Nuclear Upsets

If it seems to be a season of "I told you so", I cant help it ! The PM's much touted success in the Indo US nuclear pact is now in tatters. To use the words of my favourite strategic affairs writer Brahma Chellaney,

the deal has come to symbolize the travails of the Singh government — scandals, broken promises, malfeasance, poor public accountability, and the resort to casuistry to camouflage reality. The cash-for-votes scandal in Parliament set the stage for the other scams that have followed.

Even writers who were earlier supporting the deal, have had to do an about face. Writing for the Hindu, Dr Anil Kakodkar, who had earlier been co-opted by the government in negotiating the "deal" with the NSG expresses

Nuclear Suppliers' Group (NSG)..additional restrictions for transfer of ENR (enrichment and reprocessing) technologies with adherence to the Nuclear Non-Proliferation Treaty (NPT) being a condition for transfer has caused huge unease in India

 Vardarajan, the Hindu's strategic affairs analyst, and a former supporter of the deal too, has had to admit that the deal is dead.

Meanwhile, China has gone ahead and "grandfathered" another two reactors for Pakistan. In other words, without committing anything, Pakistan has as much access to technology and fuel as India has after it has waived its sovereign rights to develop its own nuclear techology for its protection. Ofcourse, India is open to buying reactors from the rest of the world, when Germany and now Japan have taken legislative steps to shut down nuclear power, given its unviability when total cost of operations and accidents are accounted for.

It may serve our negotiators well to remember that NSG was set up as an Anti India cartel. Nothing has changed. The latest guidelines on technology transfer impact only one country - India.

The cost of attack - revisited

I started this blog in the aftermath of the attack in Mumbai in 2008. Life has come a full circle. The terrorists have struck this again this week. At that time I had mentioned that it was almost inevitable that there would be another attack since India did not have a strategy to increase the cost of attack for the terrorists.
This view is being echoed now by Brahma Chellaney when he writes

"The ugly truth is that transnational terrorists see India as an easy target because it imposes no costs on them and their patrons."

The sad part is that the government's response is pathetic. In Jan 2009, I had pointed out the hollowness of Mr. Chidambaram's remarks when he commented the price that the perpetrators of the attack would pay if it were repeated would be enormous! So what is the price they are paying? Mr. Chidambaram's credibility for one. His latest comment that "there was no intelligence failure because there was no intelligence" seems kafkaesque.

Mention must also be made of the perversion of the Congress spokesperson Digvijay Singh, who yet again raised the issue of "Hindu Terror" by pointing a finger at the possible involvement of RSS in the blast, while admitting that he had no evidence to back it. Considering that he is supposed to be the mouthpiece of Shri Rahul Gandhi, who had earlier mentioned the same "terror" to the US Ambassador (wikileaks report), it is a wonder that we are not heading for another split based on religion (ofcourse, the communal BJP is to blame, not the "secular" Congress).

My sincere condolence to those who lost their dear ones, and a word of advice - stay away from crowds - this attack is not likely to be the last !

Lessons from West Bengal - the Left front is dead, long live the left

Didi, with her emotive appeal to mother, land and people, has brought to an end the over-three-decade rule of the left front. A rule that had many capitalists in a tizzy, but apparently enjoyed the support of the masses.

One of the early successes of the left front was a much-touted redistribution of land to the landless. While I studied in school in Calcutta in the 70's, most economists sung praises of the land reforms made by the Left. Redistribution of natural resources was expected to lead to even development, and uplift the poor. This "redistribution" often took a grotesque turn - I remember hearing of the "rich" being attacked in Calcutta's bustling markets - the attackers angry that they spent money while the poor slept hungry. The exodus of industry that marked this phase of Naxal violence did little to erode the popular base of the Left Front. Of course, the electoral victories were often cemented by thugs ensuring that areas that were prone to vote for the opposition were often under siege at the time of elections.

Ironically, while the cognoscenti have often written off the left front, it began losing its popular sheen only when it started to adopt a more capitalistic approach. Much is being made of the fact that the Left's loss will now promise a phase of economic growth for Kolkata - but will it? The victor is not a right leaning party with proven will to foster development - instead - it is the very same party that took on the government when it attempted to procure land for the Left governmernt's strongest attempt in recent times at getting large industry to come to the State.

Earlier attempts too have not succeeded. When the State government allotted land for an IT park at the outskirts of Kolkata - at Rajarhat, most of the IT majors expressed support, but very few set up their campuses. Despite a well developed education inftrastructure (at least in the capital city) and with low wages, adequate electricity and good infrastructure ( Rajarhat had its roads made well before even the first building came up), the area even today remains a ghost town - a promise unfulfilled.  

What does this mean for the new government? TMC has come to power with industry friendly faces - the new finance minister will likely be Amit Mitra, the former Secretary General of the Ficci - the industry association. Apparently, more money has been raised from business houses in Mumbai - for the election campaign of TMC than from Bengal. But is the mandate one for development? or is it simply a desire for change (even the lugubrious bengali has finally decided to lift a finger to vote against the long rule of the left front), and importantly, a protest by rural Bengal against land acquisition and industry? After all, while Kolkata and its "bhadra log" have often voted against the Left, it is perhaps for the first time in decades, that the left has lost its mandate from rural bengal.

So while we in the Capital markets may celebrate the possibility of "economic reform" in Bengal - which ironically, usually means more money for the rich and greater income diversity, I think it would be naive to believe that the mandate is for this. What I do expect, is that the first couple of years will be pay-back time for the capitalist backers of the TMC. So, one way or another, the Capital markets will applaud Didi's wooing of capitalist India with offers of cheap resources from west bengal. Once the first couple of years are over, however, it will be a time to really examine what the voters want - and that, I am afraid, is perhaps not more capitalism!

Unfortunately, I think this election is more about the defeat of the Left front and less about the defeat of the Left ideology. Hold the champagne.

Spot the difference

“Pakistan, perhaps the world’s greatest victim of terrorism.... Let us be frank. Pakistan has paid an enormous price for its stand against terrorism.”  May3, 2011-05-09

“it is also true that incidents take place in Pakistan also. That Pakistan is also a victim of terrorism. These groups, whether it’s Lakhsar-e-Toiba or Jaish-e-Mohammad, they can act autonomously” Sep 11, 2006

Same thought, two speakers - guess who? The first was written by Pak President Zardari in a recent op-ed in the Washington Post. The second is a quote from a gentleman who originated the idea - our own venerable PM Dr Singh.

The USA has released documents that show the complicity of ISI in the Mumbai attacks. It makes Dr. Singh's willingness to "talk" to Pakistan - with no emphasis on them attempting to show remorse - much less take action against the perpetrators, even more inexplicable.

Dr. Singh's governments continues its focus on "hindu terrorists" rather than on those from across the borders. One can only conclude that perhaps Dr. Singh, when he was a little toddler, was nursed by a particularly ferocious member of the hindu community. After all they say that childhood trauma can leave deep scars!

When right meets left

Paul Krugman's recent article on emerging market inflation continues to blame the regulators of these emerging countries for not penalizing their population by slowing GDP growth. Krugman writes:

So what the world economy “wants” to do is have large capital flows from North to South, and, correspondingly, large current account deficits in the emerging world — which would, of course, help the advanced economies recover.

But ... the transmission mechanism by which capital flows get translated into trade balances has to involve a rise in the relative prices of goods and services produced in the emerging nations. The natural and easy way to get that would be via currency appreciation; but governments don’t want to see that happen. So the invisible hand is in effect getting the same result — gradually — by pushing up nominal prices in these countries.

In other words, emerging economies should allow higher imports and lower exports (the consequence of a rising exchange rate) thereby reducing their own GDP growth - since this policy would "help advanced economies recover". I wonder if the prescription would be the same if the economist were to be based in Asia rather than Princeton.

The idea that the US needs to cut back its own consumption, and pay down its debts - is not on the table. It is not "keynesian" after all. That this ruinous policy is leading to inflation is completely negated - "core inflation" remains sub 1% according to official estimates. Notwithstanding that "core inflation" eliminates all prices that have a propensity to go up. Shadowstats.com estimates CPI at close to 10%!

This propensity to blame others for protecting themselves against the economic mismanagement unleashed by the USA exists not only in academia, but also in the seeming loony fringe of USA society. I came across this apparent "right wing" website - that seems to see everything that the world does with the "if you are not with us, you are against us" prism that has now become the touchstone of US policy. So the recent "BRIC" meet that concluded with a statement of the need to find an alternate to the US dollar is a conspiracy of Russia and China to undermine the US economy. The same aticle points to another paper: Economic Warfare - risks and responses whose central thesis seems to be that it is Al-queda that is indirectly responsible for the collapse of the US financial system, and high oil prices (thrown in for good measure). Talk of conspiracy theorists!

Forgotten lessons of Economics

Pranab Mukherjee, the finance minister, last evening again repeated a falsehood in the hope that if you repeat a false statement enough times, it will appear to be true – he mentioned that if inflation were to be tamed, growth would have to come down.

This reflects the lack of ideas that the government has in increasing production. Supply side issues abound. Complex land laws prevent quick transactions relating to land, and create an artificial scarcity that raises land prices beyond what any legal economic activity can support. Poor legal administration increases the cost of all economic transactions, while raising the cost of credit. Bureaucratic delays and complex compliance prevent entrepreneurship from flourishing without flouting some arcane rule. Tax compliance is reliant on interpretation of officials empowered to harass the tax payer without adequate redressal mechanisms. All this leads to large scale unemployment, resulting in corruption and an environment where government appears to don the role of a “largess distributor” rather than that of a servant of society.

Other capacity building measures – good quality and high availability public health system, and education systems are conspicuous by their absence. Instead, the economic survey and planning commission – the economic “think tanks” of the government – continue to propagate irrelevant ideas of increasing foreign investment limits in health insurance, and in multi-brand retail.

One has to only look at the disaster that the USA is heading towards in its Medicare and Medicaid programs to see the problems that arise from unrestrained private sector growth in health insurance, and from a patent law that protects corporate profits over the need of human life. The economic rationale for foreign investment in multi-brand retail is even less obvious.

A government that is mired in corruption, increasingly dependent on the support of regional parties for its existence and devoid of any ideas on how to progress India’s aspirations is going to present challenges to India achieving its true potential. If India does well inspite of these challenges, one has to believe that there is a God somewhere – more importantly someone who has Indian citizenship!! 

Anna Hazare - India's greatest hope

The fast that Anna has undertaken has focused the attention of the nation on the greatest internal threat - that of corruption. The popular response that this has generated can only restore faith in India's democracy. There is one aspect which I find very puzzling. In countries like Egypt entrenched autocracies needed popular movements against them to change. In India, we can simply vote them out. Why is the people movement not focused on demanding that their representatives take the lead in Parliament in championing the Jan Lokpal Bill - the focus of current attention. Instead, the focus seems to be on ignoring the political class.

A true reflection of the maturity of Indian democracy would be to have each constituency summon its representative and question him on his stance on the bill and demand that he support it. I think that would make it difficult for any government or party to NOT pull in the same direction.

Another possibility would of course have been for the "honest" PM to accept the demand to set up a committee to evaluate the bill. However, that would require a thinking man - and a leader, something this country certainly lacks.