Waffle but No Models of Monetary Policy: The RBI and Financial Repression

Waffle but No Models of Monetary Policy:

The RBI and Financial Repression (A Stock Market on Steroids)

by

Subroto Roy
First published in The Statesman, Perspective Page, October 27 2005

If the average Indian citizen feels flummoxed at hearing all the fancy words from official spokesmen and the talking heads on TV and the expensive pink business newspapers — words like “credit offtake”, “liquidity”, “reverse repo rate” “medium term”, “inflation mandate” etc — there is help at hand. It is as likely as not that the purveyors are as flummoxed themselves even while they bandy these terms about in what has been passing for monetary policy in India in recent years. No one has any reliable economic models backed by time-series data to support all the waffle.

Here is an example.

The Government (and specifically the department of the Finance Ministry known as the RBI) will have us believe that the decline in the value of money that has been occurring in India has been at less than 5% per annum.  According to official figures, the average Indian’s purchase of consumable goods and services (food, housing, clothing, transport etc) has been costing more every year by merely 5% at the very most. “What you can buy for Rs. 1000 in one year, you have to pay just Rs 1050 to buy the next year” is what the Government will have us believe. But is anyone’s personal experience of the diminishing value of the domestic currency in India consonant with what official spokesmen say inflation happens to be?

You may well reply that you cannot quite recall what Rs. 1000 bought for you last year. Precisely so. Nor really can anyone else — and that mutual collective loss of memory on the part of the public is something that India’s Government (like many other governments across time and space) has been literally banking on!

Consider a few very simple calculations. Suppose a citizen earns an annual income of Rs. 100,000, and an honest Government told him/her to pay total taxes (from both income and expenditure) of 10%. Clearly Rs. 90,000 would be left for the citizen to spend on his/her various choices of consumption or saving afterwards. If the citizen could assume the value of money was constant (inflation was 0%) then this Rs. 90,000 in one year would buy the same amount of goods and services the next year. But instead we may be living in a political system where the Government officially taxes very lightly, and then dishonestly taxes very heavily by reducing the value of money invisibly, i.e. by inflation. The Government may make the official tax-rate 8% and the actual inflation-rate 15%. The citizen who has Rs. 100,000 will then pay Rs. 8,000 in nominal taxes, but the Rs. 92,000 that is nominally left over for his own consumption and savings, will be made to decline by a further 15% every year.

I.e., a further value of Rs.13,800 (15% of Rs. 92,000) would effectively disappear as an invisible tax from the household budget due to the decline in the value of money, without the household being any wiser. In real terms, the household would have only Rs. 78,200 left.

Where would that extra value disappear to? Clearly, the beneficiary of this invisible extraction of real resources from household budgets would be the only entity that is able to compel the decline in the value of money, namely, the Government, which holds monopoly power to print the pieces of paper (at zero cost) that we call “money” and which we are forced by circumstances to use to expedite our real transactions of goods and services. Roughly speaking, that is how the Government’s own budget deficit gets financed in India.

I.e., the Government of India has its own (massive) expenditures — not merely on things like roads and bridges and military tanks and submarines, but also on ministers and bureaucrats’ wages etc., besides enormous interest payments on past debts incurred by the Government. If the expenditures exceed the visible revenues raised from taxation, as they have done by perhaps 40-50% or more every year for several decades, then the difference gets bridged by printing more paper money over which the Government has had a monopoly.

In India, a total of perhaps 18 million people work in all branches of government and a total of perhaps 12 million people work in the entire organised private sector. That makes 30 million people — with 4 dependants each, that accounts for perhaps 150 million people in the country. That leaves another 850 million people in our population of 1,000 million. Everyone, whether in the 150 million or the 850 million, rich and named or poor and anonymous, has had to use for his/her real transactions of goods and services the paper that the Government produces as money. By causing a decline in the value of this paper every year by x%, everyone who holds this paper, as well as assets denominated in this paper, suffers an invisible taxation of x% without quite realising it. The real revenue the Government of India extracts in this way is what has allowed it to balance its own books.

Furthermore, in the Indian case, what is said to be the inflation-rate and the actual inflation-rate experienced by ordinary people, may well be two different things. The wage-bill of those 18 million people employed by government agencies are linked directly to what official spokesmen say the inflation-rate is, so if the actual rate being experienced was higher and was announced as such, so would have to be that wage-bill and public expenditure! Official spokesmen may tell us the decline in the value of money has been merely 5% or less a year, so what cost Rs. 1000 last year costs Rs. 1050 this year, but as a matter of plain fact, the average citizen’s experience (and memory) may well tell him/her something different – e.g. that what cost Rs. 1000 last year, is in fact costing Rs. 1100 or Rs 1150 or Rs 1200 this year.

So much for the value of money. Now turn to interest-rates.

Here too, the average citizen need not be a rocket-scientist to know that relative to the Western countries, India is labour abundant and is capital scarce. Roughly speaking, that means we have relatively more people and fewer high-rise concrete buildings than the West does. Where then would you expect wages (the price of labour) to be higher, in the West or in India? Clearly in the place where labour is more scarce, namely, the West. And where would you expect interest-rates (the price of capital) to be higher? Clearly, where capital is relatively more scarce, namely India. Such was clearly the case between 1864 and 1926 (Fig. 1). Calcutta bank interest-rates were uniformly higher by about 2-3% than London bank interest-rates (in an era of zero inflation). But something wholly different occurred in the pseudo-socialist India after Independence. E.g., for the years 1975-1992 official Indian interest-rates (adjusted for inflation) were uniformly lower than those in world capital markets represented by the USA (Fig. 2). That remains true today. Not only have the higher wages of the West been attractive to Indians, so seems to be the higher real rates of return on capital! Hence everyone who could fled India – exporting their adult children and their savings abroad , leaving future generations of the anonymous masses with larger public debts to pay the bills in due course. There has been a flight of skilled labour and as well as capital flight from India — are foreigners going to come when they can see the Indian “elite” has fled? Official real interest-rates in India today may well be negative if inflation is  properly measured, which would explain the Bombay stock-market boom the same way an athlete can perform better when on steroids.

Of course in the unorganised capital markets, actual real rates of return have always been higher in India than in the West and remain so. Just ask anyone in the unorganised capital markets how much he has to pay to rent machinery on a daily basis e.g. in the building or construction trade in an Indian city or small town or village. He will quote you rates of 2% or 5% or 10% — per day. Hence there is a massive distortion between what is happening in the unorganised capital markets all over the country and the official money markets the RBI believes itself to be presiding over in Bombay. Until the RBI starts to tell us frankly about this phenomenon, which is known to economists as “financial repression” and which has been caused by runaway Government spending programmes in India for decades, the average citizen may discount all the talk about a few basis points changing here and there on this or that nominal rate, in our pale imitation of what we think the US Fed or the European or British central banks do as policy. The truth is the RBI has never been allowed to model itself after those institutions. Instead, India has had nationalised commercial banking whose pampered inefficient management and staff have allowed the holding of massive amounts of government debt as assets in their balance-sheets, all denominated in an inconvertible controlled currency, and all presided over by a “one-tier” central bank patterned on the old Gosbank of the former Soviet Union, completely subservient to the dictates of the runaway spending that this or that particular set of politicians in power may demand. If there are dreams to be dreamt by honest economists in India, it would be for all that to be made to change.

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US Espionage Failures

US Espionage Failures

 

(There is a hippopotamus in the room)

 

First published in The Statesman Perspective Page under the title “Flunking inteligence” Oct 26 2005

by

Subroto Roy

 

There have been three or four enormous failures of American espionage (i.e. intelligence and counter-intelligence) in the last 20 years. The collapse of the Berlin Wall and the end of Soviet communism were salubrious events but they had not been foreseen by the United States which was caught unawares by the speed and nature of the developments that took place. Other failures have been catastrophic.

 

First, there was the failure to prevent the attack that took place on the American mainland on September 11 2001. It killed several thousand civilians and caused vast, perhaps irreparable, psychological and physical destruction to the United States.

 

The attack was without precedent. The December 7 1941 Japanese attack on Pearl Harbour in Hawaii, though a surprise, was carried out by one military against another military and did not affect very many civilians (except that thousands of American civilians of Japanese ancestry came to be persecuted and placed in concentration camps for years by the US Government). And the last time the American mainland had been attacked before 2001 was in 1814 when British troops marched south from Canada and burnt down the Capitol and the US President’s house in Washington.

 

Secondly, there has been a failure to discover any reasonable justification for the American-led attack on Iraq and its invasion and occupation. Without any doubt, America has lost, at the very least, an incalculable amount of international goodwill as a result of this, let aside suffering two thousand young soldiers killed, fifteen thousand wounded, and an unending cost in terms of prestige and resources in return for the thinnest of tangible gains. India at great cost liberated East Pakistan from the brutal military tyranny of Yahya Khan and Tikka Khan in December 1971 but the average Bangladeshi today could hardly care less. Regardless of what form of government emerges in Iraq now, there is no doubt the mass of the Iraqi people will cheer the departure of the bulk of foreign troops and tanks from their country (even if a permanent set of a dozen hermetically sealed American bases remain there for ever, as appears to have been planned).

 

When things go wrong in any democracy, it is natural and healthy to set up a committee to investigate, and America has done that several times now. For such committees to have any use at all they must be as candid as possible and perhaps the most candid of the American committees has been the US Government’s 9/11 Commission. But it too has appeared no closer to finding out who was the mastermind of the 9/11 attacks or who financed it and who, precisely, executed it. Osama Bin Laden may have been the ideological head of a movement allied to the perpetrators, and Bin Laden undoubtedly expressed his glee afterwards, but it beggars the imagination that Bin Laden could have been executive president in charge of this operation while crawling around Sudan, Pakistan and Afghanistan. If not him, then whom? Mossad the Israeli spy agency was supposed to have pointed to a super-secret invisible Lebanese terrorist but nobody really knows. The biggest modern mass murder remains unsolved.

 

As for solutions, the American 9/11 Commission went into the same politically correct formulae that came to be followed in 2005 by British PM Tony Blair’s New Labour Cabinet, namely, that “moderate” peace-loving Muslims must be encouraged and bribed not to turn to terrorism (indeed to expose those among them who do), while “extremist” Muslims must be stamped out with brute force. This rests on a mistaken premise that an economic carrot-and-stick policy can work in creating a set of external incentives and disincentives for Muslims, when in fact believing Muslims, like many other religious believers, are people who feel the power of their religion deep within themselves and so are unlikely to be significantly affected by external incentives or disincentives offered by non-believers.

 

Another committee has been the United States Senate’s Select Committee on Intelligence which reported in July 2004, and from whose findings have stemmed as an offshoot the current matter about whether high government officials broke the law that is being investigated by Special Prosecutor Patrick J. Fitzgerald.

 

Bertrand Russell said in his obituary of Ludwig Wittgenstein that he had once gone about looking under all the tables and chairs to prove to Wittgenstein that there was not a hippopotamus present in the room. In the present case, however, there is in fact a very large hippopotamus present in the room yet the entire American foreign policy establishment has seemed to refuse to wish to see it. Saddam Hussain and OBL are undoubtedly certifiable members of the international gallery of rogues – but the central fact remains they were rogues who were in alliance with America’s defined strategic interests in the 1980s. Saddam Hussain’s Iraq invaded Iran in 1980 and gassed the Kurds in 1986; an Iraqi Mirage on May 17 1987 fired two Exocet missiles at the USS Stark killing 37 American sailors and injuring 21. The Americans did nothing. The reason was that Saddam was still in favour at the time and had not yet become a demon in the political mythology of the American state, and it was expedient for nothing to be done. Indeed Saddam’s Iraq was explicitly removed in 1982 from the US Government’s list of states sponsoring terrorism because, according to the State Department’s Patterns of Global Terrorism, it had “moved closer to the policies of its moderate Arab neighbours”.

 

The very large hippopotamus that is present in the room at the moment is April Glaspie, the highly regarded professional career diplomat and American Ambassador to Iraq at the time of the 1990 Gulf War. Saddam Hussein as President had a famous meeting with her on July 25 1990, eight days before he invaded Kuwait. The place was the Presidential Palace in Baghdad and the Iraqis videotaped the meeting:

 

U.S. Ambassador Glaspie – “I have direct instructions from President (George Herbert Walker) Bush to improve our relations with Iraq. We have considerable sympathy for your quest for higher oil prices, the immediate cause of your confrontation with Kuwait. (pause) As you know, I lived here for years and admire your extraordinary efforts to rebuild your country. We know you need funds. We understand that, and our opinion is that you should have the opportunity to rebuild your country. (pause) We can see that you have deployed massive numbers of troops in the south. Normally that would be none of our business, but when this happens in the context of your threats against Kuwait, then it would be reasonable for us to be concerned. For this reason, I have received an instruction to ask you, in the spirit of friendship – not confrontation – regarding your intentions: Why are your troops massed so very close to Kuwait’s borders?

Saddam Hussein – As you know, for years now I have made every effort to reach a settlement on our dispute with Kuwait. There is to be a meeting in two days; I am prepared to give negotiations only this one more brief chance. (pause) When we (the Iraqis) meet (with the Kuwaitis) and we see there is hope, then nothing will happen. But if we are unable to find a solution, then it will be natural that Iraq will not accept death.

U. S. Ambassador Glaspie – What solutions would be acceptable?

Saddam Hussein – If we could keep the whole of the Shatt al Arab – our strategic goal in our war with Iran – we will make concessions (to the Kuwaitis). But, if we are forced to choose between keeping half of the Shatt and the whole of Iraq (i.e., in Saddam’ s view, including Kuwait ) then we will give up all of the Shatt to defend our claims on Kuwait to keep the whole of Iraq in the shape we wish it to be. (pause) What is the United States’ opinion on this?

U.S. Ambassador Glaspie – We have no opinion on your Arab – Arab conflicts, such as your dispute with Kuwait. Secretary (of State James) Baker has directed me to emphasize the instruction, first given to Iraq in the 1960’s, that the Kuwait issue is not associated with America. (Saddam smiles)

 

Saddam had seen himself fighting Islamic Iran on behalf of the Kuwaitis, Saudis and other Arabs, and Islamic Iran was of course the sworn adversary of the USA at least since Khomeini had deposed America’s ally, the Shah. Therefore Saddam could not be all bad in the eyes of the State Department. On August 2 1990, the Iraqi troops seen by American satellites amassed on the border, invaded and occupied Kuwait.

On September 2 1990, the Iraqis released the videotape and transcript of the July 29 Saddam-Glaspie meeting and Glaspie was confronted by British journalists as she left the Embassy:

Journalist 1 – Are the transcripts (holding them up) correct, Madam Ambassador? (No answer from Glaspie)

Journalist 2 – You knew Saddam was going to invade (Kuwait ) but you didn’t warn him not to. You didn’t tell him America would defend Kuwait. You told him the opposite – that America was not associated with Kuwait.

Journalist 1 – You encouraged this aggression – his invasion. What were you thinking?

U.S. Ambassador Glaspie – Obviously, I didn’t think, and nobody else did, that the Iraqis were going to take all of Kuwait.

Journalist 1 – You thought he was just going to take some of it? But, how could you? Saddam told you that, if negotiations failed , he would give up his Iran(Shatt al Arab waterway) goal for the whole of Iraq, in the shape we wish it to be. You know that includes Kuwait, which the Iraqis have always viewed as a historic part of their country!

 

Journalist 1 – America green-lighted the invasion. At a minimum, you admit signalling Saddam that some aggression was okay – that the U.S. would not oppose a grab of the al-Rumeilah oil field, the disputed border strip and the Gulf Islands (including Bubiyan) – the territories claimed by Iraq?

 

Glaspie said nothing, the car door closed behind her, the car drove off. Nothing has been apparently heard from Glaspie ever since, and we may have to wait for her memoirs in 25 years when they are declassified to come to know what happened. It is astonishing, however, that the 521 page report of the US Senate’s Select Committee on espionage about Iraq before the 2003 war finds no cause whatsoever to mention Glaspie at all (at least in its public censored version). It is almost as if Glaspie has never existed and her conversation with Saddam never happened. Glaspie has disappeared down an Orwellian memory-hole. Yet her conversation with Saddam was the last official, recorded conversation between the Americans and Saddam while they were still on friendly terms.

 

There may be many causes explaining how such serious failures have come to occur in a country where billions of dollars have been annually spent on espionage. Among them must be that while America’s great strengths have included creation of the finest advanced scientific and technological base on earth, America’s great intellectual weaknesses in recent decades have included an impatience with historical and philosophical reflection of all sorts, and that includes reflection about her own as well as other cultures. This is exemplified too in the third palpable failure of intelligence of the last 20 years, which has been to have not foreseen or prevented atomic weapons from being developed by America and Britain’s Islamist ally and client-state, Pakistan, and thence to have failed to prevent the proliferation of such weapons in general. The consequences of that may yet turn out to be the most grave.

 

After the Verdict: Why the Executive Needed a Vote of Confidence

AFTER THE VERDICT

By Subroto Roy

First published The Statesman, October 20 2005, Editorial Page Special Article, http://www.thestatesman.net

The last and only time a Head of State of India “resigned” was when Edward VIII (uncle of the present Queen of England) abdicated in 1936 because he wished to marry Mrs Wallis Simpson, a twice-divorced American, and the British Government under Stanley Baldwin felt this was unacceptable to the public and told him so. To his eternal credit, Edward VIII chose true love over the vainglorious trappings of a constitutional monarchy, gave up the kingship, and went with his new wife into a quiet voluntary life-exile in France as the Duke and Duchess of Windsor. India’s Presidents cannot act in state except upon advice of the Cabinet. That means they cannot even resign from office except upon advice of the Cabinet. A President may tragically die in office in which case the Vice-President would become the acting Head of State but there is no provision or precedent in India for a President to be made to resign except for Edward VIII’s abdication.

Richard Nixon resigned the office of the President of the United States in 1974 and more recently William Jefferson Clinton was brought under a lot of pressure to do so by the legislative impeachment proceedings against him. Nixon resigned (which made Gerald Ford President) because it had become impossible for him to stay in office having been proved to have lied to the people, and Clinton managed to stay on by the skin of his teeth for similar misdeeds. But the American system is different because the Head of State and Head of Government are united in the person of the President.

In our system, the Head of State embodies the sovereignty of India and does nothing more. Mountbatten as the first Governor-General imagined himself much more than that and caused damage to the subcontinent’s polity which has still to be repaired. But the first four Indian Heads of State, C. Rajagopalachari, Dr Rajendra Prasad, Dr S. Radhakrishnan, and Dr Zakir Hussain, were exemplary role-models. Unfortunately since their time the office of the President has suffered some of the shocks too that have been suffered by almost all our institutions. For example, retired Presidents really should vanish most gracefully into quietude to write their memoirs and help raise their grandchildren, yet we have had a former President say that an award received after retirement as President has been his most prized. It is not logically possible for such a thing to happen, since to become President of India is the ultimate honour for any citizen of our country. We elect someone among us to be a constitutional monarch for a period of five years and call that person President. Even if a former Indian President should receive the Nobel Peace Prize afterwards it would not mean his/her having embodied the sovereignty of our Republic was not the ultimate honour.

In our constitutional law, our Head of State cannot choose to resign any more than the sovereignty of India can be made to momentarily come to an end. If, to construct a hypothetical case, a President of India while in office became, heavens forbid, physically or mentally incapable of carrying out the duties of the office, the Government of India as represented by the Union Cabinet may well look to the Vice-President to fulfil the role of the Head of State temporarily but there would be no provision for the President to be made to demit office. The only precedent is that of Edward VIII where his personal love for Mrs Simpson compelled his abdication upon the advice of the Prime Minister.

Bringing ourselves back to Bihar, the Honourable Supreme Court’s finding of unconstitutionality is of grave import. On the positive side, what it indicates yet again is that India’s political institutions, no matter how battered and bloody they become by our self-inflicted wounds, still do work.

Furthermore, for the Honourable Court to have allowed the elections to go forward indicates how fine is the quality of our justice, for the Court has allowed the people of Bihar to speak again, and of course Mr Nitish Kumar and friends have been free to use at the hustings the Court’s finding in their favour. Certainly heads should roll and be seen to roll for all this. The Governor should have gone immediately but has not only not done so, he has let it be known that he was acting under orders himself. If so, the least that should happen is that the party-functionary responsible for this should be sacked.

For some press-commentators to demand that Sonia Gandhi should replace Dr Manmohan Singh reveals an appalling ignorance of constitutional norms; this is not a matter of a “High Command” replacing one acolyte by another as chief minister somewhere – if a Prime Minister resigns, so does the entire Cabinet he has appointed, and a new Government has to be sought to be formed. At the same time it is less than candid for the Leader of the Opposition to demand via the television cameras that the Prime Minister should resign, since the Opposition knows fully well that there is an institution called Parliament which can express its lack of confidence in a Government. And of course it also remains open for the Prime Minister himself to go to Parliament and seek to renew its confidence in his Government when the public confidence has thus come to be shaken.

In fact, the right course of action for the President is to summon the Prime Minister and say something like: “It would appear the Judicial Branch of the Government of India has found the Executive Branch to have breached the Constitution. Reference must now be made to the Legislative Branch, namely, to Parliament, to see if it still has confidence in the Executive. Please ask for a Vote of Confidence in the Lok Sabha as soon as possible.” Of course, Dr Manmohan Singh has been the first Prime Minister in Commonwealth history since Salisbury who has not been himself a member of the Lower House. Curzon had wished to be British prime minister after returning from India but was passed over in 1922 in favour of Baldwin in a decisive demonstration that a prime minister must be a member of the Lower House. That is why Alec Douglas-Home stopped being a member of the House of Lords in order to become British PM in 1963-64. India in the last thirty years has seen parliamentary traditions at the Union and State levels being ruinously weakened (or not even allowed to develop) being replaced all too frequently either by street-fighting or by discretionary bureaucratic decision-making by committee. The present moment is an opportunity for the rot to be stemmed. It may be too optimistic though to believe that it will be taken.

The Mitrokhin Archives II from an Indian Perspective: A Review Article

The Mitrokhin Archives II from an Indian Perspective: A Review Article

by Subroto Roy

First published in The Statesman, Oct. 11 2005, Perspective Page

 

Vasili Mitrokhin’s defection from the former Soviet Union to Britain in 1992 caused a treasure-trove to reach MI-6 and the CIA and FBI, because he exposed many dozens of Soviet agents and their plots and intrigues around the world. But this fact that his material greatly helped Anglo-American counter-intelligence does not per se make it a source of accurate evidence with which a historian’s history book can be created. Rather, what this monumental and extremely informative volume amounts to being is a vast documentation, from an Anglo-American perspective, of what MI-6 and its allies have agreed to make public about what they now know of Soviet foreign policy and KGB practices, and of how Russian diplomacy and the KGB’s successors might function in the future.

 

That this is not a detached and disinterested history of intelligence is revealed by the three chapters on the subcontinent which have been causing a stir in India for the wrong reasons.

 

Everyone in the 1970s and through the 1980s knew of the tight grip around New Delhi’s policy-making circles of top bureaucrats, academics, journalists etc who were blatantly and incorrigibly pro-Soviet, some being active communists or fellow- travellers. Some of those complaining today know fully well that a cardinal implicit reason the CPI(M) broke from its parent party had to do precisely with Moscow’s control of the CPI. Moreover, while it might have been newsworthy when the KGB honey-trapped a senior diplomat or a junior cipher clerk in the Indian Embassy now and then, there were also hundreds of public sector bureaucrats, military personnel, journalists, technology professors, writers, artists, dancers et al who were treated most hospitably by the Soviet state – getting freebies flying to Soviet cities, being greeted by singing Young Pioneers, touring L’Hermitage with Intourist, receiving dollar honoraria and splendid gifts, sitting in on “technical training”, even receiving bogus Soviet doctoral degrees to allow themselves to be called “Dr” etc. Purchasing influence in New Delhi or any other capital city has never been merely a crude matter of cash-filled suitcases sloshing around in the middle of the night. Much of what Mitrokhin’s material says about the KGB’s penetration of India should, candidly speaking, generate but a desultory yawn from us –although even this book seems not to know that Narasimha Rao’s infamous, catastrophically damaging remarks in August 1991, in favour of the abortive KGB coup led by Kryuchkov against Gorbachev and Yeltsin, had been prompted by a staunchly pro-Soviet retired Indian diplomat at his side long-associated with the CPI.

 

Yes there are many titbits in this book that may be of interest from an Indian perspective — such as that Sanjay Gandhi’s entourage contained both a Soviet and an American mole in it (where are they now?). But what may be far more interesting to us today is what can be deduced from what Mitrokhin is silent about. For example, India and the Soviets were close allies in 1971 when Kissinger had teamed up with Yahya Khan and Bhutto to send Nixon to China. It is well known our Army Chief, General Maneckshaw, had demanded and received from Indira Gandhi and Jagjivan Ram enough time to prepare to go to war, and when Maneckshaw finally did move to liberate Bangladesh in December, it surprised Yahya and the Americans. Were the Soviets also quite surprised? If so, it would mean that although the Indian establishment was as porous as a sieve with respect to arms’ deals etc, on a matter of paramount national interest, namely, the just war on our own against Yahya Khan and Tikka Khan’s brutality in East Pakistan condoned by Nixon and Kissinger, India had kept her secrets secure. If, as seems likely, Indira Gandhi and her overtly communistic advisers had kept India’s war plans from not leaking to the KGB between March and December 1971, we may not have been in fact too badly compromised despite the widespread “shallow” penetration that occurred through corruption all around in the bureaucracy, academic institutions, media, political parties, etc.

 

Mitrokhin’s material describes this kind of shallow corrupt penetration that everyone knew was (and still remains) part of the lobbying process in Delhi. But there is no evidence in the book that the KGB knew of General Maneckshaw’s military preparations or plan of action until the lights went out in a blackout in Delhi on the night of December 2 1971 — that at least is something of which Indians may be slightly proud today. The same goes for the Pokhran nuclear tests. It is well known the CIA was caught by surprise by Pokhran-II in 1998; was the KGB caught by surprise by Pokhran-I in 1974? Probably so. Equally, the book says the KGB had at one point cracked Pakistani codes; did the Soviets share this information with India? Almost certainly not. Our Government’s chummery with the Soviets during the Cold War probably stopped well short of complete incest.

 

Unfortunately, many questions of interest to India or other countries have simply not been asked in the book. The Soviets (and Harold Wilson) had seemed to broker the India-Pakistan ceasefire in 1965, and Lal Bahadur Shastri died the day after he signed the Tashkent Declaration. What is the inside KGB information on that?

 

We do not know from this book. What do Soviet archives say about communist influence through the 1940s in Jammu & Kashmir (upon some of the very names who became Indira Gandhi’s inner circle later in Delhi)? Or about the uncritical adoption in the 1950s of Sovietesque economic models by the Planning Commission (and the suppression of Milton Friedman’s November 1955 memorandum to the Government of India, as well as the tarnishing of BR Shenoy as a CIA agent)? The answers are not present in this book because these and analogous questions of interest to India or many other countries simply have not been asked. Mitrokhin’s material has been mined only from an Anglo-American point of view, and until it is thrown open completely to everyone, a detached and disinterested history of permanent and universal interest on the important matters it touches upon is not available.

 

Several factual and methodological problems result as a consequence, and these need to be identified for purposes of future progress in understanding. For example, the book speaks many times of the KGB having forged or fabricated documents around the world as a technique of spreading disinformation.

 

Doubtless this was standard operating procedure for intelligence agencies but it is left completely impossible for the average reader to come to any assessment whether a given document mentioned was genuine or forged.

 

Consider a case in Iran. The book states that in February 1958, the KGB “forged a letter from the American Secretary of State, John Foster Dulles, to his ambassador in Tehran belittling the Shah’s ability and implying that the United States was plotting his overthrow. The Teheran residency circulated copies of the letter to influential Iranian parliamentarians and editors in the confident expectation that one would come to the attention of the Shah – which it duly did. According to the KGB files on the operation, the Shah was completely taken in by the fabricated Dulles letter and personally instructed that a copy be sent to the US embassy with a demand for an explanation. Though the embassy dismissed it as a forgery, the Teheran residency reported that its denials were disbelieved. Dulles’s supposedly slighting references to the Shah were said to be a frequent topic of whispered conversation among the Iranian elite.” (p. 171)

 

It is impossible for anyone who has not seen this document or other supporting evidence to come to any assessment of what actually happened here. Matters are made worse by a note that says the KGB “claimed improbably that the Americans blamed the forgery not on the KGB but the British, who were said to be jealous of the strength of US influence in Iran”.

 

Was the document genuine or was it forged and if so by whom? If forged, must we believe the KGB was so astute in 1958 in its knowledge of American idiom that it could achieve the tremendous deception of mimicking the greatest of Cold Warriors writing to his own ambassador, enough to fool the Shah of Iran who had been placed in power by the very same Americans? No one can really tell unless the documents are opened up completely.

 

Another example is of more topical interest, and also reveals that this book must be seen as a contribution to a continuing (if friendly and academic) battle between rival intelligence agencies. Yevgeny Primakov, the former KGB chief and reformist Prime Minister (and Soviet Ambassador to India) is quoted as saying about the American help to the Pakistan-based guerrillas against the Soviets in Afghanistan: “the idea of deploying the Stingers (shoulder-held ground-to- air-missiles) was supplied by Osama bin Laden, who had been cooperating closely with the CIA at the time.” (Russian Crossroads, Yale University Press, 2004.)

 

Professor Andrew denies this flatly: “There is no support in the Mitrokhin material (or any other reliable source) for the claim that the CIA funded bin Laden or any of the other Arab volunteers who came to support the mujahideen. Most were funded through charities and mosques in the Middle East, especially Saudi Arabia and the Gulf states, and were frequently viewed with suspicion by the Afghan mujahideen.” (p. 579)

 

It is obvious why this question is important: if Primakov is right and Andrew is wrong the Americans must be acutely embarrassed in having been allies or supporters or financiers not long ago of the very same Bin Laden who has now become their most bitter enemy. The United States Government’s “9/11 Commission” in 2004 made a much weaker statement than Professor Andrew: “Saudi Arabia and the United States supplied billions of dollars worth of secret assistance to rebel groups in Afghanistan fighting the Soviet occupation. This assistance was funnelled through Pakistan: the Pakistani military intelligence (ISID) helped train the rebels and distribute the arms. But Bin Laden and his associates had their own sources of support and training and they received little or no assistance from the United States…. In his memoirs, (Bin Laden’s deputy) Ayman al Zawahiri contemptuously rejects the claim that the Arab mujahideen were financed (even `one penny’) or trained by the United States… CIA officials involved in aiding the Afghan resistance regarded Bin Laden and his `Arab Afghans’ as having been militarily insignificant in the war and recall having little to do with him.”

 

Bin Laden was a callow youth when he got to Afghanistan shortly after the Soviet invasion in December 1979. Yet his contributions of funds, military effort and religious zealotry made him emerge age 33-34 as the “Emir” of Al Qaeda by the time the Soviets were compelled to withdraw in 1989, having suffered 14,500 dead. The Americans then began to lose interest in the region and in their Pakistani clients, and it was in that atmosphere that Pakistan decided to declare its independence in the world with its clandestine nuclear programme (never having felt part of the nationalist movement which led to Indian independence in 1947). It was in the same period that Bin Laden and Al Qaeda grew to become implacable and formidable enemies of the West, which culminated in the 9/11 mass murders in 2001. The claim that while the CIA certainly supported “Afghan” jihadists, it did not support Arab or African ones like Bin Laden and his friends is highly implausible. The New Yorker and Washington Post reported in 1986 the CIA supplying and training Hekmatyar’s “Hizbe-Islami” in the use of Stinger missiles to bring down Soviet aircraft. It is impossible to imagine the admittedly myopic American policy at the time included checking passports of these trainee- beneficiaries, saying “OK, you’re an Afghan resistance fighter you get a Stinger, you’re an Arab/African terrorist-of-the-future-who-may-attack-New York, you don’t”. Professor Andrew quotes positively the work on Bhutto of Raza Anwar, the Pakistani socialist, but he may have been unaware of Anwar’s The Tragedy of Afghanistan (Verso, 1988) where the precise nature of the American, Chinese and Arab support for the thousands of guerrillas in the dozens of camps in Zia’s Pakistan is quite fully and objectively documented. Foreign jihadists in Jammu & Kashmir came to be known as “Afghans” because they were veterans of the Afghan conflicts, not because they were Afghan nationals. Unlike Britain’s MI-6, the United States Government’s 9/11 Commission has made no bones about the connection between Bin Laden and the Pakistani ISI whose intent has been to attack India: “Pakistan’s rulers found these multitudes of ardent young `Afghans’ a source of potential trouble at home but potentially useful abroad. Those who joined the Taliban movement, espousing a ruthless version of Islamic law, perhaps could bring order in chaotic Afghanistan and make it a cooperative ally. They thus might give Pakistan greater security on one of the several borders where Pakistani military officers hoped for what they called `strategic depth’ (…. Pakistan’s need for a friendly, pliable neighbour on the west due to its hostile relationship with India on the east.)… It is unlikely that Bin Laden could have returned to Afghanistan (in 1996) had Pakistan disapproved. The Pakistani military intelligence service probably had advance knowledge of his coming, and its officers may have facilitated his travel. During his entire time in Sudan, he had maintained guesthouses and training camps in Pakistan and Afghanistan. These were part of a larger network used by diverse organisations for recruiting and training fighters for Islamic insurgencies in such places as Tajikistan, Kashmir and Chechnya. Pakistani intelligence officers reportedly introduced Bin Laden to Taliban leaders in Kandahar, their main base of power, to aid his reassertion of control over camps near Khowst, out of an apparent hope that he would now expand the camps and make them available for training of Kashmiri militants.”

 

Regardless of the fondness of the very strong lobby of British apologists (led by a former British High Commissioner to Pakistan) for the ISI and Pakistani Army, no detached history of modern intelligence in our part of the world can be written which whitewashes the misdeeds of Pakistan’s generals over several decades. Aside from what The Mitrokihn Archive II signifies about our region, there is a great amount of invaluable material on other parts of the world too, from Chile and Peru to Cuba and Nicaragua, to South Africa and Egypt and Israel, to China and Korea and Japan.

 

Indeed the keenest pages have to do with the internecine tensions between communists, like Castro and Gorbachev, or Khrushchev and Mao Zedong, in which no Anglo-American interests were involved. We in India have had our share of academic apologists and fellow travellers for totalitarian communist China, but the roots of the Sino-Soviet split have never come to be aired in Indian discussion. Professor Andrew is a leading member of the vitally important Cold War International History Project at the Woodrow Wilson Center in Washington DC, whose website displays new and vitally important data from formerly communist countries (like Mongolia, Russia and East Germany) about how Chinese communists saw and felt about India, Pakistan, Tibet etc, which needs urgent attention from serious Indian observers. The Mitrokhin Archive II gives us a privileged glimpse of some of what happened: “The Sino-Soviet split in the early 1960s brought to an acrimonious end the deference from the PRC which Stalin had taken for granted. The first public attack on Moscow was made by Mao’s veteran security chief, Kang Sheng, whose ferocious purges during Mao’s Great Leap Forward were largely modelled on techniques he had learned in Moscow during the Great Terror. On the Soviet side, the ideological dispute with China was compounded by personal loathing for Mao – the `Great Helmsman’ – and a more general dislike of the Chinese population as a whole, Khrushchev `repeatedly’ told a Romanian delegation shortly before his overthrow in 1964 that `Mao Zedong is sick, crazy, that he should be taken to an asylum, etc.” An assessment of Chinese national character circulated to KGB residencies by the Centre twelve years later claimed that the Chinese were `noted for their spitefulness’. What most outraged both the Kremlin and the Centre was Beijing’s impudence in setting itself up as a rival capital of world Communism, attempting to seduce other Communist parties from their rightful allegiance to the Soviet Union. Moscow blamed the horrors of Pol Pot’s regime… on the takeover of the Cambodian Communist Party by `an anti-popular, pro-Beijing clique’.

 

If nothing else, The Mitrokhin Archives II provides an honest opportunity for India’s Left to come clean with their frank and non-ideological opinions about Soviet, Chinese and other communist histories, and hence to candidly gain self-knowledge. Will they take it? Are there any George Orwells out there?

 

Kolkata, October 5 2005