The Modi government's economic story

In politics, depending on your point of view, one year can be a long, or a short time. The Narendra Modi government has hit that anniversary and while critics charge that he has failed to deliver, his supporters argue that a year is simply too short a time to judge the government of a country as huge as India, and one with legacy issues ranging from corruption to misgovernance.

Modi's arrival was spectacular, at the head of the first party to win a majority by itself since 1989. His burden has arisen not only from expectations he aroused as a prime ministerial candidate, but also from the fact that he has a majority in Parliament, the first PM to have one since 1989. In other words, people believe that he is in a position to change things in a way Manmohan Singh, Vajpayee and his other predecessors of the 1990s were not.

The economic story of Modi's first year in office is mixed, both in the economic and political fronts. GDP has picked up to 7.4 per cent in 2014-2015, after a change in the way it was calculated. The index of industrial production for eight core sectors — coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity — grew 5 per cent in 2014-15 over 4.2 in the previous year. However, areas of concern remain such as declining exports and imports, which went down 2 and 0.5 per cent in 2014-15 over the previous year.

Modi himself is on record saying that it would take him 5-7 years to fulfil his agenda. The issue, however, is not how much time he deserves, but how much he will actually get, and no one can forecast that. Pic/PTI

Of greater concern has been the continued poor performance of the agriculture sector where 600 million Indians are employed. It grew a marginal 1.1. per cent in 2014-15 and experts say that the numbers point to a deepening crisis in this sector.

Corporates and investors were betting on big bang reforms to kick-start growth and FDI has grown over 37 per cent in the past year. As the experience of tax laws imbroglio suggests, reform is not easy. However, the stock market continues to repose faith in Modi, though in the recent past, tax issues have dampened the spirits of foreign institutional investors.

The global fall in crude oil prices came as an unanticipated boon for the new government, as they helped in trimming the import bill and saving foreign exchange. There was good news as well in the inflation front, particularly in consumer prices which are below the Reserve Bank of India's 6 per cent target. However, the fiscal deficit has been contained to a comfortable figure.

On the political front, Modi has not been troubled so much by the shell-shocked Congress party, but elements in the Sangh Parivar who believe that the 2014 victory was a vindication of their politics. Perhaps they are worried that if allowed to go his own way, Modi could run away with the development agenda, and leave them high and dry. So they continue to agitate to push their Hindutva agenda wherever they can, queering the pitch for the BJP and the Modi government.

So far the prime minister has played a canny game. As the Gujarat experience of 2002 revealed, Modi is a skilful and cynical politician, who will not hesitate to use the communal agenda for electoral gain, just as a generation of politicians, from Indira Gandhi, Lalu and Mulayam Singh Yadav have done. Modi has not directly spoken on the issues of alleged attacks on churches or the communal violence in UP, or the inflammatory statements of some so-called sadhus and sants. But he has worked behind the scenes to rein them in because he is fully aware of their potential of derailing his agenda.

He has sought to position himself as a social reformer, keen to push the agenda of “sabka saath, sabka vikas” and promote programmes like “Swachh Bharat” and “Namami Ganga” and for women's empowerment. However, from the public point of view, the most important agenda is neither social, nor cultural, but his promise to rejuvenate India's economy and make it an industrial power. And this is where there are growing doubts about the ability of his government to do things.

There are issues like the land acquisition bill which have generated a lot of opposition. But that is par for the course for anyone trying to change the way the country is being run. He will, no doubt, face even bigger hurdles when he tries to reform the labour laws of the country, considering that biggest trade union in the country, the Bharatiya Mazdoor Sangh is affiliated to the BJP.

The problem seems to be an acute lack of expertise in the system. Modi is wary of his own political colleagues and is hoping that the bureaucracy will do the needful, just as it had done in Gujarat. But, the problem is that debris of a decade of misgovernance and corruption has paralysed the government machinery.

In the old days, a new minister took office things ran on their own. Today, each ministry requires deep restructuring and reform for it to even function effectively. The only people who can lead change are politicians, not bureaucrats. Unfortunately for the party, with stalwarts like Arun Shourie, Yashwant Sinha, BC Khanduri and Murli Manohar Joshi sidelined, the party has a very narrow base of experienced leaders who can lead the process. Mr Modi relies on Arun Jaitley, who is known for his abilities, yet, he simply cannot overhaul a dozen ministries.

Modi himself is on record saying that it would take him 5-7 years to fulfil his agenda. That is a reasonable amount of time. The issue, however, is not how much time he deserves, but how much he will actually get, and no one can forecast that.

Mid Day May 12, 2015

Chinese keep a keen eye on Modi's visit

BEIJING: The overwhelming question a visitor here faces is: What will be the outcome of the visit of Prime Minister Narendra Modi? Will he bring a package to resolve the border question, or will he come with a basket of measures to attract Chinese investment in India? 

It is a tribute to the Indian prime minister’s hard-driving style, that the phlegmatic Chinese are actually intrigued by the prospect of an Indian prime ministerial visit to a capital, which witnesses many a kowtowing foreign leader passing through. 

 

The great neglect 

India is a fairly benign, if distant, distant image to the Chinese. Few are familiar with the border dispute which obsesses the Indian media. 

A leading Chinese expert, Wang Jisi, the erstwhile Dean of Peking University’s School of International Studies, wryly points out that China has neglected India till now, and few in China realise India’s growing strength, considering that its GDP today exceeds that of Russia. 

Yet, as Chinese interests expand into the Indian Ocean, China has begun to focus on India not just as a pesky wannabe that needs to be kept in its place in South Asia, but as an important linchpin in its strategy of transforming its economy from one based on investment and export, to one emphasising consumption and innovation. 

India, then, becomes a destination for Chinese investment, a market for its products, the low end segment of its supply chain and a way station on its maritime silk route. 

The problem that the Chinese face is India’s perception of China. While the Chinese may not think much of India, the Indians certainly view China with some envy, trepidation and even fear. 

In some measure this is an outcome of the traumatic defeat China inflicted on India in 1962. But it has other drivers: China’s relations with Pakistan, its recent forays in the Indian Ocean, and, above all, the fact that the Chinese economy, which was roughly equal in size to the Indian in the mid-1980s, has dramatically outpaced it. Today India’s GDP stands at $ 2 trillion, whereas China’s is pushing beyond $9 trillion. Consequently China’s military budget is three times that of India. 

Five focus areas 

When Modi goes to Beijing, there will be five major areas of focus: First, the continuing effort to resolve the border dispute; second, the mechanisms to maintain peace and tranquility on the border and the seas; third, bilateral relations and the issue of enhancing economic cooperation, as well as issues like river waters and Tibet; fourth, Sino-Indian cooperation in multilateral issues; and fifth, strategic business - issues relating to third countries such as US, Japan, Pakistan, Iran, West Asia, Afghanistan, and so on. 

After calling for keeping the border issue aside, China has begun to realise that the border issue has become an obstacle blocking closer Sino-Indian ties. They have signaled that they are open for a quick settlement, but it is not clear as to what this means. 

In the past they were agreeable in trading the Indian claim on Aksai Chin with theirs’ on Arunachal Pradesh, but since 1985, the Chinese have demanded an India “concession” in the east, such as the Tawang area, in return for a Chinese acceptance of India’s sovereignty over the rest of Arunachal. Aksai Chin has been conveniently forgotten, as it is securely under Chinese control. 

However, the Indian side has been equally vehement in telling the Chinese that conceding the Tawang tract is just not possible. Talking of packages, indeed, the balance of expectation is on Xi Jinping to right the “eastern” tilt to their border claim. 

Issues of mistrust 

But the border is not the sole cause of the strategic mistrust between the two countries. China’s relations with Pakistan remain problematic for India, especially when it comes to the transfer of strategic weapons and technology. 

With China deciding to invest heavily in Pakistan, there is further cause of concern as to the nature of this evolving relationship. 

China says it is worried about India’s ties with the US and Japan. But India has moved cautiously in this area. Modi’s recent remark that it was natural that China, like any other country, will seek “to increase their influence in the international space” should put things in a perspective. 

If things go according to plan, the most important outcomes of the visit will be economic, though we should not rule out a surprise on the border. The bilateral trade is heavily weighted against India and Chinese investment in India is trivial, not in the least because of Indian barriers. 

Xi has promised more investments, but it is really up to New Delhi to work on a strategy of getting the Chinese to put down serious money to further India’s economic goals. 

Mail Today May 10, 2015

The paranoia over Ford Foundation

There is an irony in the government’s crackdown on Ford Foundation that seems to have escaped most observers. In the 1960s, the principal critics of the Foundation were the Indian Left, which maintained a steady drumbeat of attacks on the Foundation and its projects in the country, along with a generalised attack on all such institutions which have played such a significant role in transforming the country. The critique really takes aim at NGOs and civil society institutions that provide depth to the Indian democracy. But their role in promoting education and agriculture has been forgotten.

The deeper motivation, however, seems to be the same. The Left believed that these groups were fronts for the US intelligence agencies and their aim was to undermine India’s non-aligned or independent status. The Sangh Parivar seems to now be mirroring this belief. It believes that its political trajectory is on the ascendant and the only forces that can undermine it are foreign powers — principally from the West. In this, there is a remarkable congruence between the government of India and the government of the People’s Republic of China, which, too, has cracked down on NGOs based on a similar belief.

During the Cold War, some western foundations did play a role in assisting their respective country’s political objectives. A closer look at the Church Committee revelations in the 1970s come up with little or nothing with regard to India. Indeed, Mrs Indira Gandhi was convinced she was being targeted by the CIA in the run-up to the Emergency, through the funding of Socialists and the Sangh Parivar by the US.

Ford Foundation, which has been around since 1951, seems to be targeted because it supported Teesta Setalvad, who has run an NGO seeking to prosecute those responsible for the 2002 Muslim massacres in Gujarat. You may argue there is no evidence linking Modi and his government to the massacres, but you cannot ignore the fact that the massacres did take place and that scores of people responsible for it haven’t been punished. Pushing for the application of the rule of law can hardly be considered a crime.

NGOs like Greenpeace can be pesky institutions, challenging the might of the state. But they play an invaluable role in holding up a mirror to the governance and societal institutions and aid in the process of their transformation. This is true whether it relates to reduction of hunger, community development, adult literacy, women’s empowerment, protecting the environment, caste discrimination, or exercise of arbitrary power.

As for Ford, one of its key roles was in encouraging the profession of economics by funding research and training institutions like the Institute of Economic Growth, Gokhale Institute of Politics and Economics, the NCAER, IIMs in Ahmedabad and Kolkata. Among its earliest grants in the early 1950s was to set up training institutes for village extension workers, rural public health training centres, and for five agricultural colleges. So intense was the commitment that Foundation officers were sitting in on planning meetings of the Delhi University, which got massive funding of over Rs 5 crore to re-organise its library and its other schools. This was thrice what the UGC was offering for the five-year plan period. This is just a synoptic rendering of the role such institutions have played in Indian life.

The Foundation has not only helped nurture significant academic scholarship in India, but has also played a role in the intellectual life of the US itself. It helped create the Public Broadcasting Service and supported arts and humanities in the country; it promoted desegregation and voter registration of the Black people. Abroad, it has helped set up the Grameen Bank in Bangladesh, and backed Palestinian NGOs. It has followed an essentially liberal agenda, which has been criticised by conservatives in the US. And now, we are seeing a similar phenomenon in India.

Neither the Left, nor the Right seems to have much confidence in the Indian people, who have displayed a feisty sense of independence, and nor do they realise that manipulating the politics of a vast and diverse country like India is not a simple task. It is one thing to back the Colour Revolutions in eastern European countries, which are the size of an Indian state, and quite another thing to deal with a country which is a continent in itself and is a flourishing democracy. And more often than not, such manipulation usually backfires — as was evident in the case of Iran in the 1980s and Ukraine today.

There is one thing the government and critics of foundations and NGOs fail to realise. India of 2015 is not the India of the 1950s or 1970s. We are a self-confident, resilient society with institutions that have gained considerable depth; communications technology has bound the country far more securely than it ever did in the past. More than that, we are also a transparent and open society where backroom deals and manipulation are not easy to implement.

Mid Day April 28, 2015

The upgrading of India's forces is still a long way off

Speaking at the Annual Unified Commanders’ Conference for Tri-Services Commanders in New Delhi on Thursday, Defence Minister Manohar Parrikar said that the Government was committed to modernise the armed forces, but “that there is a need to exercise financial prudence and optimise all available resources”. 

Parrikar does not realise that the principal blame for the fiscal irresponsibility of our armed forces rests on the political leadership of the country. 

Defence Minister Manohar Parrikar said that the Government was committed to modernise the armed forces, but 'that there is a need to exercise financial prudence and optimise all available resources'

His statement comes in the wake of a somewhat modest increase of 11 per cent in the 2015-2016 Union Budget. It comes, too, following two decisions whose implications are yet to be digested. The first was the surprise decision to bypass the longrunning plan to buy and licence manufacture 126 Rafale aircraft at about Rs 1,00,000 crore, and, instead, go for a government-to-government deal to get 36 aircraft off the shelf. 

Expensive 

The second was the report that the government would halve the size of the proposed Mountain Strike Corps which officially cost Rs 60,000 crore, but would have actually required an outlay of Rs 120,000 crore when taken with its ancillary formations for logistics, engineering and medical services. 

The approximate requirement of capital expenditure for the 2012-2017 defence five year plan is Rs 6,00,000 crore. 

But if two big ticket items take away Rs 2,20,000 crore at the outset, you can imagine what it would do to the overall modernisation of the armed forces which is already behind in key areas like artillery, submarines and air defence systems. 

At the root of the problem lies poor political leadership of the armed forces. The Army and Air Force are only following the logic of the highest political guidance they get, called the Defence Minister’s “Operational Directive”. 

In the 1980s, this directive was for the armed forces to maintain a posture of dissuasive deterrence vis-à-vis Pakistan and one of dissuasive defence in relation to China. 

Translated into policy, it meant that the Army could plan defensive strategies which could involve deep strikes into Pakistan. 

However, with regard to China, the idea was to defend Indian territory with a plan that did not involve any incursion into Chinese territory. 

However, in the mid-2000s this changed and the Operational Directive called on the forces to be prepared to fight and win an all out two-front war that could involve coordinated action by Pakistan and China, covering the entire spectrum from sub-conventional to that involving the use of nuclear weapons. 

This assessment was not based on any rigourous exercise like a White Paper or a Defence Strategy Review, but a several paragraph long document drafted by the babus and the military and signed off by the minister. 

Its simple rationale was the growth of Chinese communications network and deployments in Tibet. 

IAF shifts base 

As part of this, the Air Force began to shift high performance fighters to eastern bases. After all, their wartime task was to dominate the geographic region upto Tsangpo in Tibet even while suppressing Pakistani air power. 

Naturally, they wanted new acquisitions like the Rafale to perform their enhanced task. Instead of redeploying forces from the Pakistan border, where the threat has receded, the Army raised two new mountain divisions and a new strike corps and ancillary armoured and artillery formations to face China. 

The strike corps would provide the Army the wherewithal of carrying the battle into the Tibetan heartland. 

The military being the military simply being counted what it would confront. They did not take into account the fact that any allout war involving three nuclear armed states could have the most horrific consequences, and, indeed, trigger off a global holocaust. 

And, for this reason, it is not a very likely or rational scenario. 

At worst, India could be involved in limited, possibly coordinated, skirmishes like Kargil with Pakistan or China. 

Review 

What India needs is a Strategy Defence Review (SDR) based on expert assessments and one that has the imprimatur of the National Security Council. 

Such a document should be issued every five years and lay out and prioritise the strategic tasks of the armed forces and the broad contours of the manpower, equipment and technology resources needed to achieve them. 

It should examine the issue through the prism of the regional and global balance of power, and our economic capacity. 

Indian staff and guests cheer as INS Visakhapatnam, the first Indian Navy P15-B stealth destroyer, is launched in Mumbai

Equally, where required it should direct retrenchment and restructuring of forces. Flowing from this the Government needs to treat the Long Term Integrated Perspective Plan (LTIPP) and the five year plans with greater seriousness. 

The 2007-2012 Defence Five Year Plan and the 2007-2022 LTIPP were never approved while the 2012-2027 Plan was only formally approved because of the V.K. Singh contretemps. 

Yet these plans and their consequent acquisitions involve the expenditure of hundreds of thousands of crore. 

For the sake of its security and the health of its economy, the country deserves better from its leaders. 

Mail Today April 27, 2015

Flights of Utter Fancy





In all the confusion that hangs over the Modi government's decision to procure 36 Rafale fighters `off the shelf ', we need to focus on the real issues.First, the imperative of plugging the shortages in the Indian Air Force (IAF)'s combat strength. Second, to once again kickstart the decades-old effort to develop a fighter of our own. We started to design and build our own combat aircraft in the late 1950s.The HF-24 Marut programme was a spectacular, though limited success.The country failed to build on it and allowed the capabilities built up through the programme to rust. Over the years, India has licence-manufactured or assembled the MiG -21, the Jaguar and the Sukhoi Su-30 MKI.Yet it has picked up little by way of an aviation design and manufacturing capability . Whatever we have is, unsurprisingly , the progeny of the HF-24 programme.
Many institutions, primarily the IAF itself, must share the blame for the current state of affairs. As Admiral Arun Prakash has noted, had the IAF assumed `ownership' of indigenous projects like the HT-2, HJT-36 trainers and the LCA (light combat aircraft) Tejas early enough, it would not be seeking advanced fighters or even trainers from abroad today .
But is there is a way forward? The first challenge is to deal with the crisis in 2017 when four MiG-21 and five MiG-27 squadrons retire. This amounts to some 200 aircraft. Al ready , there are some eight `number plated' squadrons -formations without aircraft. This amounts to another 150 aircraft. The remaining six squadrons of MiG-21 Bisons are soldiering along, but are in the last stages of their lives.
More to Come?
The IAF brass seems to be insisting that these far-less-capable machines be replaced one-on-one by advanced fighters, which is simply not economically feasible. Even so, 36 Rafales will not do the trick. So presumably the government will go for another tranche, when it has the money . As of now, the statements of defence minister Manohar Parrikar have resulted in more confusion than clarity .
Plugging gaps is one challenge. Developing indigenous design and development capability is another.Here, all is not lost. Today we have the LCA Mk 1 flying and the engineers and designers who have worked on it remain with the Aeronautical Development Agency . Despite its limitations, brought on by a flawed design, it is a good flying machine and perfectly capable of delivering close air support and functioning as a lead-in fighter trainer (LIFT).
Some years ago, a well-known German company had offered to assist HAL (Hindustan Aeronautics Ltd) to industrialise the LCA's production and market it abroad, as it felt there was definite market for 250-odd LCAs in this role. The German company did not even merit the courtesy of a reply .
There has been a lot of talk about a Mark II version of the LCA aircraft with a slightly better (GE414) engine. However, the structural changes it requires will add weight to the existing design and negate the advantage of the new engine.
We need to cut to the chase and go straight for the design of a twin-en gined fifth-generation fighter, the Advanced Medium Combat Aircraft (AMCA) which is on the drawing board. The government needs to give it a determined push.

Action is in Asia
The US has the F-22 fifth-generation fighter in combat service since 2005 and is now developing the F-35. China has two fifth-generation fighters -the J-20 and J-31 -under development with Pakistan as a potential customer. Russia has its T-50 FGFA.The French, Germans and British seem to have dropped out and want to develop unmanned aircraft like the Neuron.
The action is in Asia, with Japan (Mitsubishi ATD-X), Turkey (TAITFX) and South Korea (KF-X) having fifth-generation fighter programmes.All of them have understandably sought deep design and development expertise from established companies like Lockheed Martin, Saab, BAE Systems and Boeing.
There are formidable technological challenges in such an enterprise and we need the help of established players to hold our hands. We have got little by way of R&D spinoffs and we will simply end up amortising the development costs of yet another fighter like the Mirage 2000 and Su-30MKI and, perhaps now, the Rafale.
At the heart of the problem is the dysfunctional defence management and planning process. The IAF -and the Indian Army's -inflated assessment of their requirements are related to the defence minister's operational directive to the armed forces that they prepare for a twofront war. This has led the IAF to claim that it needs 42 fighter squadrons and the Army to raise a new Mountain Strike Corps.
The chance of an all-out two-front war with nuclear-armed Pakistan and China are near zero; local skirmishes are always possible.
The difference between planning for all-out war and a limited one is hundreds of thousands of crores of the taxpayer's precious money .What the country needs is much sharper assessments of the threats it confronts through a document which is based on expert assessments and approved by the Cabinet Committee on Security.
Economic Times April 25, 2015