas) to allow drilling for oil and gas; domestic production and abundant supply of proppant and other mineral sands (pumped into rock seams to push the oil and gas out); and, finally, access to plenty of freshwater (a typical producing well requires some three million gallons of freshwater). How many of these conditions does India provide? As an economist by training all too familiar with India's current account woes that led to the balance of payments crisis of 1991, and with the rupee trading at record lows against the dollar, I would be happier than most to see a desi shale revolution along the lines of the US that would significantly ease our import bill, and light up the many thousand megawatts of gas-fired power generating capacity that now lie idle in India. But sitting in the nation's capital, the hard-hosed commodities trader in me is convinced that this may be a distant dream, at best.

Telangana: More turbulence to come

Telangana will be an upstream State, creating conditions for water dispute with Seemandhra.

The Congress-led UPA Government is on a determined course to carve out the new State of Telangana. But the Congress Working Committee resolution left several issues ambiguous, which would become contentious when it comes to the brass tacks of bifurcation.

Three critical issues stand out: Hyderabad, employment and water resources. Hyderabad is a known Gordian knot. Employment is already on its course to become a source of rancour and friction between the two new States.

The Telangana Rashtriya Samithi (TRS) chief K. Chandrasekhar Rao has recently asked the Seemandhra-born government staff to leave Telangana. The third, water resources sharing, is much more serious than what it appears to be. The former two are in the nature of one-time settlement issues, but water sharing can be a recurring source of tension between the states.

SEEDS OF DISCORD

The creation of Telangana State may be the sign of a new wave of federal politics in India. However, political parties and leaders need to step away from their immediate political interests and mull over these new politics with sagacity and statesmanship.

But unfortunately, political opportunism seems to be the defining character of creating the two new states.

If the reports of including the Rayalaseema districts of Kurnool and Anantapur in Telangana are true, this is deeply shortsighted. The move is apparently for achieving two political objectives: to check the influence of the TRS in Telangana State and dent the alleged strength of the YSR Congress in the new Andhra Pradesh.

Though the calculations look good on paper, they can be seriously fallacious and misleading. First, if the sentiment has transcended party lines and caste calculations in Telangana, the same sentiment for a united Andhra can seal the fate of the Congress in Andhra Pradesh.

Even if Congress manages to keep its flock together, the sentiment may just swing in favour of the YSR Congress party, which maintained somewhat consistent stand for a united Andhra Pradesh State.

Second, Rayalaseema districts in Telangana State will ensure continued dominance of identity politics in the Telangana political scene. The divisive and antagonistic political rhetoric during the past decade long Telangana agitation has widened the fault lines between the regions.

This time, the backward Rayalaseema districts will most likely complain discrimination by Telangana dominated administration. Or at least, that will be a promising route for Rayalaseema leaders.

UPSTREAM STATE

There are other substantive reasons as well for avoiding such political calculations. Inclusion of Kurnool and Anantapur districts will turn Telangana State into fully an upstream State with respect to the Andhra State. All major rivers, Godavari, Krishna and Tungabhadra, will then be flowing into Andhra Pradesh from Telangana State.

Irrespective of how well we define equitable allocation, politicisation of water disputes will provide a new and fertile ground for antagonistic politics to thrive.

The trans-boundary politics of the two states will be similar to that we witness in the Cauvery dispute between Karnataka and Tamil Nadu, where water disputes are a way of pursuing politics.

Andhra Pradesh enjoys advanced irrigation development and seeks to protect their rights of prior appropriation, just as in Tamil Nadu.

Telangana and Andhra Pradesh will have similar histories of unevenness and inequities as Karnataka and Tamil Nadu. This asymmetry, combined with histories of prejudice and antagonistic politics, may lead to frequent recurrence of water disputes. It is unfortunate that these issues do not receive adequate attention.

Even during the first States’ Reorganisation Commission, there were demands for a separate Telangana State. But the commission  favoured keeping it united Andhra Pradesh for better management of water resources in the Godavari and the Krishna basins.

WATER DISPUTES

Redistribution of water resources and ensuring amicable political relations between the two states has to be central to the bifurcation process.

The state of affairs with respect to inter-state water disputes resolution does not help much. It relies excessively on legal means, which did not help much in disputes like Cauvery. Litigation in courts or tribunals will only encourage a hide-and-seek behaviour by states and politicisation of disputes.

Managing the inter-state relations for smooth transition and coordinating contentious matters such as river water sharing will be crucial.

Telangana and Andhra Pradesh politics will be characterised by antagonistic rhetoric against each other, at least for some time.

Political opportunism of the Centre will only aggravate these politics further, leading to tenuous inter-state relations. It is time to think innovatively about the right kind of institutions for coordinating interstate relations and managing tensions between the two states, at least in the medium term.

There is little hope of constructive politics from either side. Political leaders are driven by insecurities and short term political gains.

A major crisis of our times is the dearth of leaders with courage and fortitude to take positions in the larger interests. Let us hope institutions will rise to the challenge.

In Europe, Austerity Works

Although many European governments have announced expenditure cuts and tax hikes, their debt-to-GDP ratios continue to deteriorate. So, if the purpose of austerity was to reduce debt levels, its critics are right: fiscal belt-tightening has failed.

But the goal of austerity was not just to stabilize debt ratios. “In fact, austerity has worked as advertised in some cases. Germany's fiscal deficit temporarily increased by about 2.5 percentage points of GDP during the global recession of 2009; subsequent rapid deficit reduction had no significant negative impact on growth. So it is possible to reduce deficits and keep the debt-to-GDP ratio in check - provided that the economy does not start out with large imbalances, and that the financial system is working properly. Obviously, the countries on the euro zone's periphery do not meet these conditions. “Countries whose governments either have lost access to normal market financing (like Greece, Ireland and Portugal) or face very high risk premia (like Italy and Spain in 2011-2012) simply do not have a choice: they must reduce their expenditures or get financing from some official body like the International Monetary Fund (IMF) or the European Stability Mechanism. But foreign official financing will always be subject to lenders' conditions - and lenders see no reason to finance ongoing spending at levels that previously led a country into trouble. “So, in the euro zone periphery, austerity is not a question of fine-tuning demand, but of ensuring governments' solvency. Economists like to point out that solvency has little to do with the ratio of public debt to today's GDP, and much to do with debt relative to expected future tax revenues. A government's solvency, thus, depends much more on long-term growth prospects than on the current debt-to-GDP ratio. “A reduction in the deficit today might lead in the short run to a fall in GDP that is larger than the cut in the deficit (if the so-called multiplier is larger than one), which would cause the debt-to-GDP ratio to rise. But almost all economic models imply that a cut in expenditures today should lead to higher GDP in the long run, because it allows for lower taxes (and thus reduces economic distortions).

Austerity should, thus, always be beneficial for solvency in the long run, even if the debt-to-GDP ratio deteriorates in the short run. For this reason, the current increase in debt-to-GDP ratios in southern Europe should not be interpreted as proof that austerity does not work.

Moreover, austerity has been accompanied by structural reforms, which should increase countries' long-term growth potential, while pension reforms are set to reduce considerably the fiscal cost of ageing populations. Such reforms promise to strengthen the solvency of all governments that adopt them, including those on the euro zone's periphery.

More important, austerity has been very successful in restoring external balance to the periphery. The current accounts of all southern euro zone countries are improving rapidly and, with the possible exception of Greece, will soon swing into surplus. This fundamental change has contributed to the reduction in risk premia over the last year, despite the political upheaval that continues in many countries (particularly Italy, Portugal and Greece).

The external aspect is crucial. If public debt is owed to domestic investors, it can be serviced with the taxes levied on GDP. But debt owed to foreigners can be serviced only with goods and services sold abroad - that is, exports. Thus, the key variable for countries that had large current account deficits, and thus are burdened today with high foreign debt levels, is not the debt-to-GDP ratio, but the foreign debt-to-exports ratio (together with the growth prospects for exports).

Here, developments are encouraging. During the boom years, when countries like Greece, Portugal and Spain were running ever-larger external deficits, their exports did not grow quickly, so their foreign debt-to-exports ratios deteriorated steadily, reaching levels that are usually regarded as a warning signal.

For example, for Spain and Portugal, the sum of past deficits relative to annual exports reached 300 per cent and 400 per cent, respectively, in 2009, whereas a 250 per cent ratio is typically regarded as the threshold at which external-financing problems can arise.

With austerity, imports have crashed everywhere in the periphery, while exports - helped by falling labour costs - are increasing (except in Greece). As a result, these countries' current accounts are now moving into surplus, and their external solvency is improving rapidly.

Indeed, according to the IMF, Spain should record growing current account surpluses over the next five years, as exports rise strongly, thus cutting the external debt-to-export ratio by half (to about 150 per cent in 2018), while Portugal's ratio should fall to about 250 per cent. Even Italy, whose external deficits have remained small, will soon record a current account surplus.

Austerity always involves huge social costs; but it is unavoidable when a country has lived beyond its means and lost its foreign creditors' confidence.

The external fundamentals of the euro zone's periphery are now improving rapidly. In this sense, austerity has done exactly what it was intended to do.

This perverse rage against the poor

With the economic boom petering out, those who benefitted from it are angry with the government for the Food Security Bill because it is paying attention to the needs of the underprivileged for a change.

This week’s received wisdom insists that the Indian economy has irretrievably collapsed because on Monday, the Lok Sabha passed the National Food Security Bill (NFSB). The Hindu Business Line headline (Aug.28, page 1) said it all: “Re, Sensex sink on fears Food Bill will feed deficit.” The subtext of the lament appears to be that the rupee decline was the market’s way of registering a pointed disapproval of the food security initiative. The Schadenfreude-wallahsare as happy as are the market-reformers that the United Progressive Alliance (UPA) leadership has been fixed so gloriously for venturing into a “populist” course of action. The bandwagon routine has acquired a momentum of its own; even Hindi and other vernacular newspapers have allowed themselves to be mesmerised by the crisis-mongering on television.

This, though, is no time to panic. This is the time to strike a balance between short-term difficulty and long-term promises and commitments.

What wrong signals?

Once every few decades comes a moment in a Republic’s life when a few fundamental commitments have to be renewed — or rejected.

This is one such week, a time to test our core beliefs. It is also the time to ask a fundamental question: since when in this country has a veto been ceded to the markets and its manipulators, at home and abroad, to decide the issues of equity, social justice and economic fairness? There is something inherently perverse in the suggestion that this much- needed welfare measure would send out the “wrong” signals. Pray to whom? Those half-a-dozen professional financial manipulators in London?

Indeed, economists can always be relied upon to argue that there is always a better way to do anything. Some are competing among themselves to declare that this food security initiative will neither work, nor fetch any votes for the ruling party.

Let us make no mistake. Beyond all these sophisticated arguments is a certain class prejudice, resentful that so many resources are being “wasted” for the poor and other socially disadvantaged people, that in this age of “reforms,” political considerations and calculations are being allowed to determine the allocation of societal resources.

This misses the very essence of the concept of political legitimacy in a democratic arrangement. A democracy survives and prospers only when every stakeholder gets an abiding sense of participation, partnership and entitlement. We often seem to keep forgetting that politics is all about who gets what at whose expense. During these last five years, at least for most of the time, the corporates and their policy preferences have been accorded unprecedented acceptance. The time is ripe to strike a new balance. And the NFSB does just that.

Reform by Stealth

If we are honest with ourselves, we will have no difficulty in acknowledging that for 20 years, economic reforms have been operationalised without a political mandate. Not until recently when the Congress party held a public meeting to rally opinion behind the Manmohan Singh government’s FDI policy, did any political party have the courage to proclaim openly and boldly its commitment to “economic reforms.” Yet, the “reforms” have been routinely and regularly proclaimed to be “irreversible,” irrespective of the political colour of the government in New Delhi. The process has well been summed up in that evocative phrase, “reform by stealth.”

So now, when we are confronted with a veritable economic meltdown, we are ill-equipped to attend to the more serious and more debilitating crisis of our democratic project running out of its popular legitimacy. India’s democratic arrangements no longer appear to have the requisite social and political sanctions behind them. And we are unable to deal adequately with the systemic overload because our public discourse has been hijacked by a self-serving advocacy crowd and by a professionally disoriented media. For example, a year ago there was carping all around that the crony capitalists and the corrupt politicians were robbing the nation of its wealth, and we staged massive spectacles of resentment at Jantar Mantar; now, a year later, we are ranting and raving that we are not listening to or heeding those who rig the stock markets.

If shouting and screaming every evening could produce solutions to difficult and complex problems, India would have been the most efficacious and working corner of planet Earth. Despite the obvious disapproval of the shouting class, the UPA leadership has gone ahead with the Food Security Bill. Hence, the exaggerated anger.

As social philosopher Roberto Mangabeira Unger points out, a peaceful social order is in itself not enough; “ [S]ociety must be set up in a manner capable of justification in the yes of each of its members.” In political economy terms, each section of society, and every stakeholder gets to determine: what is in it for me? The Democratic Project is a social compact, an indefinable construct, but nonetheless one that hinges on a promise of a fair deal for all. The poor are asking this question with greater urgency — and in the Maoist-strongholds with arms and blood — as decades of “economic growth” have produced new inequities and disparities.

Rather than wait for the next round of the “Maoist” violence to jerk us back to harsh realities, what the Food law does is that at one stroke, it sends out a message that the Indian state has not turned its back on the poor, and that the have-nots continue to have a claim on the collective resources, and that they have not been left to their own devices or to the market’s curative potency.

This message has to be understood and appreciated in the context of the growing preference in some quarters for authoritarian solutions — throw out the encumbering paraphernalia of social equity or fairness, and let the floodgates of enterprise and business acumen be thrown wide open.

Resenting Interventionism

A decade of economic prosperity has allowed millions and millions of middle-class families to realise their upwardly revised aspirations and life experiences; at the same time, the UPA saw to it that the welfare state kept expanding the “social agenda,”  providing a safety net against the vagaries of the market.

Now, the good days have seemingly come to an end, and there is anger that the state remains equally mindful of the welfare poor. We all thought that the poor have been disappeared from the policy drawing room; and suddenly, they are back with almost a veto. The narrative-controllers resent that. Just when they thought they had successfully defanged the Indian state of its interventionist impulses, here comes the Food Security Bill.

The bill can be seen as the other side of the “stimulus” coin. The 2008-2009 stimulus was used by the super-rich to buy real estate in London and other European cities. At that time, no one seemed to find anything inherently wrong at this massive, disproportionate allocation of resources for so few.

None of it was invested here to create jobs; instead, the super-rich petulantly proclaimed that the government was not sufficiently attentive to their “sentiment” and hence they would take their ball (Indian savings and taxpayers) and play in other economies. No one complained; instead, the government was blamed for the corporate sector’s misplaced priorities.

If subsidised food can reduce the food spending of the poor, and place some surplus money in their hands, which would then be spent in India, that may end up stimulating domestic consumer demand. It would be a kind of stimulus lite, for the poor.

A ruling party in India is called upon to fulfil its basic obligation to keep intact the democratic credentials of the “system.” The food security legislation is a partial response to that obligation and must be applauded.

Companies Bill, 2012: Will auditors become a vanishing breed?

Soon after the Rajya Sabha passed the new Companies Bill, corporate affairs minister Sachin Pilot hogged the limelight by asserting that the basic intent of the new law was lesser regulation, more compliance and to ignite the entrepreneurial spirit by offering "freedom" to entrepreneurs.

What's ironical is that the government has conveniently forgotten the role of auditors, even  when it tom-toms that the new Bill seeks to ensure better enforcement of accounting laws in the corporate world.

Aglance at various provisions of the new legislation makes it clear that the days of the auditing firms are numbered and soon the auditors will be an extinct breed.

Clause 140 confers the right to the proposed National Company Law Tribunal to order a change of auditors in case it finds the auditors have acted fraudulently or abetted or colluded in any fraud by the company or in relation to the company.

Additionally, the clause specifies the responsible audit firm will be banned from fresh appointment as auditors for any company for a period of five years from the date of order given by the tribunal.

Clause 245 introduces the concept of class action that gives the right to members and depositors of a company to claim damages or compensation from the company, its directors, auditors and experts.

Such damages can be claimed from auditors for any improper or misleading statement of particulars made in the report or for any fraudulent, unlawful or wrongful act or conduct. The unlimited liability under class action will be on the firm and the partners involved.

If we take a cue from the multimillion-dollar class-action settlements across the globe, the collateral costs and compensation could be so exorbitant that it could easily make the audit firm and its partners bankrupt. If this provision is implemented, a majority of audit firms will have to shutter down their practice. This will, in turn, hugely polarise auditing in favour of large firms that have the money power to shoulder such a burden.

But considering the limit on the number of audits per partner, the question remains: who will do the balance auditing? Further, this clause runs counter to the concept of limited liability partnership as it tends to create unlimited liability. There are various monetary penalties ranging, from Rs 25,000 to Rs 25,00,000, which have been introduced in the Bill for non-compliances related to filing, reporting, fulfilment of powers and duties, etc, by the auditors.

Further, the Bill lays down provision for imprisonment, if an auditor is found to be guilty of fraud, which ranges from six months to 10 years.

Referring to the current low-fee structure, the average fee per listed company is lower than Rs 10,00,000 now. If private companies are counted for the same, the average fee per company is even lower at around Rs 5,00,000.

Considering the onerous liabilities cast on auditors vis-a-vis their fees, the audit firms will be prevented from taking up the audits. The Bill also stipulates the constitution of the National Financial Reporting Authority (NFRA) that will oversee the quality of service of professionals associated with compliance of accounting and auditing standards.

Currently, the audit firms are subject to peer review by the Institute of Chartered Accountants of India (ICAI), review of audited financial statements by the Financial Reporting Review Board (established by ICAI) and review of audit firms under the aegis of Quality Review Board (established by government of India under Chartered Accountants Act, 1949).

The constitution of NFRA will create an additional review burden on the firms. Again, the overdose of regulation will only deter firms from taking up auditing. The law that claims to usher in quality seems to be putting a high price on it. More importantly, any hope of enforcement of new provisions by the government will be illusory.

In the early 1980s, total composition of CAs was 80% in practice and 20% employed. However, over the last  decade, 90% of CAs are employed and just 10% are in practice. The provisions of the new Bill will further dissuade CAs from joining the practice and push them to scout for risk-free jobs. Now, the moot query is: who will audit the companies? The CAG?

Fears of Asian crisis overblown

The "taper terror" returned to haunt Asian markets last week, spurring investors to dump regional shares and currencies on growing dread that the United States central bank may reduce its gigantic stimulus programme next month.

They fear that a pullback of US quantitative easing (QE) will mean less liquidity going into Asian assets while also raising US interest rates and the greenback - an outcome that will make Asia less attractive as an investment destination.

But a few observers are entertaining an even scarier vision: the spectre of a repeat of the Asian financial crisis.“They see eerie echoes of the 1990s.

Across Asia, economies have been borrowing heavily to fuel spending, sparking a run-up in asset prices, inflation and credit intensity - the amount of debt needed to generate each unit of economic expansion.

And just as it did in 1997, the party may now be coming to an abrupt end. “Growth in Asia's trade- dependent economies has slowed and once-surging capital inflows are reversing direction, depressing currency values in the region and making it difficult for nations to balance their external accounts.

Interest rates, which were slashed to near zero in developed countries to spur growth, are also rising again, which means firms and households rolling over their debt will do so at higher cost. Some economists portend the tapering of QE will be the trigger that exposes deeper economic weaknesses, by removing cheap foreign funding from Asia just when it is most reliant on it. “This could mean the region is headed for more serious and lasting trouble than a one-off panic in the markets, they warn.

Quaking over QE

Investors have made it clear which Asian economies they are most concerned about. “India's rupee has fallen almost 20 per cent against the greenback this year and hit new all-time lows, although it regained some ground late last week.

Indonesia's rupiah has lost about 12 per cent, while the Malaysian ringgit is down about 8 per cent and the Thai baht has shed 5 per cent. All reached their lowest levels against the US dollar since 2009 or 2010 last week.

These four countries are in the line of fire as a slowdown in China and lower commodity prices weigh on their exports. This has led to deteriorating current account positions and weaker growth.

India, Indonesia and Thailand have been running record or near-record current account deficits, which means they are not exporting enough to pay for their imports and must borrow from other countries or run down their reserves. Malaysia is still in surplus, although not by much.

The economic outlook is also dimming. Sluggish exports have led Malaysia, Thailand and India to cut growth forecasts for this year, with Thailand slipping into recession in the second quarter.

Indonesia is also fighting rising inflation, which led it to raise interest rates this month. “Meanwhile, debt levels have been rising. Malaysia's households already owe 177 per cent of their income, the highest in Asia, according to a Standard Chartered report last month. In Thailand, it is the speed of the rise in debt that is worrying: Its recent run-up in credit has been one of the fastest in the region. “The situation is tricky for policymakers. If they cut interest rates to stimulate growth, they risk more capital outflows as investors seek higher returns elsewhere, making it even more difficult for them to address their current account gaps.

Malaysia and Indonesia are especially vulnerable, given their reliance on foreign investors. More than 30 per cent of their government bonds are held by foreigners, noted OCBC Bank economist Selena Ling. “But if the authorities tighten monetary policy to stabilise currencies or reduce inflation, that risks sapping economic vitality.

The worry is that policymakers, stressed by the recent capital flight, will make a wrong step. They need nuanced policies to shore up their currencies and restore investor confidence without doing so at the expense of growth.

"The speedier rise in US real rates and dollar has now pushed Asia to lift its real rates at a time when its GDP (gross domestic product) growth has already been slowing," said Morgan Stanley economists last week. "This pro-cyclical tightening is only increasing the headwinds" to Asia's growth, they added. “Still, most economists are not losing sleep over the situation.

"Calling it a currency and economic crisis at this juncture is missing the point somewhat, even though risks persist," said Ling. "Asian economies have been on a steamroller boom for the last three years, and the fact is that many Asian economies are fundamentally on a much firmer economic footing this time round. “Deutsche Bank economist Taimur Baig agrees that while the currencies of India, Indonesia and Malaysia are particularly stressed, they do not "appear to be in danger of falling into an outright currency crisis". “Reserves cover, despite recent declines, is still ample. Even when one adds up the entire stock of short-term liabilities and the projected current account needs for this year, all three economies have reserves to finance them comfortably," he said.

It's different this time

The picture also looks brighter in most other Asian economies, although none was spared the sell- off last week.

Those with current account surpluses, large foreign currency reserves to counter exchange rate volatility and solid banks and growth policies are well-placed to weather the storm.

Singapore, for one, has several factors in its favour. Its trade account is constantly in the black, it has robust reserves and does not rely on debt to fund government spending, and it received relatively fewer capital inflows from QE.

Singapore's Deputy Prime Minister Tharman Shanmugaratnam said last Friday that QE tapering in itself is "not a bad thing" for Asian economies.

"It is not in anyone's interest, including the emerging economies, for very low global interest rates to continue indefinitely," he said. "Low or negative real interest rates have inevitably led to a search for yield, and a build-up of financial imbalances in Asia."

Other Asian economies that have strong current account positions, which means they export much more than they import - such as the Philippines, South Korea and Taiwan - are also unlikely to be dragged down.

Credit Suisse economist Christiaan Tuntono noted that South Korea and Taiwan are running comfortable current account surpluses of 5 per cent and 11 per cent of GDP respectively.

The Philippines is also on a better economic footing than other Asean neighbours due to its persistent current account surplus and lower reliance on commodity exports, said Credit Suisse economist Michael Wan. “As a whole, economists such as Jimmy Koh, United Overseas Bank's head of research and investor relations, are fairly sanguine about history not repeating itself in Asia. "We believe that though QE tapering will be a short-term destabilizing factor in Asia, the economic fundamentals of the region have strengthened due to the prudent economic policies implemented since the 1997 Asian Financial Crisis," he said.

Foreign reserves and current account levels are generally strong, and most countries now have flexible exchange rate policies, making a 1990s-style currency crisis and contagion more unlikely. Asian policymakers are also more proactive about managing credit cycles, said Koh.

Companies and banks are also financially healthier. While there will be some inevitable pain as borrowing costs rise and asset markets adjust, a domestic banking crisis is less likely, added Ling.

Another upbeat sign often lost in the market muddle is that QE will be tapered only once the Federal Reserve is convinced that the US economic recovery is self-sustaining. All signs so far – from manufacturing to consumer spending - are pointing to a firmer rebound, not just in the US but also in other recently stagnant developed economies like Europe and Japan. This is likely to give a bigger boost to global growth and Asia's exports, although lingering shakiness means the benefits may not be felt until next year at least. “Meanwhile China, while down, is not out. A surprise turnaround in its factory activity this month hints at a stabilisation that bodes well for its neighbours, as does its move to a more sustainable growth trajectory. “So while Asia may be in for a rocky ride as the US eases out of QE, most economies are in a good position to manage the adjustment without giving in to fears of a new crisis.

As former US president Franklin Roosevelt, who saw the US economy out of its last massive recession, once said: "The only thing we have to fear is fear itself." Asia's fundamentals are still strong - there is little reason to let investor panic be stronger.

 

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