Time To Put Substance Before Style

China now views itself as an emerging superpower rather than a ‘developing’ country. India should take this into account

Long after President Xi Jinping has flown back to Beijing, there will remain a host of prickly issues that senior ministers and diplomats on both sides will need to bang heads over. During President Xi’s 48-hour whistle-stop through Ahmedabad and Delhi, the climate-controlled atmospherics, the fastidiously choreographed diplomatic pas de deux on Sabarmati, the thunderous rhetoric and the flurry of MoUs made for good optics. But action is always a poor substitute for achievement.

One of the visible thorns in the blossoming relationship is border uncertainty and both President Xi and Prime Minister Narendra Modi did reiterate a need to settle it. But beyond the omnipresent irritation of a virtual border, it is in India’s interest to resolve numerous pending geo-economic issues with China.

Shifts and moves

Start with World Trade Organisation (WTO) first. India invited universal censure after blocking safe passage of Trade Facilitation Agreement (TFA) at WTO’s General Council meeting in Geneva on July 31, 2014. However, China’s unprincipled floor-crossing on that day was truly shocking, after having supported India’s stand in many multilateral fora (such as G-33, G-20) and in bilateral meetings.

China’s mercurial shift could be understandable if India was found to be acting irrationally. But, on closer analysis, it seems India’s actions were justified. Having agreed at the Bali ministerial to approve TFA, on condition that developing countries not be penalised for food security imperatives till a permanent solution is formalised by 2017, India discovered that all discussions thereafter were focused on only TFA. This was contrary to the post-Bali work programme and gave India (and some other developing countries) grounds to believe that once TFA was out of the way, rich countries didn't care much for the Doha Development Agenda, including food security measures.

But, there are some other valid reasons for India’s principled action. For one, India has a sovereign right to provide food security for its citizens, just as US has the right to buy and stockpile crude oil to provide its citizens with energy security. Two, TFA will cause a spike in infrastructure costs for poor countries; the rich nations were to provide budgetary assistance to help them tide over this unplanned expense, but the amount finalised is too low and the modalities are still vague.

Finally, benefits from TFA are ambiguous, with most gains likely to go to the developed world.

China’s sovereign objectives are somewhat aligned with India on this issue, particularly since it too has to provide food at reasonable prices for large sections of its population. Also, China has been a signatory to all the food security negotiations by G-33, a grouping of developing countries with convergent trade issues.

A change of heart?

While it’s not known if Modi-Xi talks included China’s breach of trust, the joint statement issued by both governments was patently anodyne: “As developing countries, India and China have common interests on several issues of global importance like climate change, Doha Development Round of WTO, energy and food security, reform of the international financial institutions and global governance. This is reflected in close cooperation and coordination between the two sides within the BRICS, G-20 and other fora.”

One reason for China’s change of heart could be India’s lackadaisical communications strategy; also, India’s parleys could have conveyed a message that it’s interested in cherry-picking only food stockpiling from a multitude of other development issues. This might have even influenced some of the other large emerging nations, such as Brazil and South Africa, to isolate India.

But there’s another significant development. There's probably a radical shift in how China views itself: as a world superpower and a trade behemoth, competing with the developed countries. Hence, in keeping with this new-found status, TFA makes more sense rather than hankering for food security. While China is indeed a trade colossus, India needs to keep in mind this change in China’s self-perception when negotiating with President Xi’s men in future.

The border incursion, intriguingly timed to coincide with President Xi’s visit, is a reminder of China’s foreign policy dualism: an extended hand of economic friendship to mask the ugly face of geographic expansionism.

The second issue is climate change and India would do well to keep the new Chinese psyche in mind in future multilateral deliberations.

On the surface, both India and China seem to be on the same page. Apart from a common historical stand, both President Xi and PM Modi have also excused themselves from the UN Climate Summit on September 23.

But that’s where the similarities end. China has already signed a separate climate change agreement with US. While these agreements reduce the climate policy distance between the two superpowers, there are still some sticking points. While China and US agree that that rich countries must provide developing nations with wherewithal to upgrade technology, the divergence is whether the old labels of “developing” or “developed” need to be upgraded.

In essence, the rest of the world’s identity — including India’s — is hostage to progress of talks between two superpowers. The initiative seems to be slipping away from India’s grasp; a climate change strategy is required before the big climate summit in Paris next year. While China’s stand may be driven by thickening smog over its cities, India may have to fashion its own position consistent with its economy and stage of development.

Myriad issues

There are many other unresolved issues on the table — using renminbi as a alternative currency, India’s membership in multilateral institutions (such as Asian Investment Infrastructure Bank) and groupings (Shanghai Cooperation Organisation, for example), discussions on how to take the BRICS Bank ahead, enhanced market access for Indian goods and services, are just some of them.

The lessons for Modi are clear: with China what you see is never what you get. Modi will have to take every opportunity to create an independent policy space for india, even if that requires striking trade and investment deals with Japan, USA, EU, Russia or Australia.

The writer is a journalist and senior fellow with Gateway House

Courtesy: The Hindu BusinessLine, edition dated September 22, 2014 (The original can be read here:goo.gl/Cbm3Ex) 

A River Tells A Story

The first thing that hits you as you reach the end of the road is the sound. It doesn’t just hit, it assails; and as I came to realise, it takes over all your senses. The river Parvati rushes all the way down from the Man Talai glacier where it springs up as a tiny brook, gathering tributaries and waterfalls in its widening swathe, displaying its audible impatience as it rushes to meet its more popular counter-part Beas in the Kullu Valley. And, in one of the many sinuous bends the river takes to plough its way down, lies a small village called Manikaran, now a bustling pilgrimage site for both Hindus and Sikhs. Manikaran’s provenance is uncertain but if you listen carefully, amidst Parvati’s roaring din, you can hear many stories.

When I reached Manikaran for the first time in the mid-1980s, the motorable road ended at Manikaran, on the opposite bank. Today I believe it extends further up the mountain to a hydropower project. You had to cross a small metal bridge to reach the village. My first encounter was with a sadhu — smeared with ashes, wearing his basic habit but carrying a fancy rucksack with a sleeping bag tied to its top. Sadhus play an important role in the continuing allure of Manikaran by providing an unending supply of stories and mind-bending herbs to make the stories sound credible.

So, on Dusshera night in 1986, when all the tourists had departed to witness the Ramlila in Kullu, I sat with a sadhu outside an ancient temple. Among the many stories he recounted about the mountains in the region – including one about an ancient Shiva Temple which is struck down by lightning every year and rebuilt painstakingly by its priest with loving care – he shared an interesting legend about how Manikaran came to be and how it was named.

Legend has it that goddess Parvati came down to the river for a bath one day, wearing a precious stone gifted by her loving husband, Shiva the creator-destroyer. While she was busy with her ablutions, the serpent king of the river started coveting her gem. Caution soon yielded to avarice and the serpent king wrested the ornament away from Parvati. She was obviously distraught and went weeping to Shiva and complained about the bully (with the sadhu providing a side-bar on the couple’s infinite love and their timeless coupling).

Enraged, Shiva switched on his third eye. So powerful was Shiva’s wrath that the serpent king had to cough up the gem. And, to top it all, Shiva’s revenge was so violent that the gem split into millions of small hot and burning pieces when the serpent spit it out. Wherever they fell, hot springs gurgled up.

And so it came to be that the river – with its impetuous, abundant, ferocious and untamed demeanour – was named Parvati. The bend in the river is her ear and the small hamlet perched on a rock in the bend is the ornament in her ear, or Manikaran, a phonetic twist to the purer term Manikarn. That night, sitting on a cold marble platform, Parvati’s roar suddenly seem to grow louder at the end of the story.

Reprinted With Permission from Talking Myths Projects: http://www.talkingmyths.com/a-river-tells-a-story-2/

Working The Budget: Before India Goes Business As Unusual, Fix Patchwork Policies

One of the promises made by the BJP in its election campaign was to change the mode of governance. This pledge found resonance with voters because the dominant mode of governance and service delivery was felt to have been appropriated by the privileged, which included the politician-bureaucrat-businessman nexus. Narendra Modi’s rhetoric of “minimum government, maximum governance” promised to upend the superstructure. This meant giving the short shrift to business as usual.

But it would appear that it’s not so easy to extirpate the old ways of doing business. The decision to impose a punitive capital gains tax on debt mutual funds (MFs) has classic Indian bureaucratic response to market initiatives written all over it. Household and corporate savings have been exiting bank deposits and heading for fixed maturity plans (FMPs) and debt MFs. The government wanted to stop this because there was a tax arbitrage at play here. But what they failed to see is that there is also an issue of real returns here.

The problem is simple: interest income from bank deposits attracts income tax. After deducting tax and the rate of inflation from interest income, the real return received by depositors is negative in most cases. There are two options thereafter for investors: move their funds to physical assets, such as gold or property, or move to more efficient financial instruments. Since investment in FMPs and debt MFs qualifies for lower taxes, many depositors forsake bank deposits in favour of debt MFs.

The tax arbitrage could be eliminated by improving the real returns provided by bank deposits. In the short term, this can be achieved by aligning tax breaks on bank deposits and debt MFs. But this may be unrealistic and could create an undesirable precedent. In the longer run, though, the only way to provide positive real returns is to ensure that inflation doesn’t erode returns.

While the arbitrage opportunity has now been plugged, there is still no guarantee that all the money invested in debt MFs or FMPs will necessarily return to bank deposits. What the government does not realise is that the money moving from bank deposits to debt MFs stays in the system and is still available for productive investments; money that moves away to physical assets is lost to the economy.

In the end, to foster savings in the economy, the government will have to take a call on what kind of tax breaks it wants to provide on which kinds of financial instruments. The additional Rs 50,000 deduction from income allowed for investment in certain specified instruments suffers from the same syndrome: most of the instruments included in the list yield only negative real returns.

On another note, finance minister Arun Jaitley in his Budget exhibited some concern for the health of his fellow citizens by imposing a punitive levy, the so-called “sin tax”, on cigarettes. Excise duty has shot up from 11% to 72%. But the levy is limited to only cigarettes of 65-mm length and below. So, the message from the government: cigarettes over 65mm length, the “king-size” brands, are safer than the smaller ones.

What about competing tobacco products? The tax on gutka and chewing tobacco has been increased from 60% to 70%. But on pan masala, the duty has gone up from 12% to only 16%. What gives? This is policy, wittingly or unwittingly, creating a new arbitrage window. There have been reports over the last couple of years, ever since states started banning gutka sales, that these sachets of oral tobacco have been masquerading as pan masala. There is now a tax incentive for gutka to impersonate pan masala. Anybody doing research on the “law of unintended consequences” is sure to find a wealth of material in Indian government policy pronouncements.

If it was public health that was causing Jaitley anxiety, it is intriguing why he spared beedis. Perhaps political expediency requires courting some large beedi manufacturers, whose support is crucial for the upcoming state assembly elections.

Jaitley’s arithmetic for estimating revenue and expenditure numbers for 2014-15 have also invited some degree of scepticism. Even if we tamp down on the cynicism, it is clear that a meaningful Budget can be presented only in February 2015.

Published in The Economic Times on August 2, 2014: goo.gl/sKzcta

Threats: An Age-Old Tactic To Garner Votes

Nothing works like threats. Didn't somebody say something like that, in some movie? Well, life's imitating art out here in Election-land.

Election season gets the worse out in Indian politicians (actually, it could be any politician but my knowledge is limited to desi chaps). #Elections2014 are no different. There are no issues, campaigns are bereft of ideas and stump speeches are usually full of invectives and expletives. The manifestos are photocopies of each other, the candidates selected by the two central parties feature the usual rogues' gallery. They draw their support from smaller parties that wear mendacity on their sleeves.

It is, therefore, not unusual that most parties have resorted to threatening voters. The message is short, dire and bone-chilling.  Every political party is doing it. Complaints are pouring into the Election Commission. Here are just a few examples.

Sharad Pawar's nephew Ajit Pawar has embarrassed his uncle's Nationalist Congress Party by trying to browbeat voters from a West Maharashtra village into voting for his cousin Supriya Sule. The alternative: we'll cut off water supply to the village. Can he deliver on the threat? He is Maharashtra's deputy chief minister, as well as minister for water resources. He has the habit of putting his foot squarely where he shouldn't: once, when faced with complains of water shortage, he retorted by asking whether he should pee into the dams if there was no water in them. He obviously denies ever having made any of these statements.

Bhartiya Janata Party's far right, feeling somewhat neglected and forlorn, has started asserting itself. One obscure chap from Bihar -- Giriraj Singh -- recently trotted out the old chestnut again: he exhorted all those opposing BJP's PM candidate Narendra Modi to migrate to Pakistan. The BJP leadership seemed a bit red-faced, but Giriraj remained unrepentant. 

And then, as if in a competition to better that, leader of Vishwa Hindu Parishad -- a BJP compatriot party -- Pravin Togadia suddenly roared on Sunday that people belonging to minority denominations should be evicted from residential areas populated by the majority.

Actually, both Giriraj Singh and Pravin Togadia seem to be acting out a common strategy -- shepherding back the potential far-right elements who had probably started drifting during the past few weeks. It is possible that Modi's narrative (as well as BJP's under Rajnath Singh) had shifted from hard-core Hindutva to a slightly more ameliorative tone. Those occupying the centre and the left might not have noticed the change, but for those dreaming of a khaki-coloured future regime this might be palpably disturbing.

Threats -- subliminal or even overt -- are common during elections. The Congress used it to great effect during the 1984 general elections. Advertising agency Rediffusion used a subtle (and not-so-subtle) communications campaign to plant horrific images of violence and terror in the voter subconscious.

So, which threat is more effective? The answer, my friends, will be known on May 16, 2014.