The age of exits

 

 

Source: By Mathew Kurian: Deccan Herald

 

 

Political philosopher Eric Hobsbawn achieved recognition for his books that described historical epochs in the evolution of social and political institutions. Some of his better known books include The Age of Revolution and The Age of Empire.

 

Incidentally, 2017 will make 100 years since the Bolshevik revolution. The Bolshevik revolution symbolised the political consensus that was emerging about the role of the state in managing imbalances between the ownership of capital and the mechanisms for distribution of wealth and income in society. The collapse of the Berlin Wall in 1989, some people argued, was a culmination of a historical process whereby the mobility of labour and capital had been released from its previous restraints.

 

The fall of the Berlin Wall symbolised the end of tyranny and emphasised the benefits of democracy and public participation in the affairs of the government. Political scientist Francis Fukuyama writing at a time when the Soviet Union had collapsed and regulatory barriers were being torn down pointed to the end of history. Political evolution had reached its zenith, he claimed, with the victory of democracy and capitalism. In the aftermath of the fall of the Berlin Wall, the norm of free and fair elections and the rule of law gained credence from Bogota to East Timor.

 

The credibility of international organisations such as the World Trade Organisation (WTO) was bolstered by the membership of former Communist regimes. The culture of consumerism seeped into the bloodstream of social life further enhancing the appeal of free market capitalism. If recent events such as the Make America Great Again campaign can serve as a guide, they offer the strongest indications yet that the principles that guided our vision of a multi-polar world have begun to unravel.

 

Further, the gradual rise of xenophobic tendencies and political movements the world over in recent years points to the reality of disgruntled masses for whom globalisation has been accompanied by a loss of economic security. To understand the current tendency of nation states such as the United Kingdom to withdraw from the European Union or of others to question the legitimacy of international agreements such the North American Treaty Organisation (NATO), it is useful to examine the underlying tenets of an old debate about the merits of the state and the market.

 

Like in earlier phases of globalisation - for example, during the age of the empire - the flag followed an expansion in trade. Capital from the first world moved first exclusively in search of commodities and gradually in search of low-cost production platforms in Asia or South America. However, the Internet, by making it possible for workers to collaborate virtually along the global supply chain, masked changes in productivity, consumption and wages. For example, expansion in outsourced jobs to Vietnam, Sri Lanka or Czech Republic drove increases in productivity, consumption and wages there.

 

Against this backdrop of countries in the global south and former Communist Bloc that were coming of a low base, economies in the western world were experiencing a secular decline in real wage rates. The seriousness of this trend was masked for a considerable period of time due to developments such as access to cheap housing loans and availability of cheap manufactured goods from countries such as China.

 

The great deceleration in growth in emerging economies following the 2008 economic crisis was an indication of the "coupling" that had resulted between developed and developing economies since the collapse of Communism in 1989. The tendency to deregulate in the wake of the fall of the Berlin Wall therefore increased inequality while reducing poverty in aggregate terms especially in the developing world. But in the western world, widening inequality and stagnant wages led voters to believe in even greater numbers that large bureaucracies in Brussels and Washington DC were out of touch with the reality of higher concentrations of wealth in the hands of the few.

 

Political lobbies

 

This disgruntlement is reflected perhaps in the sharp decline in older forms of political mobilisation such as membership in parties and trade unions. The growing power of political lobbies has galvanised populations to question instead whether the state has gone too far in advancing public welfare in the form of healthcare provision or entitlements in the form of a minimum wage.

 

A significant number of people believe that differences in party ideology cannot explain the disconnect between elected officials and needs of their constituents. Average consumers in the western world, on the one hand, are being confronted with increasingly more expensive choices in the market place due to a withdrawal of cheap credit that fuelled a decade of consumerism. On the other hand, in emerging economies where the debate about the comparative benefits of state and market is still at an initial stage, the influence of a decade of foreign investment flows is beginning to take its toll on political decision making.

Witness for example, the recent withdrawal in India from its insistence on income tax collections through the introduction of Value Added Tax (VAT) that has the potential to undermine the role of the state in advancing the interests of the poor. The age we currently live in has narrowed our differences in terms of economic aspirations but at the cost of ever-growing differences in terms of what we aspire for as citizens of nation states and cities and as expatriates serving global supply chains. Greater mobility of labour and capital and the discontent it has fuelled is challenging foundational processes of citizenship and state formation as we have known them for a good part of the 21st century.

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India’s manufacturing opportunity

 

 

Source: By Jayachandran: Mint

 

 

The effects of years of rapid growth are being felt increasingly in China’s manufacturing sector. According to a recent report by research group Euromonitor International, Chinese factory wages—which have trebled over the past decade—now exceed those of almost every major Latin American country and are closing in on pay levels in the weaker Eurozone countries. Thus far, China has leveraged its abundant supply of cheap labour to emerge as the world’s leading manufacturing destination. But the fact that labour is no longer so cheap could potentially have multiple ramifications.

 

Low-cost production jobs, especially in the apparel, toys and cheap electronics sectors, are now moving out to other countries, mostly in South and South-East Asia, which have a steady supply of cheap labour. There is research to suggest that India could potentially be one of the countries to benefit from this realignment in manufacturing trends.

 

Last year, the Global Manufacturing Competitiveness Index published by Deloitte Touche and the Council on Global Competitiveness indicated the rise of the “Mighty Five”—Malaysia, India, Thailand, Indonesia and Vietnam (MITI-V). According to the report, this group will emerge as the “New China” by 2020 given its abundant supply of cheap labour, favourable demographic profiles, and market and economic growth. And the World Bank echoed similar sentiments in a 2016 report.

 

These are intriguing possibilities. The government aims to increase the share of the manufacturing sector in gross domestic product (GDP) to 25% from its current level of 15%, supporting just 12% of the workforce. But there is a considerable gap between India’s manufacturing potential and its realization. After all, the United Progressive Alliance had set up the National Competitiveness Council in 2004 with similar aims, to little effect. And that wasn’t the first time the government of the day has missed the bus on this issue.

 

The ‘Mighty Five’—Malaysia, India, Thailand, Indonesia and Vietnam—will emerge as the ‘New China’ by 2020 given its abundant supply of cheap labour, favourable demographic profiles, and market and economic growth. There are three key challenges. The first is the gamut of internal problems. These are well-known and include numerous regulatory roadblocks, unfavourable land and labour laws, inadequate transport, communication and energy infrastructure, among others.

 

A combination of these internal problems has also caused a structural imbalance: Small and medium enterprises, not large factories, dominate the Indian economic scenario. About 131.29 million people are employed in as many as 58.5 million establishments, according to the sixth economic census released last year. Some of these enterprises are “babies” that can be scaled up but many may be “dwarfs” that will not grow. If India has more dwarfs than babies, this will prove to be a serious drag on its manufacturing potential; only large enterprises have the economies of scale that can make India truly competitive.

 

Second, India faces stiff competition from South-East Asian and other South Asian countries which may be smaller in size but are better integrated into global supply chains. Indeed, the Economic Survey 2016-17 sounds a warning here. It starts by noting that “India is well positioned to take advantage of China’s deteriorating competitiveness”, particularly in the apparel and footwear segments. But it goes on to say: “The space vacated by China is fast being taken over by Bangladesh and Vietnam in the case of apparels; Vietnam and Indonesia in the case of leather and footwear. Indian apparel and leather firms are relocating to Bangladesh, Vietnam, Myanmar, and even Ethiopia. The window of opportunity is narrowing and India needs to act fast if it is to regain competitiveness and market share in these sectors.” India faces stiff competition from South-East Asian and other South Asian countries which may be smaller in size but are better integrated into global supply chains

 

The third challenge is perhaps the most difficult—global technological and geo-economic changes. The former has led to an increasing quantum and quality of automation at every level of the manufacturing process. Robots are fast becoming the norm on factory floors, and it is only a matter of time before they take over today’s labour-intensive sectors. The latter, meanwhile, points to greater trade protectionism and shortening global value chains—both inimical to the sort of manufacturing success China has enjoyed.

 

It has been argued that India should not be locked into becoming a low-cost manufacturing hub—the world’s shop floor, as China is sometimes pejoratively called—but shoot for high-value manufacturing and innovation.

This, however, is not a binary choice. The latter is important—but the jobs needed to keep pace with a young population as vast as India’s, and with its depressing socio-economic indicators, cannot come entirely from the top end of the manufacturing value chain. Low-cost manufacturing is important for India. To harness the opportunity, the present government—and its successors will have to deal with a complicated tangle: internal reform; deft diplomacy and trade negotiations; and the vexed question of how to deal with the jobless growth that automation will bring, diminishing the advantage of labour arbitrage. It will not be easy.

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Racist Raj ~ II

 

 

Source: By Abhik Roy: The Statesman

 

 

The racist colonial discourse of the British Raj often described the seemingly unbridgeable chasm between the colonizer and the colonized as a gap between the “civilized” and the “savage,” “logical adult” and the “irrational child,” and the “manly Englishman” and the “effeminate Hindu.” This last stereotype became a justification of British colonial rule in India. The British determined that since Indian men were weak, lacking in both the physical and mental ability to defend their nation, the British were justified in protecting India.

 

The popularity of the idea of Hindu men being effete in British colonial literature can be traced back to the 18th century, with ill-founded theories of climatic influences in which oppressive heat and humidity were considered to be the main reason for lack of manliness, resolve and courage among Hindu men. Like many other British colonialists, Robert Orme, British historian in the eighteenth century, concluded that along with the inhospitable climate, the staple diet of rice, an “easily digestible” food obtained with minimum labour, was “the only proper one for such an effeminate race.” In their efforts to glorify the Raj, British imperialist rhetoric often constructed English colonialists as heroes who, by defeating the natives, would create order out of chaos and disorder in India. From a British standpoint,

 

Indian men, especially upper caste Hindus, were effeminate men who had been vanquished and turned into British subjects. James Mill wrote in The History of British India in the early 19th century that the Hindus were endowed with some unique characteristics at the core of which lay effeminacy and dishonesty. According to Mill, since Hindus could not deal with the “manliness and courage of our ancestors,” the vanquished Hindus with their “slavish and dastardly spirit” were ready to use “deceit and perfidy” to achieve their goals.

 

British colonial discourse was replete with images of Hindus as being weak and ineffectual who were devoid of any form of masculinity. Thomas Babington Macaulay wrote about the effeminacy of Hindus in blatantly racist terms: “The dark, slender, and timid Hindoo [sic] shrank from a conflict with the strong muscle and resolute spirit of the fair race, which dwelt beyond the passes.”

 

Sir George MacMunn, the author of The Martial Races of India, ridiculed Gandhi, wondering how some Hindus, namely Rajputs, turned out to be brave Indian warriors when Hindus in general were such weaklings: “Who and what are the martial races of India, how do they come, and in what crucible, on what anvil’s [sic] hot with pain spring the soldiers of India, whom surely Baba Ghandi [sic] never fathered?” MacMunn chastised Gandhi and the “mass of (Indian) people (who) have neither martial aptitude nor physical courage, the courage that we should talk of colloquially as ‘guts.’ ”

 

He blamed the “varying religions, early marriage, premature brides, and juvenile eroticism” of Hindus for their lack of martial spirit. Similarly, among British colonial representation of Hindus, the most common construction of the effeteness of Indians was the Bengali babu who worked for the British bureaucracy. In fact, it was the Bengali babu (often spelled as baboo to suggest a link with the primate) who was the butt of crude, vulgar and blatant racist attacks by English men and women in their writings.

 

It was the Bengali man’s “extraordinary effeminacy” as displayed by his diminutive physique, flowing dhoti that resembled a woman’s dress, and worship of goddesses that best explained for the British colonialists why he, and by extension, India, needed to be guided by the strong, assertive hand of the superior masculine English race. Rudyard Kipling frequently depicted the Bengali civil servant as a fool who, when confronted with crisis, would inevitably flee the scene and left the “real” men to salvage the situation.

 

Macaulay seems to have dwelt considerably on the effeteness of Bengali babus. In one of his essays, he described a Bengali babu thus: “The physical organization of the Bengalee [sic] is feeble even to effeminacy. He lives in a constant vapour bath. His pursuits are sedentary, his limbs delicate, his movements languid. During many ages he has been trampled upon by men of bolder and hardier breeds. Courage, independence, veracity, is qualities to which his constitution and his situation are equally unfavorable. . . . [He] would see his country overrun, his house laid in ashes, his children murdered or dishonoured, without having the spirit to strike one blow.”

 

In another essay, Macaulay described the Bengalis in the most denigrating ways: “Whatever the Bengali does he does languidly. His favourite pursuits are sedentary. He shrinks from bodily exertion; and though voluble in dispute and singularly pertinacious in the war of chicane, he seldom engages in personal conflict, and scarcely ever enlists as a soldier. There never perhaps existed a people so thoroughly fitted by habit for a foreign yoke.”

 

Very much akin to Macaulay, George Warrington Steevens’ depiction of the Bengali is not only overtly racist but also dehumanizing: “By his legs you shall know the Bengali … The Bengali’s leg is either skin and bone, the same size all the way down, with knobs for knees, or else it is very fat and globular, also turning in at the knees, with round thighs like a woman’s.

 

The Bengali’s leg is a leg of a slave.” British colonialists did not spare the Hindus from South India, who were also portrayed as non-martial by them. General Frederick Sleigh Roberts, for example, writing about South Indian Hindus, concluded that the “ancient military spirit had died in them, as it had died in the ordinary Hindustani of Bengal and Mahratta of Bombay, and that they could no longer with safety be pitted against warlike races, or employed outside the limits of South India.”

 

Similarly, Sir O’Moore Creah considered South Indian Hindus to be “timid both by religion and habit, servile to their superiors and tyrannical to their inferiors, and quite unwar like.” Within these examples that are overtly racist, one can see the emergence of a common narrative form.

 

The British colonial discourse begins with the establishment of the Hindu male as a weak, lazy, cowardly, slave. But not only does the colonial discourse establish a negative construction of Indian males’ character and physicality, it also links this negative construction to military inaction thus, providing a justification for the British colonial rule as the able protector of India. While the British racist ideology endeavoured to construct the Hindu men as effeminate, we must not forget that this ideology was ably challenged by several Indians, notably Bankimchandra, Swami Vivekananda, and Tilak, among others.

The warrior monks in Bankimchandra’s famous nationalist novel Anandamath embodied military valour while Swami Vivekananda sought to construct a Hindu manhood that was a unique combination of Christian manliness and Hindu ideals of spiritual power. Tilak, on the other hand, used Shivaji, who was known for his indomitable courage and military prowess, for his political mobilization.

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Racist Raj -- I

 

 

Source: By Abhik Roy: The Statesman

 

 

The British colonial ideology was constructed on racist terms and the underlying argument behind their racist ideology was that British rule conferred the benefits of a superior civilization to Indians whose lives were mired in illiteracy, poverty, superstition, and strife. So, all their accomplishments in the areas of government and law, education, city planning and architecture, among others, primarily served to mark out the British Raj as a “moral,” “civilized” and “civilizing” regime. The following quote from Tory politician, Lord Randolph Churchill, captures not only the British imperial hubris but also the overt racist beliefs behind the British colonial rule in India:

 

Our rule in India, is, as it were, a sheet of oil spread out over a surface of, and keeping calm and quiet and unruffled by storms, an immense and profound ocean of humanity ... and it is our task, our most difficult business, to give peace, individual security and general prosperity to the 250 millions of people ... to bind them and to weld them by influence of our knowledge, our law, and our higher civilization, in process of time, into one great, united people ... That is our task for India. That is our raison d’être in India. That is our title to India.”

 

The British colonialists had to create a vision for the Raj for India’s past as well as its future. Without such a grand vision they could not justify their rule to themselves, much less shape an efficient bureaucratic system in a foreign land. One major category that the British applied to define India was the notion of “Oriental despotism.” This overarching term had major implications for the British colonizers for enacting laws for India because it meant that India had no laws. Hence Indians had to be taught to be law-abiding people.

 

The other category the British used to define Indians was that they were corrupt and given to extortion and mendacity. As Lord Cornwallis had boldly proclaimed, “Every native of Hindustan, I verily believe, is corrupt.” By establishing despotism, lying and chicanery as the norm of Indian behaviour, the British reaffirmed their moral superiority over their Indian subjects. Sir Francis Young husband, who led the British force into Tibet in 1904, explained the British colonial ideology thus: “No European can mix with non-Christian races without feeling his moral superiority over them ... It is not because we are any cleverer than the natives of India, because we have more brains or bigger heads than they have, that we rule India; but because we are stronger morally than they are.”

 

In the realm of governance, many British legal scholars found ample justification for Britain’s authoritarian rule over the Indian subcontinent, arguing that the exercise of rule in India could not always be applied within the bounds of English law because Indians were culturally and racially different. In Georgie Porgie, Rudyard Kipling argued: “You will concede that a civilised people who eat out of china ... have no rights to apply their standard of right and wrong to an unsettled land.” For Kipling, “the men who run ahead of the cars of Decency and Propriety, and make the jungle ways straight, cannot be judged in the same manner as the stay-at-home folk.”

 

Thus, for Kipling, the British colonialists were men of a special breed who had the divine responsibility to bring about civility, law and order in a nation marked by chaos, lawlessness, and corruption, where normal standards of morality simply could not be applied. Kipling and British colonialists of his ilk laid down the ideology of the British Raj, which was racist, arbitrary, and amoral. It was based on expediency and designed to create a permanent schism between the colonizer and the colonized.

 

While the British could not give Indians the substance of their English law, which they deemed impractical for India, the British thought they could at least bring its “spirit.” The underlying assumption was that by doing so the British could fulfill their avowed civilizing mission in India. James Fitzjames Stephen, legal member of the Viceroy’s Council from 1869 to 1872, summed up the notion of the moralization of English law in colonial India:

 

The establishment of a system of law which regulates the most important parts of the daily life of the people constitutes in itself a moral conquest more striking, more durable, and far more solid, than the physical conquest which rendered it possible. It exercises an influence over the minds of the people in many ways comparable to that of a new religion ... Our law is in fact the sum and substance of what we have to teach them. It is, so to speak, a compulsory gospel, which admits of no dissent and no disobedience.”

 

In order to implement an imperialist ideology in India, the British focused with unrelenting fervor on the education of Indian subjects. Indian students were taught not only English literature but they were also persuaded into believing the inherent superiority of the English race. Gauri Viswanathan’s seminal work, The Masks of Conquest: Literary Study and British Rule in India, shows quite forcefully how the British education system in India, whose ideas came from Thomas Babington Macaulay and William Bentinck, was rampant with thoughts about inequality of races and cultures that were propagated in the Indian classroom as part of the curriculum and pedagogy. Thomas R Metcalf indicates in Ideologies of the Raj that while English literature was not a part of the English curriculum, the British colonialists ensured that their Indian subjects got exposed to the “high culture” that the English literature supposedly represented as part of their grand plan to civilize the culturally inferior Indian subjects.

 

The British succeeded in propagating an imperialist ideology not only by direct domination and physical force of their Indian subjects, but they also utilized other persuasive means to maintain the hegemonic processes of British colonial power. Edward Said reminds us in Culture and Imperialism that at the most visible level there was a physical transformation of the imperial realm, which involved the “reshaping of the physical environment, or administrative, architectural, and institutional feats such as the building of colonial cities (Algiers, Delhi, Saigon)....” These massive projects, whether designing and building new cities, museums or roads, were undertaken by British colonialists solely for the purpose of leaving a lasting legacy of the “civilized” British culture with their Indian subjects, which would subsequently become an integral part of their colonized mind and collective memory.

So, in essence, British colonizers devised a system whose purpose was not only to ensure the effective reinforcement of their racist ideology, which propagated the superiority of their culture and race over Indians, but also maintained intellectual power to dominate their Indian subjects and to deny them the same rights and privileges on the basis of cultural and racial differences, which the British enjoyed in their own country.

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The empowered taxman

 

 

Source: By Mukesh Butani: The Financial Express

 

 

The people of India have decisively voted for a change”, was FM Jaitley’s opening statement in his maiden Budget speech, in 2014. The ‘change’ is indeed echoed by his government transforming the economic and tax policies, with the reforms boosting the confidence of domestic and international investors. The government with a massive mandate has had an uphill task to manage expectation of investors and business community and deliver on its promise of providing a non-adversarial tax regime, simplification of tax rules, tax reforms, corruption free economy, improve India’s ranking on ease of doing business and the list goes on.

 

In parallel, the crackdown on tax evaders has featured on top of the government’s agenda. Key steps initiated by the government include formation of SIT on black money, passage of Black Money (offshore assets) Bill, notification of Benami Transactions (Prohibition) Act, income disclosure scheme of 2016, successful negotiation of tax treaties with Cyprus, Singapore and Mauritius (viewed as avenues for tax evasion), demonetisation of high-value currency notes, commitment towards G-20 BEPS initiative, electoral reforms, etc—all of these signal a paradigm shift in purging ill-gotten wealth by raising the punitive costs and consequences of malfeasance.

 

Budget 2017 introduced a series of amendments in the Income-Tax Act, expanding the enforcement powers of the taxman. The most noteworthy of these are the amendments to sections 132 and 132A of the I-T Act, which govern search and seizure operations. Under the existing provisions, the tax administration—based on ‘reason to believe’ or ‘reason to suspect’—is authorised to carry out search and seizure.

 

The recording of ‘reasons to believe’ and ‘reasons to suspect’ and the requirement to disclose such reasons to the taxpayers has been a contentious issue, with multiplicity of judicial precedents over the years—this has created further ambiguity on disclosure of such reasons. The Supreme Court in 2015, in the case of Spacewood Furnishers, ruled that in order to bar a taxpayer from gaining ‘undue advantage’, the ‘reasons for belief’ would not be communicated to the taxpayer (subject to such search) where the authorisation for search has been granted.

 

The Court further stated that the requisite material may have to be disclosed to the taxpayer after the completion of search and seizure, at the stage of commencement of the assessment proceedings. This was to ensure that the taxpayer rights are protected and give him an opportunity to challenge the search before the appellate authorities.

 

Budget 2017 seeks to put to rest all controversies by affirming the apex court judgment and has introduced an Explanation to section 132(1) and 132(1A) to provide that the ‘reason to believe’ or ‘reason to suspect’ shall not be disclosed to any person or any authority or the Appellate Tribunal. The said amendments impact taxpayer rights and do away with accountability of tax officials conducting raids; however, these have been justified by citing reasons of “confidentiality and sensitivity” and saying that such reasons would be disclosed before the courts. These amendments have been given retrospective applicability, thereby validating past actions of the search officials.

 

Another noteworthy amendment is the power conferred on the investigating officials to provisionally attach taxpayers’ assets during a search, and hold on to it for six months without completion of assessment, in pursuance to the search. The amendment seeks to have been introduced under a presumption that the ‘raided’ taxpayers are guilty, unless proven otherwise. Understandably, the proposed amendment would preclude a raided taxpayer from disposing off assets/ property, an overriding concern for the government.

 

However, this provision can cause undue hardships to taxpayers. Similarly, another amendment introduced to section 153A of the I-T Act, allows tax authorities to reopen assessments for previous 10 years if any search leads them to undisclosed deposits or property of over R5 million. The limitation period was previously six years. Other amendments proposed in the Budget that enhance the powers of tax authorities include:

 

*extending the powers to call for information to tax authorities below the Commissioner level;

 

*widening the scope of ‘survey’ to include places where activities for charitable purposes are undertaken, which was earlier restricted to place of business or profession;

 

*empowering the Central Board of Direct Taxes to make a scheme for centralised issuance of notice calling for information, etc.

 

The Explanatory Memorandum to the Finance Bill, 2017 classifies these changes as ‘rationalisation measures’, aimed at protecting the interest of revenue, safeguarding recovery in search cases and removing ambiguities created by judicial pronouncements. True, the amendments proposed are made with a noble intent—to crack the whip on tax-evaders who take shelter under technical anomalies in the law and get away without paying any taxes. In the same breath, the amendments confer unbridled powers to officials, and have seemingly tipped the scales in favour of the law enforcement agencies.

 

On the flip-side, such unfettered powers without fastening accountability have raised concerns in business and investor community. Such fears are not unfounded given the patchy record of tax administration in enforcement of law. If the government, in its wisdom, pushes for passage of the Bill, it must now ensure that such sweeping powers are tempered with more judicious use of search and seizure operations, coupled with checks and balances such that taxpayer rights are protected.

 

The third report of the Tax Administration Reform Commission (TARC) suggested that search and seizure operations should be limited to cases where hardcore tax evasion is suspected. To ensure this, economic intelligence should be better developed and exchanged. Non-invasive surveys based on credible information and a technology-based tax collection system, which is non-intrusive, should be used to identify non-filers. This can be done effectively by concentrating on clusters of business units, especially in developed cities and new emerging cities and sectors known for the use of undocumented/cash transactions.

Taxpayers’ concerns can be addressed through effective implementation of the new provisions and ensuring that the provisions are not misused. An orderly system to ensure that the officers do not act on whim, unsubstantiated suspicion or rumours needs to be put into place. Measures such as implementation of a strict internal code for granting authorisation, administering a strict audit mechanism, releasing timely instructions, updating of search manuals, guidance on code of conduct for search officials, etc, can go a long way in ensuring that taxpayers are not harassed. These measures would restrict tax officials in exercising such powers judicially and also build a sense of accountability. The government, through such measures, needs to strike a balance in fulfilling its agenda of targeting exceptional cases of tax evasion and, at the same time, providing a non-adversarial tax regime to most taxpayers.

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Will we throw baby out with the bath water?

 

Source: By Bharat Dogra: The Statesman

 

The possibility of a universal basic income was widely discussed before the presentation of the union budget this year, and although the budget did not have any room for this the debate has lingered on. So it is important to get a proper idea of what the proponents of the idea have in mind. An important indication of this was provided on February 24 by the Chief Economic Advisor Arvind Subramanian. As he has been closely associated with this idea from the beginning of the debate on this issue, it is important to understand his views on this subject.

Speaking to students of the Indian Institute of Management Ahmedabad he said that the cost of providing universal basic income is so huge that it cannot be provided as an add-on to the existing welfare programs of the government. If this is attempted, government finances will go bust, he said. Therefore the concept of universal basic income can be implemented only after withdrawal of many of the existing welfare programmes.

This had been suggested by analysts earlier also - that if the government introduces universal basic income, it will at the same time do away with some of the most expensive and seemingly well-entrenched welfare programmes. But now we have the Chief Economic Advisor stating this in very clear terms and so there should be no remaining doubts on this score.

However there is still some uncertainty about which among the welfare schemes may be targeted for removal if and when the government makes up its mind about introducing universal basic income. The Chief Economic Advisor appeared to provide a hint of this when he said that the most deserving people are at present left out of the national rural employment guarantee scheme.

Keeping in view the fact that among various welfare schemes the food subsidy bill is very high, the public distribution system may also be targeted for removal or significant reduction before the introduction of a basic universal income. Of course all this is not going to be easy because laws governing rural employment guarantee and food security are in place. But at the same time the government has given clear indications of a big cut down of welfare schemes if and when universal basic income is introduced, and so we have to consider carefully what are the likely areas of cutback in such an eventuality. A key question is whether the withdrawal or scaling down of some of these welfare measures can be justified as a necessary price for the introduction of universal basic income.

The fact that this is not going to be easy was conceded by Subramanian himself when he stated at Ahmedabad, “It is very easy to introduce new programmes…but it is very difficult to withdraw the existing ones.” How easy or difficult this is can be debated at a different level. The more basic question is whether this is desirable from the point of genuine and overall welfare of the people particularly the weaker sections.

Welfare schemes have been introduced in response to various needs. These have been frequently reviewed and debated and important reforms have been introduced on this basis. Over a period of time certain expertise has been built up regarding the implementation of these schemes. Serious studies taken up in at least some states reveal that the public distribution system could be reformed. People have got used to obtaining certain benefits under these schemes and as they are increasingly better informed about these and other rights-based schemes, they can be better expected to avail their benefits in future.

Hence the costs in terms of withdrawal of important schemes and entitlements can be very high. Further we do not know exactly what kind of universal basic income scheme will be introduced and what its scale and dimensions would be. People may be deprived of some well established welfare schemes and then what is introduced may turn out to be less beneficial on balance. So people need to be very cautious and determined to protect their real interests and rights.

With all their limitations and problems, the rural employment guarantee scheme and the public distribution system on the whole play an important role in meeting the basic needs of weaker sections particularly in difficult times. The same can be said of some other important welfare schemes. Criticisms of these schemes can be at two levels. One is constructive criticism with the aim of trying to improve the scheme to provide better benefits to more and more deserving people.

At another level there is a different kind of criticism aimed at discrediting and eventually dismantling a pro-poor scheme. The way in which a wave of the second kind of criticisms has been unleashed suggests that the ground is being created for the eventual withdrawal or significant scaling down of several pro-poor schemes. Hence it is important to examine the various proposals very carefully from the perspective mainly of protecting the rights and entitlements of weaker sections of society.

 

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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.

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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?

 

 

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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.

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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.

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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.

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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.”

 

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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.

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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.

 

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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.

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