The distinctive function of the banker ‘begins as soon as he uses the money of others’; as long as he uses his own money he is only a capitalist,” wrote Walter Bagehot in 1873, quoting Ricardo. This distinction may seem outdated. Institutional investors (hedge funds, mutual funds, pension funds, private equity) all use other people’s money. Yet Ricardo’s point matters.
Modern institutions are the interface between individuals and their capital. Gains (or losses) are returned to individuals. By investing in this way, people typically deploy their own money, with the fund acting as a mere tool. Banks also use deposits, the money of others, to extend loans. But customers expect to get their deposits back in full: they do not expect to bear the bank’s loan losses in bad years, nor to reap greater rewards in good ones. It is the banks that take both losses and gains.
This process may make banks unstable, but it also gives them a big advantage in financial services, since deposit-taking and lending are complementary. Banks have as a result become providers of any and all financial services that a client needs, from a credit card to a mortgage to investment advice.Yet all these are now under threat. The clout of non-bank financial firms is growing, making the balance-sheets that banks use to support lending less valuable. And tech giants are using the competitive power of their platforms to muscle into banks’ main business. It is as if the entire industry were in a pincer grip that might one day kill it.
Consider such tech apps as Grab in Singapore or Gojek in Indonesia, which both started as ride-hailing services, or Mercado Pago, the financial arm of MercadoLibre, Latin America’s largest e-commerce site. Their model of financial services starts by being a dominant provider of a service that customers use daily. The most advanced examples are AliPay and WeChat Pay in China. Ant Group, the financial offspring of Alibaba, was born out of the fact that shoppers flocking to Alibaba lacked a safe payment method. Alipay was initially just an escrow account to transfer money to sellers after buyers had received their goods, but it was soon launched as an app for mobile use. In 2011 it introduced qr codes for payments, which are trivially easy to generate. Now a shop owner need only display the code to accept money.
This means of payment proliferated, supercharging Alipay’s growth. It has more than 1bn active users and handled $16trn in payments in 2019, nearly 25 times more than PayPal, the biggest online-payment platform outside China. A competitor arrived in 2013 with Tencent, which added a payment function to WeChat, China’s main messaging app. Together the two process some 90% of mobile transactions in China.
The first blow to banks is that both companies earn as little as 0.1% of each transaction, less than banks do from debit cards. Interchange fees around the world have tumbled because of such firms. “It was very lucrative for fintechs to come in and compete these fees away,” says Aakash Rawat of the bank ubs. “In Indonesia they have fallen from 200 basis points to just 70.” But the bigger threat is that payment platforms may become a gateway allowing tech platforms to attract more users. Using data that payment transactions provide, Ant, Grab and Tencent can determine a borrower’s creditworthiness. Ant began consumer lending only in 2014. By 2020 it had already grown to account for about a tenth of the consumer-finance market in China, though regulators are now reining it in.
Banks have traditional ways to assess borrowers’ creditworthiness, such as credit history or current wealth. Often they secure loans against collateral, like homes or cars, minimising the need to monitor an individual borrower. Bob Hope, a comedian, quipped that “a bank is a place that will lend you money if you can prove that you don’t need it.”
Yet as Agustín Carstens, boss of the Bank for International Settlements, a club of central bankers, said in March, “Data can substitute for collateral.” The information that payment platforms have on users is so plentiful and, until recent crackdowns, the restrictions so lax in China, that Markus Brunnermeier, of Princeton University, talks of “an inverse of the information asymmetry”, in which lenders know more about whether borrowers will repay than borrowers themselves. Big tech and fintech firms have lent $450 per head in China, around 2% of total credit, in five years.
As banks found decades ago, there are synergies between loans and other financial products, like asset management and insurance. Ant muscled into asset management in 2013 with the launch of Yu’e Bao, where shoppers with cash in Alipay earn a small return by parking it in a money-market fund. In 2019 Yu’e Bao briefly became the world’s biggest money-market fund by size, before the central bank put pressure on Ant to shrink it.Ant supplemented this with other investment options and also expanded into life, car and health insurance in partnership with other firms.
Tech firms are using their platforms to reverse-engineer banking.This has even caught on in America, where credit-card sweeteners keep users hooked and payments tech has lagged. Enthusiasm for payment platforms has accelerated during the covid-19 pandemic, which forced shoppers online. PayPal has almost doubled in market value over the past year to more than $310bn, making it the world’s most valuable payment platform.
Stripe, a business-payment provider, is now valued at $95bn, making it the largest private tech company in America.Stripe’s success as a business platform suggests it is not just retail banking that might be under threat, but corporate banking as well. The firm won favour with tiny businesses by making it easier to embed payments in their websites. It has expanded into payroll and cash-management services.
Knowledge can be power
Such platforms cannot do everything a bank does, because they do not have a balance-sheet to sustain lending. A bank’s advantage lies in having deposits to exploit, even if they do not know whom they should lend them to. Tech firms’ advantage is that they know whom to lend to, even if they do not have the funds. So some platforms have decided they would like a balance-sheet. Grab, which is about to go public at a valuation of some $40bn, has acquired a banking licence. If many others took this path banks might remain at the heart of the financial system, though the biggest could be Ant, Grab or Mercado Pago, not hsbc, dbs or Santander Brasil.
But most tech firms have opted against banking licences. They are instead skimming the cream off the top. “Core banking”, the heavily regulated, capital-intensive activity of banks, makes around $3trn in revenue worldwide, and generates a 5-6% return on equity (roe). Payments and product distribution, the business of the tech firms, yields $2.5trn in sales but with a roe of 20%.
Ant initially made loans and packaged them as securities sold to other financial institutions. But Jack Ma, its founder, fell foul of the government and regulators. So they demanded that originators of securities hold capital against them, trimming Ant’s margins. The firm’s next approach was to act as a conduit, connecting borrowers with banks, which made the loans. But regulators worried that Ant had too little skin in the game, so demanded it hold more capital. Ant must now rethink its business model.
Investing systematically in quality stocks/ mutual funds and waiting patiently will fetch inflation-beating handsome returns in the long run.
Investing in stocks directly requires expertise and time, something majority of stock investors don’t have.
Trading, except for a miniscule minority, leads to losses.
It is very difficult, almost impossible, to time the market.
For the vast majority of investors, mutual funds are the best option.
Most retail investors enter the market lured by stories of people making big money. Theoretically, trading can fetch huge returns. But in practice, it is a loss-making proposition. So, investors should invest, not trade.
So, refrain from gambling and reckless trading. Gambling is injurious to wealth. Systematic investment and patience will be rewarded. Investment in high quality stocks can create phenomenal wealth in the long run. Mutual fund SIPs too can give impressive returns. There are many largecap mutual fund schemes that have delivered 12 to 18 per cent XIIR (extended internal rate of return) in SIPs in the last 10 years. Many well-performing midcap and smallcap schemes have delivered 16 to 24 per cent
XIIR during the last decade. Even the average returns are impressive, beating all other asset classes.
To summarise, retail investors who have the expertise and time to invest, can invest directly in the market, focusing on high quality stocks.
India is receiving a lot of flak for its stance at the just-concluded meeting of the World Trade Organisation’s (WTO) General Council in Geneva with epithets such as “deal-breaker” being hurled at it. The country is being accused of sabotaging the first real agreement forged by the trade body in 19 years on trade facilitation with its rigid stance on the issue of food subsidy. An agreement on trade facilitation (TFA), which is aimed at easing customs rules and simplifying procedures, was reached at the 9th Ministerial Round in Bali in December last year after the developed world agreed to find a permanent solution to the contentious issue of stockpiling of food grains by the developing countries by 2017. The Bali Declaration also provided for a “peace clause” whereby countries such as India could continue with their food subsidy programmes until then. India, which supports the TFA, has questioned the current limit of “trade distorting” subsidy which is 10 per cent of the value of food grains output in a year with the base year for prices set at 1986-88. Its position is that the limit does not account for inflation and currency depreciation and the base year needs to be reset to a later period. This is a fair argument as it concerns the critical issue of food security for a country that is home to a quarter of the world’s hungry.
The passage of the Food Security Act means that the subsidy bill will bloat in the coming years and the country cannot afford to be constricted by limits that are based on flawed calculations. Politically speaking, no government can afford to be seen as compromising either the interests of the 270 million people who live below the poverty line or its farmers, and Prime Minister Narendra Modi is also obviously conscious that he will be facing elections in two crucial States in the next few months. The main grouse India has is that there has been little forward movement on discussing the issue since the Bali meeting even as much vigour has been exhibited in finalising the TFA. India’s statement at Geneva clearly highlights that despite repeated requests, discussions on public stockholding of food grains never started. The strategy to use the TFA as a lever to get an agreement on the food subsidy issue was probably born out of the assessment that it would be difficult to get the developed world back to the negotiating table once the TFA was signed. Clearly, both sides are guilty of brinkmanship. Yet, all is not lost. India has signalled that it is willing to return to the table and has suggested a permanent “peace clause” until a final understanding on subsidy is reached. Extending the TFA deadline by another six months will not cause harm, especially if it leads to a final agreement on all issues.
the Roman amphitheatre, where the mob decided if the defeated gladiator should die. Apart from turning the judiciary into a khap panchayat, how does this august fraternity commune with the community, or divine that its conscience wants blood? In the 21st century, flooded as it is with 24-hour television and social media on tap, outrage can be manufactured, reality distorted. Even when, as after the Delhi crime, the revulsion was real and widespread, how does the judiciary determine that those who were shocked would only recover with the deaths of those who had shocked them? Diplomats, who must assess the mood of the country they are posted in, take it as given that the media only partially reflects it, since the strident few drown out the diffident majority. An Embassy spreads its tentacles wide, speaking to and gauging the mood of people in different sectors, levels and locations, to understand what they really want. No judge can do this. What a judge takes as the collective conscience of the community can only be the slant carried by the media. To base decisions on life and death on this is injudicious.
Secondly, what is the community whose conscience the judge must tap into and channel into a pronouncement of death? For a sessions judge, it will presumably be that of the local community. If that judgment is overturned on appeal, it can either mean that the judge had misread that conscience, or that the High Court felt that the conscience of the larger community of the State did not want blood. If the Supreme Court reinstated the death sentence, this would presumably mean that the national conscience was at one with the local, but that of the State concerned was out of step with both. Which is the segment of the community to whose conscience judges must defer? Logically, it should be the one most affected, which would imply that no sentence of death from a sessions court should be overturned. How does a judge in the State or Central capital determine that the local community had not been galvanised into bloodlust?
But what would happen, for instance, in the cases that should shortly come to trial for the murders in the recent communal violence in U.P.? The most appalling cruelty is committed during communal riots. One of the criteria invoked in the Delhi judgment to justify the death sentence, the barbaric and revolting nature of the murder, would apply. In these cases, however there would be no collective conscience to consult, since the community is split in two. Each half would demand the death sentence for the murderers from the other community, but mourn its own murderers as martyrs if they were hanged. In these cases, therefore, where one of the criteria laid down by the Supreme Court conflicts with the other, which will prevail?
Nor should we forget that, while the use of torture to bring about death is rare in crimes committed by individuals, it is routinely practised by the army and the paramilitary in States wracked by political violence. Unaccounted numbers of Kashmiris disappeared into the maws of Papa-II, the infamous torture chamber run by the paramilitary in Srinagar. Those bodies that were recovered bore marks of the most terrible torture. Very large numbers disappeared forever. To say that the collective conscience of the Kashmiri Muslim community is merely shocked would be an insult. It has lived with rage, pain and a searing sense of injustice for two decades; its tormenters have escaped with impunity, because the collective conscience of the rest of the country has not even been stirred.
Across our subcontinent, in Manipur, similar cases abound, including that of Thangjam Manorama, taken from her home in Imphal late at night by a unit of the Assam Rifles, led by two Majors, tortured with a knife, forced into her genitals in the presence of her family, tortured even more brutally later, raped and shot. Her body was not received by dignitaries, it was found lying in a ditch. There have been many other killings like this, but this one, like the gang rape case in Delhi, set off a storm, leading to a “naked protest” by Manipuri women in front of the paramilitary camp. If any crime matched both the criteria invoked in the Delhi judgment, the bestiality of the murder and the collective indignation it produced, this one did. However, the officers and men responsible are immune because the army’s Court of Enquiry held they were all innocent.
Justice not blind
These communities, and the tribals in the naxal belt, will argue bitterly that justice is not blind; it sees who you are and where you come from and, in its scales, the collective conscience of the community only registers when it has political weight. If you are a Kashmiri or a Manipuri, your shock is gossamer.
One of the crimes that the Supreme Court has laid down as likely to shock the collective conscience of the community is a “murder committed in the course of betrayal of the motherland.” It appears murders committed in its ostensible defence do not shock. Patriotism is the last refuge of the serial torturer. If he walks free, though, why should others hang?
There is a further danger. Because public opinion is manipulated with modern technology, the outrage which the judiciary will interpret as an indignation that must be assuaged with blood can only be provoked by the technically adept, or those with the money to influence the media. The men sentenced to death in Delhi, and those hanged over the last year, were mostly from the poorest and most vulnerable sections of society. Neither they nor their families had the financial or technical means to harness the media or the social media in their defence. There is, therefore, an inevitable class bias built into a process where a judge pronounces the verdict of death on the basis of a public outpouring of rage, which the accused have no means of contesting.
The brutality that brings their crimes into the ambit of the rarest of rare is bred into their lives. They have gone to bed hungry as children, suffered illnesses without medicine, defecated in the open, been savaged on the whims of adults, treated like dirt. Compassion has never touched them. Life has beaten sensitivity out of them. Men forced to live like brutes will kill like brutes. When these men, society’s victims, find a victim, they take a lifetime’s frustrations out on him or her. Their murders and rapes are unlikely to be refined. Their brutality might appal a court and nauseate the middle class, by whose standards they are judged, but it is a product of what the community has made of them. This is what should shock the collective conscience of the community.
Lastly, and most troublingly, if a man is to be hanged because the judge feels that the collective conscience is so shocked that it will expect him to inflict the death penalty, can a trial be fair, with the accused presumed to be innocent until he is proven guilty? If, before the trial starts, society has already made up its mind, in the judge’s view, that it will only be satisfied with the death penalty, it has also determined who the guilty are. It is hard to believe that a judge can hear a case entirely on merits, and take popular sentiment into account only at the verdict. On the contrary, if it is now the law that a judge must impose the death penalty in cases where he has concluded that the community demands it, he would be shirking his duty if he were to absolve the men on trial, denying the community, whose servant he is, the satisfaction of a human sacrifice.
When the Supreme Court decreed that the death penalty should be imposed only in the rarest of rare cases, it tried, humanely and honourably, to prevent a rash of judicial killings, but the criteria it has laid down inherently lead to decisions that are, in every sense, fatally subjective. The road to the gallows might be paved with its good intentions, but on matters of life and death, the law cannot be so cruelly flawed.
Tarquin, Auden famously wrote, was ravished by his post-coital sadness. Is the “community” in India ever choked by a post-garroting remorse? Conscience is the uncomfortable reminder that we have done something wrong.
In a nation that aspires to be a modern democracy and claims to be a modern incarnation of the most ancient living civilisation, the death penalty is a barbaric anomaly. It is time the collective conscience of the community repudiated it.
The United States-Russia agreement to provide a “framework” for the inspection, removal and eventual destruction of Syria’s chemical weapons proves diplomacy is not a spent force in international politics: it has been creatively deployed in this case to not only stave off potentially disastrous military intervention, but also break new ground in troubleshooting the Syrian crisis politically. The deal — signed Saturday in Geneva by Russian Foreign Minister Sergei Lavrov and his U.S. counterpart John Kerry — requires Syrian President Bashar al-Assad to allow for immediate “on-site inspections of all declared sites” which produce and stockpile chemical munitions. The agreement proposes to “eliminate” all WMD material in Syria within the “first half of 2014.” With Syria having formally acceded to the Chemical Weapons Convention, the inspection will be supervised by the treaty’s watchdog, the Organization for the Prohibition of Chemical Weapons, as well as the U.N. These remarkable developments, which come barely a week after a West-led attack on Syria seemed all but inevitable, represent a stunning victory for Russian President Vladimir Putin, who urged the U.S. via an op-ed in the New York Times to “stop using the language of force and return to the path of [...] diplomatic settlement.” His attempt marks one of the most politically savvy gestures by a head of state to reach across the aisle to a foreign audience in recent years.
Saturday’s deal is a game-changer in more ways than one. On the one hand, it could prevent further escalation of violence, including the use of WMDs, in Syria. On the other, weapons inspection necessitates a cease-fire agreement between the government and the rebels in many parts of the country, which can only help the case for political dialogue. That said, the power struggle between the U.S. and Russia on this issue will continue unabated. If the West has been saved the blushes of going to war without domestic support, it will now exploit any claim of Syria’s non-compliance to initiate a military strike. Moscow seems amenable to a Chapter VII resolution at the U.N. Security Council to goad Syria into cooperating, but will insist on a tight draft that eschews the use of force against Assad’s regime. Syria’s accession to the CWC leaves Israel and Egypt, staunch American allies, as the only two holdouts in the region to remain outside major treaties banning WMDs. To counter this strategic imbalance, Russia has sought to push the Syrian deal as a precursor to a “WMD-free Middle East”. Laudable though that goal is, this should not deter multilateral efforts to seize the momentum the Geneva deal has offered to nudge the Syrian conflict’s principal actors toward the negotiating table.
The entry into force of the landmark global convention that legally recognises domestic work as economically productive activity makes it even harder to countenance the long official neglect of this sector in India. This new standard adopted by the International Labour Organisation (ILO) mandates states to promote the freedom of association and the right to collective bargaining between domestic workers and their employers, and the effective abolition of child labour in this sector. But the task of mobilising domestic workers to assert their rights to fair terms of employment is most formidable. The workplace is an extremely amorphous term in this particular context, as it typically connotes more than one household. The isolated and unprotected nature of the activity exposes workers, more than 80 per cent of whom are women, to greater vulnerability. A high rate of attrition is also a factor, as migrant groups constitute the mainstay of domestic labour. Not surprisingly, barely 10 per cent of domestic workers around the world are covered by general labour legislation in comparison with those in other sectors. A 2013 ILO report shows that the Asia-Pacific region has the maximum prevalence of domestic labour, about 41 per cent. But it is the weakest in terms of legal protection — only three per cent of workers are entitled to a weekly day off as compared to the global average of 50 per cent. Just one per cent of the Asia-Pacific domestic workforce is entitled to stipulated maximum hours of work a week. Rights to minimum wages and maternity benefits that are norms in Latin America are a far-cry in Asia.
In India, which has eight per cent of the world’s domestic workers, attempts to extend legal protection to this sector date back to a private member’s bill in Parliament in the 1950s. But the closest any legislature has moved to realise the objective is the recent inclusion of this category in the Tamil Nadu Manual Workers Act, besides legally guaranteed minimum wages in Kerala and Karnataka. Entitlements to a weekly day off, paid leave and other long term benefits are no less legitimate demands and are important steps to augment their social status as workers. The demand for domestic workers is said to be on the increase given the changing profile of the Indian family, the ageing process and urbanisation. The ratification of the ILO convention will be an important step in improving the lot of the millions employed in this sector. But it will also need enabling domestic legislation. As a first, Parliament should consider acting expeditiously on the 2008 draft bill proposed by the National Commission for Women that seeks to regulate working conditions for domestic workers.
In sharply revising downwards its April growth forecast for the current year (2013-14) by more than one percentage point, the Economic Advisory Council (EAC) to the Prime Minister has not exactly sprung a surprise. According to its recently released flagship publication, Economic Outlook 2013-14, the economy will grow by 5.3 per cent, far below the 6.4 per cent projected earlier. The Reserve Bank of India, which was less ambitious to begin with, had revised its estimate to 5.5 from 5.7 per cent. Almost all private forecasters have been projecting even lower rates of growth ranging from 4 to 4.9 per cent. A sub-5 per cent annual growth trajectory seems well within the realm of probability. Official statistics confirm the downward drift. During the first quarter of this year the economy grew by just 4.4 per cent, even lower than the 4.8 per cent of the previous quarter. With the economy unlikely to do much better in the second quarter (July-September), the EAC as well as the more optimistic government spokespersons hope that the second half of the year will be much better and lift the overall rate of growth to something above 5 per cent.
Agriculture is the only sector that is expected to do well on the back of a good monsoon, with a projected increase of 4.8 per cent as against 1.9 per cent in 2012-13; industry is expected to grow by 2.7 per cent as against last year’s 2.1 per cent, and services by 6.6 per cent, down from 7.1 per cent last year. But the farm sector has only a small share in GDP. Even the relatively low expectation from industry might be misplaced. A critical component — manufacturing — has yet to show signs of revival. Between April and July, it actually declined by 0.2 per cent. Another component, mining, remains in the doldrums. On the positive side, the rupee depreciation has already boosted the performance of a wide range of export industries including textiles and leather. The merchandise trade deficit has been coming down in recent months, also due to lower imports of gold and capital goods. A healthy performance by the IT and IT-es industries could help in containing the current account deficit, which remains a prime concern. The EAC’s projection of a $70 billion deficit (3.8 per cent of GDP) in 2013-14 as against an estimated $88.2 billion (4.8 per cent) seems over-optimistic as of now. Net capital flows are expected to be lower this year and there could be a small drawdown of reserves. Containing the fiscal deficit is another big challenge. During the first four months of the year, it has already reached nearly 63 per cent of the budget. While the EAC has suggested a number of measures to deal with the “twin deficits,” its biggest contribution might well be the realistic GDP growth estimate.
For a government dragging its feet on the question of providing universal health cover for all, the Centre has shown great alacrity in deciding that members of the All India Services and their families will be eligible for medical treatment abroad at the taxpayer’s expense. It obviously matters little that even in 1946, the report of the Health Survey and Development Committee headed by Sir Joseph Bhore, on which the national health system was to be built, recommended that “public funds should, as far as they are available, be devoted to the development of the health service.” The Planning Commission’s High Level Expert Group on Universal Health Coverage advocated a similar vision for the ongoing Twelfth Plan and beyond. In the revised guidelines issued by the Department of Personnel and Training, there is, seemingly, a caveat on treatment abroad: that only those cases where facilities are not available in India are to be considered. The intent, however, is not to sanction the exceptional case, but to generally facilitate such treatment for the higher echelons of the bureaucracy. Conveniently, the foreign exchange necessary will be recommended by designated domestic hospitals, in addition to State authorities, which are under bureaucratic control anyway. Such measures can only deal a severe blow to the national health care system when it is in dire need of quantitative expansion, qualitative upgradation and strong regulation.
The ailments for which members of the IAS, IPS or their families are now eligible for treatment abroad are those for which treatments need to be widely available in a country with over 1.2 billion people, but are not. Complex or high risk cardiovascular surgery, bone marrow transplants, treatment for leukemia, neoplastic conditions, microvascular and neurosurgery (and others left unspecified) should be available in the public health system, ideally at the district level. That prospect is now distant, since the people who wield power in everyday decision-making have no incentive to do this: they can get treated abroad, and pass on the cost to the exchequer. It must be pointed out here that to provide even a basic package of free health care to Indians, after co-opting a regulated private sector for the purpose, India needs to double the number of doctors and nurses by 2025. The HLEG assessment shows that the country falls well short of the modest WHO norm of 23 health workers per 10,000 people, with only 19 workers available. It recommends a scaling up of facilities in a decade to provide access to treatment and medicines and cut the dismal levels of out-of-pocket spending. Rather than take up this challenge, it is unfortunate that the Centre has agreed to foot the bill for reverse medical tourism for a select few.
India is beginning to develop a new, longer range nuclear-capable intercontinental ballistic missile (ICBM) local media reported on Wednesday, citing unnamed sources.
A scientist with the Defense Research and Development Organization, India’s military technology agency, told The New Indian Express that DRDO is secretly developing a missile with an initial range of 6,000 km (3,728 miles). Currently, India’s longest range ballistic missile is the Agni-V, which has a range of about 5,000 km.
The same source said that the missile that is under development as the Agni-VI, but which will ultimately be called Surya, could eventually be extended to have a range of 10,000 km (6,213 miles).
Earlier this week DRDO chief Avinash Chander had said that India was capable of developing a missile with a range of 10,000 km within two and a half years if necessary. He also suggested that Delhi was not interested in utilizing this capability.
“Range is the least problematic area,” Chander said, according to The Times of India. “We have the full capability to go to any range…it's just a question of additional propellant and larger motors. But, as of now, we don't see the need for a higher range.”
The reports comes just days after DRDO successfully tested the Agni-V for the second time. The first test was back in April of last year. The Agni-V allows India to hold many of China’s largest cities under threat from its nuclear arsenal for the first time. As such, it is often called the "China killer" by India’s media.
Although the Indian media often refers to the Agni-V as an ICBM, its range of 5,000 km is slightly less than the international standard for an ICBM, which is 5,500 km. Thus, Surya will technically be India’s first ICBM.
As previously reported, India has been working on equipping the Agni-V with multiple independent re-entry vehicles (MIRV) that would give it the ability to carry multiple nuclear warheads on a single missile. The scientist who spoke with The New Indian Express on Wednesday said that Surya would be made slightly heavier in order to carry even more nuclear warheads.
“While Agni-V can carry up to three nuclear warheads, the next missile in the series can carry up to 10 nuclear warheads, capable of hitting multiple targets,” the DRDO scientist said, according to The New Indian Express.
The same report suggested that the Surya will be ready for testing within three years.
This indicates that development of the missile may be encountering difficulties. The first reports of the Agni-VI’s existence from earlier this year suggested that development would take just two years. Those initial reports also said that the Agni-VI’s initial strike range would be between 8,000 and 10,000 km, instead of the 6,000 km reported on Wednesday.
The G-20 summit in St. Petersburg, Russia, that begins on September 5 will probably show greater urgency in tackling emerging risks to sustainable global growth. It will call for much closer cooperation between the developed and developing worlds, as also among emerging economies, in dealing with the “catastrophic consequences” of the United States Federal Reserve withdrawing its $85-billion-a-month liquidity support to the domestic economy over the next year. Cumulatively, the U.S. has pumped an additional $2 trillion of freshly printed greenback since the 2008 global meltdown to support its banking system and the economy at large.
The prospect of the withdrawal of some of these dollars from the global system has sent shivers down the backs of many emerging economies, including India. The rapid currency depreciation in many of these countries, such as Indonesia, Turkey, South Africa, India, Brazil and Malaysia these past few months, especially after the Fed’s statement in May indicating withdrawal of liquidity in the near future, was discussed at the G-20 Finance Ministers’ mid-July meeting in Moscow. Finance Minister P. Chidambaram had spoken to U.S. officials at the Moscow meeting and expressed concern at the negative impact of the Fed’s actions on the emerging economies.
India has already flagged the issue by stating how “unconventional monetary policies” followed by the U.S. and EU have ended up creating new risks in the system. Deputy Chairperson of the Planning Commission Montek Ahluwalia says after the economic crisis in 2008 the focus largely remained on boosting the global economy through fiscal expansion. There was consensus among all G-20 economies to go for a fiscal booster. There was hardly any formal discussion on coordinating the monetary policies at that time. The U.S. then resorted to the most unprecedented injection of liquidity in its history as the central bank balance sheet expanded from about $870 billion before the crisis to $3 trillion today. The additional $2 trillion freshly printed dollars were pumped in three phases, described as QE1, QE2 and QE3. This was done largely because the U.S. economy was not showing any signs of reducing its unemployment rate since the peak of the crisis. In all past episodes of depression/recessions, the U.S. economy had bounced back to its pre-crisis employment within 12 to 24 months. This time things did not improve significantly even after 50 months. This resulted in the highly “unconventional monetary policy” which is coming back to haunt the emerging economies.
According to Dr. Arvind Virmani, who represented India as Executive Director at the IMF in the post-crisis period, “We at the IMF did express concern that the massive quantitative easing by the United States was particularly going into some eight emerging economies, India being one. The liquidity boost also led to a big increase in oil and commodity prices which also contributed to high inflation in emerging economies.” Dr. Virmani agrees managing such massive inflows, and now possible outflows, is a big challenge for developing economies like India.
One of the key concerns of the G-20 meet in St. Petersburg will be how emerging economies can manage the outflow of dollars that is bound to occur as the U.S. shows recovery and the Federal Reserve begins to taper excess liquidity as a consequence.
Indeed, beyond a point U.S. monetary policy cannot address global concerns. The U.S. will necessarily look inward until there is some visible improvement in its own employment data. In fact, one of the criticisms of the G-20 forum was that it had become just a talk-shop after the first two meetings in 2009 in Washington and Pittsburgh. The first two meetings showed urgency among countries to work together in a coordinated manner because the economic crisis was at its peak. Recall how President George W. Bush told the first G-20 meeting at Washington, after the 2008 financial meltdown, that the emerging economies will have to play a big role as engines of world growth. At that time America looked most vulnerable. But today some of the emerging economies seem more vulnerable with their currencies crashing.
The possibility of a substantial tapering of the dollar deluge of the past is making developing economies think hard about innovative solutions. They will also have to come up with unconventional alternatives like bilateral and regional currency swaps to tide over short term liquidity problems. For instance, there are reports that BRICS countries may reach a quick consensus on the sidelines of the G-20 summit and work out the modalities of the proposed $100 billion Currency Reserve Fund(CSF) to tide over short-term liquidity problems. This was decided in principle at the BRICS summit at Durban, South Africa earlier this year. China has apparently agreed to contribute to nearly 50 per cent of this fund. India, on its part, is trying to save up on its dollar liability by preparing to discuss local currency trading with its non-U.S. trade partners. It is going back to Iran for rupee denominated oil purchases. India must be pragmatic and not get ideologically constrained in this hour.
When Brian Lara scored a scintillating 400 not out in Antigua in April 2004, it seemed his score would remain unchallenged for the foreseeable future. But we now have another player on the scene who has scored 400, and threatens to go past that number effortlessly — carbon dioxide (CO2); CO2 levels in the atmosphere touched 400 parts per million (ppm) on May 9. Its symbolic significance is huge, its actual import is even bigger, for three reasons.
Impact on life cycles
One, the recent pace at which CO2 levels have been rising to reach 400 ppm. When Charles Keeling [the world’s leading authority on atmospheric greenhouse gas accumulation and climate science pioneer] began measuring atmospheric CO2 in March 1958, and through the 1960s, CO2 emissions were found to be rising at a little over half a ppm a year. The world economy was at a much lower level than today notwithstanding post-War growth, and carbon emissions were commensurately lower. By the late 1990s this had changed, spurred primarily, but not exclusively, by the shifting of manufacturing to China, and capitalism’s desire to cut costs of energy inputs and labour. CO2 rise in the first decade of this century made the collective jaw of climate scientists drop. Despite the world economic crisis since 2007, annual carbon dioxide emissions from burning fossil fuels have been rising in recent years, to 32 billion tonnes (plus another four billion tonnes from deforestation and even more of other gases). Eight billion tonnes of CO2 in the atmosphere equals 1 ppm. So even though the Earth absorbs — is being forced to absorb — twice as much CO (roughly 17-18 billion tonnes a year currently) as it used to 50 years ago, atmospheric CO2 levels have been galloping three times as fast, at a little over two ppm a year for the last decade.
This is 20,000 times the long-term natural rate at which carbon dioxide has gone into and out of the atmosphere as part of the carbon cycle. A consequence, usually rendered invisible as we tend to be so anthropocentric, is the oceans getting more acidic, with harmful effects on corals and some marine species.
This pace of emissions and consequent warming is also making it increasingly difficult for ecosystems and species to adapt. A metasurvey by Prof. Camille Parmesan [University of Texas, Austin] of 866 published studies reported species across the world struggling to cope with disruptions in the life cycles of predators and prey, of insect pollinators and flowering plants. Birds are laying their first eggs earlier. As their habitat gets warmer, other species are trying to move away from the Equator or climb higher. Consequently, mountaintop and polar species have suffered contractions in their range or “been the first groups in which whole species have gone extinct due to recent climate change.”
Two, as we reach 400 ppm and beyond, we are going farther away from safe levels of CO2. Albeit a minority view, but a growing one, safe has been deemed as 350 ppm or lower. In its first articulation in 2008, [leading climate scientist] James Hansen and others wrote that “if humanity wishes to preserve a planet similar to that on which civilization developed and to which life on Earth is adapted, … CO2will need to be reduced … to at most 350 ppm, but likely less than that” (“Target Atmospheric CO2: Where Should Humanity Aim?,” The Open Atmospheric Science Journal, 2008, 2, pp. 217-31). This paper provides the intellectual basis for the worldwide campaign to reduce CO2, headed by the organisation, 350.org.
The acquittal of Congress leader Sajjan Kumar in a 1984 riot case extinguishes every glimmer of hope for substantial justice to the Sikh victims of the bloody pogrom that took place in the nation’s capital in the aftermath of Indira Gandhi’s assassination. The judge found three men guilty of murder and two of rioting, but was not convinced that Mr. Kumar had instigated the riots. The verdict is bound to reinforce the view that politically well-connected persons will continue to evade the law, helped as they are by an excruciatingly slow judicial process, manipulated investigations and shoddy prosecutions. The positive feature of Judge J.R. Aryan’s 129-page verdict is that it recognises the value of the testimony of the first prosecution witness Jagdish Kaur despite 28 years having elapsed since her husband, son and three cousins were killed in the Raj Nagar area of Delhi Cantonment. However, her credibility, according to the court, is limited to her account of these five deaths and does not extend to her claim that she had seen Mr. Kumar, then the local MP, addressing a crowd of supporters, while she was on her way to the police station on the morning of November 2, 1984. And two other witnesses who sought to corroborate her version, also failed to convince the trial judge. It did not help matters that Ms Kaur, who testified about Mr. Kumar’s role before the Justice Nanavati Panel in 2000, had, presumably out of fear, omitted mention of the Congress leader in her submission to the Justice Ranganath Misra Commission soon after the massacres.
While appreciating the Central Bureau of Investigation for persisting with its charges against Mr. Kumar despite the complicity of sections of the Delhi police with the suspects in the early stages, one must fault the agency for limiting its charge sheet to simple oral testimony by witnesses that they had seen Mr. Kumar berating his supporters for not doing enough damage to the Sikhs and warning that even Hindus offering shelter to them must be killed and their houses burnt. Given the deliberate inaction on the part of the Delhi police and, in some cases, its active collaboration, the agency ought to have more diligently pursued a possible conspiracy angle. There is not a whisper in the testimony discussed in the verdict on the party affiliations of the rioters, or how the mob came to assemble in the area or the extent of planning and coordination behind the organised riots. Sadly, at no stage has any investigation seriously attempted to grapple with the vital element of political complicity, a curious omission since the thugs who wreaked murder and arson across the national capital for three days were only executing what someone in authority had deliberately willed. Until the time these instigators are identified and punished, 1984 will always haunt the conscience of India.
This is a challenging time in India’s development history where a number of tenets of environmental governance are being questioned by the imperative of growth. Environmental governance in India is under assault, and is thus in need of both fresh thinking, and a new focus, based on outcome and results.
The Western Ghats are no ordinary ecosystem. They constitute the water tower of peninsular India, providing water to 245 million people and draining a large part of the land surface of India. They are also a treasure trove of biodiversity. The Convention on Biological Diversity confers sovereign rights over these elements of biodiversity for which we are a country of origin. India can play an important role in research relating to such biodiversity elements and claim a share in the commercial profits flowing out of their use. The elements of value not only include medicinal plants and cultivated species of plants and their wild relatives, but seemingly worthless creations such as spider cobwebs, which turn out to be sources of a new kind of silk stronger than steel. Notably enough, such elements of value are by no means confined to natural forests, but occur everywhere across the Western Ghats, underscoring the need to maintain connectivity amongst biodiversity rich habitats.
Today, however, it is estimated that only seven per cent of the Ghats’ primary vegetation survives and there are many threatened species, of which 51 are critically endangered species. It was in this context of threats and in response to demands by people of the Western Ghats, that the Western Ghats Ecology Expert Panel (WGEEP) was set up in March 2010 by the Ministry of Environment and Forests (MoEF) to assess the state of the Ghats and suggest ways for their “conservation, protection and rejuvenation” through a process of consultations with State governments, industry, and local people. Post submission of the report in August 2011, its “quarantine” until May 2012, and its subsequent release, the panel presumed that a more detailed public discussion would follow its translation into regional languages, and then finalised. This did not happen. Instead, an adversarial environment emerged or was created, resulting in hostility to the WGEEP report. State governments protested that development will be affected, without a careful reading of what it allows, promotes and seeks to protect. They chose to ignore, as did the MoEF, the tentativeness of the panel’s recommendations, the provisional nature of zone boundaries and sectoral guidelines, to be used for informed and inclusive deliberations, a point made repeatedly but which continues to be misrepresented. However, instead of there being a larger debate around the WGEEP report, the Ministry chose to appoint a High Level Working Group (HLWG) whose mandate it was to examine the WGEEP report “in a holistic and multidisciplinary fashion.”
We would like to comment on three aspects of this examination: (i) the process followed, (ii) analytical approach adopted, and (iii) recommendations made.
The stakeholder comments received by the MoEF (1,750 in a population of 50 million in the Working Group States) should have been shared with the panel. Instead, secrecy followed — inexplicable, given that the WGEEP was an MoEF appointed panel, not a fly-by-night operator as seen in the mining regions of the Ghats. The MoEF also summarily rejected the panel’s plea that any decision in the matter should be made only after the report is made available to people in regional languages and their feedback obtained. The HLWG’s examination of the WGEEP report ought surely to have commenced with a dialogue with the panel. This was not done, but for a meeting with the chairperson and some of the members, very late in the game. Instead, the HLWG had a limited consultative process and finalised the recommendations and submitted its report, without sharing this with the Gadgil Panel, suggesting that the intention was not to make the WGEEP recommendations “implementable,” but really to replace it by an alternative framework.
The approach adopted for the examination combined a selective review of development issues in the WGEEP report with its own reasoning that insufficiently regarded the Western Ghats as an ecosystem from the perspective of “conservation, protection and rejuvenation.” An ecosystem such as the Western Ghats comprises both people and the ecology, and hence WGEEP carried out its mandate using a social-ecological lens. It is misleading then to suggest that the WGEEP did not have local people or the state’s development needs in mind in arriving at its recommendations. What WGEEP did was mainstream into development planning for the districts of the Western Ghats the more long-term needs of the people such as water and ecosystem services. With this in mind, it suggested not just the graded regulation of the more ecologically harmful activities, but the promotion of more benign, job creating activities, for example, agro and biomass-based industry, regulated ecotourism, industries and services that involve dematerialisation, education hubs, etc. In energy provisioning, it recommended clean energy, “smart” demand side management campaigns, and more equitable distribution policies.
Despite a detailed discussion of the sectoral issues and dilemmas and a whole chapter dedicated to multi-centred governance for the Ghats that examined both regulatory and market instruments, the impression has been created that there was no engagement in our report with social and development issues. We do agree that there was need for more discussion on the recommendations, but these were to be discussed and refined after submission to the MoEF. Many arguments were made for incentivising environmental improvements through ecosystem payments and fiscal measures, as were discussions of how the Green India Mission, Compensatory Afforestation and Management and Planning Authority (CAMPA), and National Afforestation and Ecodevelopment Board (NAEB) should aim for genuine and effective transfer of powers and funds to local institutions for implementing the programmes. Similarly, it was argued that international mechanisms such as Clean Development Mechanism (CDM), and (REDD+) or Reduced Emissions from Deforestation and Forest Degradation (REDD), Forest Conservation, and Enhancement of Carbon Stocks and Sustainable Management of Forest could be tapped to provide adequate financial resources for larger scale efforts, for example, where plantation owners chose to regenerate forests where these plantations were no longer seen as profitable, as some owners suggested to us. Instead, it is suggested that WGEEP had recommended that coffee plantations be restored to forests, creating panic among plantation owners of Kodagu, when no such reference was made.
It is thus unfortunate that the spirit of the WGEEP report is being distorted and misread and an impression being created that it was rigid, disregarded social and development issues, and is thus, not implementable. The WGEEP approach was to engage with the community in understanding their concerns, do the scientific assessments, and then take the science back to the local community, and have the state and community take the final decisions on both ecologically sensitive areas and sectoral activities that should be allowed.
The use of more detailed remote sensing data and inclusion of more social data in the HLWG report is an improvement for arriving at a more detailed zoning. But only a few parameters are used to arrive at ecological sensitivity. It is not evident to us if this list of parameters is sufficient to define the sensitivity of this unique ecosystem. Nor is it clear that just incentives and current regulations will result in improved behaviour of agents in harmful activities in the other (cultural landscape) areas. It was, in fact, in response to the people in the inhabited areas, where such activities impact people’s lives, water, health and livelihoods, that we had suggested that there was need for strong oversight and regulation of such activities. This is where the pressures are most high as are conflicts.
The HLWG calls for an Ecologically Sensitive Area for just 37 per cent of the Western Ghats; it drops the layered ecological sensitivity approach for the rest of it. Mere incentives for greener growth for the rest of the 63 per cent of the Ghats, we believe, will result in business as usual. How does that protect the Western Ghats as an ecosystem? In sum, the HLWG report does not review and refine the WGEEP report, but provides instead an alternative framework and recommendations.
In the light of these two reports, we need more thinking on the kind of environmental governance needed for the Western Ghats around: (i) the value of the Western Ghats ecosystem and the services it provides (ii) the consultative processes required to arrive at recommendations, and (iii) the argument made about “implementability.” To which we ask: for whom and for what?
What do we seek in a Supreme Court judge? One who must exercise among the widest constitutional jurisdictions of any Supreme Court in the world: to pass any order that does “complete justice,” hear, however briefly, petitions against any order from any court and to decide direct cases on violations of fundamental rights?
The role requires complete probity, and spine; the courage and the wisdom to interpret rights in ways that adhere to the law, yet evolve in new directions to distinguish changing circumstance; and the ability to get things done.
Justice Verma’s leadership at the Supreme Court and beyond was based on this character. In his brief tenure as Chief Justice of India, he sought to institutionalise honesty: in 1997, the Supreme Court adopted the “Restatement of Values of Judicial Life.” A few months later, Justice Verma passed the Vishaka judgment, which made sexual harassment at the workplace illegal when Parliament failed to do so. It is less widely known how the bench did this.
Vishaka made clear that the courts could breathe life into fundamental rights where Parliament had failed to do its job - because of inattention to rights or regular adjournments — using international treaties India has signed. Parliament passed a Bill on sexual harassment 15 years later, with no discussion at all in the Lok Sabha, in large part because of the Vishaka judgment. During that time, working women were grateful for the recognition of their “right to work” with “human dignity,” far from odd patriarchal standards of “modesty” being “outraged.”
Justice Verma’s innovation of continuing mandamus is now an accepted judicial role, to compel governments to do what they are legally required but without taking over the function. In this he urged court restraint, so as not to blur the line between the two. Some of his decisions have been widely critiqued: the collegium system, for instance, by which senior Supreme Court judges decide the appointment of other judges. Also his references to Hindutva, which he later said were misinterpreted. But it’s a mistake to seek unblemished heroes. How otherwise would you see yourself reflected, learn to deal with lives and laws that are themselves imperfect?
Honesty and backbone can make you inconvenient, especially if you call a spade a spade when it’s being widely referred to as a pickaxe. Tributes from those in power are pouring forth now, but many did their best to ignore Justice Verma’s assured constitutional voice.
Under his chairmanship, the National Human Rights Commission was one of the first institutions to condemn the role of the State Government in the 2002 riots. He raised the issue not just of State inaction in the face of mass murder and rape, but also of the economic and social ghettoisation of communities. He hired me shortly after as Officer on Special Duty to the Commission, to help continue some of that work as he stepped down. I was 26.
Road map for rights
Eleven years later, when gusts of equality were blowing down Rajpath, young people stormed the barricades of a different government, facing beatings and water cannons, alienated by State inaction on sexual violence, Justice Verma placed the full weight of his eminence and judicial experience behind them.
The report he produced has given women and men a contemporary bill of rights, giving flesh to constitutional gender equality. The Justice Verma Committee also laid out a road map to achieve those rights. A few sections have found place in the new anti-rape laws, but the report has been largely ignored. Instead, a rash of death sentences threatens to make common a standard that was reserved for the “rarest of rare” crimes.
All evidence shows that this will not stop the violence — certain justice is a deterrent, extreme sentencing is not. Citizens were on the streets again this week, unwilling to accept the rape of another child being badly mishandled, seeing ad hoc reform and little change. This is an issue that will not blow over. What then can governments, Central and State, do to give effect to the Verma Committee’s Bill of rights? There is no magic bullet, but without a criminal justice system that works the very reason for governance falls open to question.
Implement the laws against sexual violence: relevant provisions in the Protection of Children from Sexual Offences Act, the Indian Penal Code and the Criminal Procedure Code should be converted to plans of action by each agency tasked to implement them, costed by those agencies and finance and other resources provided. Such exercises are considered basic in Brazil and South Africa to ensure laws don’t remain largely on paper.
Pass legal amendments: Representation of People Act, to disqualify from elections candidates against whom courts have taken cognisance of charges; Police Acts to enhance efficacy and accountability; Indian Penal Code, to criminalise sexual violence of men against men and transgenders; Armed Forces (Special Powers) Act, to allow rapes and sexual violence to be prosecuted in normal courts, outside boys’ club protections.
Carry out police reforms: set up security commissions for police in every State and National Security Commission at the Centre; most have not done this, in spite of a Supreme Court judgment seven years ago and two benches of Justice Singhvi and Chief Justice of India Justice Kabir asking States to respond. Fill existing vacancies and address the gender imbalance in the police forces; amend service and other rules to recruit, train, promote and penalise public servants based on attitudes and service records on sexual violence; facilitate FIRs against police officers who assault or sexually harass citizens, especially survivors of sexual violence,
Execute plans to increase the number of courts, judges, court infrastructure, prosecutors and strengthened legal aid need to be implemented.
Include guidelines and protocols for medical examination and collection of forensic evidence of sexual assault survivors in medical school curricula; also protocols for counsellors and psychologists in the relevant curricula; ,modules on gender in teacher training curricula and in school curricula.
Set up rape crisis cells and crisis intervention centres around the country staffed by medical professionals, police desk, counsellors and a legal desk. Equip public emergency response systems that work, create safe houses that women and children can go to escape violence.
Criminal justice may well be an election issue now. Rather than expressing outrage in Parliament, political parties at the State and Central levels can roll out plans on what they intend to do to reduce sexual violence where they are in power, and where they hope to run for government. But governments can’t and shouldn’t do everything. Families can end cycles of violence and misogyny passed down from parent to child. Proud male feminists are already stepping forward, masculinities groups with male members working on gender equality are being founded. Women are learning to use the law, also other ways of dealing with discrimination: with humour, with firmness, with an internalised sense of right and power.
An important leader has passed. His legacy of ideas has emboldened citizens, his last bequest equips government to overhaul institutions. Going by previous figures, more than 700 women and girls are likely to be raped in Delhi this year. That number could be much less. We have a choice.
Myanmar is open for trade and investment but the response from Indian business has not been adequate despite the growing political ties between the two countries
A message coming out from our neighbour Myanmar that is transforming itself after 50 years of military rule is ‘we are open for business.’ Are our commercial establishments listening and are they ready?
Our bilateral relations with Myanmar have gathered momentum in recent times. We have agreed on a wide-ranging development cooperation agenda. India has made substantial commitments to assist Myanmar in the areas of capacity building, connectivity, infrastructure and border region development. Our trade and economic ties have however not kept pace. India figures at only the seventh place in Myanmar’s total imports and ranks, even lower at the13th place in terms of foreign investments into Myanmar. Being a large and contiguous neighbour, a closer overall engagement would call for a more robust trade and investment share that seems definitely possible at a time when rapid changes are unfolding.
To what extent has Myanmar transformed itself? President Thein Sein has, in the last two years, taken the country towards a democratic path that has made political life more inclusive; it has also enabled Daw Aung San Suu Kyi and her National League for Democracy to enter Parliament, albeit in a small way. The government has released a great majority of political prisoners and launched an ethnic reconciliation process to build peace with the various minority groups that have been out of the national mainstream from before independence.
Some problems have no doubt arisen in taking forward this process. Hostilities broke out with the Kachin rebels but the atmosphere has improved since late January. Tensions have also been building between the Buddhist and Muslim communities. Deadly riots erupted last year in Rakhine state in two spells between the Rohingayas and the Rakhine Buddhist community, leading to casualties and displacement of people. Last month there were attacks against the Muslim community in certain areas in Central Myanmar.
President Thein Sein has acknowledged that rioters have harmed the image of the country but he has also talked about adoption of a different approach to build trust. In a recent meeting with Muslim leaders, Ms Suu Kyi told them that the law has to be just for all and she would want everyone to feel proud of being a citizen of the country. Building trust and peace to pave the way for an inclusive society is a delicate and painstaking process. It is hoped that the troublemakers are firmly and effectively dealt with and the supremacy of the rule of law is maintained.
One can expect that responsible leaders of Myanmar would not want adverse domestic developments to affect its hosting of international events in the coming months — for the first time, the World Economic Forum East Asia Summit in June and the South East Asian Games in December 2013. It will also chair the ASEAN from January 2014.
More open economy
Myanmar is also moving towards an accelerated development programme with the promise of a more open economy. An unexpectedly deliberative Parliament, social activism and loosening of media controls have further energised the process. An economic reform programme launched with more debate is likely to be more acceptable and enduring even if the process is slower.
Several steps have already been taken. An IMF Staff Assessment Report on Myanmar acknowledges that the government has embarked on a bold set of reforms and cites changes brought about in the areas of foreign exchange, banking, budget formulation, agriculture and improvement in business climate. It further notes that economic performance has improved projecting a 6.25 per cent growth for 2012-13 and a growth rate of 7 per cent over the next five-year period. The local currency Kyat, for example, has seen a fair degree of stability.
On the financial front, private local banks have been granted an enhanced role, including in handling foreign exchange transfers, and allowed to consolidate themselves. Steps are under way to make the Central Bank more autonomous from the Finance Ministry.
On the trade side, procedures for import and export licences have been made easier. Myanmar products will also now enjoy concessional market access with the European Union making them eligible for benefits under its GSP scheme. This will be particularly attractive for those establishing garment making units in Myanmar. On the investment front, a new Foreign Investment Law was enacted in November 2012 after which new regulations and procedures for the processing of investment proposals have been issued. The Myanmar Investment Commission has provided further details about the areas where, and in what form, foreign investments will be allowed.
Lack of adequate infrastructure is a constraint and an opportunity. The government is paying attention to setting up power and other infrastructure projects. Expansion of telecom network, airports development, hotel zones in major cities and real estate development, including affordable housing, are other areas where one can see specific initiatives being taken. This is apart from the offers invited for a large number of onshore petroleum and gas blocks for which bids were due by mid-March and which should have elicited a good response. A few days ago, the government also invited bids for 30 offshore blocks, 19 deep sea ones and 11 in shallow waters.
Many Indian trade and industry associations have mounted delegations to Myanmar during the last several months. A few product shows have been held. Some companies are exploring trade and investment opportunities. A few have also been shortlisted for certain infrastructure projects. Our companies and industry associations will however need to pack in a lot more punch to significantly improve our trade and investment ranking. The $500 million concessional Line of Credit extended by EXIM Bank of India to the Myanmar government could play an important role in enhancing trade relations to mutual benefit. Both the governments and the agencies concerned will however need to ensure that the proposals for utilising these credit lines are quickly finalised and translated into contracts.
Devising suitable commercial strategies can also help to build on our development cooperation programmes. For example, our businesses can explore possible commercial ventures that can ride on the back of some of the infrastructure that will be created from the Indian government-assisted Kaladan project in western Myanmar or the Kalay-Yargyi road project in the North-West that will enable Moreh on our Manipur border to be connected to Mandalay and beyond by 2016 as part of the India-Myanmar-Thailand trilateral highway project. Similarly, our IT companies could work on commercial spillovers of benefit to both countries from the Myanmar Institute of Information Technology that is being set up with the Indian government support as a centre of excellence in Mandalay. All such commercial proposals will no doubt need host country approvals but if they are well conceived and bring value addition, they would be welcomed.
On its part, our government will also have to try and make the cost of doing business with Myanmar more competitive. Encouraging enhanced direct air connectivity between our metros and Yangon is now rendered easier with a more liberal bilateral air services agreement signed during Prime Minister Manmohan Singh’s visit to Myanmar in May 2012. As of now, there is only a tri-weekly Air India flight from Kolkata to Yangon. It is woefully inadequate. Compare this with airlines from Japan, the Republic of Korea, Qatar and Taiwan which have introduced regular flights to Yangon in the last six months, and airlines from China, Singapore and Thailand now flying more frequently every day and to more destinations in Myanmar.
SHIPPING, BANKING & FINANCE
Furthermore, direct shipping services that will enable our goods to reach Myanmar in a matter of a few days, as in fact they did during the colonial days, than several weeks at present, would play a critical role in facilitating greater trade. The Shipping Corporation of India will need to take the initiative here with some initial support from the government to make the services viable.
Banking and finance are other areas. The United Bank of India made a beginning with the opening of a representative office in Yangon in December 2012. More Indian banks need to follow. Making available easy credit finance would provide a big boost. While the U.S. and EU have taken steps to suspend or waive the economic sanctions imposed by them earlier, these have not altogether translated into allowing U.S. Dollar denominated letters of credit to be opened vis-à-vis Myanmar. Our banks need to operationalise these as soon as they become possible.
Finally, our businesses have also to learn how to do business in Myanmar. Businesses from countries like China, Thailand, Korea, Japan and Singapore frequent the country. Many of them have established a strong local presence keeping regular contacts with government ministries in Nay Pyi Taw, the new capital, and networking with the local business people in Yangon, Mandalay and other business centres, all of which form an important part. Trade and industry associations of these countries have also made Myanmar a priority country. It is essential that as our political ties and development cooperation efforts gather momentum, our trade and investment relations also gain further strength so that they get to reinforce one another.
(The writer was the Indian Ambassador to Myanmar from July 2010 to February 2013)
Long reviled as an artificial grouping of countries with little in common other than a sense of exclusion from the command structures of the international system, the BRICS forum has finally come up with a decision that has the potential to be a global game changer: the establishment of a “New Development Bank.” The absence of specific details in the eThekwini Declaration issued at the end of the fifth summit meeting of the forum in Durban has led western sceptics to conclude that the bank idea is a non-starter. They are mistaken. Even though Brazil, Russia, India, China and South Africa differ with one another on many aspects of the project, they do agree that a new bank is needed to take care of the special aspirations of the group and perhaps of all developing countries as well. The BRICS five account for roughly a fourth of the global GDP and 40 per cent of the world’s population. The proposed bank is optimistically projected to be an alternative to the seven-decade-old financial system dominated by the Bretton Woods twins, the International Monetary Fund and the World Bank. A shift away from the trans-Atlantic focus that the two global institutions are rightly criticised for ought to be welcomed. The global economy and the financial system are not exactly in the pink of health. Much of the drag on recent economic growth is due to the unsatisfactory performance of the advanced economies, which is itself a result of western financial mismanagement. And with the Doha round of trade talks still stuck, the BRICS forum’s call for the new head of the World Trade Organisation to be from the developing world, and for the revitalisation of UNCTAD, assume great significance.
Apart from doing the best on the growth rate front, China is the only BRICS country with a huge current account surplus and has accumulated a massive amount of foreign exchange reserves. In the prelude to the creation of the new bank, this divergence matters and should not be glossed over. The key determinants for success will be the design and leadership of the new bank, as well as its lending policy. In terms of sheer clout, China is likely to dominate, especially if a system of quotas reflecting the economic size and contribution of each country is adopted. These and other cautionary words should not, however, detract from the merits of the BRICS bank, especially its development orientation and stress on infrastructure financing. Channelling regional savings for infrastructure through a dedicated bank is a great idea. There is also great merit in growing step by step, as another related decision to set up a contingency reserve fund of $100 billion shows.
P. Chidambaram has upped the ante by referring to the “laws of economics” implying that they cannot be bucked and suggesting that his own actions reflect an awareness of them. Space now unfolds for a serious discourse on the current stance of economic policy of which he is the sole architect. Of his announced strategy for the economy, two elements deserve our attention — the one for raising the investment rate and that for financing India’s soaring deficit in the balance of payments.
Let us for a start agree with the Finance Minister that the solution to the flagging economic growth is to raise the investment rate. It has, after all, fallen from its peak in the year 2007-08, the last time a 9 per cent growth rate had been recorded. The Minister is also right in identifying infrastructure as the segment where the increased investment most ought to occur. Infrastructural investment increases the supply of producer services essential to economic activity, raises aggregate demand and creates employment across the economy. It would appear then that it is not in his objective but in the means that he has adopted that such follies as may be found must lie. Principal among them is that he has provided for only the slightest increase in public capital formation in his budget, having explicitly assumed that the necessary increase in investment will come from the private sector. To precipitate private investment, he has announced a slew of measures that are financial incentives. Among these, the most important is the encouragement of debt funds by allowing tax-free bonds up to Rs. 50, 000 crore. It must be agreed that this is a substantial figure for exemption. However, while financing is an issue, the measure itself is unlikely to be a big draw at the present moment.
A trick appears to have been missed in the strategy in that when private investors are skittish, tax breaks per se are unlikely to make the difference as much as the government wading in to invest. Then there is what economists refer to as ‘the accelerator’ to be reckoned with. In an environment of slowing growth, private investment slows as firms see no incentive to add to capacity. When the growth of aggregate demand thus slackens it slows output growth in turn, and a vicious cycle sets in. Something of this kind is playing out in India currently. The right medicine for a languid economy was identified over 75 years ago by J.M. Keynes. Autonomous, in our case public, investment must be stepped up when private investment sags. Instead in India since 2008-09, when it had peaked, public investment as a share of GDP has steadily declined. Predictably, growth has slowed in tandem. However, it is not known widely enough that not even private corporate investment has declined as much as the public. In fact, for the private sector as a whole, investment has marginally risen even as growth has slowed. These data may be read in the first chapter of the government’s own Economic Survey. While it may sound harsh to state that the government precipitated the current slowdown in growth, we would be quite right in querying its investment strategy in the midst of such a slowing.
The Finance Minister gambles on a private sector-led boom in infrastructure. Looking at the world around us, something economists no longer do enough of, we would find this questionable as a strategy. Here two examples should be instructive. In the winter of 1999, the Los Angeles County Museum held an exhibition titled ‘Made in California’. As Californians are conscious of the importance of the economy to their lives, the exhibition had featured the major economic developments in the State. Of these, after the Gold Rush was mentioned the great transformation of agriculture and, finally, the impact on its economy of the construction of the Federal Highway system. While the last was on, close to a million dollars are said to have been spent in a day in the State, and this was done entirely by the federal government of the United States. So, in the land of private enterprise the highway was funded by the government and not by Wells Fargo. British private capital had of course played a role in the building of the Indian Railways in the 19th century. But it is a reflection of the inextricable involvement of government, especially in the form of financial guarantees, that a separate Railway Budget was presented every year by the colonial Government of India. The point of all this is to show that public funding is likely to remain crucial to building Indian infrastructure for some time to come.
Decline in public saving
But public saving has virtually collapsed in India since 2007-08 when the growth rate peaked. The figures are revealing. What had been 5 per cent of GDP in that year was down to 1.3 per cent in 2011-12. Once again, private saving has not declined by anything on a similar scale. In a situation when both the public debt and the fiscal deficit are high, as they are in India, the government has no avenue but its own saving if it wants to invest. The strongest economies of the world, notably those in Scandinavia and in the Far East, have maintained a high rate of public saving.
The U.S. may have neither high private saving nor public. But then its infrastructural deficit is somewhat less than India’s, and in any case it has monopoly over the world’s reserve currency with which its government can purchase what it likes.
Some part of the decline in public savings in India must be traced to the relatively recent upsurge in social sector spending. While some social spending, such as on health and education, has a positive long-term impact on growth and thus public revenues, when social spending begins to eat into what is available for investment it can lower the growth rate of an economy. As mentioned already, certain forms of capital crucial for growth are more likely to come from the public sector, and hence must be financed by public saving. We cannot rely on the private sector here, as the Finance Minister suggests we can. At the same time, while still on matter of investment, we must not lose sight of the efficiency of the spending. This is apparent when we recognise that some of the years of high growth during 2003-08 were years which had witnessed a lower investment rate than what it is today. Clearly, the productivity of the investment has declined. This is not unrelated to what has been flagged as the government’s pre-occupation with social programmes. The enfeebling impact of this can also work independent of funding. A government that sees its task mainly as the handing-out of welfare cheques can lose sight of its ultimate responsibility in a democracy, which is to maintain the public infrastructure and create the public goods vital to growth and well-being, respectively. The latter only the government can do and there are only 24 hours in a day to do it. So they who chant “policy paralysis” have got it wrong. The truth is that we have a “governance paralysis,” only that the domain of governance must be understood to extend beyond law and order to the governance of public infrastructure. So, before we fix our sights on ‘mag-lev’ trains we may want to reflect on what it is costing us in terms of income generation in not having an efficient waste disposal system in our cities. Think of the number of economic proposals that are left unrealised due not to the absence of finance but an industrial waste disposal facility.
The second issue that the Finance Minister has spoken about of late is his intention of attracting foreign direct investment (FDI) to finance the deficit in the balance of payments. He is indeed right to draw our attention to the disturbingly large deficit we now face, but it is questionable whether financing it via FDI inflows is the right approach. While they may not be debt-creating, to assume that they constitute no draught on an economy’s foreign exchange reserves is plain wrong. Only, this emerges in the future, when profits are ripe for repatriation. And, depending upon the volume of profits to be transferred overseas, the final requirement of foreign exchange could even be larger than the original inflow. So, by relying on FDI for our foreign exchange needs we only postpone the imperative of earning the foreign exchange to pay for our spending. We need to learn to cut through the thicket and treat the problem at source. For India, there is no alternative to becoming more competitive. Two decades from 1991, we can see that macroeconomic policy has a limited role here. Governance is all, and it cannot be outsourced.