Bringing land and realty under GST

 

 

Source: By Arvind Subramanian: The Financial Express

 

 

After the steps taken to reduce black cash and streamline election finance, the natural follow-up step is to clean up one of the biggest sources of black money—land and real estate. And the natural way to do that is to bring supply of land and real estate (hereafter, LARE) into the GST. At the moment, the GST law does not include LARE but there is still a window to fix that in the GST Council meetings in the months ahead.

 

Before we spell out the details, a few clarifications are in order to clear up the misconceptions and mis-information, some of which appear to be perpetrated deliberately by those vested interests with a stake in preserving the murky status quo.

 

Misconception 1: Stamp duties will be brought into the GST. Many states have refused to entertain bringing LARE into the GST, fearing that their right to levy stamp duties on the sale of land—a big source of state revenues—will be taken away from them. This fear is unfounded. There is no such intention and stamp duties will remain untouched.

 

Misconception 2: Agricultural land will be taxed. There is similarly no intention to bring transactions relating to land for agriculture into the GST. The fear that there is a slippery slope that will lead to taxes on agricultural land and income is also unfounded.

 

Misconception 3: Low-cost housing will be taxed and made unaffordable. There is also no intention to bring transactions relating to low-cost housing into the GST. The fear that the price of housing for poorer sections will go up because of new taxes is also unfounded. Housing below a certain cost (or below a carpet area of 60 square metres) will unambiguously not be subject to GST.

 

Misconception 4: The tax burden will increase and hence the prices of LARE will go up. There is no intention to increase the current taxation on LARE. As will be elaborated below, bringing LARE into GST will keep current effective rates of taxation broadly unaffected; what will happen is an increase in taxes at the final stage but because credits will be available on input taxes, the real burden of taxation will not increase.

 

So, what will come into the GST? Answering that requires understanding the current system. Currently, an annual property tax is levied on land as a source of wealth by urban local bodies. When land or property is sold, there is a stamp duty levied by state governments to register the sale. Neither of these will be brought into the GST.

 

In principle, the GST can be levied as a service tax on the supply of land and real estate. What exactly is the service? The service in question relates to that provided by those who develop and construct commercial and residential property (the LARE service provider). This service can be provided either as a works contract when the buyer gets the LARE to build and develop the property; or the service can be provided as the supply of an already constructed property (call it ready-made property).

 

Today, the law makes an arbitrary distinction between works contracts and ready-made property. There is a service tax on works contracts both for commercial and residential properties. This tax is about 4.5%, levied on the total value of the property but no credits are available for taxes paid on inputs such iron and steel, cement, and other fittings & fixtures (many of which are transacted informally) that go into the construction of a property. The lack of input tax credits means that the effective rate of tax is not the headline 4.5% but that rate plus the cascaded sum of all the input taxes. A rough estimate is that the effective tax rate even today is over 12%.

 

In contrast, there is no tax on ready-made properties, commercial or residential. Because there is no tax, there is also no provision of input tax credits. This means that here too the effective rate of taxation is not the headline 0% but the sum of all the cascaded taxes on inputs. One technical reason that ready-made properties are not taxed currently is that some argue that immovable property is excluded in the Constitution from the definition of a “good.” But going forward, ready-made properties—or rather the service provided in building them—can easily be taxed as a service because the definition of what can be taxed under the GST is quite broad: supply of goods or services or both (excluding alcoholic liquor for human consumption.

 

So, today, the playing field is not level: the service underlying works contracts is taxed more heavily than the same service embodied in a ready-made property. The way forward is to recognise that this distinction between works contract and ready-made property is artificial and to tax the service that went into the development and construction of both, and level the playing field.

 

The key idea would be tax them at a standard rate and allow full input tax credits. It is the flow of credit that will strike at black money because the self-policing nature of the GST will kick in. All input transactions, notably the sale of cement, iron and steel, and fixtures and fittings that go into the construction of property will have to be accounted for. So, even as the tax on the consumer can be kept the same as today, the sales and purchases of inputs can be brought into the tax net. This would be a real transformational step in the fight against black money in real estate.

 

But even these very important changes will not strike at another key problem: the exclusion of transactions relating to the sale of land per se from the GST net. For that to happen, the sale of land (for non-agricultural purposes) must itself be taxable as a supply of good or service. Only if the sale of land is taxed can there be input tax credit for this down the chain; and only, if there is input tax credit will the self-policing GST mechanism for disclosing the sale of land transaction kick in when that land is further developed.

It is this disclosure that will strike at black money in land sale transactions. Another advantage of imposing a GST on the first sale of land is that it will deter hoarding and encourage land development because when the latter happens, the GST can be claimed as a credit. In contrast, the hoarder of land will have to bear the full burden of the GST.

India, China growth stories

 

Source: By T C A Ranganathan: Deccan Herald

 

I recount a day dream experienced after reading the flood of tributes to Kenneth Arrow, often described as the founding father of the modern 'Social Choice' theory. He is best known for his 'Impossibility theorem'. He demonstrated that it was impossible to formulate a social preference ordering or voting system that can consistently and sensibly reflect the preferences of a set of individuals with diverse views.

Apparently, simple conditions of democracy or non-dictatorship, full individual sovereignty, unanimity (if all individuals in a group, prefers choice 'a' over 'b', the group should also so prefer 'a' to 'b'), freedom from irrelevant alternatives (if some alternative choices have been ranked, removal of one of them should not change the ranks of other choices) and uniqueness of group rank imposed together in a 'choice' situation result in erratic behaviour.

This was in 1951. The Noble Prize came in 1972 making him the youngest winner. The dream wandered from Arrow, to another work inspired by this lucidly simple proof. This was the 'Theory of the second Best' of Richard Lipsey and Kevin Lancaster in 1956. Simply put, it enunciates that in a sub-optimal equilibrium, resetting one condition to optimality, without simultaneously resetting all other conditions optimality gets you worse-off than originally. It is thus better to consciously strive for second best solutions rather than optimal situations.

The dream drifted back to another work for which Arrow is famous - his work on endogenous growth or 'Learning by Doing' or simply, in a very colloquial sense, corporations and organisations get better and more efficient with time if they simply keep focussing on what they are doing. The dream unaccountably wandered off to the differences between the Indian and Chinese growth stories. In Mao's time, both countries were equally deficient on most parameters compared to the advanced economies. Both had similar sized economies.

India was, if anything slightly ahead on most parameters. Enter Deng Xiaoping in the post-Mao era. He retained 'non democracy' by whatever name you call it but, together with his successors, systematically reset all governance processes relating to 'matters economic' towards 'optimality conditions as per suggestions of US trained advisors. Not at once or equally in all provinces and they are admittedly still nowhere there, but systematically and continuously.

Equally admittedly, China is facing all sorts of problems in these troubled times, but which country isn't? It is equally true that sooner or later they will run into the challenge of reconciling their politics of governance with their management of economics, but as off now are already five times larger in size than India. Also, though a predominantly manufacturing/export manufacturing-oriented economy, they have a service sector more than twice the size of the entire Indian economy and a digital or e-economy larger even than the US digital/e-economy.

What about us? We are undoubtedly a robust democracy. Also, notwithstanding what one set of politicians say about the others, governance practices have mostly been well intentioned. All governments have grappled with reform and growth problems. Development and growth have both undoubtedly happened. All policies invariably focus on securing 'optimality'. All states are equally important for allocation of investment and infrastructure. Manufacturing-based employment has always been offered to all states (backward area development, freight equalisation etc).

Similarly, provision of justice (each case equally important, no acceleration at any cost), affirmative action (simultaneous and equal in all institutions) or citizenship/human rights has been consistently given priority. In no specific case can any fair person accuse the state for being consciously 'partial' unless it was to a minority or the disadvantaged. All laws apply with equal rigour in metropolitan as also rural centres.

Ramshackle cities

The dream then flitted off to the sorry fact that despite all this, we all experience ramshackle cities, educational and health systems, reservation riots and increasingly ever higher levels of unemployment. The social stress levels have gone up. Any or every event can set off riot like conditions-whether it is a bullock cart race or a college debate or even a simple celebratory get-together over a meal.

If you ask any adult, they all express a strong desire for change, even if it implies paying more. They are willing, to pay more for treatments at a government hospital. All they want is due attention, with adequate equipment in hygienic conditions. None likes getting fleeced at a private set up but all perforce go there. All say that the same hospitals/ cities/universities were outstandingly good in the 1960s/ 1970's but have deteriorated.

If you ask any doctor or bureaucrat, serving or retired, for ideas on how to restore quality, each will give his/her personal opinion that granting fullest autonomy and corporate governance thereby creating a 'public' institution which is neither 'private sector' or 'governmental' is now the best way forward. But then, the same ideas had occurred in the previous and earlier decades. The word 'autonomous' is now often used to describe the same institutions and yet 'autonomy' is still felt required? The dream wrestled with the paradox before flitting off to another paradox.

India is among the most difficult countries on 'ease of doing business' index. We apparently have the most stringent procedures for environmental clearance. It often takes years to get clearances. Manufacturing is our smallest sector. Yet environmental pollution is our biggest problem. Similarly, construction laws and rules are extremely complex and time consuming. Even extending a balcony in a flat involves multiple authorities/permissions. Yet though India has an official Urbanisation Index of about 30%, the World Bank satellite 'night light' based assessment places it nearer 60%. How can World Bank be so wrong?

The locked spirals of paradoxes woke me up wondering what on earth Indian day to day problems have anything to do with Arrow's work or even other paradoxes like 'Fallacy of Composition' and 'Money Illusion' much liked by theorists. Maybe the answers are blowing in the wind as Bob Dylan, the current Noble literature prize winner, once crooned?

 

 

Strategic dialogue

 

 

Source: By Salman Haidar: The Statesman

 

 

India's Foreign Secretary has just been on a visit to Beijing where he participated in a strategic dialogue with his Chinese counterpart. Intensified exchanges between the two countries, of which the meeting in Beijing was an important part, reflect the joint desire of the leaders to add momentum to the ongoing dialogue and speed up the effort to solve problems and strengthen cooperation. As has been frequently reiterated in recent days, this is a time of strain in India-China relations, due not so much to direct clashes between them as to issues involving third parties.

 

The most obvious matter of contention is that involving Pakistan where India's efforts to hold that country to account in international forums for supporting terrorist activity have been effectively negated by China. This is a real concern for India, but it was not what drove the Foreign Secretary to visit Beijing: the diplomatic channel between the two countries is active and they are able to communicate with each other as and when required without sending special envoys from one capital city to the other.

 

The strategic dialogue could have grown out of the need to find responses to the changing global situation which has brought a number of new challenges before India, China, and other global players. Change has been dramatized by the new priorities of the White House which is trying to give a radically new direction to some aspects of US foreign policy, but even before Mr. Trump took office important indications of change were already visible. USA has been in the process of reducing its commitment overseas for some time now, in a slow retreat from its heavy involvement in regional affairs since the very active years that saw its armed forces extensively engaged abroad, most directly in Iraq and Afghanistan and elsewhere too. As the human and material cost mounted, public support for this sort of engagement ebbed away and the government was blamed for the 'imperial overstretch' of excessive commitment to distant problems.

 

While US policy makers were drawing in their horns, others were advancing to fill the newly available space, none more actively than China. China is seen as the rising power, economically and also militarily, and its influence is on the increase. It has been chafing at some of the features of the international system set up in the aftermath of the second war and has already taken important steps to amend it in a manner that, in its view, better reflects present-day realities. For instance, China would like to see its currency used as an international medium of exchange, so that the US dollar may not be the pre-eminent medium for this purpose.

 

China is also working to set up long distance overland trading routes across the Eurasian landmass, harking back to the medieval Silk Road, with a maritime version also taking shape. These initiatives have been much described and discussed, and seen as important steps towards the new order. China seeks to promote, multi-polar rather than something where one country enjoys preponderant status.

 

In these circumstances, rivalry between the two powers seems to be growing, with considerable international consequences. USA is still at the apex of an international order that has many adherents, especially among relatively more vulnerable countries that feel their security is best served by the established international instruments, and they may not share the concept of multi-polarity as envisaged by China.

 

There is also some concern that China may not always be ready to play by the rules, as for instance in the South China Sea, where it is involved in a number of maritime disputes with its neighbours. Indeed, the South China Sea has emerged as a potential regional hotspot with overlapping claims and multiple disputes. Though there have been a few incidents of armed confrontation on the high seas, there is little to suggest that any of the parties seeks to try to resolve differences through military intimidation: it is more a matter of laying down markers to establish claims while gradually edging out other contenders.

 

The rivalry between the major contenders has had some consequences for the broader configuration of the region. China's greater assertiveness and its steady ascent have disturbed some of the others who may fear that their own concerns could be overshadowed. To try to 'contain' China may be too ambitious a concept, and it would bring unwelcome echoes of the defunct Cold War, but yet some of the regional countries may be minded to come together in some sort of alignment to defend what they regard as their common interests, including liberal democracy and rule of law.

 

This idea came up in discussions and attracted some interest for a while, without crystallizing into practical form. What has drawn a certain amount of attention lately, in a variant of the earlier theme, is the idea that regional 'middle powers' should make common cause and thereby stand up against hegemonic tendencies of major powers that subscribe to rather different values. These concepts that seem to favour collective understanding among some of the more prominent countries of the region are obviously intended to act as a check on Chinese aspirations.

 

As of now, the 'middle power' concept is not much more than a notional effort to balance China and may never acquire much practical significance but it shows considerable uneasiness at the continued rise of China. The changing international configuration that can bring new combinations into being and seek alternative solutions to old problems can give new impetus to the strategic dialogue between India and China.

 

At this time of change it is necessary that these two major Asian entities, each advancing strongly according to its own lights, should take counsel with each other, for they are countries that will be instrumental in shaping the future. Current preoccupations in India are necessarily centred on the threat it faces owing to the actions of its neighbour Pakistan in giving succor to terrorist groups and the ambiguous response of China has become a real anxiety for India.

But it remains important that through their dialogue the two countries should look for mutual understanding and accommodation even on contentious issues so that they can play a proper part in regional and international affairs. This is the challenge of the strategic dialogue on which they have embarked. The areas of common interest between them are obvious enough, ranging from matters of maintenance of peace and order to enlarging the good economic relations they have developed among themselves. Now, in the changing world, the challenge is to build further on what has been achieved through many years of careful effort.

India’s international trade challenges

 

 

Source: By Jayachandran: Mint

 

 

The World Trade Organization’s (WTO) creation in 1995 was, to a substantial extent, under the auspices of then US president Bill Clinton. He deemed the extension of the General Agreement on Tariffs and Trade—the organization overseeing the multilateral trading system since 1947, also midwifed by the US—into the WTO advantageous for the US. These are vastly different times and Donald Trump is a very different president. His administration has now shown intent to step back from the WTO. It has asked the US trade representative’s office to find ways to circumvent the WTO’s dispute system. Given the implications, it is a good time for New Delhi to take a hard look at its trade policy and planning.

 

The Trump administration’s lack of enthusiasm for the WTO shouldn’t come as a surprise. Central to Trump’s vision of making America great again is the suspicion that the international order is rigged against it. Its allies are deadbeats that have mooched off a consistently credulous Washington, while international organizations like the WTO are sclerotic bureaucracies that care little for American interests. Given this and Trump’s consistency in advocating trade protectionism—which would doubtless entail run-ins with the WTO—his administration was always more likely than not to be a disrupter in this regard.

 

But whether in the WTO or out of it, the US will continue to dictate the international trade agenda. This places India in a difficult position on multiple levels. For one, the US is India’s largest single-country trading partner by some distance. Second, as we have recently written in these pages, the importance of international trade in general to the economy took off after the economic reforms of 1991 and have accelerated over the past decade. Indeed, India has traded more with the rest of the world as a percentage of gross domestic product than China since 2011—and both countries, along with much of the developing world, have benefited immensely from the lowering of trade barriers and the rule-based trade order that the WTO embodies.

 

New Delhi’s response must, similarly, be on multiple levels. Thus far, it has rightly preferred trade arrangements under the WTO’s auspices to the tangle of bilateral, regional and mega-regional trade pacts. There is no immediate reason for this to change. But it cannot afford to remain apathetic to regional or bilateral arrangements either given that they have proliferated following deadlocks at the WTO. If Washington further undercuts the WTO, as it is shaping up to do—and other countries inevitably follow suit—the balance will skew further.

 

Ensuring that New Delhi has a seat at the table when it comes to these arrangements will require a political will and diplomatic effort that are currently lacking; witness the India-European Union free trade agreement, hanging fire since 2007. As Hardeep S. Puri has written in a Carnegie India paper, this means leveraging its membership in the Regional Comprehensive Economic Partnership better than it has thus far, as well as pushing to join the Asia-Pacific Economic Cooperation. The latter is considering an Asia-Pacific free trade area—another incentive or threat, depending upon New Delhi’s approach.

 

New Delhi must also undertake several reforms. The Chelliah committee report of 1992-93 noted the importance of a limited number of tariff rates to simplify administration and reduce distortions. Against its recommendation of six rates to be implemented by 1998, India currently has 15 MFN (most favoured nation) tariffs. As Harsha Vardhana Singh has pointed out in Business Standard, this structure is further complicated by a system of exemptions and concessions that brings India’s average trade-weighted tariffs more or less in line with low tariff economies—but leaves it with significantly higher headline rates, leading to the perception of a high tariff economy.

 

A forward-looking trade policy must accompany the rationalization of the tariff structure. New Delhi’s foreign trade policy, 2015-20 doesn’t go far enough in this regard. Technical, sanitary and phytosanitary barriers to trade are increasingly important—and they call for a trade policy that helps exporters meet international standards while reducing the cost of compliance. The policy must also reconfigure its trade promotion incentives from handing out financial sops to better helping exporters attain competitiveness.

In Washington last year, Prime Minister Narendra Modi spoke of the benefits of free trade. He is unlikely to find the new administration as receptive to those principles. While Washington might find the cost of circumventing the WTO too prohibitive in the long run, this much seems a safe bet: A Trump administration packed with WTO sceptics is unlikely to be status quoist. The ripple effects mean New Delhi must confront change—both by working within the WTO to resolve the deadlocks, such as on agricultural subsidies and free movement of professionals, that are robbing the body of relevance, and outside it. India has benefited too greatly from trade to do any less.

The great game in Afghanistan

 

 

Source: By Harsha Kakar: The Statesman

 

 

Afghanistan’s geo-strategic importance is well established. It borders nations of the Central Asian Republics (CAR), Iran, Pakistan and China. Iran and Turkmenistan (part of CAR) have the second and third largest reserves of natural gas, which the West seeks to tap. Afghanistan’s rugged terrain and fierce tribal loyalties ensured that it was never completely subdued by any power. Among those who tried was  Alexander the Great, Britain, Russia and the US. Afghanistan thus gained the moniker ‘graveyard of empires’.

 

The US entered the country to avenge 9/11. The defeat of the Taliban under the aegis of a US-led offensive was thought to be a turning point for the country. However, it was not to be. The Taliban received support and sanctuary in Pakistan and continued to battle the US-led coalition. Despite having remained ensconced for over 15 years, the US still cannot claim victory and withdraw with honour. Unable to defeat the Taliban and knowing success is unlikely with financial costs burgeoning, it planned a tactical withdrawal. It presently maintains a force with a larger training element and limited operational role.

 

The US’ relationship with Pakistan since its entry into Afghanistan has witnessed ups and downs. Perceptions in the US vary from continuing to engage Pakistan in the hope that it would ultimately curb the Haqqani network and the Taliban, to employing economic and diplomatic leverage to compel it to act.

 

Pakistan on the other hand has always considered Afghanistan as its backyard and resented any Indian involvement there. Further, with an anti-Pak government in Kabul, its strategic leverage cannot exist. None of the US strategies have so far worked. Both terror groups still possess safe sanctuaries and get support from the ‘deep state’. Recently a group of US think tanks strongly recommended that the US administration be more firm with Pakistan, if it wishes to witness a sense of peace in the region.

 

The war in West Asia led to the expansion of the ISIS into Afghanistan. It began enhancing its cadre strength by inducting disgruntled members of the Pakistan Taliban (TTP) and nationals returning from Syria belonging to CAR and Russia. To further complicate the issue, Taliban declared war on the ISIS. This decision compelled powers in the region to change their perception and consider the Taliban as the lesser of the two evils, simply because it remains focused only on Afghanistan, without any territorial ambitions, and counters the ISIS. Individual national interests of major powers have begun to dominate the security situation in Afghanistan.

 

Russia, Pakistan and China, formed an alliance and held discussions on Afghanistan’s future, ignoring the nation itself and other stake holders. They preferred supporting the Taliban to the extent of even considering removing some of its leaders from the UN’s designated list of terrorists. Their latest conference in Moscow included India, Iran and Afghanistan, ignoring the US, which continues to operate in the country. The conference aimed at seeking options to counter the ISIS threat. Of the group of six, four (China, Russia, Pakistan and Iran) consider Taliban as the lesser evil and are in parleys with them. Such interference in Afghanistan has converted it into the latest international playground.

 

Afghanistan and the US has no option but to battle both Taliban and ISIS to ensure survival of the nation state. Pakistan, China, Russia and Iran are willing to let Taliban control part of the country or be a part of the government so long as it keeps ISIS at bay. For India, Taliban is the larger threat, as it has Pakistan’s support. Further, it would never permit India to play a dominant role in the country. India is presently secure from the ISIS threat with Pakistan remaining a buffer state.

 

For Russia, ISIS expansion in Afghanistan, if unchecked, would threaten it and CAR countries as there are Chechen, Uzbek, Tajik and Kazakh fighters operating as part of it. History is also known to repeat itself. Russia was compelled to withdraw from Afghanistan because of support provided to the Taliban and al Qaida by the US and Pakistan. Presently by supporting the Taliban, possibly even with weapons, it highlights a similar bleak future for the US.

 

China is concerned with the presence of East Turkestan Islamic Movement (ETIM) fighters in the ISIS, who could enhance the ongoing militancy in Xinjiang province. Thus, it is willing to support the Taliban, if it continues to oppose the presence of the ISIS. Iran has its own reasons for supporting the Taliban. It is insecure with an ISIS build up close to its borders and keen to counter US presence in the region. Playing a strategic game, it supports Kabul with development funds as also the Taliban, thus ensuring whichever government occupies the seat in Kabul, it would remain Iran friendly. Simplistically put, individual perceptions dominate the Afghan scenario.

 

The West, India and Afghanistan would never support this initiative as it goes against their principles. Europe is facing the brunt of Afghan refugees and adhering to this concept would only enhance their problems and increase internal differences. Therefore, the thinking of this grouping is doomed to fail in the international fora. However, nothing can prevent individual nations from continuing their parleys with the Taliban for securing their own national interests.

 

The sudden interference in internal matters of Afghanistan by powerful nations would only embolden Pakistan to continue with its support to the Haqqani network and the Taliban. It would also justify their policy of ‘good versus bad terror’ groups. Further, as the 2017 summer offensive of the Taliban is expected to get underway in coming months, it would be Pakistan’s population that would face the brunt.

It is now upto the Trump administration to adopt a firm policy towards Afghanistan and Pakistan as also reach an agreement with Russia to ensure the degradation of the Taliban first and ISIS later. It has been decades since the Afghan turmoil began and it is time for the nation to witness a semblance of peace and stability.

Forgotten facts about the INA

 

Source: By Praveen Davar: The Statesman

 

It is amazing that an RTI application regarding the status of soldiers of Indian National Army (INA) has been referred to the Ministry of Home Affairs (MHA) by the Central Information Commission (CIC). According to a recent PTI report the CIC has opined that the MHA is under an obligation to explain the logic or reason in “neglecting the members of INA led by Netaji and rejecting them the status of freedom fighters.” He further asked whether the MHA was ready to provide pension benefits to INA soldiers. If only the applicant or officers in the government dealing with query had taken pains to go through the records and various documents available in the archives such ridiculous doubts wouldn’t have arisen.

No doubt Netaji Subhas Chandra Bose was a charismatic leader of the INA. But unfortunately it is not widely known that he was not its founder. The founder president of INA was General Mohan Singh, who founded the organisation almost two years before Netaji landed in Singapore in July 1943. Mohan Singh was a young major of the British Indian Army who, like other INA soldiers, was a prisoner of war captured by the Japanese army.

In a foreword to his memoirs Lt. General Iwaichi Fujiwara, who was a close associate of Netaji in the strategic planning and tactical operations of INA, has written: “The young dashing Mohan Singh was the founder and creator of the INA. Without his burning patriotism, his immovable conviction and lightening action … no hope could possibly be entertained for the birth and growth of the INA. Without his spirited involvement at the initial stage no attempt to organize it later would have proved successful. Even the appearance of the great Netaji, a warrior son of India in Singapore in July 1943 would have proved too late for the purpose.”

General Fujiwara also felt that Netaji took the risk of a submarine voyage to S.E. Asia from Germany at the height of World War II as he had learnt the news of birth of INA, whose chief General Mohan Singh and other senior commanders were entreating him to take over the organisation for the achievement of his objectives.

According to Col. (Dr.) D.S. Raju, who served as medical adviser to both Netaji and General Mohan Singh the latter had insisted that Bose should be brought to Singapore as a pre-condition for his further cooperation with the Japanese authorities. Mohan Singh therefore had set the stage for the advent of Netaji to East Asia. However, Col. Raju felt that “from the military standpoint of view he came on the scene too late.”

By the beginning of 1944 when the INA forces and Japanese army entered the battle zone around Imphal it was too late. The Allied defences were very strong and the fortunes of Axis powers were on the decline. INA troops and the Japanese suffered heavy losses and were gradually pushed back and compelled to evacuate Burma. It was a tragic end of a glorious patriotic struggle but no historian could underestimate the value of INA and the role it played in expediting the end of the mighty empire.

Writes General Mohan Singh in his memoirs entitled Soldiers Contribution to Freedom Struggle: “The Nation is deeply indebted to Jawaharlal Nehru. We must record that before his demise in 1964, Pt. Nehru realized the injustice done to the INA and after the decade and half of heart burning and immense suffering granted to the INA personnel the status of a political sufferer. He, having appreciated the tenacious efforts put up by the INA personnel for their rightful dues, set in motion the administrative machinery to grant them the arrears of pay and allowances which were confiscated when they were released from prisons in India.”

It was Generals of the British Indian army (before 1949) and Indian Army (after General Cariappa took over in January 1949) who opposed tooth and nail any concessions for INA personnel. Both Viceroy Field Marshal Wavell and C-in-C Field Marshal Auchinleck were unwavering in their commitment to take strongest possible disciplinary action against the Azad Hind soldiers. It was a natural reaction of the generals as the soldiers of regular army and INA were on opposite sides.

However, the political leaders of the day, especially Pt. Jawaharlal Nehru, and later Indira Gandhi having the capacity to see the ‘bigger picture’ and appreciate national sentiments took the right decisions in favour of the brave officers and men of the INA. Gen. Mohan Singh acknowledges this in his magnum opus.

“Destiny had so willed that what the father had begun the daughter accomplished when she became the Prime Minister of India. It was during the Premiership of Indira Gandhi that the arrears of payments were made and the INA men were honoured as freedom fighters.”

 

The great game in Afghanistan

 

 

Source: By Harsha Kakar: The Statesman

 

 

Afghanistan’s geo-strategic importance is well established. It borders nations of the Central Asian Republics (CAR), Iran, Pakistan and China. Iran and Turkmenistan (part of CAR) have the second and third largest reserves of natural gas, which the West seeks to tap. Afghanistan’s rugged terrain and fierce tribal loyalties ensured that it was never completely subdued by any power. Among those who tried was Alexander the Great, Britain, Russia and the US. Afghanistan thus gained the moniker ‘graveyard of empires’.

 

The US entered the country to avenge 9/11. The defeat of the Taliban under the aegis of a US-led offensive was thought to be a turning point for the country. However, it was not to be. The Taliban received support and sanctuary in Pakistan and continued to battle the US-led coalition. Despite having remained ensconced for over 15 years, the US still cannot claim victory and withdraw with honour. Unable to defeat the Taliban and knowing success is unlikely with financial costs burgeoning, it planned a tactical withdrawal. It presently maintains a force with a larger training element and limited operational role.

 

The US’ relationship with Pakistan since its entry into Afghanistan has witnessed ups and downs. Perceptions in the US vary from continuing to engage Pakistan in the hope that it would ultimately curb the Haqqani network and the Taliban, to employing economic and diplomatic leverage to compel it to act.

 

Pakistan on the other hand has always considered Afghanistan as its backyard and resented any Indian involvement there. Further, with an anti-Pak government in Kabul, its strategic leverage cannot exist. None of the US strategies have so far worked. Both terror groups still possess safe sanctuaries and get support from the ‘deep state’. Recently a group of US think tanks strongly recommended that the US administration be more firm with Pakistan, if it wishes to witness a sense of peace in the region.

 

The war in West Asia led to the expansion of the ISIS into Afghanistan. It began enhancing its cadre strength by inducting disgruntled members of the Pakistan Taliban (TTP) and nationals returning from Syria belonging to CAR and Russia. To further complicate the issue, Taliban declared war on the ISIS. This decision compelled powers in the region to change their perception and consider the Taliban as the lesser of the two evils, simply because it remains focused only on Afghanistan, without any territorial ambitions, and counters the ISIS. Individual national interests of major powers have begun to dominate the security situation in Afghanistan.

 

Russia, Pakistan and China, formed an alliance and held discussions on Afghanistan’s future, ignoring the nation itself and other stake holders. They preferred supporting the Taliban to the extent of even considering removing some of its leaders from the UN’s designated list of terrorists. Their latest conference in Moscow included India, Iran and Afghanistan, ignoring the US, which continues to operate in the country. The conference aimed at seeking options to counter the ISIS threat. Of the group of six, four (China, Russia, Pakistan and Iran) consider Taliban as the lesser evil and are in parleys with them. Such interference in Afghanistan has converted it into the latest international playground.

 

Afghanistan and the US have no option but to battle both Taliban and ISIS to ensure survival of the nation state. Pakistan, China, Russia and Iran is willing to let Taliban control part of the country or be a part of the government so long as it keeps ISIS at bay. For India, Taliban is the larger threat as it has Pakistan’s support. Further, it would never permit India to play a dominant role in the country. India is presently secure from the ISIS threat with Pakistan remaining a buffer state.

 

For Russia, ISIS expansion in Afghanistan, if unchecked, would threaten it and CAR countries as there are Chechen, Uzbek, Tajik and Kazakh fighters operating as part of it. History is also known to repeat itself. Russia was compelled to withdraw from Afghanistan because of support provided to the Taliban and al Qaida by the US and Pakistan. Presently by supporting the Taliban, possibly even with weapons, it highlights a similar bleak future for the US.

 

China is concerned with the presence of East Turkestan Islamic Movement (ETIM) fighters in the ISIS, who could enhance the ongoing militancy in Xinjiang province. Thus, it is willing to support the Taliban, if it continues to oppose the presence of the ISIS. Iran has its own reasons for supporting the Taliban. It is insecure with an ISIS build up close to its borders and keen to counter US presence in the region. Playing a strategic game, it supports Kabul with development funds as also the Taliban, thus ensuring whichever government occupies the seat in Kabul, it would remain Iran friendly. Simplistically put, individual perceptions dominate the Afghan scenario.

 

The West, India and Afghanistan would never support this initiative as it goes against their principles. Europe is facing the brunt of Afghan refugees and adhering to this concept would only enhance their problems and increase internal differences. Therefore, the thinking of this grouping is doomed to fail in the international fora. However, nothing can prevent individual nations from continuing their parleys with the Taliban for securing their own national interests.

The sudden interference in internal matters of Afghanistan by powerful nations would only embolden Pakistan to continue with its support to the Haqqani network and the Taliban. It would also justify their policy of ‘good versus bad terror’ groups. Further, as the 2017 summer offensive of the Taliban is expected to get underway in coming months, it would be Pakistan’s population that would face the brunt. It is now up to the Trump administration to adopt a firm policy towards Afghanistan and Pakistan as also reach an agreement with Russia to ensure the degradation of the Taliban first and ISIS later. It has been decades since the Afghan turmoil began and it is time for the nation to witness a semblance of peace and stability.

An unequal world

 

Source: By Jaydev Jana: The Statesman

 

There exists a highly unequal distribution of incomes and assets within countries and between countries. While billions of people enjoy longevity and good health, more than one billion people live in abject poverty, struggling for mere survival every day. The poorest of the poor face the daily life-and-death challenges of insufficient nutrition, lack of healthcare, unsafe shelter, lack of safe drinking water and sanitation. A grotesquely unequal distribution of income means millions of children run the risk of dying from easily treatable diseases. Economic inequality has always been a subject of discourse.

As far back as 1971, Jan Pen, a Dutch economist, came up with a graphical representation of income inequality within the British economy. To draw his famous graph, the heights of all adults were imagined as proportionate to their income and they were made to take part in an hour-long parade in the ascending order of their income. Pen then described what observers of average height would see. It would be a parade of dwarfs and at the very end some giants would appear. The first marchers, the owners of loss-making businesses, the jobless, and the working poor will not be visible at all. Their heads are below the ground. By even halfway through the parade, the marchers are still quite short. It takes about 45 minutes before the marchers are as tall as the observer. In the final stage, the giants will dominate. With six minutes to go they are 12 feet tall; when the highest earners walk by, right at the end, each is more than two miles tall.

A Pen’s Parade graph is true in every economy. It can be useful in showing how incomes, and income distribution, change over time. Growth in output hardly guarantees growth in equality. Global inequality is worse than at any time since the 19th century. The latest annual report of Oxfam, entitled ‘An Economy for the 99 per cent’ states that the bottom 50 per cent of the world’s population has just 0.2 per cent of the world’s wealth, and since 2015 the leading billionaires, six of whom are from the US, together have more wealth (net wealth of $426 billion) than what the bottom 50 per cent of the world’s population owns.

There are 18 billionaires in sub-Saharan Africa living alongside the 358 million people living in extreme poverty. In India today 57 bilionaires control 70 per cent of its wealth. More precisely, the top one per cent has gained more income than the bottom 50 per cent put together. The 2016 list of Indian billionaires published by the US business magazine Forbes reveals that India has a total of 84 billionaires.

Contrary to popular belief, many of the super-rich are not ‘self-made’. Over half the world’s 62 richest billionaires were as wealthy as half of the world’s population. However, the number has dropped to eight this year (2017) because of the revelation that poverty in China and India is worse than previously imagined, making the bottom 50 per cent even worse off and widening the gap between rich and poor. Indeed, global inequality has reached levels not witnessed for over a century.

To summarize a country’s current status of economic development and to classify countries in their respective levels of such development, the World Bank and other international organisations heavily rely on a single measurement called the gross domestic product (GDP) per capita. This indicator is not a comprehensive measure of economic development, because there are many other important indicators of well-being. In view of sustainable development’s commitment to social inclusion and broad-based prosperity, it is imperative to take into account not just a country’s average levels of income, but the variation of incomes across households and individuals within a country.

On the face of it, the average income can be fine. But it is ‘just fine’ because a few people are rich and the rest of the country is poor, then the state of affairs is not so fine after all. The popular measure of inequality of income within the country is the Gini coefficient (also known as Gini index), which ranges from zero to one. A score of zero means perfect equality: everyone earns the same. A score of one means that one person gets everything. Real societies are of course somewhere in between.

Individual income inequality measured by the Gini coefficient has consistently risen. The Indian growth-inequality paradox is easy to pin down ~ the wealth that India creates is not evenly distributed. According to the International Monetary Fund, India’s Gini coeffieient rose to 0.51 by 2013 from 0.45 in 1990, mainly on account of rising inequality between urban and rural areas as well as within urban areas. As of November 2016, India is the second most unequal economy in the world. Far from trickling down, income and wealth are being sucked upwards at an alarming rate. The IMF has recently warned that India faces the social risk of growing inequality.

The data has emerged from a decade of empirical research on growth; reveal that at the global level income and wealth are increasingly concentrated among the small number of countries in the world, leaving the rest to deteriorate in deprivation. Concentrations of wealth and poverty have an ethnic and geographic dimension. Inequality must be reckoned in terms of the global North and the global South, and the reality of imperialism, multinational corporations, class, race, caste and patriarchy. The low-income countries are heavily concentrated in two regions: tropical Africa and South Asia, with a few other low-income countries scattered in other parts of the world. ‘The 99 per cent’ is predominantly represented by hundreds of millions of the dispossessed suffering under varying conditions all over the world, but mainly concentrated in the global South.

 

Reforms in intel agencies

 

 

Source: By Subir Bhaumik: Deccan Herald

 

 

When Prime Minister Narendra Modi appointed veteran intelligence officer Ajit Doval as his national security advisor, much was expected in the field of intelligence reforms. Some hoped for follow-up action on a private member's bill for intelligence reform placed in Parliament by former information and broadcasting minister Manish Tiwari. Modi has repackaged and gone ahead with several UPA initiatives but intelligence reforms have not been one of them. The Institute of Defence and Strategic Analyses' (IDSA) task force on intelligence reforms is also gathering dust like the Naresh Chandra committee's report on defence and security related reforms.

 

That is indeed surprising for a government that claims to prioritise national security and favours a tough response on issues like terrorism. 'Surgical strikes' can never be surgical without precise intelligence. Their effectiveness does not merely depend on technology-provided details like location, strength and movement but on quality human intelligence on aspects like enemy morale and intent (or change of it). Launching a 'surgical strike' from a hi-tech war room is a great photo-op but unless the impact of the strike and possible impact on enemy decision-making is accurately gathered from `Humint' (human intelligence assets) and professionally analysed, it would serve little long-term operational purpose.

 

Many Indian intelligence professionals have opposed parliamentary oversight because they feel our politicians are not yet competent to handle sensitive information like the US Senate Intelligence Committee does. But the legendary IB-RAW (Intelligence Bureau and Research and Analysis Wing) spymaster late B B Nandy had strongly pitched for parliamentary oversight because he felt that it could ensure quality performance, accountability and most importantly, integrity in use of considerable secret funds.

 

The first challenge for intelligence reforms in India is to provide an appropriate legal basis to the agencies. The government should consider separate laws for the different intelligence agencies considering their focus and tasks. In the case of Harman & Hewitt vs UK, the European Court of Human Rights observed in 1992 that the 'lack of statutory basis could be fatal for the claims of an intelligence agency to justify that its actions were in accordance with the law'.

 

All major intelligence agencies have been provided with appropriate legal status despite their clandestine origins: the CIA's legal bedrock is the National Security Act, 1947; the Russian FIS has the Law on Foreign Intelligence Organs, 1996; the British MI-5 and MI-6 are based on the Security Services Act, 1989 and the Intelligence Services Act, 1994, respectively. It is time India's IB as well as RAW and other such agencies have a comprehensive legal basis.

 

The RAW's former special secretary Rana Banerji, who headed the IDSA task force on intelligence reforms, had pointed out that though some aspects of intelligence activity remain outside the purview of the RTI Act, any further denial of legal status to these agencies could jeopardise their future operations.

 

The second challenge would be to systematise intelligence recruitment. For far too long, our intelligence has depended on the Indian Police Service to provide the intelligence leadership of the country. It is time to have a national secret service, selection to which should be through a separate UPSC (Union Public Service Commission) exam that tests subject knowledge, language skills and intelligence aptitude.

 

Doval has rightly said that Indian intelligence officers lack sufficient aggression - the aptitude tests could check that out among the aspirants. The toppers could be absorbed by RAW as it deals in foreign intelligence; much like the Indian Foreign Service absorbs the civil service toppers. The rest could be sent to IB and the National Investigation Agency (NIA). A separate part of the entrance should be for technical services like NTRO (National Technical Research Organisation) and such other agencies that can be designed to attract the best of the technical talent for defending India. This is not to deny the service some IPS officials - like Doval and Nandy - have rendered to Indian intelligence. But it is time to break free of its police legacy and institutionalise recruitment and training to create world-class spy agencies.

 

Specialist talent

 

The RAW was once ridiculed as `Relatives and Associates Wing' but that must stop once and for all. There must be some scope for induction of specialist talent for cells like nuclear issues. They must come from the best available academic talent in the universities and not from the 'relatives and associates' pool.

 

Selection should be followed by quality training at different levels of the service and also periodic integrity checks to avoid Ravinder Singh-type defections or Unnikrishnan type honey-trap inspired double-cross. An intelligence agency is only effective when it is not penetrated by a rival and to ensure this, systemic checks and balance systems must be in place. Waking up to a threat only after the horses have bolted is no good. Also, our agencies should also have sufficient aggression in dealing with renegades as much as when dealing with the opponents.

 

The third challenge is to design a structure for oversight covering executive, legislative and financial domains. Quite a lot of best practices across the world are available for our lawmakers to sheaf through - but finally, the system in place should make sense to Indian conditions. If India has to adopt a tough neighbourhood policy, as Modi promises to, the quality of our intelligence services will hold the key to success. Without competent intelligence gathering and operational capability, there is no way India can walk the tough talk. There is no magic in this business.

Assets in foreign countries take time to develop. It is the same in sensitive conflict-ridden parts of the country. Much of the output depends on case officers who handle these assets and the systemic oversight (in-house and external) which looks out for discrepancies. Without structural reform to ensure quality intelligence, India's tough talk on national security will remain a pipedream.

The reality of the India-China strategic dialogue

 

 

Source: By Jayachandran: Mint

 

 

In assessing the restructured strategic dialogue between India and China, which concluded, the key question is: What does a strategic relationship between the two countries look like? What are its driving factors and core objectives? On paper, India and China have had a strategic partnership—specifically, a strategic and cooperative partnership for peace and prosperity—since 2005. But scratch the surface of that agreement’s rhetoric and diplomatic language and this much becomes apparent: There are, as of now, no true areas of strategic convergence.

 

The bilateral focus has largely been on the settlement of the boundary question, followed by the strengthening of economic and trade ties. This was carried through into the 2013 vision for the future development of the India-China strategic and cooperative partnership, signed during Premier Li Keqiang’s India trip. It was only somewhat expanded in 2015 during Prime Minister Narendra Modi’s visit to China. Notably, the joint statement issued in the latter case outlines how and where the two countries seek to coordinate their positions and work together to shape the “regional and global agenda and outcomes”.

 

Besides, foreign secretary S. Jaishankar, who led the strategic dialogue from India, has chosen to frame the consultation within the global actor’s paradigm. He said, “The international situation is in flux...one thing that we could do together was a more stable, substantive, forward-looking India-China relationship which would inject a greater amount of predictability into the international system”. But this vision is more aspirational than tangible—the possibility of a US that draws down its role in the Asia-Pacific region under Donald Trump notwithstanding.

 

Instead, there are several areas of strategic competition (the Indo-Pacific region) as well as some of outright hostility (particularly with regard to the border issue). And Afghanistan is increasingly proving to be a fault line. Last week, Russia hosted a conference on Afghanistan’s future that had India, Iran, Pakistan, China and Afghanistan as attendees. But this came after a similar conference in December last year that had only China, Pakistan and Russia. Neither Kabul nor New Delhi were pleased—and even less so when the conference’s outcome was a statement explicitly endorsing the Taliban as a bulwark against the spread of the Islamic State’s Afghan branch. This runs counter to Kabul and New Delhi’s stance; they have repeatedly warned about the dangers of the “Good Taliban, Bad Taliban” approach.

 

That said the evolution of Beijing’s stance on terrorism in and emanating from Pakistan—obviously, an area of prime concern to India—is interesting. There are two factors shaping Beijing’s outlook here. The first is that it is investing around $50 billion to build the China-Pakistan Economic Corridor (Cpec), starting in Xinjiang province and winding its way south through Pakistan to terminate in Gwadar port on the Arabian Sea coast. The security of Chinese investments and personnel in Pakistan is of utmost importance to Beijing—and it is of immense strategic value, giving it an alternative to the vulnerable Strait of Malacca for energy and trade shipping. Secondly, Cpec is an integral part of Beijing’s “One Belt, One Road” vision—important for the economic integration of the restive Xinjiang province. And some of the terror groups in Pakistan have links with separatist outfits in Xinjiang.

 

China’s reaction to the 2007 Lal Masjid siege showed that when its interests are threatened, it has no compunctions about publicly exerting pressure on Pakistan. Little wonder that it is again believed to be pressuring the Pakistani establishment to crack down on terror groups, if behind the scenes this time. Reportedly, Pakistan’s new spy chief visited China soon after he took office so as to allay Beijing’s concerns. Weeks later, the Chinese state commissioner for counter-terrorism visited Pakistan to review the security of the Cpec project. Incidentally, the latter visit came days after Pakistan placed Hafiz Saeed under house arrest—supposedly under American and Chinese pressure.

Still, the question from New Delhi’s perspective is whether such a crackdown would extend to anti-India groups such as the Lashkar-e-Taiba and Jaish-e-Mohammed. The answer is in the negative. As of now, China has no strategic rationale to push for a crackdown on these groups. It could, hypothetically, find itself compelled to pressure Pakistan here too if these groups create trouble on a scale that threatens regional stability—something on the 26/11 scale, for instance. This would, again, threaten its economic interests. But this is hypothetical at best—thin gruel indeed.

Woes of urban relocation

 

Source: By Bharat Dogra: The Statesman

 

Urban relocation projects generally involve shifting of urban poor people from central parts of a city to the outskirts. Despite reservations expressed by eminent urban planners, such relocation of slum dwellers and the homeless have become more frequent in several cities. It may be interesting to look at the experience of some groups whose relocation goes back a decade or more to see if with the passage of time they have become more comfortable.

A large number of slum-dwellers living in Banuwal Nagar in North-West Delhi were shifted about 24 kms away to G and H blocks of JJ Colony, Bawana in Outer Delhi about a decade ago. A recent visit to this colony revealed that in terms of the most important issue of livelihood, people are now in a worse position than they were.

Umesh Singh, a community leader who works as a mason explained: “In our previous home I was so well connected that I would just be roaming around and someone would call me for work. Employment was easy to get because we the service providers were living close to the more prosperous people who needed these services and could pay adequately. Then they resettled all the service providers together but in this area away from the main city. Who will use their services?

He adds: “It is not only we as construction workers, carpenters and plumbers who have suffered. When we meet upper and middle class people of colonies where we worked earlier they tell us that they also now have much more difficulty in getting various services. So if our problems have increased and their problems have also increased then who has benefited from this resettlement?”

Livelihood problems have worsened particularly for women domestic workers. As they could not get work at the new place, many of them still go to their earlier employments in and around Saraswati Vihar about 24 km away. There is no direct bus. They have to leave home at or even before 6 a.m., grabbing a roti or two before leaving if they can get the time for this. Earlier they could return home for some rest in the afternoon. Now they do not get this rest because the home is so far away. They manage to return home only late in the evening and sometimes at night.

People complain bitterly that they still do not have access to usable toilets and have to walk a long distance for open defecation and that too in insecure conditions as an area near a canal is prone to crime. Several of them have been victims of crime. Overall sanitation is very poor as this is contracted out. Piped drinking water is not available and people have to make their own arrangements.

There is another settlement in Bawana JJ colony in front of K and L blocks. These are people who were evicted from Paschim Vihar in west Delhi, a distance of about 30 km, about a decade ago but unlike the relocated people of G and H blocks they do not have legal papers for this relocation. They have built small huts and planted trees, creating a new colony on their own. They do not have ration cards. They do not have sanitation and water facilities either and have to walk a considerable distance for a toilet. School education particularly for girl students is difficult as they have to go a long way and face harassment from goons. The nearest government hospital is also a long distance away.

Most of them are construction workers but some of them also work in nearby industries. People say that there are several industries but the prevailing wage rate of Rs. 4,500 to Rs. 5,000 per month for an eight-plus hour working day is so low that no one can survive on this. But keeping in view the poverty and desperation of people and the lack of alternatives these industries keep the wage rates so low and manage to employ desperate workers, particularly women.

A Block jhuggi in Shahbad dairy is another cluster of people shifted mostly from Shalimar Bagh area more than two decades ago. Despite the fact that the young men of this colony have grown up here, their existence remains precarious and devoid of essential facilities. There are no usable toilets and women going to relieve themselves in the open face the threat of not just harassment but even molestation. Due to lack of drainage, some houses suffer from water logging. Water supply depends on a tanker and hence is very uncertain. The nearest school needs repairs so children are being sent to a village school further away.

Hence it is clear that relocation often increases the many sided problems and vulnerabilities of urban poor households. While there is a clear need for changing urban policies which emphasise relocation, there is also need for immediate action to meet at least the most pressing and basic needs have relocated people.

 

Jaywalking at the RBI

 

 

Source: By Surjit S Bhalla: The Financial Express

 

 

Amidst much fanfare, and great expectations, India joined the rest of the world by forming a monetary policy committee (MPC). This six-member committee started operations in September 2016 and has been involved in three major policy announcements — one each in October and December 2016, and one in the recently concluded meeting on 8 February, 2017. While early, it is time, nevertheless, to evaluate how good this experiment has been and whether the MPC decisions have been in the interests of the nation.

 

Each of the three MPC meetings has wrong-footed analysts and economists. At the October meeting, the RBI reduced the policy rate by 25 bp to 6.25 per cent. Only 40 per cent of market analysts expected a rate cut. Both in December and February, more than 90 per cent of analysts expected a rate cut of at least 25 bp — yet, the RBI held rates steady. Further, at the February meeting, the RBI surprised the market with an ultra-hawkish change in its policy stance from “accommodative” to “neutral”. Though there is no easy way to verify, it is extremely unusual for any central bank to go so much against consensus — and do so for three consecutive meetings.

 

Some eager RBI supporters see the RBI’s policy stance of moving to neutral as enhancing the credibility of the institution; some others (including myself) see this not-logically argued decision as the most damaging blow to the credibility of the RBI. Why consensus of a rate was cut near-universal for the December and February meetings? Because the RBI had explicitly communicated at the October rate cut meeting that it was targeting a real policy rate of 125 basis points above its target inflation rate of 4 per cent. Given the present policy rate of 6.25 per cent, this means that if an inflation rate of 4.5 per cent is considered sustainable, then the policy rate should be no more than 5.75 per cent, that is, there was at least 50 bp of rate cuts at the February meeting.

 

In October 2017, when the RBI did cut interest rates by 25 bp, the three preceding headline y-o-y inflation numbers available to it, for June, July and August 2016, were 5.8, 6.1 and 5 per cent respectively. The August inflation number just met the new RBI criteria and the RBI reduced the policy premium to 125 bp to justify the rate cut. If the RBI had not reduced its real target rate from 1.75 per cent to 1.25 per cent, the MPC would not have been able to cut rates.

 

At the February meeting, the RBI had the following latest inflation levels: 4.2, 3.6 and 3.4 per cent for October, November and December respectively. Even the pre-demonetisation October inflation level of 4.2 per cent (if considered sustainable) would have justified rate cuts up to 100 basis points. So, why no rate cut at the December (and February) meeting? The nation wants to know.

 

The MPC answer for no rate cuts and a move towards neutral from accommodative was provided by Governor Urjit Patel in a TV interview on 17 February: “The committee felt that inflation, excluding food and fuel, is something that has been stubborn since September-October and has shown little sign of coming decisively below 5 per cent.”

 

Monetary policy makers concentrate on core inflation because it is a good yardstick for measuring “sustainable inflation”: Which means that core inflation has to be correctly measured? Unfortunately, core inflation is mis-measured in India because the CPI for Fuel and Light includes kerosene and electricity, but excludes petrol. True core would exclude food, fuel and petrol. The reason monetary policy should be concerned with true core is because the excluded items are broadly outside the influence of monetary policy. For example, it is a bit difficult to argue that the RBI’s repo rate policy can affect OPEC’s pricing policy for oil!

 

To correctly evaluate RBI policy, we need to keep the following definitions in mind: (False) India Core Inflation = CPI Inflation excluding (Food + Fuel) inflation; and, (True) Core inflation, worldwide (and at RBI) = CPI Inflation excluding (Food + Fuel + Petrol) inflation

 

The RBI is well aware of the problem of wrongly measured core inflation in India. Hence, it has continuously warned, and emphasised, that inflation excluding food and fuel is not an adequate representation of core inflation. For example, in the September 30, 2014 Policy Statement (PS), the RBI warned that “CPI inflation excluding food and fuel decelerated to its lowest level in the new series, mainly on account of sharp disinflation in transport and communication”. In the February 3, 2015 PS, the RBI said: “Inflation excluding food and fuel declined for the second consecutive month in December. This was largely on account of the declining prices of transport and communication since August, reflecting the impact of plummeting international crude oil prices.”

 

A true core price index can easily be constructed by excluding the effects of petrol consumption from the transport and communication (TC) basket (TC has a weight of 8.59 per cent in the CPI and petrol consumption weight is 2.4 per cent), and adding it to the basket of Fuel. (CSO, please note and correct the Fuel index to include petrol, and exclude petrol from transportation and communications).

 

The correct and incorrect core inflation series, along with petrol price inflation, are reported in the chart. Note three important facts. First, twists and turns in false core inflation seem to be closely aligned with twists and turns in petrol price inflation. The stickiness in false core reflects the fact that crude prices have been rising at a fast clip (65 per cent y-o-y increase in the price of crude oil, 15 per cent increase in the domestic price of petrol).

 

Second, true core inflation, at 4.8 per cent in December 2016 (even lower at 4.7 per cent in January 2017, a data point the RBI did not have on February 8) is on a declining trend and at the lowest level since the new CPI series started in 2011. Third, extending the CPI series backwards to 1990 (using CPI-IW, CPI for industrial workers) yields the result that CPI minus petrol inflation was at 3 per cent in January (and 3.3 per cent in December) — the lowest level since June 2005.

 

These facts counter the post-truth core inflation scenario painted by the RBI. All six members of the MPC, somewhat co-incidentally, cite the wrong core index to justify no rate cut. All three RBI members, and Ravindra Dholakia, support the changed policy stance as revealed by the minutes of the February 8 meeting— Ghate, Dua: Core Inflation remains sticky; Dholakia: Core inflation continues to be high, around 5 per cent. Patra: The recent sharp disinflation is entirely driven by transitory forces. Underneath, there is a broader-based firming up of inflation pressures.

 

Excluding both food and fuel, inflation was 4.9 per cent. Moreover, all of these levels have become persistent since September 2016. Acharya: Core inflation has been more or less sticky in recent months. Patel: Core inflation has remained sticky, notwithstanding the transitory impact of demonetisation on consumption demand.

For a central banker, there is no bigger “crime” than to be logically, and knowingly, inconsistent. The MPC conclusion is disingenuous, because its members knew and know that inflation excluding food and fuel is mis-measured in India. So, let us see the incredulous RBI policy decision in the correct and credible true light. Inflation, and true core inflation, is at the lowest levels in at least six years, and possibly, the last 11 years. It has been steadily declining for the last several years, and especially the last six months. Yet, the MPC unanimously emphasises that core inflation is sticky at an unacceptable level. How can inflation be both sticky, uncomfortably high, and the lowest in history? Again, the nation wants to know.

End of jobs

 

Source: By Govind Bhattacharjee: The Statesman

 

A friend, who was an office-head, once recounted a poignant story about his stenographer. A vendor had come to his office to demonstrate the use of speech-recognition software that would allow a note to be dictated directly to the computer. After the vendor had left, the steno asked him, “Sir, does that mean my services are no longer needed?” Stenographers are no longer recruited in any office.

In 2014, writing software called Quill was developed by an American company; it could convert numerical data into a written story, accomplishing within seconds what it took experienced analysts weeks of synthesis and analysis of huge volumes of financial data. In 2014, Associated Press began publishing a large number of articles about US corporate earnings most of which were written not by humans but by robot journalists. These are increasingly getting better, sharper, and more analytical.

All work can be divided into four types -- routine jobs that require the same task repeated over and over again as opposed to non-routine jobs, and cognitive jobs that require the use of brains as opposed to manual jobs that mostly requires the use of our bodies. Routine labour stagnated way back in 1990, having been replaced by technology, and many manual jobs followed suit. In the 21st century, cognitive and non-routine jobs are being automated at an increasing pace, with exponential progress in developing robots that can learn by themselves.

The future world will be one in which machines can perform all the four types of jobs at a fraction of the cost of human labour. It is creating the spectre of a jobless growth for our youth. In a 2013 study on the impact of computerization upon jobs, Oxford scholars Carl Frey and Michael Osborne found that algorithms for big data had started to penetrate higher cognitive domains like pattern recognition and to substitute labour in a wide range of non-routine cognitive tasks.

Computers have already started replacing jobs in easy-to-automate areas like transportation, logistics, production, services, sales, and construction. Harder domains will also be captured during the next wave of computerisation, putting at stake jobs in management, science, engineering, and even arts. They have predicted that nearly half of all American jobs will be lost to automation by 2033. It will probably be faster.

Advanced robots are now being produced with enhanced features, mobility and dexterity, allowing them to perform a much broader range of tasks requiring superior cognitive skills. Demands for industrial robots are increasing exponentially. Their worldwide sales in 2015 touched 225,000 -- 27 per cent higher than in 2014. This is sending shock waves across industries and occupations, impacting wages and educational requirements for jobs.

The periodic slump in the demand for skilled labour is nothing new in human history. In the nineteenth century, manufacturing technologies substituted for skilled labour through simplification of tasks by introducing the electricity-driven, partly-automated assembly-line production system. As a result, real wages stagnated while the output per worker expanded due to increased efficiency. In response, the educational system became highly specialised, imparting complex skill-sets that, aided by the phenomenal expansion of transportation networks and the consequent increase in market size for the products, increased productivity manifold. This in turn led to a rise in real wages and improvement in the living standards in industrial societies after the middle of the nineteenth century.

The computer and the internet revolution of the twentieth century again dented middle-income jobs, requiring higher levels of education for recruits and giving an unprecedented spurt to innovation and creativity. As productivity increased with the replacement of labour by technology in some industries, attracting more companies to enter those industries and in turn forcing more automation, job-contraction and lowering of wages. Industries that could not be automated shifted to low cost low wage countries, like Bangladesh and Vietnam.

But alas, tasks that were hitherto considered non-susceptible to computerisation are now increasingly being taken over by the computers, e.g., textiles and footwear. German sportswear firm Adidas opened its first automated factory last year and revealed the robot-made Future craft shoes. As Nicholas Carr, author of The Glass Cage: Automation and Us said, “Jobs, that used to be very complex, idiosyncratic and interesting, start to look more like computer operator jobs, just putting in data and interpreting screen readouts.” Computerisation is no longer confined to low-skill and low-wage occupations it once used to be.

The emerging portends are truly ominous. Truck driving is a popular job in the USA. It is easily available, pays decently and has so far remained immune to automation. But no longer are Google, Uber and Tesla all working on self-driven vehicles, and once operational, it will immediately send 3.5 million drivers and 5.2 million additional personnel instantly out of employment. Uber is already testing self-driving cars on the roads of San Francisco and so is Google (Self Driving Cars now known as Waymo -- way to mobility). The ultimate goal is to replace all human drivers with robots threatening millions of drivers’ jobs.

If this is not scary enough, consider the following: The e-commerce giant Amazon now has 30,000 fulfillment robots working in its warehouses worldwide; it expects to replace all employees who perform repetitive tasks with machines in the not-too-distant future. The Shanghai-based Cambridge Industries Group, one of China’s leading suppliers of telecom equipment, is replacing two-thirds of its 3,000-strong human workforce with robots, and eventually creating energy efficient ‘dark factories’ where robots would work in darkness to save power.

Hardware store Lowe’s has just deployed a series of autonomous retail service robots called ‘Lowebots’ at 11 stores in the San Francisco Bay area; these multilingual “bots” are performing customer service and inventory management functions. Pizza Hut has just opened a concept store in Shanghai with robot waiters, which welcome customers, show them to their seats, take orders and serve drinks.

Walmart is testing warehouse drones that fly around its distribution centres monitoring inventory levels and flagging up low stock or missing items. Many of the world’s major companies spanning practically all sectors, like Nestle, SNCF, Foxconn, Marriott Hotels, ING, DHL, Nissan, Fidelity Investments, Zara etc., are transferring the bulk of their workload to robots.

In January 2016, the World Economic Forum had brought out a report on “The Future of Jobs”. It predicted that the Fourth Industrial Revolution, brought about by artificial intelligence and machine-learning, robotics, nanotechnology, 3-D printing, genetics and biotechnology, will cause widespread disruption to business models and labour markets over the next five years, with enormous changes in the skill set requirement in the new age, costing a net loss of five million jobs in 15 of the world’s largest economies. These include Australia, Brazil, China, France, Germany, India, Italy, Japan, Mexico, South Africa, Turkey, UK and USA, plus the ASEAN and GCC groups, which together account for 65 per cent of the global workforce.

These are conservative predictions and the disruptions caused will vary widely across industries. It is only in this context that economists are arguing for decoupling income from work for providing a universal basic income to all to immunize the human workers from the negative effects of automation. Switzerland, Finland, the Netherlands, and Canada and even India are toying with this idea, the costs and benefits of which are now being assessed.

As technology continues to invade the labour market, education and businesses must get ready for upskilling, reskilling and collaborating rather than talent hunting. Tools made us human, and the tools we now have, artificial intelligence and computers, are the most powerful tools ever invented. In our networked age, innovation, adaptability and speed would be essential for survival, to equip our youth with a new set of cognitive skills combined with creative and social intelligence to work alongside robots. Mere cognitive skills aren’t enough in the robot economy. As Geoff Colvin asserts in his book, Humans Are Underrated, the new age industry needs empathy, people who can understand what the client or customer really feels and wants. This will require social skills and creativity which robots don’t have, not as yet at any rate.

And that requires a new curriculum and pedagogy for our schools, colleges and universities. We may be the fastest growing economy, but the growth is going to be jobless as it has been in recent years, and governments can’t do much. In the days to come, the clamour for reservation in government and private sector jobs is only going to be louder and more contagious, not only from Patels, Jats, Marathas and Ahoms, but from all communities, backward or forward.

 

Designing the bad bank of India

 

Source: By Rohan Chinchwadkar: Mint

 

To solve the problem of bad loans in India, the Reserve Bank of India (RBI) has introduced multiple schemes over the last few years: Flexible Refinancing of Infrastructure (5/25 scheme), Asset Reconstruction (ARC), Strategic Debt Restructuring (SDR), Asset Quality Review (AQR) and Sustainable Structuring of Stressed Assets (S4A).

However, the “twin balance sheet problem” persists. On the banking side, stressed assets now stand at over 12% of the total loans in the banking system. Public sector banks, which own almost 70% of banking assets, have a stressed-loan ratio of almost 16%. Banks are unwilling to take on fresh risks which have led to negative growth of real credit, the lowest in over two decades. So, what now?

A new solution gaining popularity is the “bad bank”. The concept is simple: Divide a bank’s assets into two categories, good and bad. By separating the two, a bank can avoid the contamination of good assets by the bad. It also alleviates the concerns of investors and helps the bank focus on future lending by improving health and transparency.

However, while the concept of a bad bank is simple, the implementation can be quite complicated. A variety of organizational and financial choices are available while designing a bad bank. When RBI deputy governor Viral Acharya was asked if setting up a bad bank could be an effective solution to India’s problem of bad loans, he said that it could help “if designed properly”. So, how to design the bad bank of India? A report by McKinsey & Co., “Understanding The Bad Bank”, proposes four organizational models for a bad bank based on two decision factors.

First is to decide whether or not to keep the bad assets on the bank’s balance sheet. Moving assets off the balance sheet is better for investors and counterparties and provides more transparency into the bank’s core operations. But it is more complex and expensive. Second, is to decide whether the bad-bank assets will be housed and managed in a banking entity or a special purpose vehicle (SPV). Depending on the choices, the four basic bad-bank models are: on-balance-sheet guarantee, internal restructuring unit, special-purpose entity and bad-bank spin-off.

On-balance-sheet guarantee

In the on-balance-sheet guarantee structure, the bank gets a loss-guarantee from the government for a part of its portfolio. The model is simple, less expensive and can be implemented quickly. However, the transfer of risk is limited and bad assets continue to remain on the bank’s balance sheet, clouding its core performance. This approach is useful for stabilizing a bank in trouble.

Consider the case of the Indian Overseas Bank (IOB). As of the quarter ended December 2016, the bank reported gross non-performing assets (NPAs) of 22.42%, net NPAs of 14.32% and a net loss of Rs554 crore. Since May 2016, the stock price of IOB has dropped more than 20%. An on-balance-sheet guarantee by the government can quickly restore confidence in the bank.

Internal restructuring unit

An internal restructuring unit is like setting up an internal bad bank. The bank places bad assets in a separate internal unit, assigns a separate management team and gives them clear incentives. This works well as a signalling mechanism to the market and increases the bank’s transparency, if the results are reported separately. It is clear that this model relies on the existing management team to restructure assets. However, if the existing management is looking to kick the can down the road, as is the case for many banks in India, this is not an effective solution.

Special-purpose entity

In a special-purpose entity structure, bad assets are offloaded into a SPV, securitized and sold to a diverse set of investors. The model works best for a small, homogeneous set of assets. The bad loan problem in India is concentrated in a few sectors like infrastructure and basic metals. An effective solution would be to transfer bad loans from these distressed sectors into sector-specific SPVs, securitize them and sell them in an auction. If the pricing is determined by the market, PSU bankers will receive less blame for losses to the exchequer.

Bad-bank spin-off

A bad-bank spin-off is the most familiar, thorough and effective bad-bank model. In a spin-off, the bank shifts bad assets into a separate banking entity, which ensures maximum risk transfer. But the model is complex and expensive because it requires setting up a separate organization, equipped with a skilled management team, IT systems and a regulatory compliance set-up. Also, the problem related to asset valuation and pricing will be the most severe in this model. The Public Sector Asset Rehabilitation Agency (PARA) proposed by the Economic Survey 2016-17 falls in this category. However, given the complexity and cost of the model, it is recommended to be used as a last resort, after all other initiatives fail.

Setting up a bad bank is a very complex process. It is not a silver bullet which will solve all the problems in the Indian banking sector. More importantly, a one-size-fits-all approach to designing a bad bank can be very expensive and less effective. Just setting up one PARA will not be enough to get the banking sector back on track. The most efficient approach would be to design solutions tailor-made for different parts of India’s bad loan problem.

 

Truth lies and videotape

 

Source: By Ruchir Joshi: The Telegraph

 

Perhaps it might be more accurate to say that we've always been living in a 'non- truth' world, with the occasional surge of 'fact- connected truth' barging in. It may even be more precise to say that different sections of society, the world over, have lived at different levels of 'fact' and 'truth' since time immemorial.

For centuries, rural areas all over the world were self- contained bubbles, occasionally penetrated by different outside truths and facts, whether in the shape of natural disasters or invasions. As the world became more connected, as information became more widely available, as the means of disseminating it became more mechanized — and, nominally, more equitable — an idea coalesced that human civilization was, finally, moving away from superstition, baseless beliefs and rituals to a new world ruled by rationality and science and the supposed corollary of those two, this notion called humanism.

We know, of course, that with human beings things are never that simple. As we know, the Enlightenment that developed in Europe was a triple- edged sword, or perhaps, to really stretch the weapon metaphor, a cluster bomb carrying a mix of sharp objects, both good and bad. On the one hand, Enlightenment brought us an extensive articulation of human rights, models of adult franchise, progress in medicine, the establishment of healthcare systems and so on; on the other hand, for the longest time, this Enlightenment seemed chiefly to be reserved for the people who'd first thought of it, with the 'lesser breeds', the conquered non- Europeans, the enslaved ones, the colonized ones, the ones labelled 'savage', all being denied the privilege of being treated on equal terms; on yet another hand, this very same Enlightenment was used as a justification by the colonial powers, which varnished their rape and robbery with the veneer of 'bringing civilization' to the subjects of empire.

History, as ever, played its complex games, and this Enlightenment, coupled with other, non- European, systems of justice and fairness ( not always acknowledged), ushered us into the 20th century. But just because human beings are capable of being rational doesn't mean they like being rational. One great proof of this was the madness that gripped Europe — the birthplace of the Enlightenment — in the shape of the First World War.

If some self- serving sanity ruled for a period after that mass slaughter, it was radically overturned after just two short decades with the start of the Second World War. Across the turbulence of time, it's useful to remember that before Joseph Goebbels, well before the Soviet and American propaganda machines, there was the whole post- truth or non- truth of ideology and misinformation that fuelled the mass butchery between 1914 and 1918.

When M. K. Gandhi returned to India in 1915, he was already well bruised and hardened by the bullying lies of the white supremacists in South Africa as well as by the gross cruelty of imperialism that depends on these lies for a moral alibi. While others have understood intellectually that empire generally operates in similar ways the world over, MKG understood the kinship between South Africa and the British raj viscerally.

In South Africa, he had made up methods of resistance, experimenting, trying and failing before succeeding partially, often unexpectedly. Returning here, he developed this admixture of rationality and irrationality. There are two contradictory things Gandhi counted on throughout the rest of his life: the huge ' irrational' religiosity of the Indian masses and the completely rational and relentless spread of information that the growing international press provided him.

In other words, he mobilized a mass, including a rural population, that had forever lived in a post- truth or non- truth time, and unfurled that mobilization before the witnessing eyes of that segment of the world which was widening its definition of Enlightenment, of justice, of humanity and the ( quite rational) notion that all humans are created equal. Faced with the most monumental system of 'non- truths' and ' alternative facts' the world had seen, Gandhi deployed the insistence of truth.

Crucially, Gandhi welded this notion of satyagraha to the principle of non- violence. At a deep spiritual level, whether of Christianity, Vaishnavism, Jainism or Buddhism, he was both right and correct in saying that doing violence to another being should be abhorrent to a god- fearing human being, that you should not do unto others what you do not wish to have done to you. However, he was also spot on in terms of rational strategy: every perpetrator of violence has a story, a narrative of self- justification, whether public or secret, just for himself; every act of counter- violence, of revenge, retaliation or ' pre- emptive strike', likewise, comes with a counter- narrative; in this messy war of narratives, it's supremely easy, nay absolutely necessary , to create a non- truth, a post- truth, a cascade of ' alternative facts'; the only way to de- fang an opponent, who is superiorly equipped both in arms and in the means of creating and propagating a supporting narrative, is to give him little opportunity to use his arms, to give him as little fuel as possible for powering his narrative.

Gandhi declared his principles to be eternal, but he chose his strategies in the context of his time. Mass mobilization for swaraj began at a time when there was no radio, and when telephones were rare, but it could not have happened before the telegraph system or the rail network were put in place in India — the communications for organizing depended hugely on these two things.

The radio network, even as it spread, was controlled entirely by the State. However the press was a different matter, as were the radio networks of other powerful countries which broadcast different news from what All India Radio let through. There were various other factors, such as the independence not only of the British press but also of the newly formed BBC, and there were elements of chance and luck, just as there were huge mistakes and miscalculations before we finally arrived at Independence.

Now, how does one contemplate non- violent resistance in the age of Modi and Trump? At a time when the notions of a free press and unfettered media are under attack from so many different directions? How do you answer the argument that says 'when Gandhi fasted he made front- page news, but today when an adivasi or someone from the Northeast fasts the media ignores them?' Well, for one, it's not a good idea to take up arms just because an ambush with AK- 47s makes for sexier headlines.

Likewise, if Trump or one of his vile associates advocates opening fire on unarmed protesters, it's crucial that the protesters be really unarmed, the odd handgun going off towards the police will not help shut down machine guns and armoured cars. If the people in power in this country keep buying up the news groups while simultaneously attacking contrary reporters as presstitutes, we will need to have some answers that are out of the box and outside mainstream media.

In the meantime, it's good to remember that what the press and TV say does have an effect — there is a reason why every politician in power gets highly incensed by what is carried in the vernacular press and channels, even as they blithely ignore what the English language press says. Equally, it's important not to lose sight of the fact that across the history of the last hundred- odd year’s truth and alternative truth, facts and anti- facts, have always been seesawing in conflict. We may be at a new bend in the river of history but our fore bearers have traversed a lot of similar topography.

 

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