How the India-Bangladesh Enclaves Problem Was Jump-Started in 2007 Towards its 2015 Solution: A Case Study of Academic Impact on Policy
Subroto Roy, with Brendan Whyte
Progress on the complex problem of India-Bangladesh enclaves started slightly in 1958 and especially 1974, then came to be stalled completely. In May 2007 press reports said a joint delegation was doing some survey work.
That same month, I as Contributing Editor at The Statesman newspaper (biding my time away from a corrupted academia) stumbled on the excellent doctoral work done by a young researcher in Australia on what seemed at the time the impossibly intractable problem of India-Bangladesh enclaves.
I wrote to the newspaper’s Editor on 9 May 2007,
Dear Ravi, You may know that there is an incredibly complex problem between India and Bangladesh relating to enclaves between them, some dating back to Cooch Behar and Mughal enclaves 200 years ago. An Australian researcher named Brendan Whyte at the Univ of Melbourne has done the definitive study of the problem. I think we should invite him to produce a 2000-2500 word two parter on his work which would be very helpful to both governments and to public discussion. If you agree, I can write to him and invite him or you can do so directly. I will have to find his email. Regards Suby
I enclosed a published abstract of Whyte’s work:
“Waiting for the Esquimo: An historical and documentary study of the Cooch Behar enclaves of India and Bangladesh. Whyte, Dr Brendan (2002) “Waiting for the Esquimo: An historical and documentary study of the Cooch Behar enclaves of India and Bangladesh” School of Anthropology, Geography and Environmental Studies, University of Melbourne
“Enclaves are defined as a fragment of one country totally surrounded by one other. A list of the world’s current enclaves and a review of the literature about them reveals a geographical bias that has left enclaves outside western Europe almost untouched. This bias is particularly noticeable in the almost complete absence of information on the Cooch Behar enclaves, along Bangladesh’s northern border with India. The Cooch Behar enclaves number almost 200. This total includes about two dozen counter-enclaves (enclaves within enclaves), and the world’s only counter-counter-enclave. Together, these enclaves represent 80% of the total number of enclaves existing in the world since the 1950s, and have been at the centre of Indo-East Pakistani and then Indo-Bangladeshi boundary disputes since Cooch Behar acceded to India in 1949.
The incredibly complex Cooch Behar sector of the Indo-Bangladesh boundary is investigated in detail for the first time, from historical, political and geographical perspectives. The history of the enclaves is traced, from their origin c.1713 until the present, in an attempt to understand their genesis and survival under a succession of states, from the Kingdom of Cooch Behar and the Mughal Empire in the 1700s, to Bangladesh and the Republic of India today. The difficulties of the enclaves’ existence for their residents and the two countries today is contrasted with their peaceful, albeit administratively inconvenient, existence until 1947, to prove that the enclaves themselves are not the cause of border tensions in the area, but are rather a focus for other cross-border disputes.
The current situation of the enclaves is described, highlighting the abandonment of the enclave residents by each country, which refuse to allow the other to administer its exclaves. India’s inability to implement a 1958 treaty with Pakistan, and its continued delay in ratifying a subsequent 1974 treaty with Bangladesh to exchange the enclaves is highlighted as the major factor impeding resolution of the enclave dispute. That the delays have been rooted in Indian internal politics is demonstrated. Highly disparate official and media reports as to the number, area and population of the enclaves are analysed to determine the true extent of the enclave problem, and the first ever large-scale map of the enclaves is published, locating and naming each enclave.”
The Statesman‘s Editor agreed, and I went about trying to locate Dr Whyte. I think I phoned Australia, asked after him, and learnt he was a New Zealander teaching at a university in Thailand. On 10 May, I wrote to his former department head, Ian Rutherfurd:
Dear Dr Rutherfurd, I am Contributing Editor at The Statesman of Calcutta and New Delhi, and would like to be in touch with your colleague Brendon Whyte but there is no email for him at your site. Please tell him we much wish him to write a two-part article on the editorial page (over two days) for us of less than 2500 words in total on his important research on the India-Bangladesh enclaves. There would be a relatively tiny honorarium probably from the Editor but a large impact on policy and public discussion in both countries. The Statesman is India’s oldest and most eminent newspaper. It may be seen at http://www.thestatesman.net and I am to be found at http://www.independentindian.com Many thanks, Subroto Roy, PhD (Cantab.), BScEcon (London), Contributing Editor
Brendan Whyte replied the same day:
Dear Dr Roy, I have received your message, and am honoured to be asked to write a piece for your paper. I now work in Thailand. Are there any further details regarding this assignment in addition to your information below? For example, is there a deadline, and if so, when? Do you want/can you accept maps/photos and if so how to send them to you?Can the text be sent to you be email or do you prefer a printed version instead of/in addition to an email? Regarding email should the text be in the body of an email or do you prefer an attachment in Word/RTF or other format? Do you prefer a Word document, or should the text be in the body of an email Thank you very much Brendan Whyte, PhD, Faculty of Management Science,Ubon Ratchathani University, THAILAND
I wrote back the same day
Dear Dr Whyte, Many thanks for the quick reply, and our thanks to your colleagues for locating you. The Statesman’s editorial page is as influential a place as there can be in serious Indian public discussion, though I have to say there is far too little such discussion in the country. At my suggestion, the Editor has invited a 2500 word two-part article (over two days); I have said you may have done the definitive work in the area. I know nothing of the subject and am reluctant to suggest any further guidelines, and leave to you to say what you wish once you get a sense of the audience and likely impact. I have in recent months published numerous special articles in The Statesman, and these may be seen at http://www.independentindian.com to give you a sense of the kind of quality you may aim at — though certainly we are a newspaper and not a technical journal. Regarding graphs, each article would have an illustration a few inches square and if you felt you could squeeze the relevant data into two such articles for the two days it would be excellent. Do drop by Calcutta when you can. The honorarium will be a few thousand rupees I expect though the Editor has not specified it yet. No there is no time rush; I accidentally found your work through a wordpress.com blog on strange maps. On second thoughts, if your articles generated invitations from geography departments in India or other invitations to give lectures on the subject, that too would be a worthwhile aim.Best regards Suby Roy
Brendan sent his proposed article a month later in June.
Hello, I have reduced it by 300 words without reducing any substance. I hope you may agree. Can you please try to reduce another 200 words, eg of the Belgian/Dutch case? I normally don’t allow anyone to touch my stuff so if you would like to try to reduce it all yourself, that’s fine. Also, 198 is not equal to 106+91+3+1. Please send all the graphics you may think suitable, and people here will try to figure out what to use. It may all go on one day on the Op-Ed page, I have no iodea what the Editor may decide. Also add your PhD University Thanks for this. The work is excellent and I hope it brings you the publicity you deserve. Suby Roy
Brendan sent his final draft on 16 July 2007
Hi Suby, My apologies that this has taken me so long, but the teaching year has been so busy! I have reduced it to 2274 words, about 10% below your limit of 2500. It is attached as a Word file, and appended below as plain text. I hope to send some illustrations separately in the next day or two. Let me know if the revised article is ok or not. Thanks, Brendan
I wrote to the Editor again the same day:
Subject: India-Bangladesh Enclaves: A Major Foreign Policy Problem Solved
Dear Ravi, Apropos our correspondence two months ago, Dr Brendan Whyte has at our request produced an excellent analysis of one of the trickiest and longest-standing problems between India and Bangladesh, viz. enclaves. Dr Whyte is a political geographer from New Zealand who worked on this subject for his doctoral thesis at the University of Melbourne, Australia. He apparently teaches in Thailand at present. By publishing this, we will be doing the MEA a very big favour, besides of course contributing to an important yet neglected public problem relevant to Eastern India. I recommend it for a Saturday night-Sunday night two-parter, rather than the Perspective page, given its close factual basis. Sincerely, Suby.
I wrote to Brendan:
Hello, Your article looks to me first-rate. The basis of a Government White Paper on this side or that. I have forwarded it to the Editor with my recommendation. Please send me any illustrations asap, as he may go with it any day though likely not before the weekend. Best wishes SR
Brendan Whyte’s 16 July 2007 final draft was this:
“The Enclave Problem: India and Bangladesh can and must solve this 300 year problem!
There are 198 “enclaves” (chhit-mahals) between India and Bangladesh. Cooch Behar district has 106 enclaves in Bangladesh, and Bangladesh has 92 enclaves in India: 88 in Cooch Behar, 3 in Jalpaiguri, and 1 between Cooch Behar and Assam’s Dhubri district. The enclaves vary from clusters of villages to individual fields. The smallest Indian enclave may be Panisala, only 0.1093 ha; the smallest Bangladeshi enclave is Upan Chowki Bhajni #24 at 0.2870 ha. The largest are India’s Balapara Khagrabari at 25.95 sq. km, and Bangladesh’s 18.68 sq. km Dahagram-Angarpota. The 198 enclaves also include 3 Indian and 21 Bangladeshi counter-enclaves (enclaves within enclaves). India also possesses the world’s only counter-counter-enclave: a 0.69 ha jute field inside a Bangladeshi enclave inside an Indian enclave inside Bangladesh! Enclave populations-sizes are unknown. The last censuses to include enclaves were in 1951, although the Pakistani enumeration was incomplete. The population today is probably under 100,000 persons in total, 60% living in Indian enclaves in Bangladesh, the rest in Bangladeshi enclaves in India.
The enclaves are 300 years old, originating during the Mughal wars against Cooch Behar in the late 1600s. A treaty was concluded in 1711 in which the Mughals obtained three chaklas from Cooch Behar, but the Subahdar of Bengal rejected the treaty and forced Cooch Behar to cede further lands in 1713, reducing it to about its present borders. This second treaty is the origin of the enclaves: as in feudal Europe, the holdings of kings and their vassals were not contiguous wholes but rather a patchwork of land parcels, so the ceded chaklas included lands inside the unceded areas and vice versa. The East India Company fixed the Bengal-Cooch Behar boundary about 1773, and by 1814 noted that the enclaves were safe havens for bandits. Yet the Company itself created more enclaves in 1817 when it adjudicated a territorial dispute between Cooch Behar and Bhutan, creating Cooch Behari enclaves in then-Bhutanese territory (now Alipar Duar district of Jalpaiguri). These enclaves remained when the British annexed the Bhutanese lands in 1865.
The British quashed the bandit menace but proliferation of liquor, ganja and opium shops in the enclaves became an excise problem between Bengal and Cooch Behar. After discussions, the main boundary of Cooch Behar became the customs and excise boundary. All Cooch Behar enclaves in British India fell under British excise control while all British enclaves in Cooch Behar fell under Cooch Behari excise control. This practical solution to the problem in hand left the sovereignty of the enclaves intact.
A full exchange of enclaves was suggested by the British in the early 1930s, to reduce the costs of the upcoming survey and demarcation of the Cooch Behar boundary but the idea was dropped in face of strong local objections, and all the enclaves were surveyed and demarcated with pillars by the late 1930s.
Partition and independence in 1947, and the subsequent accession of Cooch Behar to India in 1949, elevated the enclaves to the international level. Initially this was unproblematic, with India and Pakistan concluding agreements on cross-border trade and movement in the enclave areas. Censuses in 1951 included the enclaves. But Pakistan’s unilateral 1952 introduction of visas requirements, and immediate Indian reciprocation sealed the fate of the enclave dwellers. High-level politics subordinated the needs of enclave dwellers on both sides.
Full exchange was again agreed upon by the 1958 Nehru-Noon Accord, and this was reiterated in modified form in the 1974 Indira-Mujib Agreement between India and Bangladesh (Bangladesh would keep its largest enclave, Dahagram-Angarpota, to guarantee access to which, India would lease it a short corridor. But a succession of mainly Indian legal challenges regarding the constitutionality of both accords prevented implementation until 1992, when the Tin Bigha corridor was finally opened. The exchange of the remaining enclaves, agreed in 1958 and 1974 and cleared of legal challenged by 1990 remains unimplemented, despite constant Bangladeshi calls for India to implement the agreements fully.
Meanwhile, since the 1950s the chhit mahalis, or enclave dwellers, have been effectively rendered stateless by the two governments abandoning responsibility for them.
India’s fencing of its border with Bangladesh has added a physical dimension to the political isolation of its own enclaves. The chhit mahalis on both sides are unable to vote, to attend schools or markets, to be helped by NGOs working in either country, or to seek police help or medical attention. Each country claims its original citizens have been forced out of their enclaves by the population of the other country surrounding them, and so each country refuses to extend its governmental responsibilities to the supposed invaders. Simultaneously each denies it can legally assist the populations of the other country’s enclaves inside its own territory. Abandoned by both sides, the chhit mahalis struggle to survive without the ability to protect their rights, homes or lives. Bandits once more make use of the enclaves to escape the jurisdiction of the surrounding state.
The problem is one of India and Bangladesh’s own making but it is not unique. Since 1996, when the Lithuanian enclave of Pogiry in Belarus (population: three) was exchanged for equivalent land, 259 enclaves have remained on the world map. Besides India-Bangladesh, there are 61 enclaves affecting 21 countries as owners or hosts. Most consist of a single farm, or a village and its surrounding farmland, inside a neighbouring country. Some approach the complexity of the Cooch Behar enclaves, such as 30 enclaves (including 8 counter-enclaves) belonging to Belgium and the Netherlands in the village of Baarle (population 8500).
The Belgian-Dutch enclaves originated in a feudal agreement c.1198, and emerged at the international level when Belgium declared independence from the Netherlands in 1830. The enclaves were an annoyance to customs, police and foreign ministry officials; but arrangements allowed goods to pass into and through the enclaves, paying tax only if they were destined for the other country or its enclaves. Nevertheless, smuggling brought prosperity to a village on the economic and political periphery of both countries. Today the village park boasts a statue honouring the smugglers. The economic union of Belgium and the Netherlands and the subsequent European Union have eliminated the profitabililty of smuggling without the need for policing or fences. Differences in tax rates and national laws remain, so that some types of business, such as sex or fireworks shops can only operate in one country and its enclaves, and not in the other. Yet the village happily contains both sorts of shops, each in the permitting country, but serving customers from both. Different planning laws, educational syllabii, post offices, town halls, and churches exist side by side. Several businesses and houses straddle the enclave boundaries, enjoying two postal address and two telephone connections. The policemen from each country share an office. The fire departments work together with special hose-coupling devices. Utilities, sewerage, road maintenance and rubbish collection are conducted by one country or he other for the population of both. Where a national law unduly inconveniences the enclaves, an exception is granted. Thus while Sunday shopping is illegal in the Netherlands, the shops in Baarle’s Dutch enclaves may open on Sundays to compete with the Belgian shops, and the village has a thriving Sunday market, drawing crowds from both countries. Before the Euro was introduced, all shopkeepers and government offices accepted both national currencies. Overall the village has boomed as a border market, increasingly tourism-oriented, marketing its enclaves as a tourist attraction. Without the enclaves Baarle would be a small unimportant village. The enclaves have allowed it to surpass its neighbouring villages in size and prosperity.
Other enclaves are often placed inside the customs, postal or telephone jurisdiction of the surrounding country. Switzerland tolerates a casino in the Italian tax-haven enclave of Campione d’Italia, on condition that Swiss citizens have a daily betting limit. Germany’s village of Büsingen, also inside Switzerland, is inside the Swiss customs and currency area, not that of the EU. Passage from the UAE into the Omani enclave of Madha and into the UAE’s counter-enclave of Dahwa inside remain free of controls for locals and foreigners alike. On Cyprus, locals from two villages enclaved inside the British territory (and military base) of Dhekelia move about freely, and farm land under both British and Cypriot sovereignty.
What can India and Bangladesh learn from these foreign enclave cases? They have three main options. The worst is to maintain the status quo, each country refusing to properly govern its own enclaves while also forbidding the other to govern its enclaves across the intervening territory. This “dog-in-the-manger” attitude has reduced the enclaves to poverty and despair, countenanced violence and oppression, fostered corruption, and encourages the problems of criminal dens and drug-cultivation in the enclaves.
The second option is an enclave exchange. Inhabitants should be given two independent options concerning citizenship and relocation. For up to two years after the enclave exchange, they should have the option to choose whether to retain their current citizenship or to become citizens of the other country. They should also have the independent option to remain owning and farming the land they occupy after its tranfer to the other country, or of being resettled on land of equivalent value, size and productive capacity in their original country. There is no reason why they should not be able to choose to stay in situ and retain their old citizenship, nor why they could not hold both citizenships: dual nationality is an increasingly common occurrence worldwide.
The problems with this policy include a requirement for equivalent land for the resettlement of those wishing to relocate, and the need for each country to recognise the inhabitants of its enclaves as its own citizens before exchange. An imbalance in the numbers on each side desiring resettlement will cause difficulties. But it would only repeat the injustices of the 1947 partition if an exchange was made without addressing the needs of the enclave inhabitants, and allowing them some input into the process. The enclaves also form the world’s most complicated boundary, and include the world’s only counter-counter-enclave: so another problem with exchange is heritage loss. Finally, an exchange of enclaves is also an admittance of failure.
Enclave exchange will remove a cartographic anomaly but it will not solve the underlying tensions in bilateral relations. The enclaves are not a problem in themselves but are simply a focus point for distrust and tension created elsewhere. Exchange may not improve the lives of the chhit mahalis, who may end up marginalised, landless and dispossessed by the exchange process. Even if able to remain on their lands, they will still be living in an economically and politically peripheral location. Therefore any exchange should be entered into only with the will of, and in full consultation with, the people involved, so as not to become a further injustice.
A third policy is to retain the enclaves but improve their situation. The 30 enclaves of Belgium and the Netherlands at Baarle, along with other enclaves of Europe and the Middle East, are a good model for this. The advantages are many. It would put the enclave dwellers in charge of their own destiny, leaving them on their lands, but able to engage fully as citizens of their own country.
The distances between each country and its own enclaves are small, often less than one kilometre, rarely more than two or three. Designated access routes, for foot, cart and motorised traffic, could be easily set up and policed. This would allow enclave dwellers to traverse the intervening country to reach the nearest schools and markets of their own country. The local district commissioners should be granted authority to meet frequently and at will to discuss any problems and work out local solutions, without having to refer to New Delhi or Dhaka. Officials such as teachers, doctors, district officials, electoral officers, census enumerators and police should also be permitted visa-free access on demand. Which country’s currency, excise laws, and postal system, electricity and other services are used in an enclave should be based on principles of efficiency, not on chauvinistic nationalism.
There is no reason why exchange of enclaves for customs and excise purposes made in the 1930s could not be readopted. Indian enclaves could be alcohol-free like surrounding Bangladesh, and Bangladeshi enclaves could be prohibited from slaughtering cows as in India. This is no more a threat to the sovereignty of either country than is the differing alcohol and tax regimes of the Indian states and territories. The unique border situation of the enclaves would encourage tourism to this forgotten region in both countries, offering new economic possibilities to an area devoid of industrial capability and development.
India and Bangladesh are not alone in wrestling with the problem of enclaves. Similar problems have been solved in most other enclaves around the world. The long-delayed exchange of the Cooch Behar enclaves, mooted since 1910 and agreed upon in 1958 may simplify the border itself, but it is unlikely to improve bilateral relations, assist economic development of the area or improve the lives of the enclave dwellers. The needs and desires of the chhit-mahalis must be taken into account, but action must be taken to remove their current effective statelessness. The examples of successful enclaves elsewhere in the world suggest that even if relations between two countries are not completely harmonious, enclaves can exist and be beneficial to the economic potential of the area and the prosperity of its inhabitants. These two aspects are the raison d’etre of government, hence it behoves the governments concerned to ensure that any solution to the enclave problem addresses these issues and not merely cartographic simplification, which may only cement the 1947 division more firmly.”
Brendan’s article was published in two parts on Sunday and Monday July 22 2007 & July 23 2007 with very slight alteration –except the splendid maps he had sent failed to be published!
“The Enclave Problem India, Bangladesh can and must solve this 300-year-old issue! By BRENDANWHYTE
There are 198 “enclaves” (chhit-mahals) between India and Bangladesh. Cooch Behar district has 106 enclaves in Bangladesh, and Bangladesh has 92 enclaves in India: 88 in Cooch Behar, 3 in Jalpaiguri, and 1 between Cooch Behar and Assam’s Dhubri district. The enclaves vary from clusters of villages to individual fields. The smallest Indian enclave may be Panisala, only 0.1093 ha; the smallest Bangladeshi enclave is Upan Chowki Bhajni #24 at 0.2870 ha. The largest are India’s Balapara Khagrabari at 25.95 sq. km, and Bangladesh’s 18.68 sq. km Dahagram-Angarpota. The 198 enclaves also include 3 Indian and 21 Bangladeshi counter-enclaves (enclaves within enclaves). India also possesses the world’s only counter-counter-enclave: a 0.69 ha jute field inside a Bangladeshi enclave inside an Indian enclave inside Bangladesh! Enclave population-sizes are unknown. The last census to include enclaves was conducted in 1951, although the Pakistani enumeration was incomplete. The population today is probably under 100,000 in total, 60% living in Indian enclaves in Bangladesh, the rest in Bangladeshi enclaves in India. The enclaves are 300 years old, originating during the Mughal wars against Cooch Behar in the late 1600s. A treaty was concluded in 1711 in which the Mughals obtained three chaklas from Cooch Behar, but the Subahdar of Bengal rejected the treaty and forced Cooch Behar to cede further lands in 1713, reducing it to about its present borders. This second treaty is the origin of the enclaves: as in feudal Europe, the holdings of kings and their vassals were not contiguous wholes but rather a patchwork of land parcels, so the ceded chaklas included lands inside the unceded areas and vice versa. The East India Company fixed the Bengal-Cooch Behar boundary about 1773, and by 1814 noted that the enclaves were safe havens for bandits. Yet the Company itself created more enclaves in 1817 when it adjudicated a territorial dispute between Cooch Behar and Bhutan, creating Cooch Behari enclaves in then-Bhutanese territory (now Alipurduar district of Jalpaiguri). These enclaves remained when the British annexed the Bhutanese lands in 1865. The British quashed the bandit menace but proliferation of liquor, ganja and opium shops in the enclaves became an excise problem between Bengal and Cooch Behar. After discussions, the main boundary of Cooch Behar became the customs and excise boundary. All Cooch Behar enclaves in British India fell under British excise control, while all British enclaves in Cooch Behar fell under Cooch Behari excise control. This practical solution to the problem in hand left the sovereignty of the enclaves intact. A full exchange of enclaves was suggested by the British in the early 1930s, to reduce the costs of the upcoming survey and demarcation of the Cooch Behar boundary but the idea was dropped in face of strong local objections, and all the enclaves were surveyed and demarcated with pillars by the late 1930s. Partition and independence in 1947, and the subsequent accession of Cooch Behar to India in 1949, elevated the enclaves to the international level. Initially this was unproblematic, with India and Pakistan concluding agreements on cross-border trade and movement in the enclave areas. The 1951 census included the enclaves. But Pakistan’s unilateral 1952 introduction of visa requirements, and immediate Indian reciprocation sealed the fate of the enclave dwellers. High-level politics subordinated the needs of enclave dwellers on both sides. Full exchange was again agreed upon by the 1958 Nehru-Noon accord, and this was reiterated in a modified form in the 1974 Indira-Mujib agreement between India and Bangladesh (Bangladesh would keep its largest enclave, Dahagram-Angarpota, to guarantee access to which, India would lease it a short corridor). But a succession of mainly Indian legal challenges regarding the constitutionality of both accords prevented implementation until 1992, when the Tin Bigha corridor was finally opened. The exchange of the remaining enclaves, agreed in 1958 and 1974 and cleared of legal challenges by 1990 remains unimplemented, despite constant Bangladeshi calls for India to implement the agreements fully. Meanwhile, since the 1950s the chhit mahalis, or enclave dwellers, have been effectively rendered stateless by the two governments abandoning responsibility for them. India’s fencing of its border with Bangladesh has added a physical dimension to the political isolation of its own enclaves. The chhit mahalis on both sides are unable to vote, to attend schools or markets, to be helped by NGOs working in either country, or to seek police help or medical attention. Each country claims its original citizens have been forced out of their enclaves by the population of the other country surrounding them, and so each country refuses to extend its governmental responsibilities to the supposed invaders. Simultaneously each denies it can legally assist the populations of the other country’s enclaves inside its own territory. Abandoned by both sides, the chhit mahalis struggle to survive without the ability to protect their rights, homes or lives. Bandits once more make use of the enclaves to escape the jurisdiction of the surrounding state. The problem is one of India and Bangladesh’s own making but it is not unique. Since 1996, when the Lithuanian enclave of Pogiry in Belarus (population: three) was exchanged for equivalent land, 259 enclaves have remained on the world map. Besides India-Bangladesh, there are 61 enclaves affecting 21 countries as owners or hosts. Most consist of a single farm, or a village and its surrounding farmland, inside a neighbouring country. Some approach the complexity of the Cooch Behar enclaves, such as 30 enclaves (including 8 counter-enclaves) belonging to Belgium and the Netherlands in the village of Baarle (population 8500). The Belgian-Dutch enclaves originated in a feudal agreement c.1198, and emerged at the international level when Belgium declared independence from the Netherlands in 1830. The enclaves were an annoyance to customs, police and foreign ministry officials; but arrangements allowed goods to pass into and through the enclaves, paying tax only if they were destined for the other country or its enclaves. Nevertheless, smuggling brought prosperity to a village on the economic and political periphery of both countries. Today the village park boasts a statue honouring the smugglers. The economic union of Belgium and the Netherlands and the subsequent European Union have eliminated the profitabililty of smuggling without the need for policing or fences. Different town halls and churches exist side by side. Several businesses and houses straddle the enclave boundaries, enjoying two postal addresses and two telephone connections. The policemen from each country share an office. The fire departments work together with special hose-coupling devices. Utilities, sewerage, road maintenance and rubbish collection are conducted by one country or the other for the population of both. Where a national law unduly inconveniences the enclaves, an exception is granted. Thus while Sunday shopping is illegal in the Netherlands, the shops in Baarle’s Dutch enclaves may open on Sundays to compete with the Belgian shops, and the village has a thriving Sunday market, drawing crowds from both countries. Before the Euro was introduced, all shopkeepers and government offices accepted both national currencies. Overall the village has boomed as a border market, increasingly tourism-oriented, marketing its enclaves as a tourist attraction. Without the enclaves Baarle would be a small unimportant village. The enclaves have allowed it to surpass its neighbouring villages in size and prosperity. Other enclaves are often placed inside the customs, postal or telephone jurisdiction of the surrounding country. Switzerland tolerates a casino in the Italian tax-haven enclave of Campione d’Italia, on condition that Swiss citizens have a daily betting limit. Germany’s village of Büsingen, also inside Switzerland, is inside the Swiss customs and currency area, not that of the EU. Passage from the UAE into the Omani enclave of Madha and into the UAE’s counter-enclave of Dahwa inside remain free of controls for locals and foreigners alike. On Cyprus, locals from two villages enclaved inside the British territory (and military base) of Dhekelia move about freely, and farm land under both British and Cypriot sovereignty. (To be concluded)
The enclave problem~II What can India and Bangladesh learn from these foreign enclave cases? They have three main options. The worst is to maintain the status quo, each country refusing to properly govern its own enclaves while also forbidding the other to govern its enclaves across the intervening territory. This “dog-in-the-manger” attitude has reduced the enclaves to poverty and despair, countenanced violence and oppression, fostered corruption, and encouraged the problems of criminal dens and drug-cultivation in the enclaves. The second option is an enclave exchange. Inhabitants should be given two independent options concerning citizenship and relocation. For up to two years after the enclave exchange, they should have the option to choose whether to retain their current citizenship or to become citizens of the other country. They should also have the independent option to remain owning and farming the land they occupy after its transfer to the other country, or of being resettled on land of equivalent value, size and productive capacity in their original country.
Dual nationality There is no reason why they should not be able to choose to stay in situ and retain their old citizenship, nor why they could not hold both citizenships: dual nationality is an increasingly common occurrence worldwide. The problems with this policy include a requirement for equivalent land for the resettlement of those wishing to relocate, and the need for each country to recognise the inhabitants of its enclaves as its own citizens before exchange. An imbalance in the numbers on each side desiring resettlement will cause difficulties. But it would only repeat the injustices of the 1947 Partition if an exchange was made without addressing the needs of the enclave inhabitants, and allowing them some input into the process. The enclaves also form the world’s most complicated boundary, and include the world’s only counter-counter-enclave: so another problem with exchange is heritage loss. Finally, an exchange of enclaves is also an admittance of failure. Enclave exchange will remove a cartographic anomaly but it will not solve the underlying tensions in bilateral relations. The enclaves are not a problem in themselves but are simply a focus point for distrust and tension created elsewhere. Exchange may not improve the lives of the chhit mahalis, who may end up marginalised, landless and dispossessed by the exchange process. Even if able to remain on their lands, they will still be living in an economically and politically peripheral location. Therefore any exchange should be entered into only with the will of, and in full consultation with, the people involved, so as not to become a further injustice. A third policy is to retain the enclaves but improve their situation. The 30 enclaves of Belgium and the Netherlands at Baarle, along with other enclaves of Europe and the Middle East, are a good model for this. The advantages are many. It would put the enclave dwellers in charge of their own destiny, leaving them on their lands, but able to engage fully as citizens of their own country. The distances between each country and its own enclaves are small, often less than one kilometre, rarely more than two or three. Designated access routes, for foot, cart and motorised traffic, could be easily set up and policed. This would allow enclave dwellers to traverse the intervening country to reach the nearest schools and markets of their own country. The local district commissioners should be granted authority to meet frequently and at will to discuss any problems and work out local solutions, without having to refer to New Delhi or Dhaka. Officials such as teachers, doctors, district officials, electoral officers, census enumerators and police should also be permitted visa-free access on demand. Which country’s currency, excise laws, and postal system, electricity and other services are used in an enclave should be based on principles of efficiency, not on chauvanistic nationalism. There is no reason why exchange of enclaves for customs and excise purposes made in the 1930s could not be readopted. Indian enclaves could be alcohol-free like surrounding Bangladesh, and Bangladeshi enclaves could be prohibited from slaughtering cows as in India. This is no more a threat to the sovereignty of either country than is the differing alcohol and tax regimes of the Indian states and territories. The unique border situation of the enclaves would encourage tourism to this forgotten region in both countries, offering new economic possibilities to an area devoid of industrial capability and development.
India and Bangladesh are not alone in wrestling with the problem of enclaves. Similar problems have been solved in most other enclaves around the world. The long-delayed exchange of the Cooch Behar enclaves, mooted since 1910 and agreed upon in 1958 may simplify the border itself, but it is unlikely to improve bilateral relations, assist economic development of the area or improve the lives of the enclave dwellers. The needs and desires of the chhit-mahalis must be taken into account, but action must be taken to remove their current effective statelessness. The examples of successful enclaves elsewhere in the world suggest that even if relations between two countries are not completely harmonious, enclaves can exist and be beneficial to the economic potential of the area and the prosperity of its inhabitants. These two aspects are the raison d’etre of government, hence it behooves the governments concerned to ensure that any solution to the enclave problem addresses these issues and not merely cartographic simplification, which may only cement the 1947 division more firmly.
I wrote to him immediately Hello, You were published in yesterday’s Sunday Statesman and continued in this morning’s edition, as the special article on the editorial page. I am enclosing the text as it appears on the Internet edition. Through some apparent editorial mishap, the illustrattions you sent never got published, and two photographs were used. I think you could follow it up with an invited talk in Kolkata. If you wish, I can look into that possibility. Send me a cv if you are interested and I shall see what I can do. Re working with me on the China-India problem, a visit from you might enable us to talk further. I am introducing you separately to the Editor’s assistant who should help with copies, money etc. Best wishes Subroto Roy
All that was between May and July 2007.
On 6 September 2011, Dr Manmohan Singh as India’s PM on a visit to Bangladesh apparently signed what the India’s Foreign Ministry calls the “2011 Protocol”. And now a few days ago, Prime Minister Sheik Hasina, Prime Minister Narendra Modi, along with the agreement of Chief Minister Mamata Banerjee, have all signed a comprehensive landmark “Land Boundary Agreement” between India and Bangladesh, solving the 300 year problem! All’s well that ends well…
And yes, Excellencies, PM Sheikha Hasina, PM Narendra Modi, former PM Manmohan Singh, CM Mamata Banerjee: re the Land Boundary Agreement, Dr Brendan Whyte and I and The Statesman newspaper may all take a bow after you…
Nota Bene: The Statesman for some reason did not publish along with Dr Whyte’s excellent article these important maps which are now published here below for the first time:
Preface: This paper culminates my line of argument since our University of Hawaii Pakistan book in the mid 1980s, through my work on the Kashmir problem in the 1990s, published in The Statesman in 2005/2006 etc and in my undelivered Lahore lectures of 2011. https://independentindian.com/2011/10/13/my-seventy-one-notes-at-facebook-etc-on-kashmir-pakistan-and-of-course-india-listed-thanks-to-jd/ The paper has faced resistance from both Indian and Pakistani newspapers for obvious reasons. I would like to especially thank Beena Sarwar and Gita Sahgal in recent weeks for helpful comments. (And Frank Hahn, immediately saw when I mentioned it to him in 2004 that my solution was Pareto-improving…etc)
The *Bulletin of Atomic Scientists* recently reported an Urdu book *Taqat ka Sarab* (‘*Illusion of Power*) published in Pakistan in December 2014 edited by the physicist Dr AH Nayyar. The book “aims to educate Pakistanis about the attitudes of their leadership toward nuclear weapons”. It says “Pakistan’s people have come to believe that the successful acquisition of nuclear capability means that their nation’s security is forever ensured”. Pakistani politicians, scientists and officials who created these weapons have used them to justify a “right to unlimited authority for ruling over Pakistan”. “Consequently, free discussion and honest opinion about nuclear weapons have been nearly prohibited, under the premise that any such talk poses a basic threat to national security.”
“Hindu-dominated India wants to occupy us and destroy the Pakistan Principle for which our martyrs died” has been the constantly heard Pakistani refrain. After 1965 it did not take long for Pakistan, via the ignominy of the 1971 surrender in Dhaka, to acquire by any means the technology to develop its own nuclear weapons, even under the noses of its American friends.
Now Pakistan is said to have some 110 nuclear warheads, mostly in a disassembled state but with a few on fighter-jets in hidden air-bases in Balochistan (made by the USA decades ago) always at the ready, waiting for that Indian attack that will never come. It may all have been psychotic delusion.
India has never initiated hostilities against Pakistan. Not once. Not in 1947, 1965, 1971, 1999, 2008.
In 1971 India undoubtedly supported the Mukti Bahini, and I myself, as a schoolboy distributing supplies to refugees from East Pakistan/Bangladesh, was personally witness to Indian military involvement as of August 1971. Even so, hostilities between the countries formally began on 3 December 1971 with the surprise Pakistani air attack on Indian bases in Punjab and UP.
Though India has never attacked first, the myth continues in Pakistan that wicked Hindu-dominated India wants to attack and suppress their country. What is closer to the truth is that the New Delhi elite is barely able to run New Delhi, and the last place on earth they would want to run is Pakistan.
On our Indian side, the Indian military has been allowed a budgetary carte blanche for decades, especially with foreign exchange resources. (Finance Minister Arun Jaitley on 28 February 2015 has allocated some 2,467 billion INR to the military.)
Despite our vast spending, a band of Lashkar-e-Tayyaba terrorists tyrannized Mumbai for days on end while we seem perpetually without strategy against the People’s Republic of China’s recurrent provocations.
The two world powers with traditional interests in India — Russia and Britain — place their long-term agents in Delhi’s high politics and places with impunity, getting done all they need to in particular cases. The USA, France, Israel and others follow suit – all mainly to do with selling India very expensive military weapons, aircraft etc. that they have in excess inventory. India now has the notorious distinction of being the world’s largest weapons’ importer.
Yet we are hardly a trading or monetary superpower. We have large current account and budgetary deficits, and we are essentially buying whatever weapons, aircraft, shopping malls etc. that we do on foreign credit that we may or may not have. (Pakistan does the same.)
India’s illusions of power have to do with boasting a very large military that can take on the imperialists. We do not realize the New Imperialism that may control Delhi is not of a Clive or Dupleix but of clandestine or open foreign lobbyists and agents who get done what their masters need to have done on a case-by-case basis. The result is a corrosion of Indian power, sovereignty, and credit, little by little, and may lead to a collapse or grave crisis in the future. Even the BJP/RSS Government of Mr Modi (let aside the Sonia-Manmohan Congress and official Communists) may not realize how it all came about.
The way forward for both Pakistan and India is to seek to break the impasse between ourselves.
And there is no doubt the root problem remains Kashmir, and the hysteria and terrorism it has spawned over the years. A resolution of these fundamental issues calls for some hard scholarship, political vision and guts. The vapid gassing of stray bureaucrats, journalists, diplomats or generals has gotten everyone precisely nowhere thus far.
I have argued at length in previous publications that the *de facto* boundary that was the Ceasefire Line in 1949, and was later renamed the Line of Control in 1972, is indeed also the *de jure* boundary between India and Pakistan.
Jammu & Kashmir came into existence as a legal entity on 16 March 1846 under the Dogra Gulab Singh, friend of the British during the Sikh wars, and a protégé earlier of the great Sikh Ranjit Singh.
Dogra J&K ended its existence as an entity recognized in international law on 15 August 1947. (Hari Singh, the fourth and last Dogra ruler where Gulab Singh had been the first, desperately sought Clement Attlee’s recognition but did not get it.) Thanks to British legal confusion, negligence or cunning, the territory of what had been known as Dogra Jammu & Kashmir became sovereign-less or ownerless territory in international law on that date, with the creation of the new Pakistan and new India.
The new Pakistan as of August-September 1947 immediately started to plan to take the territory by force, and sought to implement that plan as of 22 October. Had the Pakistani attackers not stopped to indulge in the Rape of Baramullah, they would have taken Srinagar airport by 26 October, and there would have been no Indian defence of the territory possible. As matters turned out, the ownerless territory of what had been Dogra Jammu & Kashmir came to be divided by “military decision” (to use the UN’s term) between the new Pakistan and new India. Kargil and Drass were taken by Pakistan and then lost. Skardu was held by India and later lost. Neither military ever since is going to permit the other to take an inch from itself either by war or by diplomacy.
The *de facto* boundary over ownerless territory divided by military force is the *de jure* boundary in the Roman law that underlies all international law. Once both sides recognize that properly, we may proceed to the next stages.
On the Pakistani side, recognizing Indian sovereignty over Indian territory in what had been J&K requires stamping out the LeT etc – perhaps not so much by force as by explaining to them that the fight is over, permanently. There is no jihad against India now or ever. Indian territory is not dar-ul-harb but dar-ul-aman: where more than one hundred million Muslim citizens of India freely and peacefully practice their faith.
On the Indian side, if, say, SAS Geelani and friends, under conditions of individual privacy, security and full information, wish to renounce Indian nationality, become stateless, and apply for some other nationality (like Pakistani or Afghan or Iranian) while continuing to live lawfully and law-abidingly on Indian territory, do we have a problem with that? We can’t really. The expatriate children of the Indian elite have renounced Indian nationality in America, Britain, Australia etc upon far weaker principles or beliefs. India has many foreign nationals living permanently on its territory peacefully and law-abidingly (Sir Mark Tully perhaps the most notable) and can add a few more.
The road would be gradually opened for an exchange of consulates between India and Pakistan in Srinagar and Muzaffarabad (leave aside vice-consulates or tourist offices in Jammu, Gilgit, Skardu, Leh). And the remaining Hurriyat, as new Pakistani nationals living in India, can visit the Pakistani consul in Srinagar for tea every day if they wish, to discuss Pakistani matters like Afridi’s cricket or Bilawal’s politics or whatever.
The militaries and potentially powerful economies on both sides could then proceed towards real strength and cooperation, having dispelled their current illusions of power.
is someone who has known you, leading up to your appointment as Director at Sonia’s “Rajiv Gandhi Institute” and later. He has now published a purported memoir whose main aim is to conceal his Soviet connections during the Brezhnev era 1960s-1970s, besides trying to rub my name out from my role with Rajiv in 1990-1991. The woman journalist in Delhi who is named as having ghost-written his new book is someone you know quite well too.
The man was someone whom I worked with and who was introduced to me by Rajiv Gandhi on 25/9/1990, a Soviet trained “technocrat” who had inveigled himself into Rajiv’s circle as he had been a favoured one of Indira (presumably via PN Haksar) when he returned from the USSR. He was also the link explaining, again via PN Haksar, how Manmohan first became FM in 1991 after Rajiv’s assassination, then how Manmohan came to Sonia’s notice and attention, and was later crucial in the so-called Rajiv Gandhi Foundation and in the formation of Sonia’s so-called National Advisory Council.
His mandate was to keep INC policies predictable and agreeable in the areas of Soviet/Russian interest, in which he seems to have succeeded during the Sonia-Manmohan regime.
He found me an unknown force, and worked to edge me out, despite the fact the 25/9/90 group was formed by Rajiv as a sounding-board for the perestroika-for-India project I led in America since 1986 and which I brought to Rajiv the week before on 18/9/90…
I send this to you as a word of caution as you are clearly close to Mr Modi and Mr Doval, yet none of you may know the man’s background and intent, even in his dotage. Certainly the purported memoir written by the woman journalist is something whose main aim is to conceal the man’s Soviet/Russian background. Had it been an honest intent, he would have had no need to conceal any of this but would have addressed his own Russian experience openly and squarely. He may have had his impact already with the new Government, I do not know.
For myself, I have been openly rather pro-Russia on the merits of the current Ukraine issue, but, as you will appreciate, I despise any kind of deep foreign agent seeking to control Indian policy in long-term concealment.
Sonia’s Lying Courtier with Postscript 25 Nov 2007, & Addendum 30 June 2014
30th June 2014
“Sonia’s Lying Courtier” (see below) has now lied again! In a ghost-written 2014 book published by a prominent publisher in Delhi!
He has so skilfully lied about himself the ghost writer was probably left in the dark too about the truth.
**The largest concealment has to do with his Soviet connection: he is fluent in Russian, lived as a privileged guest of the state there, and before returning to the Indian public sector was awarded in the early 1970s a Soviet degree, supposedly an earned doctorate in Soviet style management!**
How do I know? He told me so personally! His Soviet degree is what allowed himself to pass off as a “Dr” in Delhi power-circles for decades, as did many others who were planted in that era. He has also lied about himself and Rajiv Gandhi in 1990-1991, and hence he has lied about me indirectly.
In 2007 I was gentle in my exposure of his mendacity because of his advanced age. Now it is more and more clear to me that exposing this directly may be the one way for Sonia and her son to realise how they, and hence the Congress party, were themselves influenced without knowing it for years…
25 November 2007
Two Sundays ago in an English-language Indian newspaper, an elderly man in his 80s, advertised as being “the Gandhi family’s favourite technocrat” published some deliberate falsehoods about events in Delhi 17 years ago surrounding Rajiv Gandhi’s last months. I wrote at once to the man, let me call him Mr C, asking him to correct the falsehoods since, after all, it was possible he had stated them inadvertently or thoughtlessly or through faulty memory. He did not do so. I then wrote to a friend of his, a Congress Party MP from his State, who should be expected to know the truth, and I suggested to him that he intercede with his friend to make the corrections, since I did not wish, if at all possible, to be compelled to call an elderly man a liar in public.
That did not happen either and hence I am, with sadness and regret, compelled to call Mr C a liar.
The newspaper article reported that Mr C’s “relationship with Rajiv (Gandhi) would become closer when (Rajiv) was out of power” and that Mr C “was part of a group that brainstormed with Rajiv every day on a different subject”. Mr C has reportedly said Rajiv’s “learning period came after he left his job” as PM, and “the others (in the group)” were Mr A, Mr B, Mr D, Mr E “and Manmohan Singh” (italics added).
In reality, Mr C was a retired pro-USSR bureaucrat aged in his late 60s in September 1990 when Rajiv Gandhi was Leader of the Opposition and Congress President. Manmohan Singh was an about-to-retire bureaucrat who in September 1990 was not physically present in India, having been working for Julius Nyerere of Tanzania for several years.
On 18 September 1990, upon recommendation of Siddhartha Shankar Ray, Rajiv Gandhi met me at 10 Janpath, where I handed him a copy of the unpublished results of an academic “perestroika-for-India” project I had led at the University of Hawaii since 1986. The story of that encounter has been told first on July 31-August 2 1991 in The Statesman, then in the October 2001 issue of Freedom First, then in January 6-8 2006, September 23-24 2007 in The Statesman, and most recently in The Statesman Festival Volume 2007. The last of these speaks most fully yet of my warnings against Rajiv’s vulnerability to assassination; this document in unpublished form was sent by me to Rajiv’s friend, Mr Suman Dubey in July 2005, who forwarded it with my permission to the family of Rajiv Gandhi.
It was at the 18 September 1990 meeting that I suggested to Rajiv that he should plan to have a modern election manifesto written. The next day, 19 September, I was asked by Rajiv’s assistant V George to stay in Delhi for a few days as Mr Gandhi wished me to meet some people. I was not told whom I was to meet but that there would be a meeting on Monday, 24th September. On Saturday, the Monday meeting was postponed to Tuesday 25th September because one of the persons had not been able to get a flight into Delhi. I pressed to know what was going on, and was told I would meet Mr A, Mr B, Mr C and Mr D. It turned out later Mr A was the person who could not fly in from Hyderabad.
The group (excluding Mr B who failed to turn up because his servant had failed to give him the right message) met Rajiv at 10 Janpath in the afternoon of 25th September. We were asked by Rajiv to draft technical aspects of a modern manifesto for an election that was to be expected in April 1991. The documents I had given Rajiv a week earlier were distributed to the group. The full story of what transpired has been told in my previous publications.
Mr C was ingratiating towards me after that first meeting with Rajiv and insisted on giving me a ride in his car which he told me was the very first Maruti ever manufactured. He flattered me needlessly by saying that my PhD (in economics from Cambridge University) was real whereas his own doctoral degree had been from a dubious management institute of the USSR. (Handling out such doctoral degrees was apparently a standard Soviet way of gaining influence.) Mr C has not stated in public how his claim to the title of “Dr” arises.
Following that 25 September 1990 meeting, Mr C did absolutely nothing for several months towards the purpose Rajiv had set us, stating he was very busy with private business in his home-state where he flew to immediately. Mr D went abroad and was later hit by severe illness. Mr B, Mr A and I met for luncheon at New Delhi’s Andhra Bhavan where the former explained how he had missed the initial meeting. Then Mr B said he was very busy with his house-construction, and Mr A said he was very busy with finishing a book for his publishers on Indian defence, and both begged off, like Mr C and Mr D, from any of the work that Rajiv had explicitly set our group. My work and meeting with Rajiv in October 1990 has been reported previously.
Mr C has not merely suppressed my name from the group in what he has published in the newspaper article two Sundays ago, he has stated he met Rajiv as part of such a group “every day on a different subject”, another falsehood. The next meeting of the group with Rajiv was in fact only in December 1990, when the Chandrashekhar Government was discussed. I was called by telephone in the USA by Rajiv’s assistant V George but I was unable to attend, and was briefed later about it by Mr A.
When new elections were finally announced in March 1991, Mr C brought in Mr E into the group in my absence (so he told me), perhaps in the hope I would remain absent. But I returned to Delhi and between March 18 1991 and March 22 1991, our group, including Mr E (who did have a genuine PhD), produced an agreed-upon document. That document was handed over by us together in a group to Rajiv Gandhi at 10 Janpath the next day, and also went to the official political manifesto committee of Narasimha Rao, Pranab Mukherjee and M. Solanki.
Our group, as appointed by Rajiv on 25 September 1990, came to an end with the submission of the desired document to Rajiv on 23 March 1991.
As for Manmohan Singh, contrary to Mr C’s falsehood, Manmohan Singh has himself truthfully said he was with the Nyerere project until November 1990, then joined Chandrashekhar’s PMO in December 1990 which he left in March 1991, that he had no meeting with Rajiv Gandhi prior to Rajiv’s assassination but rather did not in fact enter Indian politics at all until invited by Narasimha Rao several weeks later to be Finance Minister. In other words, Manmohan Singh himself is on record stating facts that demonstrate Mr C’s falsehood.
The economic policy sections of the document submitted to Rajiv on 23 March 1991 had been drafted largely by myself with support of Mr E and Mr D and Mr C as well. It was done over the objections of Mr B, who had challenged me by asking what Manmohan Singh would think of it. I had replied I had no idea what Manmohan Singh would think of it, saying I knew he had been out of the country on the Nyerere project for some years.
Mr C has deliberately excluded my name from the group and deliberately added Manmohan Singh’s instead. What explains this attempted falsification of facts – reminiscent of totalitarian practices in communist countries? Manmohan Singh was not involved by his own admission, and as Finance Minister told me so directly when he and I were introduced in Washington DC in September 1993 by Siddhartha Shankar Ray, then Indian Ambassador to the USA.
A possible explanation for Mr C’s mendacity is as follows: I have been recently publishing the fact that I repeatedly pleaded warnings that I (even as a layman on security issues) perceived Rajiv Gandhi to have been insecure and vulnerable to assassination. Mr C, Mr B and Mr A were among the main recipients of my warnings and my advice as to what we as a group, appointed by Rajiv, should have done towards protecting Rajiv better. They did nothing — though each of them was a senior man then aged in his late 60s at the time and fully familiar with Delhi’s workings while I was a 35 year old newcomer. After Rajiv was assassinated, I was disgusted with what I had seen of the Congress Party and Delhi, and did not return except to meet Rajiv’s widow once in December 1991 to give her a copy of a tape in which her late husband’s voice was recorded in conversations with me during the Gulf War.
Mr C has inveigled himself into Sonia Gandhi’s coterie – while Manmohan Singh went from being mentioned in our group by Mr B to becoming Narasimha Rao’s Finance Minister and Sonia Gandhi’s Prime Minister. If Rajiv had not been assassinated, Sonia Gandhi would have been merely a happy grandmother today and not India’s purported ruler. India would also have likely not have been the macroeconomic and political mess that the mendacious people around Sonia Gandhi like Mr C have now led it towards.
POSTSCRIPT: The Congress MP was kind enough to write in shortly afterwards; he confirmed he “recognize(d) that Rajivji did indeed consult you in 1990-1991 about the future direction of economic policy.” A truth is told and, furthermore, the set of genuine Rajivists in the present Congress Party is identified as non-null.
Did Jagdish Bhagwati “originate”, “pioneer”, “intellectually father” India’s 1991 economic reform? Did Manmohan Singh? Or did I, through my encounter with Rajiv Gandhi, just as Siddhartha Shankar Ray told Manmohan & his aides in Sep 1993 in Washington? Judge the evidence for yourself. And why has Amartya Sen misdescribed his work? India’s right path forward today remains what I said in my 3 Dec 2012 Delhi lecture!
“…if in 1991 India embraced many of the Track-I reforms, writings by Sen played no role in it… The intellectual origins of the reforms are to be found instead in the writings of Bhagwati, both solely and jointly with Padma Desai and T N Srinivasan….”
Now Amartya Sen has not claimed involvement in the 1991 economic reforms so we are left with Panagariya claiming
“The intellectual origins of the reforms are to be found instead in the writings of Bhagwati…”
Should we suppose Professor Panagariya’s master and co-author Jagdish Bhagwati himself substantially believes and claims the same? Three recent statements from Professor Bhagwati suffice by way of evidence:
“This policy framework had been questioned, and its total overhaul advocated, by me and Padma Desai in writings through the late 1960s which culminated in our book, India: Planning for Industrialization (Oxford University Press: 1970) with a huge blowback at the time from virtually all the other leading economists and policymakers who were unable to think outside the box. In the end, our views prevailed and the changes which would transform the economy began, after an external payments crisis in 1991, under the forceful leadership of Prime Minister Manmohan Singh who was the Finance Minister at the time….”
“When finance minister Manmohan Singh was in New York in 1992, he had a lunch for many big CEOs whom he was trying to seduce to come to India. He also invited me and my wife, Padma Desai, to the lunch. As we came in, the FM introduced us to the invitees and said: ‘These friends of mine wrote almost a quarter century ago [India: Planning for Industrialisation was published in 1970 by Oxford] recommending all the reforms we are now undertaking. If we had accepted the advice then, we would not be having this lunch as you would already be in India’.”
“… I was among the intellectual pioneers of the Track I reforms that transformed our economy and reduced poverty, and witness to that is provided by the Prime Minister’s many pronouncements and by noted economists like Deena Khatkhate.. I believe no one has accused Mr. Sen of being the intellectual father of these reforms. So, the fact is that this huge event in the economic life of India passed him by…”
From these pronouncements it seems fair to conclude Professors Bhagwati and Panagariya are claiming Bhagwati has been the principal author of “the intellectual origins” of India’s 1991 reforms, has been their “intellectual father” or at the very least has been “among the intellectual pioneers” of the reform (“among” his own collaborators and friends, since none else is mentioned). Bhagwati has said too his friend Manmohan Singh as Finance Minister participated in the process while quoting Manmohan as having said Bhagwati was the principal author.
Bhagwati’s opponent in current debate, Amartya Sen, has been in agreement with him that Manmohan, their common friend during college days at Cambridge in the 1950s, was a principal originating the 1991 reforms, saying to Forbes in 2006:
“When Manmohan Singh came to office in the early 1990s as the newly appointed finance minister, in a government led by the Congress Party, he knew these problems well enough, as someone who had been strongly involved in government administration for a long time.”
In my experience, such sorts of claims, even in their weakest form, have been, at best, scientifically sloppy and unscholarly, at worst mendacious suppressio veri/suggestio falsi, and in between these best and worst interpretations, examples of academic self-delusion and mutual flattery. We shall see Bhagwati’s opponent, Amartya Sen, has denied academic paternity of recent policies he has spawned while appearing to claim academic paternity of things he has not! Everyone may have reasonably expected greater self-knowledge, wisdom and scholarly values of such eminent academics. Their current spat has instead seemed to reveal something rather dismal and self-serving.
You can decide for yourself where the truth, ever such an elusive and fragile thing, happens to be and what is best done about it. Here is some evidence.
In mentioning the volume “edited by Subroto Roy and William E James”, Professor Panagariya did not appear to find the normal scientific civility to identify our work by name, date or publisher. So here that is now:
In 2004 from Britain, I wrote to the 9/11 Commission saying if our plan to study Afghanistan after India and Pakistan had not been thwarted by malign local forces among our sponsors themselves, we, a decade before the September 11 2001 attacks on the USA, may just have come up with a pre-emptive academic analysis. It was not to be.
Milton Friedman’s chapter that we published for the first time was a memorandum he wrote in November 1955 for the Government of India which the GoI had effectively suppressed. I came to know of it while a doctoral student at Cambridge under Frank Hahn, when at a conference at Oxford about 1979-1980, Peter Tamas Bauer sat me down beside him and told me the story. Later in Blacksburg about 1981, N. Georgescu-Roegen on a visit from Vanderbilt University told me the same thing. Specifically, Georgescu-Roegen told me that leading Indian academics had almost insulted Milton in public which Milton had borne gamely; that after Milton had given a talk in Delhi to VKRV Rao’s graduate-students, a talk Georgescu-Roegen had been present at, VKRV Rao had addressed the students and told them in all seriousness “You have heard what Professor Friedman has to say, if you repeat what he has said in your exams, you will fail”.
In 1981-1982 my doctoral thesis emerged, titled “On liberty & economic growth: preface to a philosophy for India”,
I myself said about it decades later “My original doctoral topic in 1976 ‘A monetary theory for India’ had to be altered not only due to paucity of monetary data at the time but because the problems of India’s political economy and allocation of resources in the real economy were far more pressing. The thesis that emerged in 1982 … was a full frontal assault from the point of view of microeconomic theory on the “development planning” to which everyone routinely declared their fidelity, from New Delhi’s bureaucrats and Oxford’s “development” school to McNamara’s World Bank with its Indian staffers. Frank Hahn protected my inchoate liberal arguments for India; and when no internal examiner could be found, Cambridge showed its greatness by appointing two externals, Bliss at Oxford and Hutchison at Birmingham, both Cambridge men. “Economic Theory and Development Economics” was presented to the American Economic Association in December 1982 in company of Solow, Chenery, Streeten, and other eminences…” How I landed on that eminent AEA panel in December 1982 was because its convener Professor George Rosen of the University of Illinois recruited me overnight — as a replacement for Jagdish Bhagwati, who had had to return to India suddenly because of a parental death. The results were published in 1983 in World Development.
“When Mr. Dennis Healey in the Commons recently stated that Hongkong, with one per cent of the population of India has twice India’s trade, he was making an important point about Hongkong but an equally important point about India. If Hongkong with one per cent of its population and less than 0.03 per cert of India’s land area (without even water as a natural resource) can so outpace India, there must be something terribly wrong with the way Indian governments have managed their affairs, and there is. A paper by an Indian economist published today (Pricing, Planning and Politics: A Study of Economic Distortions in India by Subroto Roy, IEA £1.80) shows how Asia’s largest democracy is gradually being stifled by the imposition of economic policies whose woeful effect and rhetorical unreality find their echo all over the Third World. As with many of Britain’s former imperial possessions, the rot set in long before independence. But as with most of the other former dependencies, the instrument of economic regulation and bureaucratic control set up by the British has been used decisively and expansively to consolidate a statist regime which inhibits free enterprise, minimizes economic success and consolidates the power of government in all spheres of the economy. We hear little of this side of things when India rattles the borrowing bowl or denigrates her creditors for want of further munificence. How could Indian officials explain their poor performance relative to Hongkong? Dr Roy has the answers for them. He lists the causes as a large and heavily subsidized public sector, labyrinthine control over private enterprise, forcibly depressed agricultural prices, massive import substitution, government monopoly of foreign exchange transactions, artificially overvalued currency and the extensive politicization of the labour market, not to mention the corruption which is an inevitable side effect of an economy which depends on the arbitrament of bureaucrats. The first Indian government under Nehru took its cue from Nehru’s admiration of the Soviet economy, which led him to believe that the only policy for India was socialism in which there would be “no private property except in a restricted sense and the replacement of the private profit system by a higher ideal of cooperative service.” Consequently, the Indian government has now either a full monopoly or is one of a few oligipolists in banking, insurance, railways, airlines, cement, steel, chemicals, fertilizers, ship-building, breweries, telephones and wrist-watches. No businessman can expand his operation while there is any surplus capacity anywhere in that sector. He needs government approval to modernize, alter his price-structure, or change his labour shift. It is not surprising that a recent study of those developing countries which account for most manufactured exports from the Third World shows that India’s share fell from 65 percent in 1953 to 10 per cent in 1973; nor, with the numerous restrictions on inter-state movement of grains, that India has over the years suffered more from an inability to cope with famine than during the Raj when famine drill was centrally organized and skillfully executed without restriction. Nehru’s attraction for the Soviet model has been inherited by his daughter, Mrs. Gandhi. Her policies have clearly positioned India more towards the Soviet Union than the West. The consequences of this, as Dr Roy states, is that a bias can be seen in “the antipathy and pessimism towards market institutions found among the urban public, and sympathy and optimism to be found for collectivist or statist ones.” All that India has to show for it is the delivery of thousands of tanks in exchange for bartered goods, and the erection of steel mills and other heavy industry which help to perpetuate the unfortunate obsession with industrial performance at the expense of agricultural growth and the relief of rural poverty.”…..
I felt there were inaccuracies in this and so replied dated 4 June which The Times published on 16 June 1984:
Milton and I met for the first time in the Fall of 1984 at the Mont Pelerin Society meetings at Cambridge when I gave him a copy of the IEA monograph, which he came to think extremely well of. I told him I had heard of his 1955 document and asked him for it; he sent me the original blue/purple version of this soon thereafter.
[That original document was, incidentally, in my professorial office among all my books, papers, theses and other academic items including my gown when I was attacked in 2003 by a corrupt gang at IIT Kharagpur — all yet to be returned to me by IIT despite a High Court order during my present ongoing battle against corruption there over a USD 1.9 million scam !… Without having ever wished to, I have had to battle India’s notorious corruption first hand for a decade!]
I published Milton’s document for the first time on 21 May 1989 at the conference of the Hawaii project over the loud objection of assorted leftists…
Amartya Sen, Jagdish Bhagwati, Manmohan Singh or any of their acolytes will not be seen in this group photograph dated 21 May 1989 at the UH President’s House, because they were not there. The Government of India was represented by the Ambassador to Washington, PK Kaul, as well as the Consul General in San Francisco, KS Rana (later Ambassador to Germany), besides the founding head of ICRIER who had invited himself.
Manmohan Singh was not there as he precisely represented the Indian economic policy establishment I had been determined to reform! In any case, he had left India about 1987 on his last assignment before retirement, with Julius Nyerere of Tanzania relating to the “South-South Commission”.
I have said over more than a half dozen years now that there is no evidence whatsoever of Manmohan Singh having been a liberal economist in any sense of that word at any time before 1991, and scant evidence that he originated any liberal economic ideas since. The widespread worldwide notion that he is to be credited for originating a sudden transformation of India from a path of pseudo-socialism to one of pseudo-liberalism has been without basis in evidence — almost entirely a political fiction, though an explicable one and one which has served, as such political fictions do, the purposes of those who invent them.
Jagdish Bhagwati and Amartya Sen were in their mid 50s and were two of the three senior-most Indians in US academic economics at the time. I and Ted James, both in our 30s, decided to invite both Bhagwati and Sen to the Hawaii project-conference as distinguished guests but to do so somewhat insincerely late in the day, predicting they would decline, which is what they did, yet they had come to be formally informed of what we were doing. We had a very serious attitude that was inspired a bit, I might say, by Oppenheimer’s secret “Manhattan project” and we wanted neither press-publicity nor anyone to become the star who ended up hogging the microphone or the limelight.
Besides, and most important of all, neither Bhagwati nor Sen had done work in the areas we were centrally interested in, namely, India’s macroeconomic and foreign trade framework and fiscal and monetary policies.
Bhagwati, after his excellent 1970 work with Padma Desai for the OECD on Indian industry and trade, also co-authored with TN Srinivasan a fine 1975 volume for the NBER Foreign Trade Regimes and Economic Development: India.
TN Srinivasan was the third of the three senior-most Indian economists at the time in US academia; his work made us want to invite him as one of our main economic authors, and we charged him with writing the excellent chapter in Foundations that he came to do titled “Planning and Foreign Trade Reconsidered”.
The other main economist author we had hoped for was Sukhamoy Chakravarty from Delhi University and the Government of India’s Planning Commission, whom I had known since 1977 when I had been given his office at the Delhi School of Economics as a Visiting Assistant Professor while he was on sabbatical; despite my pleading he would not come due to ill health; he strongly recommended C Rangarajan, telling me Rangarajan had been the main author with him of the crucial 1985 RBI report on monetary policy; and he signed and gave me his last personal copy of that report dating it 14 July 1987. Rangarajan said he could not come and recommended the head of the NIPFP, Amaresh Bagchi, promising to write jointly with him the chapter on monetary policy and public finance.
Along with Milton Friedman’s suppressed 1955 memorandum which I was publishing for the first time in 1989, TN Srinivasan and Amaresh Bagchi authored the three main economic policy chapters that we felt we wanted.
Other chapters we commissioned had to do with the state of governance (James Manor), federalism (Bhagwan Dua), Punjab and similar problems (PR Brass), agriculture (K Subbarao, as proposed by CH Hanumantha Rao), health (Anil Deolalikar, through open advertisement), and a historical assessment of the roots of economic policy (BR Tomlinson, as proposed by Anil Seal). On the vital subject of education we failed to agree with the expert we wanted very much (JBG Tilak, as proposed by George Psacharopolous) and so we had to cover the subject cursorily in our introduction mentioning his work. And decades later, I apologised to Professor Dietmar Rothermund of Heidelberg University for having been so blinkered in the Anglo-American tradition at the time as to not having obtained his participation in the project.
[The sister-volume we commissioned in parallel on Pakistan’s political economy had among its authors Francis Robinson, Akbar Ahmed, Shirin Tahir-Kehli, Robert La Porte, Shahid Javed Burki, Mohsin Khan, Mahmood Hasan Khan, Naved Hamid, John Adams and Shahrukh Khan; this book came to be published in Pakistan in 1993 to good reviews but apparently was then lost by its publisher and is yet to be found; the military and religious clergy had been deliberately not invited by us though the name of Pervez Musharraf had I think arisen, and the military and religious clergy in fact came to rule the roost through the 1990s in Pakistan; the volume, two decades old, takes on fresh relevance with the new civilian governments of recent years.] [Postscript 27 November 2015: See my strident critique at Twitter of KM Kasuri, P Musharraf et al e.g. at https://independentindian.com/2011/11/22/pakistans-point-of-view-or-points-of-view-on-kashmir-my-as-yet-undelivered-lahore-lecture-part-i/ passing off ideas they have taken from this volume without acknowledgement, ideas which have in any case become defunct to their author, myself.]
Milton himself said this about his experience with me in his memoirs:
And Milton wrote on my behalf when I came to be attacked, being Indian, at the very University that had sponsored us:
My obituary notice at his passing in 2006 said: “My association with Milton has been the zenith of my engagement with academic economics…. I was a doctoral student of his bitter enemy yet for over two decades he not only treated me with unfailing courtesy and affection, he supported me in lonely righteous battles: doing for me what he said he had never done before, which was to stand as an expert witness in a United States Federal Court. I will miss him much though I know that he, as a man of reason, would not have wished me to….”
In August 1990 in Delhi I came to tell Siddhartha Shankar Ray about the unpublished India-manuscript resulting from the Hawaii project that was in my possession as it headed to its publisher.
Ray was a family-friend whose maternal grandfather CR Das led the Congress Party before MK Gandhi and had been a friend and colleague of my great grandfather SN Roy in Bengal’s politics in the 1920s; Ray had also consented to stand on my behalf as Senior Counsel in a matter in the Supreme Court of India.
Ray was involved in daily political parlays at his Delhi home with other Congress Party personages led by PV Narasimha Rao. These senior regional figures seemed to me to be keeping their national leader, Rajiv Gandhi, aloof in splendid isolation at 10 Jan Path.
Ray told me he and his wife had been in London in May 1984 on the day The Times had written its lead editorial on my work and they had seen it with excitement. Upon hearing of the Hawaii project and the manuscript I had with me, Ray immediately insisted of his own accord that I must meet Rajiv Gandhi, and that he would be arranging a meeting.
Rajiv made me a senior adviser, and I have claimed principal authorship of the 22 March 1991 draft of the Congress manifesto that actually shook and changed the political thinking of the Congress on economic matters in the direction Rajiv had desired and as I had advised him at our initial 18 September 1990 meeting.
“… He began by talking about how important he felt panchayati raj was, and said he had been on the verge of passing major legislation on it but then lost the election. He asked me if I could spend some time thinking about it, and that he would get the papers sent to me. I said I would and remarked panchayati raj might be seen as decentralized provision of public goods, and gave the economist’s definition of public goods as those essential for the functioning of the market economy, like the Rule of Law, roads, fresh water, and sanitation, but which were unlikely to appear through competitive forces.
I distinguished between federal, state and local levels and said many of the most significant public goods were best provided locally. Rajiv had not heard the term “public goods” before, and he beamed a smile and his eyes lit up as he voiced the words slowly, seeming to like the concept immensely. It occurred to me he had been by choice a pilot of commercial aircraft. Now he seemed intrigued to find there could be systematic ways of thinking about navigating a country’s governance by common pursuit of reasonable judgement. I said the public sector’s wastefulness had drained scarce resources that should have gone instead to provide public goods. Since the public sector was owned by the public, it could be privatised by giving away its shares to the public, preferably to panchayats of the poorest villages. The shares would become tradable, drawing out black money, and inducing a historic redistribution of wealth while at the same time achieving greater efficiency by transferring the public sector to private hands. Rajiv seemed to like that idea too, and said he tried to follow a maxim of Indira Gandhi’s that every policy should be seen in terms of how it affected the common man. I wryly said the common man often spent away his money on alcohol, to which he said at once it might be better to think of the common woman instead. (This remark of Rajiv’s may have influenced the “aam admi” slogan of the 2004 election, as all Congress Lok Sabha MPs of the previous Parliament came to receive a previous version of the present narrative.)
Our project had identified the Congress’s lack of internal elections as a problem; when I raised it, Rajiv spoke of how he, as Congress President, had been trying to tackle the issue of bogus electoral rolls. I said the judiciary seemed to be in a mess due to the backlog of cases; many of which seemed related to land or rent control, and it may be risky to move towards a free economy without a properly functioning judicial system or at least a viable system of contractual enforcement. I said a lot of problems which should be handled by the law in the courts in India were instead getting politicised and decided on the streets. Rajiv had seen the problems of the judiciary and said he had good relations with the Chief Justice’s office, which could be put to use to improve the working of the judiciary.
The project had worked on Pakistan as well, and I went on to say we should solve the problem with Pakistan in a definitive manner. Rajiv spoke of how close his government had been in 1988 to a mutual withdrawal from Siachen. But Zia-ul-Haq was then killed and it became more difficult to implement the same thing with Benazir Bhutto, because, he said, as a democrat, she was playing to anti-Indian sentiments while he had found it somewhat easier to deal with the military. I pressed him on the long-term future relationship between the countries and he agreed a common market was the only real long-term solution. I wondered if he could find himself in a position to make a bold move like offering to go to Pakistan and addressing their Parliament to break the impasse. He did not say anything but seemed to think about the idea. Rajiv mentioned a recent Time magazine cover of Indian naval potential, which had caused an excessive stir in Delhi. He then talked about his visit to China, which seemed to him an important step towards normalization. He said he had not seen (or been shown) any absolute poverty in China of the sort we have in India. He talked about the Gulf situation, saying he did not disagree with the embargo of Iraq except he wished the ships enforcing the embargo had been under the U.N. flag. The meeting seemed to go on and on, and I was embarrassed at perhaps having taken too much time and that he was being too polite to get me to go. V. George had interrupted with news that Sheila Dixit (as I recall) had just been arrested by the U. P. Government, and there were evidently people waiting. Just before we finally stood up I expressed a hope that he was looking to the future of India with an eye to a modern political and economic agenda for the next election, rather than getting bogged down with domestic political events of the moment. That was the kind of hopefulness that had attracted many of my generation in 1985. I said I would happily work in any way to help define a long-term agenda. His eyes lit up and as we shook hands to say goodbye, he said he would be in touch with me again…. The next day I was called and asked to stay in Delhi for a few days, as Mr. Gandhi wanted me to meet some people…..
… That night Krishna Rao dropped me at Tughlak Road where I used to stay with friends. In the car I told him, as he was a military man with heavy security cover for himself as a former Governor of J&K, that it seemed to me Rajiv’s security was being unprofessionally handled, that he was vulnerable to a professional assassin. Krishna Rao asked me if I had seen anything specific by way of vulnerability. With John Kennedy and De Gaulle in mind, I said I feared Rajiv was open to a long-distance sniper, especially when he was on his campaign trips around the country. This was one of several attempts I made since October 1990 to convey my clear impression to whomever I thought might have an effect that Rajiv seemed to me extremely vulnerable. Rajiv had been on sadhbhavana journeys, back and forth into and out of Delhi. I had heard he was fed up with his security apparatus, and I was not surprised given it seemed at the time rather bureaucratized. It would not have been appropriate for me to tell him directly that he seemed to me to be vulnerable, since I was a newcomer and a complete amateur about security issues, and besides if he agreed he might seem to himself to be cowardly or have to get even closer to his security apparatus. Instead I pressed the subject relentlessly with whomever I could. I suggested specifically two things: (a) that the system in place at Rajiv’s residence and on his itineraries be tested, preferably by some internationally recognized specialists in counter-terrorism; (b) that Rajiv be encouraged to announce a shadow-cabinet. The first would increase the cost of terrorism, the second would reduce the potential political benefit expected by terrorists out to kill him. On the former, it was pleaded that security was a matter being run by the V. P. Singh and then Chandrashekhar Governments at the time. On the latter, it was said that appointing a shadow cabinet might give the appointees the wrong idea, and lead to a challenge to Rajiv’s leadership. This seemed to me wrong, as there was nothing to fear from healthy internal contests for power so long as they were conducted in a structured democratic framework. I pressed to know how public Rajiv’s itinerary was when he travelled. I was told it was known to everyone and that was the only way it could be since Rajiv wanted to be close to the people waiting to see him and had been criticized for being too aloof. This seemed to me totally wrong and I suggested that if Rajiv wanted to be seen as meeting the crowds waiting for him then that should be done by planning to make random stops on the road that his entourage would take. This would at least add some confusion to the planning of potential terrorists out to kill him. When I pressed relentlessly, it was said I should probably speak to “Madame”, i.e. to Mrs. Rajiv Gandhi. That seemed to me highly inappropriate, as I could not be said to be known to her and I should not want to unduly concern her in the event it was I who was completely wrong in my assessment of the danger. The response that it was not in Congress’s hands, that it was the responsibility of the VP Singh and later the Chandrashekhar Governments, seemed to me completely irrelevant since Congress in its own interests had a grave responsibility to protect Rajiv Gandhi irrespective of what the Government’s security people were doing or not doing. Rajiv was at the apex of the power structure of the party, and a key symbol of secularism and progress for the entire country. Losing him would be quite irreparable to the party and the country. It shocked me that the assumption was not being made that there were almost certainly professional killers actively out to kill Rajiv Gandhi — this loving family man and hapless pilot of India’s ship of state who did not seem to have wished to make enemies among India’s terrorists but whom the fates had conspired to make a target. The most bizarre and frustrating response I got from several respondents was that I should not mention the matter at all as otherwise the threat would become enlarged and the prospect made more likely! This I later realized was a primitive superstitious response of the same sort as wearing amulets and believing in Ptolemaic astrological charts that assume the Sun goes around the Earth — centuries after Kepler and Copernicus. Perhaps the entry of scientific causality and rationality is where we must begin in the reform of India’s governance and economy. What was especially repugnant after Rajiv’s assassination was to hear it said by his enemies that it marked an end to “dynastic” politics in India. This struck me as being devoid of all sense because the unanswerable reason for protecting Rajiv Gandhi was that we in India, if we are to have any pretensions at all to being a civilized and open democratic society, cannot tolerate terrorism and assassination as means of political change. Either we are constitutional democrats willing to fight for the privileges of a liberal social order, or ours is truly a primitive and savage anarchy concealed beneath a veneer of fake Westernization….. Proceedings began when Rajiv arrived. This elite audience mobbed him just as the farmers had mobbed him earlier. He saw me and beamed a smile in recognition, and I smiled back but made no attempt to draw near him in the crush. He gave a short very apt speech on the role the United Nations might have in the new post-Gulf War world. Then he launched the book, and left for an investiture at Rashtrapati Bhavan. We waited for our meeting with him, which finally happened in the afternoon. Rajiv was plainly at the point of exhaustion and still hard-pressed for time. He seemed pleased to see me and apologized for not talking in the morning. Regarding the March 22 draft, he said he had not read it but that he would be doing so. He said he expected the central focus of the manifesto to be on economic reform, and an economic point of view in foreign policy, and in addition an emphasis on justice and the law courts. I remembered our September 18 conversation and had tried to put in justice and the courts into our draft but had been over-ruled by others. I now said the social returns of investment in the judiciary were high but was drowned out again. Rajiv was clearly agitated that day by the BJP and blurted out he did not really feel he understood what on earth they were on about. He said about his own family, “We’re not religious or anything like that, we don’t pray every day.” I felt again what I had felt before, that here was a tragic hero of India who had not really wished to be more than a happy family man until he reluctantly was made into a national leader against his will. We were with him for an hour or so. As we were leaving, he said quickly at the end of the meeting he wished to see me on my own and would be arranging a meeting. One of our group was staying back to ask him a favour. Just before we left, I managed to say to him what I felt was imperative: “The Iraq situation isn’t as it seems, it’s a lot deeper than it’s been made out to be.” He looked at me with a serious look and said “Yes I know, I know.” It was decided Pitroda would be in touch with each of us in the next 24 hours. During this time Narasimha Rao’s manifesto committee would read the draft and any questions they had would be sent to us. We were supposed to be on call for 24 hours. The call never came. Given the near total lack of system and organization I had seen over the months, I was not surprised. Krishna Rao and I waited another 48 hours, and then each of us left Delhi. Before going I dropped by to see Krishnamurty, and we talked at length. He talked especially about the lack of the idea of teamwork in India. Krishnamurty said he had read everything I had written for the group and learned a lot. I said that managing the economic reform would be a critical job and the difference between success and failure was thin….”
“… I got the afternoon train to Calcutta and before long left for America to bring my son home for his summer holidays with me. In Singapore, the news suddenly said Rajiv Gandhi had been killed. All India wept. What killed him was not merely a singular act of criminal terrorism, but the system of humbug, incompetence and sycophancy that surrounds politics in India and elsewhere. I was numbed by rage and sorrow, and did not return to Delhi….”
In December 1991, I visited Rajiv’s widow at 10 Jan Path to express my condolences, the only time I have met her, and I gave her for her records a taped copy of Rajiv’s long-distance telephone conversations with me during the Gulf War earlier that year. She seemed an extremely shy taciturn figure in deep mourning, and I do not think the little I said to her about her late husband’s relationship with me was comprehended. Nor was it the time or place for more to be said.
In September 1993, at a special luncheon at the Indian Ambassador’s Residence in Washington, Siddhartha Shankar Ray, then the Ambassador to Washington, pointed at me and declared to Manmohan Singh, then Finance Minister, in presence of Manmohan’s key aides accompanying him including MS Ahluwalia, NK Singh, C Rangarajan and others,
“Congress manifesto was written on his computer”.
This was accurate enough to the extent that the 22 March 1991 draft as asked for by Rajiv and that came to explicitly affect policy had been and remains on my then-new NEC laptop.
At the Ambassador’s luncheon, I gave Manmohan Singh a copy of the Foundations book as a gift. My father who knew him in the early 1970s through MG Kaul, ICS, had sent him a copy of my 1984 IEA monograph which Manmohan had acknowledged. And back in 1973, he had visited our then-home at 14 Rue Eugene Manuel in Paris to advise me about economics at my father’s request, and he and I had ended up in a fierce private debate for about forty minutes over the demerits (as I saw them) and merits (as he saw them) of the Soviet influence on Indian economic policy-making. But in 1993 we had both forgotten the 1973 meeting.
In May 2002, the Congress passed an official party resolution moved by Digvijay Singh in presence of PV Narasimha Rao and Manmohan Singh that the 1991 reforms had originated with Rajiv Gandhi and not with either Narasimha Rao or Manmohan; no one dissented. It was intended to flatter Sonia Gandhi as the Congress President, but there was truth in it too which all Congress MPs of the 13th Lok Sabha had come to know in a publication of mine they had received from me at IIT Kharagpur where since 1996 I had become Professor.
Manmohan Singh himself, to his credit, has not at any point, except once during his failed Lok Sabha bid, claimed the reforms as his own invention and has said always he had followed what his Prime Minister had told him. However, he has not been averse to being attributed with all the credit by his flatterers, by the media, by businessmen and many many others around the world, and certainly he did not respond to Ambassador Siddhartha Shankar Ray telling him and his key aides how the Congress-led reform had come about through my work except to tell me at the 1993 luncheon that when Arjun Singh criticised the reforms in Cabinet, he, Manmohan, would mention the manifesto.
On 28 December 2009, Rajiv’s widow in an official Congress Party statement finally declared her late husband
“left his personal imprint on the (Congress) party’s manifesto of 1991.″
How Sonia Gandhi, who has never had pretensions to knowledge of economics or political economy or political science or governance or history, came to place Manmohan Singh as her prime ministerial candidate and the font of economic and political wisdom along with Pranab Mukherjee, when both men hardly had been favourites of her late husband, would be a story in its own right. And how Amartya Sen’s European-origin naturalised Indian co-author Jean Drèze later came to have policy influence from a different direction upon Sonia Gandhi, also a naturalised Indian of European origin, may be yet another story in its own right, perhaps best told by themselves.
I would surmise the same elderly behind-the-scenes figure, now in his late 80s, had a hand in setting up both sets of influences — directly in the first case (from back in 1990-1991), and indirectly in the second case (starting in 2004) . This was a man who in a November 2007 newspaper article literally erased my name and inserted that of Manmohan Singh as part of the group that Rajiv created on 25 September following his 18 September meeting with me! Reluctantly, I had to call this very elderly man a liar; he has not denied it and knows he has not been libeled.
One should never forget the two traditional powers interested in the subcontinent, Russia and Britain, have been never far from influence in Delhi. In 1990-1991 what worried vested bureaucratic and business interests and foreign powers through their friends and agents was that they could see change was coming to India but they wanted to be able to control it themselves to their advantage, which they then broadly proceeded to do over the next two decades. The foreign weapons’ contracts had to be preserved, as did other big-ticket imports that India ends up buying needlessly on credit it hardly has in world markets. There are similarities to what happened in Russia and Eastern Europe where many apparatchiks and fellow-travellers became freedom-loving liberals overnight; in the Indian case more than one badly compromised pro-USSR senior bureaucrat promptly exported his children and savings to America and wrapped themselves in the American flag.
The stubborn unalterable fact remains that Manmohan Singh was not physically present in India and was still with the Nyerere project on 18 September 1990 when I met Rajiv for the first time and gave him the unpublished results of the UH-Manoa project. This simple straightforward fact is something the Congress Party, given its own myths and self-deception and disinformation, has not been able to cope with in its recently published history. For myself, I have remained loyal to my memory of my encounter with Rajiv Gandhi, and my understanding of him. The Rajiv Gandhi I knew had been enthused by me in 1990-1991 carrying the UH-Manoa perestroika-for-India project that I had led since 1986, and he had loved my advice to him on 18 September 1990 that he needed to modernise the party by preparing a coherent agenda (as other successful reformers had done) while still in Opposition waiting for elections, and to base that agenda on commitments to improving the judiciary and rule of law, stopping the debauching of money, and focusing on the provision of public goods instead. Rajiv I am sure wanted a modern and modern-minded Congress — not one which depended on him let aside his family, but one which reduced that dependence and let him and his family alone.
As for Manmohan Singh being a liberal or liberalising economist, there is no evidence publicly available of that being so from his years before or during the Nyerere project, or after he returned and joined the Chandrashekhar PMO and the UGC until becoming, to his own surprise as he told Mark Tully, PV Narasimha Rao’s Finance Minister. Some of his actions qua Finance Minister were liberalising in nature but he did not originate any basic idea of a change in a liberal direction of economic policy, and he has, with utmost honesty honestly, not claimed otherwise.Innumerable flatterers and other self-interested parties have made out differently, creating what they have found to be a politically useful fiction; he has yet to deny them.
Siddhartha Shankar Ray and I met last in July 2009, when I gave him a copy of this 2005 volume I had created, which pleased him much.
I said to him Bengal’s public finances were in abysmal condition, calling for emergency measures financially, and that Mamata Banerjee seemed to me to be someone who knew how to and would dislodge the Communists from their entrenched misgovernance of decades but she did not seem quite aware that dislodging a bad government politically was not the same thing as knowing how to govern properly oneself. He, again of his own accord, said immediately,
“I will call her and her people to a meeting here so you can meet them and tell them that directly”.
It never transpired. In our last phone conversation I mentioned to him my plans of creating a Public Policy Institute — an idea he immediately and fully endorsed as being essential though adding “I can’t be part of it, I’m on my way out”.
“I’m on my way out”. That was Siddhartha Shankar Ray — always intelligent, always good-humoured, always public-spirited, always a great Indian, my only friend among politicians other than the late Rajiv Gandhi himself.
In March February 2010, my father and I called upon the new Bengal Governor, MK Narayanan and gave him a copy of the Thatcher volume for the Raj Bhavan Library; I told him the story about my encounter with Rajiv Gandhi thanks to Siddhartha Shankar Ray and its result; Narayanan within a few days made a visit to Ray’s hospital-bed, and when he emerged after several hours he made a statement, which in substance he repeated again when Ray died in November 2010:
To what facts did MK Narayanan, a former Intelligence Bureau chief, mean to refer with this extravagant praise of Ray? Was Narayanan referring to Ray’s politics for Indira Gandhi? To Ray’s Chief Ministership of Bengal? To Ray’s Governorship of Punjab? You will have to ask him but I doubt that was what he meant: I surmise Narayanan’s eulogy could only have resulted after he confirmed with Ray on his hospital-bed the story I had told him, and that he was referring to the economic and political results that followed for the country once Ray had introduced me in September 1990 to Rajiv Gandhi. But I say again, you will have to ask MK Narayanan himself what he and Ray talked about in hospital and what was the factual basis of Narayanan’s precise words of praise. To what facts exactly was MK Narayanan, former intelligence chief, meaning to refer when he stated Siddhartha Shankar Ray had made a “magnificent contribution to India’s growth and progress”?
3. Jagdish Bhagwati & Manmohan Singh? That just don’t fly!
Now returning to the apparent desire of Professor Panagariya, the Jagdish Bhagwati Professor of Indian Political Economy at Columbia, to attribute to Jagdish Bhagwati momentous change for the better in India as of 1991, even if Panagariya had not the scientific curiosity to look into our 1992 book titled Foundations of India’s Political Economy: Towards an Agenda for the 1990s or into Milton Friedman’s own 1998 memoirs, we may have expected him to at least turn to his co-author and Columbia colleague, Jagdish Bhagwati himself, and ask, “Master, have you heard of this fellow Subroto Roy by any chance?”
Jagdish would have had to say yes, since not only had he received a copy of the proofs of my 1984 IEA work Pricing, Planning and Politics: A Study of Economic Distortions in India, he was kind enough to write in a letter dated 15 May 1984 that I had
“done an excellent job of setting out the problems afflicting our economic policies, unfortunately government-made problems!”
Also Jagdish may or may not have remembered our only meeting, when he and I had had a long conversation on the sofas in the foyer of the IMF in Washington when I was a consultant there in 1993 and he had come to meet someone; he was surprisingly knowledgeable about my personal 1990 matter in the Supreme Court of India which astonished me until he told me his brother the Supreme Court judge had mentioned the case to him!
Now my 1984 work was amply scientific and scholarly in fully crediting a large number of works in the necessary bibliography, including Bhagwati’s important work with his co-authors. Specifically, Footnote 1 listed the literature saying:
“The early studies notably include: B. R. Shenoy, `A note of dissent’, Papers relating to the formulation of the Second Five-Year Plan, Government of India Planning Commission, Delhi, 1955; Indian Planning and Economic Development, Asia Publishing, Bombay, 1963, especially pp. 17-53; P. T. Bauer, Indian Economic Policy and Development, George Allen & Unwin, London, 1961; M. Friedman, unpublished memorandum to the Government of India, November 1955 (referred to in Bauer, op. cit., p. 59 ff.); and, some years later, Sudha Shenoy, India : Progress or Poverty?, Research Monograph 27, Institute of Economic Affairs, London, 1971. Some of the most relevant contemporary studies are: B. Balassa, `Reforming the system of incentives in World Development, 3 (1975), pp. 365-82; `Export incentives and export performance in developing countries: a comparative analysis’, Weltwirtschaftliches Archiv, 114 (1978), pp. 24-61; The process of industrial development and alternative development strategies, Essays in International Finance No. 141, Princeton University, 1980; J. N. Bhagwati & P. Desai, India: Planning for Industrialisation, OECD, Paris : Oxford University Press, 1970; `Socialism and Indian Economic Policy’, World Development, 3 (1975), pp. 213-21; J. N. Bhagwati & T. N. Srinivasan, Foreign-trade Regimes and Economic Development: India, National Bureau of Economic Research, New York, 1975; Anne O. Krueger, `Indian planning experience’, in T. Morgan et al. (eds.), Readings in Economic Development, Wadsworth, California, 1963, pp. 403-20; `The political economy of the rent-seeking society, American Economic Review, 64 (June 1974); The Benefits and Costs of Import-Substitution in India: a Microeconomic Study, University of Minnesota Press, Minneapolis, 1975; Growth, distortions and patterns of trade among many countries, Studies in International Finance, Princeton University, 1977; Uma Lele, Food grain marketing in India : private performance and public policy, Cornell University Press, Ithaca, 1971; T. W. Schultz (ed.), Distortions in agricultural incentives, Indiana University Press, Bloomington, 1978; V. Sukhatme, “The utilization of high-yielding rice and wheat varieties in India: an economic assessment”, University of Chicago PhD thesis, 1977….”
There were two specific references to Bhagwati’s work with Srinivasan:
“Jagdish Bhagwati and T. N. Srinivasan put it as follows : `The allocation of foreign exchange among alternative claimants and users in a direct control system . . .would presumably be with reference to a well-defined set of principles and criteria based on a system of priorities. In point of fact, however, there seem to have been few such criteria, if any, followed in practice.’”
“But as Bhagwati and Srinivasan report, `. . . the sheer weight of numbers made any meaningful listing of priorities extremely difficult. The problem was Orwellian: all industries had priority and how was each sponsoring authority to argue that some industries had more priority than others? It is not surprising, therefore, that the agencies involved in determining allocations by industry fell back on vague notions of “fairness”, implying pro rata allocations with reference to capacity installed or employment, or shares defined by past import allocations or similar rules of thumb’”
and one to Bhagwati and Desai:
“The best descriptions of Indian industrial policy are still to be found in Bhagwati and Desai (1970)…”
Professors Bhagwati and Panagriya have not apparently referred to anything beyond these joint works of Bhagwati’s dated 1970 with Padma Desai and 1975 with TN Srinivasan. They have not claimed Bhagwati did anything by way of either publication or political activity in relation to India’s economic policy between May 1984, when he read my soon-to-be-published-work and found I had
“done an excellent job of setting out the problems afflicting our economic policies, unfortunately government-made problems”,
and September 1990 when I gave Rajiv the University of Hawaii perestroika-for-India project results developed since 1986, which came to politically spark the 1991 reform in the Congress’s highest echelons from months before Rajiv’s assassination.
There may have been no such claim made by Bhagwati and Panagariya because there may be no such evidence. Between 1984 and 1990, Professor Bhagwati’s research interests were away from Indian economic policy while his work on India through 1970 and 1975 had been fully and reasonably accounted for as of 1984 by myself.
What is left remaining is Bhagwati’s statement :
“When finance minister Manmohan Singh was in New York in 1992, he had a lunch for many big CEOs whom he was trying to seduce to come to India. He also invited me and my wife, Padma Desai, to the lunch. As we came in, the FM introduced us to the invitees and said: ‘These friends of mine wrote almost a quarter century ago [India: Planning for Industrialisation was published in 1970 by Oxford] recommending all the reforms we are now undertaking. If we had accepted the advice then, we would not be having this lunch as you would already be in India’
Now this light self-deprecating reference by Manmohan at an investors’ lunch in New York “for many big CEOs” was an evident attempt at political humour written by his speech-writer. It was clearly, on its face, not serious history. If we test it as serious history, it falls flat so we may only hope Manmohan Singh, unlike Jagdish Bhagwati, has not himself come to believe his own reported joke as anything more than that.
The Bhagwati-Desai volume being referred to was developed from 1966-1970. India saw critical economic and political events in 1969, in 1970, in 1971, in 1972, in 1975, in 1977, etc.
Those were precisely years during which Manmohan Singh himself moved from being an academic to becoming a Government of India official, working first for MG Kaul, ICS, and then in 1971 coming to the attention of PN Haksar, Indira Gandhi’s most powerful bureaucrat between 1967 and 1974: Haksar himself was Manmohan Singh’s acknowledged mentor in the Government, as Manmohan told Mark Tully in an interview.
After Manmohan visited our Paris home in 1973 to talk to me about economics, my father — who had been himself sent to the Paris Embassy by Haksar in preparation for Indira Gandhi’s visit in November 1971 before the Bangladesh war —
had told me Manmohan was very highly regarded in government circles with economics degrees from both Cambridge and Oxford, and my father had added, to my surprise, what was probably a Haksarian governmental view that Manmohan was expected to be India’s Prime Minister some day. That was 1973.
PN Haksar had been the archetypal Nehruvian Delhi intellectual of a certain era, being both a fierce nationalist and a fierce pro-USSR leftist from long before Independence. I met him once on 23 March 1991, on the lawns of 10 Jan Path at the launch of General V Krishna Rao’s book on Indian defence which Rajiv was releasing, and Haksar gave a speech to introduce Rajiv (as if Rajiv needed introduction on the lawns of his own residence); Haksar was in poor health but he seemed completely delighted to be back in favour with Rajiv, after years of having been treated badly by Indira and her younger son.
Had Manmohan Singh in the early 1970s gone to Haksar — the architect of the nationalisation of India’s banking going on right then — and said “Sir, this OECD study by my friend Bhagwati and his wife says we should be liberalising foreign trade and domestic industry”, Haksar would have been astonished and sent him packing.
There was a war on, plus a massive problem of 10 million refugees, a new country to support called Bangladesh, a railway strike, a bad crop, repressed inflation, shortages, and heaven knows what more, besides Nixon having backed Yahya Khan, Tikka Khan et al.
Then after Bangladesh and the railway strike etc, came the rise of the politically odious younger son of Indira Gandhi and his friends (at least one of whom is today Sonia Gandhi’s gatekeeper) followed by the internal political Emergency, the grave foreign-fueled problem of Sikh separatism and its control, the assassination of Indira Gandhi by her own Sikh bodyguards, and the Rajiv Gandhi years as Prime Minister.
Certainly it was Rajiv’s arrival in office and Benazir’s initial return to Pakistan, along with the rise of Michael Gorbachev in the changing USSR, that inspired me in far away Hawaii in 1986 to design with Ted James the perestroika-projects for India and Pakistan which led to our two volumes, and which, thanks to Siddhartha Shankar Ray, came to reach Rajiv Gandhi in Opposition in September 1990 as he sat somewhat forlornly at 10 Jan Path after losing office. “There is a tide in the affairs of men, Which taken at the flood, leads on to fortune….
My friend and collaborator Ted James died of cancer in Manila in May 2010; earlier that year he came to say publicly
“Seldom are significant reforms imposed successfully by international bureaucracies. Most often they are the result of indigenous actors motivated by domestic imperatives. I believe this was the case in India in 1991. It may have been fortuitous that Dr. Roy gained an audience with a receptive Rajiv Gandhi in 1990 but it was not luck that he was prepared with a well-thought out program; this arose from years of careful thought and debate on the matter.”
Changing the direction of a ship of state is very hard, knowing in which direction it should change and to what degree is even harder; it has rarely been something that can be done without random shocks arising let aside the power of vested interests. Had Rajiv Gandhi lived to form a new Government, I have little doubt I would have led the reform that I had chalked out for him and that he had approved of; Sonia Gandhi would have remained the housewife, mother and grandmother that she had preferred to be and not been made into the Queen of India by the Congress Party; Manmohan Singh had left India in 1987 for the Nyerere project and it had been rumoured at the time that had been slightly to do with him protesting, to the extent that he ever has protested anything, the anti-Sikh pogrom that some of Rajiv’s friends had apparently unleashed after Indira’s killing; he returned in November 1990, joined Chandrashekhar in December 1990, left Chandrashekhar in March 1991 when elections were announced and was biding his time as head of the UGC; had Rajiv Gandhi lived, Manmohan Singh would have had a governor’s career path, becoming the governor of one state after another; he would not have been brought into the economic reform process which he had had nothing to do with originating; and finally Pranab Mukherjee, who left the Congress Party and formed his own when Rajiv took over, would have been likely rehabilitated slowly but would not have come to control the working of the party as he did. I said in my Lok Sabha TV interview on 5 9 December 2012 that there have been many microeconomic improvements arising from technological progress in the last 22 years but the macroeconomic and monetary situation is grim, because at root the fiscal situation remains incoherent and confused. I do not see anyone in Manmohan Singh’s entourage among all his many acolytes and flatterers and apologists who is able to get to these root problems. We shall address these issues in Part II.
What Manmohan Singh said in self-deprecating humour at an investors’ lunch in New York in 1992 is hardly serious history as Jagdish Bhagwati has seemed to wish it to be. Besides, it would have been unlike Manmohan, being the devoted student of Joan Robinson and Nicholas Kaldor as he told Mark Tully, to have taken such a liberalising initiative at all. Furthermore, the 1969 American Economic Review published asurvey of Indian economic policy authored by his Delhi University colleagues Jagdish Bhagwati and Sukhamoy Chakravarty which made little mention of his work, and it would have been unreasonable to expect him to have been won over greatly by theirs. Perhaps there is a generous review from the 1970s by Manmohan Singh of the Bhagwati-Desai volume hidden somewhere but if so we should be told where it is. A list of Manmohan Singh’s publications as an economist do not seem easily available anywhere.
Lastly and perhaps most decisively, the 1970 Bhagwati-Desai volume, excellent study that it was, was hardly the first of its genre by way of liberal criticism of modern Indian economic policy! Bhagwati declared in his 2010 speech to the Lok Sabha
“This policy framework had been questioned, and its total overhaul advocated, by me and Padma Desai in writings through the late 1960s…”
But why has Bhagwati been forever silent about the equally if not more forceful and fundamental criticism of “the policy framework”, and advocacy of its “total overhaul”, by scholars in the 1950s, a decade and more earlier than him, when he and Manmohan and Amartya were still students? Specifically, by BR Shenoy, Milton Friedman, and Peter Bauer? The relevant bibliography from the mid 1950s is given in Footnote 1 of my 1984 work.
Peter Tamas Bauer (1915-2002) played a vital role in all this as had he himself not brought the Friedman 1955 document to my attention I would not have known of it.
As undergraduates at the LSE, we had been petrified of him and I never spoke to him while there, having believed the propaganda that floated around about him; then while a Research Student at Cambridge, I happened to be a speaker with him at a conference at Oxford; he made me sit next to him at a meal and told me for the first time about Milton Friedman’s 1955 memorandum to the Government of India which had been suppressed. I am privileged to say Peter from then on became a friend, and wrote, at my request, what became I am sure the kiss of death for me at the World Bank of 1982:
Later he may have been responsible for the London Times writing its lead editorial of 29 May 1984 on my work.
Now Milton had sent me in 1984, besides the original of his November 1955 memorandum to the Government of India, a confidential 1956 document also which seemed to have been written for US Government consumption. I did not publish this in Hawaii in 1989 as I was having difficulty enough publishing the 1955 memorandum. I gave it to be published on the Internet some years ago, and after Milton’s passing, I had it published in The Statesman on the same day as my obituary of him.
It makes fascinating reading, especially about Mahalanobis and Shenoy, of how what Bhagwati wishes to call “the policy framework” that, he claims, he and Desai called for a “total overhaul” of, came to be what it was in the decade earlier when he and Amartya and Manmohan were still students.
Friedman’s 1956 document said
“I met PC Mahalanobis in 1946 and again at a meeting of the International Statistical Institute in September 1947, and I know him well by reputation. He was absent during most of my stay in New Delhi, but I met him at a meeting of the Indian Planning Commission, of which he is one of the strongest and most able members. Mahalanobis began as a mathematician and is a very able one. Able mathematicians are usually recognized for their ability at a relatively early age. Realizing their own ability as they do and working in a field of absolutes, tends, in my opinion, to make them dangerous when they apply themselves to economic planning. They produce specific and detailed plans in which they have confidence, without perhaps realizing that economic planning is not the absolute science that mathematics is. This general characteristic of mathematicians is true of Mahalanobis but in spite of the tendency he is willing to discuss a problem and listen to a different point of view. Once his decision is reached, however, he has great confidence in it. Mahalanobis was unquestionably extremely influential in drafting the Indian five-year plan. There were four key steps in the plan. The first was the so-called “Plan Frame” drafted by Mahalanobis himself. The second was a tentative plan based on the “Plan Frame”. The third step was a report by a committee of economists on the first two steps, and the fourth was a minority report by BR Shenoy on the economists’ report. The economists had no intention of drafting a definitive proposal but merely meant to comment on certain aspects of the first two steps. Shenoy’s minority report, however, had the effect of making the economists’ report official. The scheme of the Five Year Plan attributed to Mahalanobis faces two problems; one, that India needs heavy industry for economic development; and two, that development of heavy industry uses up large amounts of capital while providing only small employment. Based on these facts, Mahalanobis proposed to concentrate on heavy industry development on the one hand and to subsidize the hand production cottage industries on the other. The latter course would discriminate against the smaller manufacturers. In my opinion, the plan wastes both capital and labour and the Indians get only the worst of both efforts. If left to their own devices under a free enterprise system I believe the Indians would gravitate naturally towards the production of such items as bicycles, sewing machines, and radios. This trend is already apparent without any subsidy. The Indian cottage industry is already cloaked in the same popular sort of mist as is rural life in the US. There is an idea in both places that this life is typical and the backbone of their respective countries. Politically, the Indian cottage industry problem is akin to the American farm problem. Mohandas Gandhi was a proponent of strengthening the cottage industry as a weapon against the British. This reason is now gone but the emotions engendered by Gandhi remain. Any move to strengthen the cottage industry has great political appeal and thus, Mahalanobis’ plan and its pseudo-scientific support for the industry also has great political appeal. I found many supporters for the heavy industry phase of the Plan but almost no one (among the technical Civil Servants) who really believes in the cottage industry aspects, aside from their political appeal. In its initial form, the plan was very large and ambitious with optimistic estimates. My impression is that there is a substantial trend away from this approach, however, and an attempt to cut down. The development of heavy industry has slowed except for steel and iron. I believe that the proposed development of a synthetic petroleum plant has been dropped and probably wisely so. In addition, I believe that the proposed five year plan may be extended to six years. Other than his work on the plan, I am uncertain of Mahalanobis’ influence. The gossip is that he has Nehru’s ear and potentially he could be very influential, simply because of his intellectual ability and powers of persuasion. The question that occurs to me is how much difference Mahalanobis’ plan makes. The plan does not seem the important thing to me. I believe that the new drive and enthusiasm of the Indian nation will surmount any plan, good or bad. Then too, I feel a wide diversity in what is said and what is done. I believe that much of Nehru’s socialistic talk is simply that, just talk. Nehru has been trying to undermine the Socialist Party by this means and apparently the Congress Party’s adoption of a socialistic idea for industry has been successful in this respect. One gets the impression, depending on whom one talks with, either that the Government runs business, or that two or three large businesses run the government. All that appears publicly indicates that the first is true, but a case can also be made for the latter interpretation. Favour and harassment are counterparts in the Indian economic scheme. There is no significant impairment of the willingness of Indian capitalists to invest in their industries, except in the specific industries where nationalization has been announced, but they are not always willing to invest and take the risks inherent in the free enterprise system. They want the Government to support their investment and when it refuses they back out and cry “Socialism”..”
I look forward to seeing a fundamental classical liberal critique from India’s distinguished American friends at Columbia University, Professors Jagdish Bhagwati and Padma Desai and Arvind Panagariya, if and when such a critique arises, of the “policy framework” in India as that evolved from the mid 1950s to become what exists across India in 2013 today. Specifically: Where is the criticism from Bhagwati of Mahalanobis and friends? And where is Bhagwati’s defence of Shenoy, leave aside of Milton Friedman or Peter Bauer? They seem not to exist. The most we get is a footnote again without the civility of any references, in the otherwise cogent 1975 Desai-Bhagwati paper “Socialism and Indian Economic Policy” alleging
” Of these three types of impact of the Soviet example, the Plan-formulation approach was to be enthusiastically received by most commentators and, indeed, to lead to demands on the part of aid agencies for similar efforts by other developing countries. However, the shift to heavy industry was seen as a definite mistake by economic opinion of the Chicago school variety, reflecting their basic unfamiliarity with the structural models of growth and development planning of the Feldman-Mahalanobis variety-an ignorance which probably still persists. The detailed regulation was not quite noticed at the time, except by conservative commentators whose position however was extreme and precluded governmental planning of industrial investments on any scale.”
Desai and Bhagwati naturally found no apparent desire to locate any possible scientific truth or reasonableness among
nor among the unnamed and undescribed
“economic opinion of the Chicago school variety”.
Could Desai and Bhagwati have done anything different after all, even when talking about India to an American audience, without being at risk of losing their East Coast Limousine Liberal credentials? Bhagwati used to routinely declare his “socialist” credentials, and even the other day on Indian TV emphatically declared he was not a “conservative” and scornfully dismissed “Thatcher and Reagan” for their “trickle down economics”…
Jagdish Bhagwati has evidently wanted to have his cake and eat it too…
4. Amartya Sen’s Half-Baked Communism: “To each according to his need”?
If I have been candid or harsh in my assessments of Jagdish Bhagwati and Manmohan Singh as they relate to my personal experience with the change of direction in Indian economic policy originating in 1990-1991, I am afraid I must be equally so with Bhagwati’s current opponent in debate, Amartya Sen. Certainly I have found the current spat between Bhagwati and Sen over India’s political economy to be dismal, unscholarly, unscientific and misleading (or off-base) except for it having allowed a burst of domestic policy-discussion in circumstances when India needs it especially much.
None of this criticism is personal but based on objective experience and the record. My criticism of Professor Bhagwati and Dr Manmohan Singh does not diminish in the slightest my high personal regard for both of them.
Similarly, Amartya Sen and I go back, momentarily, to Hindustan Park in 1964 when there was a faint connection as family friends from World War II (as Naren Deb and Manindranath Roy were friends and neighbours, and we still have the signed copy of a book gifted by the former to the latter), and then he later knew me cursorily when I was an undergraduate at LSE and he was already a famous professor, and I greatly enjoyed his excellent lectures at the LSE on his fine book On Economic Inequality, and a few years later he wrote in tangential support of me at Cambridge for which he was thanked in the preface to my 1989 Philosophy of Economics — even though that book of mine also contained in its Chapter 10 the decisive criticism of his main contribution until that time to what used to be called “social choice theory”. Amartya Sen had also written some splendid handwritten letters, a few pages of which remain with me, which puzzled me at the time due to his expressing his aversion to what is normally called ‘price theory’, namely the Marshallian and/or Walrasian theory of value.
Professor Sen and I met briefly in 1978, and then again in 2006 when I was asked to talk to him in our philosophical conversation which came to be published nicely. In 2006 I told him of my experience with Rajiv Gandhi in initiating what became the 1991 reform on the basis of my giving Rajiv the results of the Hawaii project, and Amartya was kind enough to say that he knew I had been arguing all this “very early on”, referring presumably to the 1984 London Times editorial which he would have seen in his Oxford days before coming to Harvard.
This personal regard on my part or personal affection on his part aside, I have been appalled to find Professor Sen not taking moral and intellectual responsibility for and instead disclaiming paternity of the whole so-called “Food Security” policy which Sonia Gandhi has been prevailed upon over the years by him and his acolytes and friends and admirers to adopt, and she in her ignorance of all political economy and governance has now wished to impose upon the Congress Party and India as a whole:
“Questioner: You are being called the creator of the Food Security Bill.
Amartya Sen has repeatedly over the years gone on Indian prime-time television and declared things like
“If you don’t agree there’s hunger in the world, there’s something morally wrong with you”
besides over the decades publishing titles like Poverty and Famines: An Essay on Entitlement and Deprivation, Hunger and Public Action, The Political Economy of Hunger etc and ceaselessly using his immense power with the media, with book publishing houses, with US academic departments and the world development economics business, to promote his own and his acolytes’ opinions around the world, no matter how ill-considered or incoherent these may be. A passage from his latest book with Jean Drèzereportedly reads
“If development is about the expansion of freedom, it has to embrace the removal of poverty as well as paying attention to ecology as integral parts of a unified concern, aimed ultimately at the security and advancement of human freedom. Indeed, important components of human freedoms — and crucial ingredients of our quality of life — are thoroughly dependent on the integrity of the environment, involving the air we breathe, the water we drink, and the epidemiological surroundings in which we live….”
Had such a passage reached me in an undergraduate essay, I would have considered it incoherent waffle, and I am afraid I cannot see why merely because it is authored by an eminence at Harvard and his co-author, the evaluation should be any different. I am reminded of my encounter in 1976 with Joan Robinson, the great tutor in 1950s Cambridge of Amartya and Manmohan: “Joan Robinson cornered me once and took me into the office she shared with EAG… She came at me for an hour or so wishing to supervise me, I kept declining politely… saying I was with Frank Hahn and wished to work on money… “What does Frankie know about India?” she said… I said I did not know but he did know about monetary theory and that was what I needed for India; I also said I did not think much about the Indian Marxists she had supervised… and mentioned a prominent name… she said about him, “Yes most of what he does can go straight into the dustbin”…” The Indian Marxist whom I had referred to in this conversation with Joan was not Amartya but someone else much younger, yet her candid “can go straight into the dustbin” still applies to all incoherent waffle, whomsoever may produce it.
Indeed, Amartya Sen, if anyone, really should get down to writing his memoirs, and candidly so in order to explain his own thinking and deeds over the decades to himself and to the world in order that needless confusions do not arise.
Else it becomes impossible to explain how someone who was said to be proud to have been a Communist student on the run from the police in West Bengal, who was Joan Robinson’s star pupil at a time she was extolling Maoist China and who has seemingly nurtured a deep lifelong fascination and affection for Communist China despite all its misdeeds, who was feted by the Communist regime of West Bengal after winning the Bank of Sweden Prize (on the same day that same regime had tossed into jail one unfortunate young Mr Khemkha merely for having been rude to its leaders on the Internet), and who seemed to share some of those winnings on social causes like primary education at the behest of the Communist regime’s ministers, etc, how someone with that noble comradely leftist personal history as an economist allows a flattering interviewer with a Harvard connection to describe him in Business Standard of 25 July 2013 as having been all along really a
who also happens to be
“the greatest living scholar of the original philosopher of the free market, Adam Smith”!
Amartya Sen a neoclassical economist and a great scholar of Adam Smith? It is hilarious to suppose so. The question arises, Does Sen, having published about Adam Smith recently in a few newspapers and leftist periodicals, agree with such a description by his flattering admirer from Harvard at Business Standard? “Neoclassical” economics originated with men like Jevons, Menger, Walras, Pareto, Marshall, Wicksell, and was marked by the theory of value being explained by a demand-side too, and not, like classical economics, merely by the cost of production alone on the supply side. Indeed a striking thing about the list below published by the Scandinavian Journal of Economics of Amartya’s books following his 1998 Bank of Sweden Prize
is how consistently these works display his avoidance of all neoclassical economics, and the absence of all of what is normally called ‘price theory’, namely the Marshallian and/or Walrasian theory of value. No “neoclassical economics” anywhere here for sure!
It would be fair enough if Professor Sen says he is hardly responsible for an admirer’s ignorant misdescription of his work — except the question still arises why he has himself also evidently misdescribed his own work! For example, in his 13 July 2013 letter to The Economist in response to the criticism of Jagdish Bhagwati and Arvind Panagariya, he says he had always been keenly interested in
“the importance of economic growth as a means— not an end”
This is a very peculiar opinion indeed to have been expressed by Professor Sen about his own work because the 1970 volume Growth Economics listed above among his books hardly can be said at all to be one of his own “earliest writings” as he now describes it to have been!
What had happened back then was that Sen, as someone considered a brilliant or promising young Indian economist at the time, had been asked by the editors of the famous Penguin Modern Economics Readings series to edit the specific issue devoted to growth-theory — a compendium of classic already-published essays including those of Roy Harrod, Evsey Domar, Robert Solow and many others, to which young Amartya was given a chance to write an editorial Introduction. Every economist familiar with that literature knows too that the growth-theory contained in that volume and others was considered highly abstract and notoriously divorced from actual historical processes of economic growth in different countries.Everyone also knew that the individual editors in that famous Penguin Modern Economics Series were of relative unimportance as they did not commission new papers but merely collected classics already published and wrote an introduction.
This is significant presently because neither Professor Sen nor Professor Bhagwati may be objectively considered on the evidence of his life’s work as an economist to have been a major scholar of economic growth, either in theory or in historical practice. As of December 1989, Amartya Sen himself described his own interests to the American Economic Association as
“theory of international trade and policy, economic development”.
Neither Sen nor Bhagwati mentioned growth economics or economic history or even general economic theory, microeconomics, macroeconomics, monetary economics, public finance, etc. Furthermore, Sen saying in his letter to The Economist that he has been always interested in economic growth seems to be baseless in light of the list of his books above, other than the Penguin compendium already discussed.
Incidentally in the same American Economic Association volume of 1989, Padma Desai had described her interests as
“Soviet economy and comparative economic systems”;
Arvind Panagariya had described his interests as
“economies of scale and trade; smuggling; parallel markets in planned economies”;
and one Suby Roy described his interests as
“foundations of monetary economics”.
Reflecting on Amartya Sen’s works over the 40 year period that I have known them
[and again, my personal copies of his books and those of Bhagwati and Desai, were all in my professorial office at IIT Kharagpur when I was attacked by a corrupt gang there in 2003; and IIT have been under a High Court order to return them but have not done so],
I wonder in fact if it might be fairly said that Sen has been on his own subjective journey over the decades around the world seeking to reinvent economics and political economy from scratch, and inventing his own terminology like “capabilities”, “functionings” and yes “entitlements” etc. to help him do so, while trying to assiduously avoid mention of canonical works of modern world economics like Marshall’s Principles, Hicks’s Value and Capital, Debreu’s Theory of Value, or Arrow and Hahn’s General Competitive Analysis, all defining the central neoclassical tradition of the modern theory of value.
But no contemporary science, economics and political economy included, is open to be re-invented from scratch, and what Amartya Sen has ended up doing instead is seeming to be continually trying to reinvent the wheel, possibly without having had the self-knowledge to realise this. Wittgenstein once made a paradoxical statement that one may know another’s mind better than one knows one’s own…
“First, unlike the process of development in Japan, China, Korea and other countries, which pursued what Jean Drèze and I have called “Asian economic development” in our book, India has not had enough focus on public spending on school education and basic healthcare, which these other countries have had….”
Can you see any reference in this 1997 survey to TW Schultz’s 1960 American Economic Association Presidential Address or to Schultz’s classic 1964 book Transforming Traditional Agriculture or to his 1979 Bank of Sweden Prize address? I could not. If one did not know better, one might have thought from Professor Sen’s 1997 survey that there was nothing done worth talking about on the subject of “human capital” from the time of Adam Smith and David Hume until Amartya Sen finally came to the subject himself.
Thirdly, one is told by Sen’s admirer and collaborator, Professor James Foster of George Washington University, that what Sen means by his notion of
is that this is something
“enhanced when a marginally nourished family now has the capability to be sufficiently nourished due to public action”…
Are Amartya and his acolytes claiming he has invented or reinvented welfare economics ab initio? That before Amartya Sen, we did not know the importance of the able-bodied members of a community assisting those who are not able-bodied?
Where have they been? Amartya needed merely to have read Marshall’s Principles evenslightly to find Marshall himself, the master of Maynard Keynes and all of Cambridge and modern world economics, declaring without any equivocation at the very start
“….the study of the causes of poverty is the study of the causes of the degradation of a large part of mankind…”
But Marshall was interested in study, serious study, of poverty and its causes and amelioration, which is not something as easy or trivial as pontification on modern television. My 1984 article “Considerations on Utility, Benevolence and Taxation” which also became a chapter of my 1989 Philosophy of Economics surveyed some of Marshall’s opinion.
“From each according to his ability, to each according to his need” was a utopian slogan around 1875 from Karl Marx, which generations of passionate undergraduates have found impressive. Amartya Sen deserves to tell us squarely about his engagement with Marx or Marxist thought from his earliest days until now. His commitment in recent decades to democracy and the open and free society is clear; but has he also at the same time all along been committed to a kind of half-baked communist utopia as represented by Marx’s 1875 slogan?
“To each according to his need” sounds to be the underlying premise that is seeing practical manifestation in the Sonia Congress’s imposition of a so-called “right to food”; “from each according to his ability” is its flip side in the so-called “rural employment guarantee”. Leave aside the limitless resource-allocation and incentive and public finance problems created by such naive ideas being made into government policy, there is a grave and fundamental issue that Amartya and other leftists have been too blinkered to see:
Do they suppose the organised business classes have been weakly cooperative and will just allow such massive redistribution to occur without getting the Indian political system to pay them off as well? And how do the organised business classes get paid off? By their getting to take the land of the inhabitants of rural India. And land in an environment of a debauching of money and other paper assets is as good as gold.
So the peasants will lose their land to the government’s businessman friends on the one hand while purportedly getting “guaranteed” employment and food from the government’s bureaucrats on the other! A landless, asset-less slave population, free to join the industrial proletariat! Is that what Amartya wants to see in India? It may become what results within a few decades from his and his acolytes’ words and deeds.
Rajiv Gandhi once gave me his private phone numbers at 10 Jan Path. I used them back in January 1991 during the Gulf war. But I cannot do so now as Rajiv is gone. Amartya can. Let him phone Sonia and prevail upon her to put the brakes on the wild food and employment schemes he and his friends have persuaded her about until he reads and reflects upon what I said in January 2007 in “On Land-Grabbing” and in my July 2007 open letter to him, reproduced below:
“At a business meet on 12 January 2005, Dr Manmohan Singh showered fulsome praise on Buddhadeb Bhattacharjee as “dynamic”, “the Nation’s Best Chief Minister”, whose “wit and wisdom”, “qualities of head and heart”, “courage of conviction and passionate commitment to the cause of the working people of India” he admired, saying “with Buddhadeb Babu at the helm of affairs it appears Bengal is once again forging ahead… If today there is a meeting of minds between Delhi and Kolkata, it is because the ideas that I and Buddhadebji represent have captured the minds of the people of India. This is the idea of growth with equity and social justice, the idea that economic liberalization and modernization have to be mindful of the needs of the poor and the marginalized.”…. Dr Singh returned to the “needs of the poor and the marginalized” at another business meet on 8 January 2007 promising to “unveil a new Rehabilitation Policy in three months to increase the pace of industrialisation” which would be “more progressive, humane and conducive to the long-term welfare of all stakeholders”, while his businessman host pointedly stated about Singur “land for industry must be made available to move the Indian manufacturing sector ahead”. The “meeting of minds between Delhi and Kolkata” seems to be that agriculture allegedly has become a relatively backward slow-growing sector deserving to yield in the purported larger national interest to industry and services: what the PM means by “long-term welfare of all stakeholders” is the same as the new CPI-M party-line that the sons of farmers should not remain farmers (but become automobile technicians or IT workers or restaurant waiters instead). It is a political viewpoint coinciding with interests of organised capital and industrial labour in India today, as represented by business lobbies like CII, FICCI and Assocham on one hand, and unions like CITU and INTUC on the other. Business Standard succinctly (and ominously) advocated this point of view in its lead editorial of 9 January as follows: “it has to be recognised that the world over capitalism has progressed only with the landed becoming landless and getting absorbed in the industrial/service sector labour force ~ indeed it is obvious that if people don’t get off the land, their incomes will rise only slowly”. Land is the first and ultimate means of production, and the attack of the powerful on land-holdings or land-rights of the unorganised or powerless has been a worldwide phenomenon ~ across both capitalism and communism. In the mid-19th Century, white North America decimated hundreds of thousands of natives in the most gargantuan land-grab of history. Defeated, Chief Red Cloud of the Sioux spoke in 1868 for the Apache, Navajo, Comanche, Cheyenne, Iroquois and hundreds of other tribes: “They made us many promises, more than I can remember, but they never kept any except one: they promised to take our land, and they took it.” Half a century later, while the collapse of grain prices contributed to the Great Depression and pauperisation of thousands of small farmers in capitalist America in the same lands that had been taken from the native tribes, Stalin’s Russia embarked on the most infamous state-sponsored land-grab in modern history: “The mass collectivisation of Soviet agriculture (was) probably the most warlike operation ever conducted by a state against its own citizens…. Hundreds of thousands and finally millions of peasants… were deported… desperate revolts in the villages were bloodily suppressed by the army and police, and the country sank into chaos, starvation and misery… The object of destroying the peasants’ independence…was to create a population of slaves, the benefit of whose labour would accrue to industry. The immediate effect was to reduce Soviet agriculture to a state of decline from which it has not yet recovered… The destruction of the Soviet peasantry, who formed three quarters of the population, was not only an economic but a moral disaster for the entire country. Tens of millions were driven into semi-servitude, and millions more were employed as executants…” (Kolakowski, Main Currents of Marxism). Why did Stalin destroy the peasants? Lenin’s wishful “alliance between the proletariat and the peasantry” in reality could lead only to the peasants being pauperised into proletarians. At least five million peasants died and (Stalin told Churchill at Yalta) another ten million in the resultant famine of 1932-1933. “Certainly it involved a struggle ~ but chiefly one between urban Communists and villagers… it enabled the regime to obtain much of the capital desired for industrialization from the defeated village… it was the decisive step in the building of Soviet totalitarianism, for it imposed on the majority of the people a subjection which only force could maintain” (Treadgold, 20th Century Russia). Mr Bhattacharjee’s CPI-M is fond of extolling Chinese communism, and the current New Delhi establishment have made Beijing and Shanghai holiday destinations of choice. Dr Singh’s Government has been eager to create hundreds of “Special Economic Zones” run by organised capital and unionised labour, and economically privileged by the State. In fact, the Singur and Nandigram experiences of police sealing off villages where protests occur are modelled on creation of “Special Economic Zones” in China in recent years. For example, Chinese police on 6 December 2005 cracked down on farmers and fishermen in the seaside village of Dongzhou, 125 miles North East of Hong Kong. Thousands of Dongzhou villagers clashed with troops and armed police protesting confiscation of their lands and corruption among officials. The police immediately sealed off the village and arrested protesters. China’s Public Security Ministry admitted the number of riots over land had risen sharply, reaching more than seventy thousand across China in 2004; police usually suppressed peasant riots without resort to firing but in Dongzhou, police firing killed 20 protesters. Such is the reality of the “emergence” of China, a totalitarian police-state since the Communist takeover in 1949, from its period of mad tyranny until Mao’s death in 1976, followed by its ideological confusion ever since. Modern India’s political economy today remains in the tight grip of metropolitan “Big Business” and “Big Labour”. Ordinary anonymous individual citizens ~ whether housewife, consumer, student, peasant, non-union worker or small businessman ~ have no real voice or representation in Indian politics. We have no normal conservative, liberal or social democratic party in this country, as found in West European democracies where the era of land-grabbing has long-ceased. If our polity had been normal, it would have known that economic development does not require business or government to pauperise the peasantry but instead to define and secure individual property rights and the Rule of Law, and establish proper conditions for the market economy. The Congress and BJP in Delhi and CPI-M in Kolkata would not have been able to distract attention from their macroeconomic misdeeds over the decades ~ indicated, for example, by increasing interest-expenditure paid annually on Government debt as a fraction of tax revenues… This macroeconomic rot originated with the Indira Gandhi-PN Haksar capriciousness and mismanagement, which coincided with the start of Dr Singh’s career as India’s best known economic bureaucrat….”
“Professor Amartya Sen, Harvard University, Dear Professor Sen, Everyone will be delighted that someone of your worldwide stature has joined the debate on Singur and Nandigram; The Telegraph deserves congratulations for having made it possible on July 23. I was sorry to find though that you may have missed the wood for the trees and also some of the trees themselves. Perhaps you have relied on Government statements for the facts. But the Government party in West Bengal represents official Indian communism and has been in power for 30 years at a stretch. It may be unwise to take at face-value what they say about their own deeds on this very grave issue! Power corrupts and absolute power corrupts absolutely, and there are many candid communists who privately recognise this dismal truth about themselves. To say this is not to be praising those whom you call the “Opposition” ~ after all, Bengal’s politics has seen emasculation of the Congress as an opposition because the Congress and communists are allies in Delhi. It is the Government party that must reform itself from within sua sponte for the good of everyone in the State. The comparisons and mentions of history you have made seem to me surprising. Bengal’s economy now or in the past has little or nothing similar to the economy of Northern England or the whole of England or Britain itself, and certainly Indian agriculture has little to do with agriculture in the new lands of Australia or North America. British economic history was marked by rapid technological innovations in manufacturing and rapid development of social and political institutions in context of being a major naval, maritime and mercantile power for centuries. Britain’s geography and history hardly ever permitted it to be an agricultural country of any importance whereas Bengal, to the contrary, has been among the most agriculturally fertile and hence densely populated regions of the world for millennia. Om Prakash’s brilliant pioneering book The Dutch East India Company and the Economy of Bengal 1630-1720 (Princeton 1985) records all this clearly. He reports the French traveller François Bernier saying in the 1660s “Bengal abounds with every necessary of life”, and a century before him the Italian traveller Verthema saying Bengal “abounds more in grain, flesh of every kind, in great quantity of sugar, also of ginger, and of great abundance of cotton, than any country in the world”. Om Prakash says “The premier industry in the region was the textile industry comprising manufacture from cotton, silk and mixed yarns”. Bengal’s major exports were foodstuffs, textiles, raw silk, opium, sugar and saltpetre; imports notably included metals (as Montesquieu had said would always be the case). Bengal did, as you say, have industries at the time the Europeans came but you have failed to mention these were mostly “agro-based” and, if anything, a clear indicator of our agricultural fecundity and comparative advantage. If “deindustrialization” occurred in 19th Century India, that had nothing to do with the “deindustrialization” in West Bengal from the 1960s onwards due to the influence of official communism. You remind us Fa Hiaen left from Tamralipta which is modern day Tamluk, though he went not to China but to Ceylon. You suggest that because he did so Tamluk effectively “was greater Calcutta”. I cannot see how this can be said of the 5th Century AD when no notion of Calcutta existed. Besides, modern Tamluk at 22º18’N, 87º56’E is more than 50 miles inland from the ancient port due to land-making that has occurred at the mouth of the Hooghly. I am afraid the relevance of the mention of Fa Hiaen to today’s Singur and Nandigram has thus escaped me. You say “In countries like Australia, the US or Canada where agriculture has prospered, only a very tiny population is involved in agriculture. Most people move out to industry. Industry has to be convenient, has to be absorbing”. Last January, a national daily published a similar view: “For India to become a developed country, the area under agriculture has to shrink, urban and industrial land development has to take place, and about 100 million workers have to move out from agriculture into industry and services. This is the only way forward for bringing prosperity to the rural population”. Rice is indeed grown in Arkansas or Texas as it is in Bengal but there is a world of difference between the technological and geographical situation here and that in the vast, sparsely populated New World areas with mechanized farming! Like shoe-making or a hundred other crafts, agriculture can be capital-intensive or labour-intensive ~ ours is relatively labour-intensive, theirs is relatively capital-intensive. Our economy is relatively labour-abundant and capital-scarce; their economies are relatively labour-scarce and capital-abundant (and also land-abundant). Indeed, if anything, the apt comparison is with China, and you doubtless know of the horror stories and civil war conditions erupting across China in recent years as the Communist Party and their businessman friends forcibly take over the land of peasants and agricultural workers, e.g. in Dongzhou. All plans of long-distance social engineering to “move out” 40 per cent of India’s population (at 4 persons per “worker”) from the rural hinterlands must also face FA Hayek’s fundamental question in The Road to Serfdom: “Who plans whom, who directs whom, who assigns to other people their station in life, and who is to have his due allotted by others?” Your late Harvard colleague, Robert Nozick, opened his brilliant 1974 book Anarchy, State and Utopia saying: “Individuals have rights, and there are things no person or group may do to them (without violating their rights)”. You have rightly deplored the violence seen at Singur and Nandigram. But you will agree it is a gross error to equate violence perpetrated by the Government which is supposed to be protecting all people regardless of political affiliation, and the self-defence of poor unorganised peasants seeking to protect their meagre lands and livelihoods from state-sponsored pogroms. Kitchen utensils, pitchforks or rural implements and flintlock guns can hardly match the organised firepower controlled by a modern Government. Fortunately, India is not China and the press, media and civil institutions are not totally in the hands of the ruling party alone. In China, no amount of hue and cry among the peasants could save them from the power of organised big business and the Communist Party. In India, a handful of brave women have managed to single-handedly organise mass movements of protest which the press and media have then broadcast that has shocked the whole nation to its senses. You rightly say the land pricing process has been faulty. Irrelevant historical prices have been averaged when the sum of discounted expected future values in an inflationary economy should have been used. Matters are even worse. “The fear of famine can itself cause famine. The people of Bengal are afraid of a famine. It was repeatedly charged that the famine (of 1943) was man-made.” That is what T. W. Schultz said in 1946 in the India Famine Emergency Committee led by Pearl Buck, concerned that the 1943 Bengal famine should not be repeated following dislocations after World War II. Of course since that time our agriculture has undergone a Green Revolution, at least in wheat if not in rice, and a White Revolution in milk and many other agricultural products. But catastrophic collapses in agricultural incentives may still occur as functioning farmland comes to be taken by government and industry from India’s peasantry using force, fraud or even means nominally sanctioned by law. If new famines come to be provoked because farmers’ incentives collapse, let future historians know where responsibility lay. West Bengal’s real economic problems have to do with its dismal macroeconomic and fiscal position which is what Government economists should be addressing candidly. As for land, the Government’s first task remains improving grossly inadequate systems of land-description and definition, as well as the implementation and recording of property rights. With my most respectful personal regards, I remain, Yours ever, Suby”
How does India, as a state, treat its weakest and most vulnerable citizens? Not very well at all. It is often only because families and society have not collapsed completely, as they have elsewhere, that the weakest survive. Can we solve in the 21st Century, in a practical manner appropriate to our times, the problem Buddha raised before he became the Buddha some twenty six centuries ago? Says Eliot,
“The legend represents him as carefully secluded from all disquieting sights and as learning the existence of old age, sickness and death only by chance encounters which left a profound impression”
It is to this list we add “the poor” too, especially if we want to include a slightly later and equally great reformer some miles west of the Terai in the Levant. I said some years ago “As we as infants and children need to be helped to find courage to face the start of life, we when very elderly can need to be helped to find courage to face life’s end”. Old age carries with it the fear of death, fear of the end of life and what that means, which raises the meaning of life itself, or at least of the individual life, because we can hardly grasp what the end of life is if we haven’t what it is supposed to be the end of in the first place. What the very elderly need, as do the dying and terminally ill, is to find courage within themselves to comprehend all this with as much equanimity as possible. Companionship and camaraderie — or perhaps let us call it love — go towards that courage coming to be found; something similar goes for the sick, whether a sick child missing school or the elderly infirm, courage that they are not alone and that they can and will recover and not have to face death quite yet, that life will indeed resume.
As for the poor, I said in 2009 about the bizarre Indian scheme of “interrogating, measuring, photographing and fingerprinting them against their will” that “the poor have their privacy and their dignity. They are going to refuse to waste their valuable time at the margins of survival volunteering for such gimmickry.”
“What New Delhi’s governing class fails to see is that the masses of India’s poor are not themselves a mass waiting for New Delhi’s handouts: they are individuals, free, rational, thinking individuals who know their own lives and resources and capacities and opportunities, and how to go about living their lives best. What they need is security, absence of state or other tyranny, roads, fresh water, electricity, functioning schools for their children, market opportunities for work, etc, not handouts from a monarch or aristocrats or businessmen….” Or, to put it differently in Kant’s terms, the poor need to be treated as ends in themselves, and not as the means towards the ends of others…
Part II India’s Right Road Forward Now: Some Thoughtful Analysis for Grown Ups
5. Transcending a Left-Right/Congress-BJP Divide in Indian Politics
6. Budgeting Military & Foreign Policy
7. Solving the Kashmir Problem & Relations with Pakistan
8. Dealing with Communist China
9. Towards Coherence in Public Accounting, Public Finance & Public Decision-Making
10. India’s Money: Towards Currency Integrity at Home & Abroad
Yesterday the PM is reported to have been asked by someone travelling on his aeroplane from Moscow “whether he had forgiven Advani for calling him a ‘weak Prime Minister’”.
The question was absurd, almost ridiculous, typical of our docile ingratiating rather juvenile English-language press and media, as if any issue of forgiveness arises at all about what one politician says during an election campaign about another politician’s performance in office.
Dr Manmohan Singh’s answer was surprising too: “I was compelled to reply to what Advani said…On May 16 when (Advani) telephoned me, he told me that he was hurt by some of my statements. He said he was hurt and regretted his statements… I apologised to him if I have hurt him. I am looking forward to a close relationship with the Leader of the Opposition.”
So LK Advani appears to have apologised to Manmohan Singh and Manmohan Singh to LK Advani for what they said about each other during the recent general election campaign! What is going on? Were they schoolboys exchanging fisticuffs in a school playground or elderly men battling over power and policy in modern Indian politics?
What would we have done if there was a Churchill in Indian politics today – hurling sarcastic insults at domestic opponents and foreign leaders while guiding a nation on its right course during turbulent times?
Churchill once famously said his parents had not shown him “The Boneless Wonder” in PT Barnum’s circus because it was too horrible a sight but now he had finally seen such a “Boneless Wonder” in his opponent on the Treasury Benches, namely, Ramsay MacDonald. Of the same opponent he said later “He has the gift of compressing the largest number of words into the smallest amount of thought”.
When accused of being drunk by a woman MP he replied “And you are very ugly, but tomorrow I’ll be sober”. Today’s politically correct world would scream at far less. Field Marshall Montgomery told Churchill, “I neither drink nor smoke and am 100% fit,” to which Churchill replied, “I drink and smoke and I am 200% fit”. That too would be politically incorrect today.
Churchill described Prime Minister Clement Attlee as “a modest man with much to be modest about”; also about Attlee: “If any grub is fed on Royal Jelly it turns into a Queen Bee”. Yet Attlee had enough dignity and self-knowledge and self-confidence to brush it all off and instead respect and praise him. In the 1954 volume Winston Spencer Churchill Servant of Crown and Commonwealth Attlee added his own tribute to his great opponent: “I recall…the period when he was at odds with his own party and took a seat on the Bench below the Gangway on the Government side. Here he was well placed to fire on both parties. I remember describing him as a heavily armed tank cruising in No Man’s Land. Very impressive were the speeches he delivered as the international horizon grew darker. He became very unpopular with the predominant group in his own party, but he never minded fighting a lone battle.”
Stanley Baldwin, who as PM first appointed Churchill as Chancellor of the Exchequer, once said “There comes Winston with his hundred horsepower mind”. Yet Churchill was to later say harshly “I wish Stanley Baldwin no ill, but it would have been much better had he never lived.”
Of Lenin, Churchill said, he was “transported in a sealed truck like a plague bacillus from Switzerland into Russia”. Of Molotov: “I have never seen a human being who more perfectly represented the modern concept of a robot.” Of Hitler, “If [he] invaded hell I would at least make a favourable reference to the devil in the House of Commons”. Of De Gaulle, “He was a man without a country yet he acted as if he was head of state”.” Of John Foster Dulles, “[He] is the only bull who carries his china shop with him”. Of Stafford Cripps, British Ambassador to the USSR, “…a lunatic in a country of lunatics”; and also “There but for the Grace of God, goes God”.
Politics is, and should be, grown up stuff because it deals with human lives and national destinies, and really, if you can’t take the heat please do not enter the kitchen. The slight Churchillian sarcasm that does arise within modern Indian politics comes very occasionally from Bihar but nowhere else, e.g. about the inevitability of aloo in samosas and of bhaloos in the jungle but no longer of Laloo being in the seat of power. In general, everyone seems frightfully sombre and self-important though may be in fact short of self-knowledge and hence self-confidence.
What had Manmohan Singh said about LK Advani that he felt he had to apologise for? That Advani had no substantial political achievement to his credit and did not deserve to be India’s PM. Manmohan was not alone in making the charge – Sonia Gandhi, Rahul Gandhi and numerous other spokesmen and representatives of their party said the same. Has Manmohan’s apology to Advani been one on behalf of the whole Congress Party itself?
Was Advani’s apology to Manmohan one on behalf of the whole BJP too?
What had the BJP charged Manmohan with that Advani felt he had to apologise for? Being a “weak PM”.
Hmmm. Frankly, thinking about it, it is hard to count who has not been weak as a PM in India’s modern history.
Certainly Vallabhai Patel as a kind of co-PM was decisive and far from weak back in 1947-48.
Lal Bahadur Shastri was not weak when he told Pakistan that a Pakistani attack on Kashmir would result in an Indian attack on Pakistan.
Indira Gandhi was not weak when she resisted the Yahya Khan-Tikka Khan tyranny against Bangladesh.
Had he not been assassinated, Rajiv Gandhi in a second term would have been decisive and not weak in facing up to and tackling the powerful lobbies and special interest groups that have crippled our domestic economic policy for decades.
But the number of such examples may be counted by hand. Perhaps VP Singh might count, riding in an open jeep to Amritsar, as might AB Vajpayee’s Pokhran II and travelling on a bus to Lahore. In general, the BJP’s charge that Manmohan was “weak” may have constructively led to serious discussion in the country about the whole nature of the Prime Ministership in modern India, which means raising a whole gamut of issues about Indian governance – about India being the softest of “soft states”, with the softest of “soft government budget constraints” (i.e., endless deficit finance and paper money creation) etc.
Instead, what we have had thus far is apologies being exchanged for no real political reason between the leaderships of the Government and the Opposition. If two or three sellers come to implicitly carve up a market between themselves they are said by economic theory to be colluding rather than being in competition. Indian politics may be revealing such implicit collusive behaviour. The goal of this political oligopoly would seem to be to preserve and promote the status quo of the post-1947 Dilli Raj with its special hereditary nomenclatura, at the expense of anonymous diffused teeming India.
Postscript July 15 2009: Churchill’s mature opinion of Baldwin was one of the fullest praise at the 20 May 1950 unveiling of a memorial to him. See his In the Balance, edited by Randolph S Churchill, 1951, p. 281
I may add my father, back in 1973 in Paris, had predicted to me that you would become Prime Minister of India one day, and he, now in his 90s, is joined by myself in sending our warm congratulations at the start of your second term in that high office.
The controversy though that you and I had entered that Paris day in 1973 about scientific economics as applied to India, must be renewed afresh!
This is because of your categorical statement on June 9 2009 to the new 15th Lok Sabha:
“I am convinced, since our savings rate is as high as 35%, given the collective will, if all of us work together, we can achieve a growth-rate of 8%-9%, even if the world economy does not do well.” (Statement of Dr Manmohan Singh to the Lok Sabha, June 9 2009)
I am afraid there may be multiple reasons why such a statement is gravely and incorrigibly in error within scientific economics. From your high office as Prime Minister in a second term, faced perhaps with no significant opposition from either within or without your party, it is possible the effects of such an error may spell macroeconomic catastrophe for India.
Indeed the idea that China and India have had extremely high economic growth-rates based on purportedly astronomical savings rates has become a commonplace in recent years, repeated endlessly in international and domestic policy circles though perhaps without adequate basis.
1. Germany & Japan
What, at the outset, is supposed to be measured when we speak of “growth”? Indian businessmen and their media friends seem to think “growth” refers to something like nominal earnings before tax for the organised corporate sector, or any unspecified number that can be sold to visiting foreigners to induce them to park their funds in India: “You will get a 10% return if you invest in India” to which the visitor says “Oh that must mean India has 10% growth going on”. Of such nonsense are expensive international conferences in Davos and Delhi often made.
You will doubtless agree the economist at least must define economic growth properly and with care — what is referred to must be annual growth of per capita inflation-adjusted Gross Domestic Product. (Per capita National Income or Net National Product would be even better if available).
West Germany and Japan had the highest annual per capita real GDP growth-rates in the world economy starting from devastated post-World War II initial conditions. What were their measured rates?
West Germany: 6.6% in 1950-1960, falling to 3.5% by 1960-1970 falling to 2.4% by 1970-1978.
Japan: 6.8 % in 1952-1960 rising to 9.4% in 1960-1970 falling to 3.8 % in 1970-1978.
Thus in recent decadesonly Japan measured a spike in the 1960s of more than 9% annual growth of real per capita GDP. Now India and China are said to be achieving 8%-10 % and more year after year routinely!
Perhaps we are observing an incredible phenomenon of world economic history. Or perhaps it is just something incredible, something false and misleading, like a mirage in the desert.
You may agree that processes of measurement of real income in India both at federal and provincial levels, still remain well short of the world standards described by the UN’s System of National Accounts 1993. The actuality of our real GDP growth may be better than what is being measured or it may be worse than what is being measured – from the point of view of public decision-making we at present simply do not know which it is, and to overly rely on such numbers in national decisions may be unwise. In any event, India’s population is growing at near 2% so even if your Government’s measured number of 8% or 9% is taken at face-value, we have to subtract 2% population growth to get per capita figures.
2. Growth of the aam admi’s consumption-basket
The late Professor Milton Friedman had been an invited adviser in 1955 to the Government of India during the Second Five Year Plan’s formulation. The Government of India suppressed what he had to say and I had to publish it 34 years later in May 1989 during the 1986-1992 perestroika-for-India project that I led at the University of Hawaii in the United States. His November 1955 Memorandum to the Government of India is a chapter in the book Foundations of India’s Political Economy: Towards an Agenda for the 1990s that I and WE James created.
“I don’t believe the term GNP ought to be used unless it is supplemented by a different statistic: the rate of growth of the average consumption basket consumed by the ordinary individual in the country. I think GNP rates of growth can give very misleading information. For example, you have rapid rates of growth of GNP in the Soviet Union with a declining standard of life for the people. Because GNP includes monuments and includes also other things. I’m not saying that that is the case with India; I’m just saying I would like to see the two figures together.”
You may perhaps agree upon reflection that not only may our national income growth measurements be less robust than we want, it may be better to be measuring something else instead, or as well, as a measure of the economic welfare of India’s people, namely, “the rate of growth of the average consumption basket consumed by the ordinary individual in the country”, i.e., the rate of growth of the average consumption basket consumed by the aam admi.
It would be excellent indeed if you were to instruct your Government’s economists and other spokesmen to do so this as it may be something more reliable as an indicator of our economic realities than all the waffle generated by crude aggregate growth-rates.
3. Logic of your model
Thirdly, the logic needs to be spelled out of the economic model that underlies such statements as yours or Meghnad Desai’s that seek to operationally relate savings rates to aggregate growth rates in India or China. This seems not to have been done publicly in living memory by the Planning Commission or other Government economists. I have had to refer, therefore, to pages 251-253 of my own Cambridge doctoral thesis under Professor Frank Hahn thirty years ago, titled “On liberty and economic growth: preface to a philosophy for India”, where the logic of such models as yours was spelled out briefly as follows:
Kt be capital stock
Yt be national output
It be the level of real investment
St be the level of real savings
It = K t+1 – Kt
Kt = k Yt 0 < k < 1
St = sYt 0 < s <1
In equilibrium ex ante investment equals ex ante savings
It = St
Hence in equilibrium
sYt = K t+1 – Kt
s/k = g
where g is defined to be the rate of growth (Y t+1-Yt)/Yt .
The left hand side then defines the “warranted rate of growth” which must maintain the famous “knife-edge” with the right hand side “natural rate of growth”.
Your June 9 2009 Lok Sabha statement that a 35% rate of savings in India may lead to an 8%-9% rate of economic growth in India, or Meghnad Desai’s statement that a 44% rate of savings in China led to a 10.4% growth there, can only be made meaningful in the context of a logical economic model like the one I have given above.
[In the open-economy version of the model, let Mt be imports, Et be exports, Ft net capital inflows.
Mt = aIt + bYt 0 < a, b < 1
Et = E for all t
Balance of payments is
Bt = Mt – Et – Ft
In equilibrium It = St + Bt
Ft = (s+b) Yt – (1-a) It – E is a kind of “warranted” level of net capital inflow.]
You may perhaps agree upon reflection that building the entire macroeconomic policy of the Government of India merely upon a piece of economic logic as simplistic as the
s/k = g
equation above, may spell an unacceptable risk to the future economic well-being of our vast population. An alternative procedural direction for macroeconomic policy, with more obviously positive and profound consequences, may have been that which I sought to persuade Rajiv Gandhi about with some success in 1990-1991. Namely, to systematically seek to improve towards normalcy the budgets, financial positions and decision-making capacities of the Union and all state and local governments as well as all public institutions, organisations, entities, and projects in general, with the aim of making our domestic money a genuine hard currency of the world again after seven decades, so that any ordinary resident of India may hold and trade precious metals and foreign exchange at his/her local bank just like all those glamorous privileged NRIs have been permitted to do. Such an alternative path has been described in “The Indian Revolution”, “Against Quackery”, “The Dream Team: A Critique”,“India’s Macroeconomics”, “Indian Inflation”, etc.
4. Gross exaggeration of real savings rate by misreading deposit multiplication
Specifically, I am afraid you may have been misled into thinking India’s real savings rate, s, is as high as 35% just as Meghnad Desai may have misled himself into thinking China’s real savings rate is as high as 44%.
Neither of you may have wanted to make such a claim if you had referred to the fact that over the last 25 years, the average savings rate across all OECD countries has been less than 10%. Economic theory always finds claims of discontinuous behaviour to be questionable. If the average OECD citizen has been trying to save 10% of disposable income at best, it appears prima facie odd that India’s PM claims a savings rate as high as 35% for India or a British politician has claimed a savings rate as high as 44% for China. Something may be wrong in the measurement of the allegedly astronomical savings rates of India and China. The late Professor Nicholas Kaldor himself, after all, suggested it was rich people who saved and poor people who did not for the simple reason the former had something left over to save which the latter did not!
And indeed something is wrong in the measurements. What has happened, I believe, is that there has been a misreading of the vast nominal expansion of bank deposits via deposit-multiplication in the Indian banking system, an expansion that has been caused by explosive deficit finance over the last four or five decades. That vast nominal expansion of bank-deposits has been misread as indicating growth of real savings behaviour instead. I have written and spoken about and shown this quite extensively in the last half dozen years since I first discovered it in the case of India. E.g., in a lecture titled “Can India become an economic superpower or will there be a monetary meltdown?” at Cardiff University’s Institute of Applied Macroeconomics and at London’s Institute of Economic Affairs in April 2005, as well as in May 2005 at a monetary economics seminar invited at the RBI by Dr Narendra Jadav. The same may be true of China though I have looked at it much less.
“Savings is indeed normally measured by adding financial and non-financial savings. Financial savings include bank-deposits. But India is not a normal country in this. Nor is China. Both have seen massive exponential growth of bank-deposits in the last few decades. Does this mean Indians and Chinese are saving phenomenally high fractions of their incomes by assiduously putting money away into their shaky nationalized banks? Sadly, it does not. What has happened is government deficit-financing has grown explosively in both countries over decades. In a “fractional reserve” banking system (i.e. a system where your bank does not keep the money you deposited there but lends out almost all of it immediately), government expenditure causes bank-lending, and bank-lending causes bank-deposits to expand. Yes there has been massive expansion of bank-deposits in India but it is a nominal paper phenomenon and does not signify superhuman savings behaviour. Indians keep their assets mostly in metals, land, property, cattle, etc., and as cash, not as bank deposits.”
“India has followed in peacetime over six decades what the US and Britain followed during war. Our vast growth of bank deposits in recent decades has been mostly a paper (or nominal) phenomenon caused by unlimited deficit finance in a fractional reserve banking system. Policy makers have widely misinterpreted it as indicating a real phenomenon of incredibly high savings behaviour. In an inflationary environment, people save their wealth less as paper deposits than as real assets like land, cattle, buildings, machinery, food stocks, jewellery etc.”
If you asked me “What then is India’s real savings rate?” I have little answer to give except to say I know what it is not – it is not what the Government of India says it is. It is certainly unlikely to be anywhere near the 35% you stated it to be in your June 9 2009 Lok Sabha statement. If the OECD’s real savings rate has been something like 10% out of disposable income, I might accept India’s is, say, 15% at a maximum when properly measured – far from the 35% being claimed. What I believe may have been mismeasured by you and Meghnad Desai and many others as indicating high real savings is actually the nominal or paper expansion of bank-deposits in a fractional reserve banking system induced by runaway government deficit-spending in both India and China over the last several decades.
5. Technological progress and the mainsprings of real economic growth
So much for the g and s variables in the s/k = g equation in your economic model. But the assumed constant k is a big problem too!
During the 1989 perestroika-for-India project-conference, Professor Friedman referred to his 1955 experience in India and said this about the assumption of a constant k:
“I think there was an enormously important point… That was the almost universal acceptance at that time of the view that there was a sort of technologically fixed capital output ratio. That if you wanted to develop, you just had to figure out how much capital you needed, used as a statistical technological capital output ratio, and by God the next day you could immediately tell what output you were going to achieve. That was a large part of the motivation behind some of the measures that were taken then.”
The crucial problem of the sort of growth-model from which your formulation relating savings to growth arises is that, with a constant k, you have necessarily neglected the real source of economic growth, which is technological progress!
I said in the 2007 article referred to above:
“Economic growth in India as elsewhere arises not because of what politicians and bureaucrats do in capital cities, but because of spontaneous technological progress, improved productivity and learning-by-doing on part of the general population. Technological progress is a very general notion, and applies to any and every production activity or commercial transaction that now can be accomplished more easily or using fewer inputs than before.”
“The mainsprings of real growth in the wealth of the individual, and so of the nation, are greater practical learning, increases in capital resources and improvements in technology. Deeper skills and improved dexterity cause output produced with fewer inputs than before, i.e. greater productivity. Adam Smith said there is “invention of a great number of machines which facilitate and abridge labour, and enable one man to do the work of many”. Consider a real life example. A fresh engineering graduate knows dynamometers are needed in testing and performance-certification of diesel engines. He strips open a meter, finds out how it works, asks engine manufacturers what design improvements they want to see, whether they will buy from him if he can make the improvement. He finds out prices and properties of machine tools needed and wages paid currently to skilled labour, calculates expected revenues and costs, and finally tries to persuade a bank of his production plans, promising to repay loans from his returns. Overcoming restrictions of religion or caste, the secular agent is spurred by expectation of future gains to approach various others with offers of contract, and so organize their efforts into one. If all his offers ~ to creditors, labour, suppliers ~ are accepted he is, for the moment, in business. He may not be for long ~ but if he succeeds his actions will have caused an improvement in design of dynamometers and a reduction in the cost of diesel engines, as well as an increase in the economy’s produced means of production (its capital stock) and in the value of contracts made. His creditors are more confident of his ability to repay, his buyers of his product quality, he himself knows more of his workers’ skills, etc. If these people enter a second and then a third and fourth set of contracts, the increase in mutual trust in coming to agreement will quickly decline in relation to the increased output of capital goods. The first source of increasing returns to scale in production, and hence the mainspring of real economic growth, arises from the successful completion of exchange. Transforming inputs into outputs necessarily takes time, and it is for that time the innovator or entrepreneur or “capitalist” or “adventurer” must persuade his creditors to trust him, whether bankers who have lent him capital or workers who have lent him labour. The essence of the enterprise (or “firm”) he tries to get underway consists of no more than the set of contracts he has entered into with the various others, his position being unique because he is the only one to know who all the others happen to be at the same time. In terms introduced by Professor Frank Hahn, the entrepreneur transforms himself from being “anonymous” to being “named” in the eyes of others, while also finding out qualities attaching to the names of those encountered in commerce. Profits earned are partly a measure of the entrepreneur’s success in this simultaneous process of discovery and advertisement. Another potential entrepreneur, fresh from engineering college, may soon pursue the pioneer’s success and start displacing his product in the market ~ eventually chasers become pioneers and then get chased themselves, and a process of dynamic competition would be underway. As it unfolds, anonymous and obscure graduates from engineering colleges become by dint of their efforts and a little luck, named and reputable firms and perhaps founders of industrial families. Multiply this simple story many times, with a few million different entrepreneurs and hundreds of thousands of different goods and services, and we shall be witnessing India’s actual Industrial Revolution, not the fake promise of it from self-seeking politicians and bureaucrats.”
Technological progress in a myriad of ways and discovery of new resources are important factors contributing to India’s growth today. But while India’s “real” economy does well, the “nominal” paper-money economy controlled by Government does not. Continuous deficit financing for half a century has led to exponential growth of public debt and broad money, and, as noted, the vast growth of nominal bank-deposits has been misinterpreted as indicating unusually high real savings behaviour when it in fact may just signal vast amounts of government debt being held by our nationalised banks. These bank assets may be liquid domestically but are illiquid internationally since our government debt is not held by domestic households as voluntary savings nor has it been a liquid asset held worldwide in foreign portfolios.
What politicians of all parties, especially your own and the BJP and CPI-M since they are the three largest, have been presiding over is exponential growth of our paper money supply, which has even reached 22% per annum. Parliament and the Government should be taking honest responsibility for this because it may certainly portend double-digit inflation (i.e., decline in the value of paper-money) perhaps as high as 14%-15% per annum, something that is certain to affect the aam admi’s economic welfare adversely.
6. Selling Government assets to Big Business is a bad idea in a potentially hyperinflationary economy
Respected PradhanMantriji, the record would show that I, and really I alone, 25 years ago, may have been the first among Indian economists to advocate the privatisation of the public sector. (Viz, “Silver Jubilee of Pricing, Planning and Politics: A Study of Economic Distortions in India”.) In spite of this, I have to say clearly now that in present circumstances of a potentially hyperinflationary economy created by your Government and its predecessors, I believe your Government’s present plans to sell Government assets may be an exceptionally unwise and imprudent idea. The reasoning is very simple from within monetary economics.
Government every year has produced paper rupees and bank deposits in practically unlimited amounts to pay for its practically unlimited deficit financing, and it has behaved thus over decades. Such has been the nature of the macroeconomic process that all Indian political parties have been part of, whether they are aware of it or not.
Indian Big Business has an acute sense of this long-term nominal/paper expansion of India’s economy, and acts towards converting wherever possible its own hoards of paper rupees and rupee-denominated assets into more valuable portfolios for itself of real or durable assets, most conspicuously including hard-currency denominated assets, farm-land and urban real-estate, and, now, the physical assets of the Indian public sector. Such a path of trying to transform local domestic paper assets – produced unlimitedly by Government monetary and fiscal policy and naturally destined to depreciate — into real durable assets, is a privately rational course of action to follow in an inflationary economy. It is not rocket-science to realise the long-term path of rupee-denominated assets is downwards in comparison to the hard-currencies of the world – just compare our money supply growth and inflation rates with those of the rest of the world.
The Statesman of November 16 2006 had a lead editorial titled Government’s land-fraud: Cheating peasants in a hyperinflation-prone economy which said:
“There is something fundamentally dishonourable about the way the Centre, the state of West Bengal and other state governments are treating the issue of expropriating peasants, farm-workers, petty shop-keepers etc of their small plots of land in the interests of promoters, industrialists and other businessmen. Singur may be but one example of a phenomenon being seen all over the country: Hyderabad, Karnataka, Kerala, Haryana, everywhere. So-called “Special Economic Zones” will merely exacerbate the problem many times over. India and its governments do not belong only to business and industrial lobbies, and what is good for private industrialists may or may not be good for India’s people as a whole. Economic development does not necessarily come to be defined by a few factories or high-rise housing complexes being built here or there on land that has been taken over by the Government, paying paper-money compensation to existing stakeholders, and then resold to promoters or industrialists backed by powerful political interest-groups on a promise that a few thousand new jobs will be created. One fundamental problem has to do with inadequate systems of land-description and definition, implementation and recording of property rights. An equally fundamental problem has to do with fair valuation of land owned by peasants etc. in terms of an inconvertible paper-money. Every serious economist knows that “land” is defined as that specific factor of production and real asset whose supply is fixed and does not increase in response to its price. Every serious economist also knows that paper-money is that nominal asset whose price can be made to catastrophically decline by a massive increase in its supply, i.e. by Government printing more of the paper it holds a monopoly to print. For Government to compensate people with paper-money it prints itself by valuing their land on the basis of an average of the price of the last few years, is for Government to cheat them of the fair present-value of the land. That present-value of land must be calculated in the way the present-value of any asset comes to be calculated, namely, by summing the likely discounted cash-flows of future values. And those future values should account for the likelihood of a massive future inflation causing decline in the value of paper-money in view of the fact we in India have a domestic public debt of some Rs. 30 trillion (Rs. 30 lakh crore) and counting, and money supply growth rates averaging 16-17% per annum. In fact, a responsible Government would, given the inconvertible nature of the rupee, have used foreign exchange or gold as the unit of account in calculating future-values of the land. India’s peasants are probably being cheated by their Government of real assets whose value is expected to rise, receiving nominal paper assets in compensation whose value is expected to fall.”
Shortly afterwards the Hon’ble MP for Kolkata Dakshin, Km Mamata Banerjee, started her protest fast, riveting the nation’s attention in the winter of 2006-2007. What goes for government buying land on behalf of its businessman friends also goes, mutatis mutandis, for the public sector’s real assets being bought up by the private sector using domestic paper money in a potentially hyperinflationary economy. If your new Government wishes to see real assets of the public sector being sold for paper money, let it seek to value these assets not in inconvertible rupees that Government itself has been producing in unlimited quantities but perhaps in forex or gold-units instead!
In the 2004-2005 volume Margaret Thatcher’s Revolution: How it Happened and What it Meant, edited by myself and Professor John Clarke, there is a chapter by Professor Patrick Minford on Margaret Thatcher’s fiscal and monetary policy (macroeconomics) that was placed ahead of the chapter by Professor Martin Ricketts on Margaret Thatcher’s privatisation (microeconomics). India’s fiscal and monetary or macroeconomic problems are far worse today than Britain’s were when Margaret Thatcher came to power. We need to get our macroeconomic problems sorted before we attempt the microeconomic privatisation of public assets.
Any Lok Sabha MP who neither sits with the Opposition nor is a sworn-in member of the Government is a Backbench MP of the Government party or its coalition.
Shrimati Sonia Gandhi is the most prominent of such Backbench MPs in the 15th Lok Sabha, just as she was of the 14th Lok Sabha, and has chosen to be in a most peculiar position from the point of view of parliamentary law. As the leader of the largest parliamentary party, she could have been not merely a member of the Government but its Prime Minister. She has in fact had a decisive role in determining the composition of the Manmohan Government as well as its policies. She in fact sits on the Frontbenches in the Lok Sabha along with the Manmohan Government. But she is not a member of the Government and is, formally speaking, a Backbench MP who is choosing to sit in the Frontbenches.
(Dr Manmohan Singh himself, not being a member of the Lok Sabha, may, formally speaking, sit or speak from among the Frontbenches of his own Government only by invitation of the Lok Sabha Speaker as a courtesy – such would have been the cardinal reason why Alec Douglas-Home resigned from being Lord Home and instead stood for a House of Commons seat when he was appointed British Prime Minister.)
Sonia Gandhi’s son, Mr Rahul Gandhi, is also a Backbench MP. From all accounts, including that of Dr Singh himself, he could have been a member of Dr Singh’s Government but has specifically chosen not to be. He has appeared to have had some much lesser role than Sonia Gandhi in determining the composition of the Government and its policies but he is not a member of it. He is, formally speaking, a Backbench MP, indeed the most prominent to actually sit in the Backbenches, as he had done in the 14th Lok Sabha, which, it is to be hoped, he does in the 15th Lok Sabha too.
Now Rahul Gandhi, Sonia Gandhi and their 541 other fellow 15th Lok Sabha MPs were declared winners by May 16 2009 having won the Indian people’s vote.
(Incidentally, I predicted the outcome here two hours before polls closed on May 13 – how I did so is simply by having done the necessary work of determining that some 103 million people had voted for Congress in 2004 against some 86 million for the BJP; in my assessment Congress had done more than enough by way of political rhetoric and political reality to maintain if not extend that difference in 2009, i.e., the BJP had not done nearly enough to even begin to get enough of a net drift in its favour. I expect when the data are out it shall be seen that the margin of the raw vote between them has been much enlarged from 2004.)
As I have pointed out here over the last fortnight, there was no legal or logical reason why the whole 15th Lok Sabha could not have been sworn in latest by May 18 2009.
Instead, Dr Manmohan Singh on May 18 held a purported “Cabinet” meeting of the defunct 14th Lok Sabha – an institution that had been automatically dissolved when Elections had been first announced! The Government then went about forming itself over two weeks despite the 15th Lok Sabha, on whose confidence it depended for its political legitimacy, not having been allowed to meet. Everyone – the Congress Party’s Supreme Court advocates, the Lok Sabha Secretariat, the Election Commission, Rashtrapati Bhavan too – seems to have gotten it awfully wrong by placing the cart before the horse.
In our system it is Parliament that is sovereign, not the Executive Government. In fact the Executive is accountable to Parliament, specifically the Lok Sabha, and is supposed to be guided by it as well as hold its confidence at all times.
What has happened instead this time is that Government ministers have been busy taking oaths and entering their offices and making policy-decisons days before they have taken their oaths and their seats as Lok Sabha MPs! The Government has thus started off by diminishing Parliament’s sovereignty and this should not be allowed to happen again.
(Of course why it took place is because of the peculiarity of the victory relative to our experience in recent decades – nobody could remember parliamentary traditions from Nehru’s time in the 1950s. Even so, someone, e.g. the former Speaker, should have known and insisted upon explaining the relevant aspect of parliamentary law and hence avoided this breach.)
A central question now is whether a Government which has such a large majority, and which is led by someone in and has numerous ministers from the Rajya Sabha, is going to be adequately controlled and feel itself accountable to the Lok Sabha.
Neither of the Lok Sabha’s most prominent Backbenchers, Sonia Gandhi and Rahul Gandhi, have thus far distinguished themselves as Parliamentarians on the floor of the Lok Sabha. In the 14th Lok Sabha, Sonia Gandhi, sitting in the Frontbenches, exercised the enormous control that she did over the Government not on the floor of the House itself but from outside it.
It would be best of all if she chose in the 15th Lok Sabha to actually physically sit in the Congress’s Backbenches because that would ensure best that the Government Party’s ministers in the Frontbenches will keep having to seek to be accountable to the Backbenches!
But this seems unlikely to happen in view of the fact she herself seems to have personally influenced the choice of a Speaker for the 15th Lok Sabha and it may be instead expected that she continues to sit on the Frontbenches with the Government without being a member of it.
That leaves Rahul Gandhi. If he too comes to be persuaded by the sycophants to sit on the Frontbenches with the Government, that will not be a healthy sign.
On the other hand, if he continues to sit on the Backbenches, he may be able to have a salubrious influence on the 15th Lok Sabha fulfilling its responsibility of seeking to seriously control and hold accountable the Executive Government, and not be bullied or intimidated by it. His paternal grandfather, Feroze Gandhi, after all, may have been India’s most eminent and effective Backbench MP yet.
It is now coming up to be 3 pm Indian Standard Time on May 13, the last day of India’s 2009 General Elections, and there are two hours left for the polls to close. I am happy to predict a big victory for the Congress Party, and Sonia Gandhi and her son Rahul will deserve congratulations for it.
I have met Sonia Gandhi once, in December 1991 at her home, where I gave her a tape of her husband’s conversations with me during the first Gulf War in 1991. Her son and I met momentarily in her husband’s office in 1990-1991 but I do not recall any conversation. I have had nothing to do with her Government. Dr Manmohan Singh and I have met twice, once in Paris in the autumn of 1973 and once in Washington in September 1993; on the latter occasion, I was introduced to him and his key aides by Siddhartha Shankar Ray as the person on whose laptop the Congress manifesto of 1991 had been composed for Rajiv, something described elsewhere here. (I also gave him then a copy of the published book that emerged from the University of Hawaii perestroika-for-India project, Foundations of India’s Political Economy: Towards an Agenda for the 1990s, edited by myself and WE James.) On the former occasion, Dr Singh had kindly acceded to my father’s request to visit our then-home to advise me on economics before I started as a freshman undergraduate at the London School of Economics.
In May 2004 I was interviewed by BBC television in England and I praised the UPA in prospect — in comparison to the horrors of the Vajpayee-Advani regime (including my personal experience of it, when their Education Minister had sent an astrology-believing acolyte to supposedly run a scientific/technical institute).
Since 2005, especially in the columns of The Statesman, I have dispensed rational criticism of the UPA Government as harshly as I have criticised the BJP/RSS and the Communists. Principally, I believe they have got some (perhaps most) much of their economics (quite badly) wrong as well as their jurisprudence and foreign policy; they have also been willingly under the influence of the powerful organised lobbies and interest groups that populate our capital cities.
Even so, I think there is a large electoral victory in prospect for the Congress, and I send them my early congratulations. They have done enough by way of political rhetoric and political reality to maintain or enhance their vote-share; their oppositions on either side have both failed badly. The BJP may make some marginal gains especially in Bihar but they have generally done enough to lose the day. The CPM too will lose popularity especially in Bengal, and will never progress until they fire their JNU economists which they are never going to do.
So, Sonia-Rahul, well done!
But please try to improve your economics.
And, also, you simply must get Dr Manmohan Singh a seat in the Lok Sabha if he is to be PM — Ambedkar and Nehru and all their generation did not specify that India’s PM must be from the Lok Sabha because it was something totally OBVIOUS.
Postscript: Someone at a website has referred to my prediction above and remarked: “Perhaps the good doc is aware of the money in play”. The answer is no, I have absolutely no special information about any “money in play” on any side. My prediction is based on a layman’s observation of the campaign, as well as more specialised analysis of past voting data from the EC. In an earlier post, I pointed out the BJP had gotten some 17 million fewer votes than the Congress in 2004, and I asked if they had done enough to get enough of a net change in their favour. The answer I think is that they have not done so. To the contrary, I think there will be a quite large net change in favour of Congress thanks to a better-run and better-led campaign. Of course it is just a prediction that may be found to be incorrect.
We in India shall soon be hearing the talking-heads on TV, mostly in New Delhi, jabbering away about “swings” and “anti-incumbency” and “mandates” and “fractured mandates” etc. Most of it will be waffle without any basis in hard facts because nobody wants to actually do any of the work necessary to acquire a serious opinion.
Just as you cannot win at cricket unless you bowl out the other side and you cannot win at soccer unless you score more goals than the other side, you are not going to win a General Election in India unless you win more Assembly Segments of Parliamentary Constituencies than your competitors.
It is not logically impossible but it is factually unlikely that you can lose, say, five out of six Assembly Segments and still win the Parliamentary Constituency by winning the sixth with a sufficiently large margin. Raw votes generally translate into winning Assembly Segments and winning Assembly Segments generally translate into winning Lok Sabha seats.
In 2004, the top five winners were as follows, where the first number is raw votes won, the second the number of Assembly Segments won, and the third the number of Lok Sabha seats won:
Notice the BSP won some 4 million more raw votes than the SP but fewer Assembly Segments and fewer Lok Sabha Seats. And the CPM won barely a million more raw votes than did the BSP but 215 more Assembly Segments and 26 more Lok Sabha seats. Clearly Uttar Pradesh voting patterns need a lot more detailed analysis — my ex ante hypothesis would be that the BSP’s results are affected by the policy of some constituencies being “reserved”.
More significantly, at the head of the race, notice that the BJP lost the raw vote to the Indian National Congress by a margin of almost 17 million votes which translated into winning 81 Assembly Segments fewer than the INC which translated into winning 7 fewer Lok Sabha seats — and hence ended up sitting in the Opposition in the Lok Sabha for five years.
A central question is whether the BJP has or has not done enough over the last five years to get in its favour a net change in the raw vote — and that too by a sufficient amount to change the number of Assembly Segments won in its favour.
Putting it differently, has the INC done enough to at least maintain its share of the raw-vote and its leading position, and hence be likely to win the largest number of Assembly Segments and Lok Sabha seats again?
Here is the overall picture:
And yes, of course, there have been demographic changes over five years so those changed parameters shall have affected the new outcome too (notice the INC’s emphasis on the “youth vote”).
This is original research which could come to be published in a scientific journal if I find the time to send it, so please try not to steal and instead acknowledge its source properly if you want to discuss it elsewhere.
“[I]f Atal Behari Vajpayee and Lal Krishna Advani could bring themselves to honestly walk away from BJP politics, there would have to be a genuine leadership contest and some new principles emerging in their party. There is an excellent and very simple political reason for Vajpayee and Advani to go, which is not that they are too old (which they are) but that they led their party to electoral defeat. Had they walked away in May 2004, there might have been by now some viable conservative political philosophy in India and some recognisable new alternative leadership for 2009. Instead there is none and the BJP has not only failed very badly at being a responsible Opposition, it will go into the 2009 General Election looking exceptionally decrepit and incompetent.”
Lest anyone think this was a tirade against the BJP, most of the article was actually a criticism of the Congress and the Communists!
Mr LK Advani’s claim that Indian resources have been illegally shipped overseas is hardly new or interesting — what is truly grotesque is the sheer irresponsibility of his claim that if somehow this could be reversed, it would suffice to
” Relieve the debts of all farmers and landless • Build world-class roads all over the country – from national and state highways to district and rural roads; • Completely eliminate the acute power shortage in the country and also to bring electricity to every unlit rural home; • Provide safe and adequate drinking water in all villages and towns in India • Construct good-quality houses, each worth Rs. 2.5 lakh, for 10 crore families; • Provide Rs. 4 crore to each of the nearly 6 lakh villages; the money can be used to build, in every single village, a school with internet-enabled education, a primary health centre with telemedicine facility, a veterinary clinic, a playground with gymnasium, and much more. “
This is simply appalling in its sheer mendacity. The BJP is going to give an amnesty to all those with such money and then confiscate it or requisition it or forcibly borrow it to make these resources equivalent to tax-revenues for the purposes of Indian public finance? What can one say beyond this being grotesque in its incomprehension of both facts and economic principles? Could someone who supports the BJP please teach them some Econ 101 asap?
Time & Tide Wait For No One In Politics: India Trails Pakistan & Nepal!
The Karnataka legislative elections, as well as to lesser extent the Bengal panchayat polls, have revealed the vacuum that exists across the leadership of India’s national-level politics today.
To start with the BJP: had India been a normal democratic country on the Western pattern, Mr Arun Jaitley would have rocketed to the top of his party’s leadership by now. Besides being articulate in both Hindi and English and in his fifties (the age-group of most leaders in democratic countries), Mr Jaitley’s political acumen and organisational skills have been acknowledged even by his Congress adversaries after the Karnataka result. He himself has been frank and expansive about his formula for winning in Karnataka, which was simply to focus on real issues, especially state-specific ones, as well as to project a single credible leader. Had the BJP been a normal political party in a normal country, Mr Jaitley would have been given the task of leading it to victory in the next General Election and, assuming he won a Lok Sabha seat, to become its prime ministerial candidate.
Instead, the BJP chooses to remain backward, backward, backward in the majority of its thought-processes and behaviour-patterns ~ from its kneejerk anti-Muslim psychology via its hyperinflationary macroeconomics and protectionist trade to its embrace of astrology and bovine exclusiveness. The idea of uniting behind someone relatively modern-minded in his politics like Mr Jaitley would be simply unacceptable not merely to people in the party within his own age-cohort (including the present party president) but even more so to those in age-cohorts decades older (including the party’s present prime ministerial candidate).
The opposition of the first group would arise from, in a word, jealousy. The opposition of the second group would arise from, in a word, dadagiri, i.e. the gerontocratic idea that merely because one is older, one is owed respect, authority and the plums of office in precedence over someone who is younger. Jealousy is a universal emotion not something specific to Indian politics, but dadagiri and the lack of meritocracy in our political culture is one reason India remains an abnormal polity in the modern democratic world.
LK Advani, driven by his unfulfilled personal ambition, will likely lead the BJP in the next election and do so with Mr Jaitley’s explicit support; Mr Advani may lead it into defeat or even to a victory in which he, given his age, is not as successful a PM as a Jaitley might have been. Yet our sclerotic political culture is such that neither Mr Advani nor Mr Rajnath Singh will simply stand aside now and hand over the reins to a newer, more competent and progressive leadership.
The same idea of dadagiri pervades what passes for the official “Left” in India as exemplified by the CPI-M. Mr Jyoti Basu has in a recent letter to Harkishen Singh Surjeet reminisced of their times together, and in doing so remarked that he remained the Chief Minister of West Bengal for as many years as he did because the Party had instructed him to do so, and when he handed over power to Buddhadeb Bhattacharjee, he did so with the Party’s agreement.
Those who believe in India’s parliamentary democracy might have thought that what our system requires is for a Chief Minister to hold the confidence of the legislative assembly from the bottom up but clearly that is not so because what a CM or PM seems to need are Party instructions from the top down. When Mr Bhattacharjee was anointed the new CM, the present author had remarked to the then Editor of The Statesman that the transition seemed to take place even without a formal vote of confidence in the Assembly. Does anyone in fact recall the last confidence vote debated and passed in the West Bengal Assembly? Democratic legislatures the world over routinely begin their new sessions with a debate and vote of no confidence being brought by the Opposition against the Government-of-the-day.
Does that happen with us, purportedly the world’s largest democracy? Let aside State legislatures, even our Parliament sees only the rare vote of confidence, and LK Advani specifically as Leader of the Opposition seems to have introduced none. Oppositions that do not wish to properly oppose are of course complicit in a government’s misdeeds.
It is the dadagiri culture shared by the official Communists that has caused the generational handover of power from Mr Basu and Mr Surjeet to the JNU coterie of the Karats and Mr Sitaram Yechuri. The “Left” like the “Right” and everyone else in Indian politics, can only handle cherubic “known” faces at the top ~ genuine grassroots activists like Binayak Sen or Medha Patkar must languish in jail or starve on hunger-strike in seeking to represent the politically and economically powerless in India while the entrenched dadas of Indian politics continue with their dissimulation.
In case of the Congress, it is an even deeper aspect of the Indian joint family system than dadagiri that has dominated its political culture, namely, the question who is the karta of the family and, if the karta is or seems too young or naïve or inexperienced, who will act as Regent on the karta’s behalf? Indira Gandhi was successfully guided in international politics for several years by a coterie led by PN Haksar. Rajiv Gandhi was attempted to be guided by several different competing coteries of senior party dadas ~ one of whom first brought up the name of Manmohan Singh in Indian politics on 22 March 1991 in a challenge addressed to the present author on liberalisation plans that Rajiv had authorised.
It is almost true to say that Sonia Gandhi and Rahul Gandhi have been in recent years played by puppet-masters of whose personal interests and intrigues they remain clueless. As has been said before by this author, the most salubrious thing Sonia Gandhi could have done for the Congress Party was to remain steadfast in her decision to stay out of Indian politics, and to have organised a fair, tough intra-party contest among its putative senior leaders based on differences of political and economic ideology.
Instead there is now paralysis in decision-making induced by Sonia Gandhi and Manmohan Singh each mistakenly relying upon the other’s purported economic wisdom and political acumen. This confusion came to be most clearly illustrated in the choice of Head of State last year though that was something politically costless ~ the failures of which Karnataka is the current example may lead the Congress to lose what it, like other Indian parties, loves most of all, namely political power in Lutyens’ Delhi.
Indians should make no mistake: our good neighbours in Pakistan and Nepal (Muslim in Pakistan, Hindu and Buddhist and communist in Nepal) have been through healthy cathartic political experiences in recent months and years of a kind we have not. There continues to remain a dangerous intellectual vacuum around the throne of Delhi.
The Doctor of Deficit Finance should realise the currency is at stake
by Subroto Roy
First published in The Statesman, Editorial Page Special Article, April 25 2008,
The best thing that may be said of the Manmohan Singh premiership is that when it began in May 2004, it seemed, for a short while, refreshing in comparison to the dysfunctional arrogance and brutality displayed by its predecessor. By the last months of the Vajpayee-Advani Government, there were party appointees who had ended all pretence of purportedly Hindu values and were raking it in shamelessly. The Golden Rule of Democracy is “Throw the rascals out”, which is what Indian democracy upheld as it has done time and again. By 2009, India’s electorate will have the chance to decide whether the incumbent government deserves the same fate.
Manmohan Singh was seriously discussed as the Congress’s putative nominee for PM as early as 2001. The idea brewing at the time with the party’s next generation of wannabe leaders (in their 50s and 60s, where Manmohan was near 70) was that they needed to maintain good relations with the Great White Queen and wait out one term of an inevitable Singh premiership before having a shot at the top job themselves.
What is surprising is Dr Singh appeared never to feel it necessary to educate himself privately on how to retool himself for the necessary transformation from being the archetypal bureaucrat he had been in his working career to becoming the national statesman he wished to be after retirement. It is doubtful, for example, if he ever stood in front of a mirror and practised an extempore political speech in Hindi in preparation for the highest executive post in the country, let aside writing a clear-headed, original vision or mission statement of substance as to where he wished to lead it. As Narasimha Rao’s Finance Minister, he could meekly take orders from his PM; it seemed he wished to continue in the same mode even when PM himself.
Jawaharlal Nehru is supposed to have been a hero of Dr Singh’s ~ but Nehru was a thorough parliamentarian, among the finest anywhere, and someone who always respected the Lok Sabha immensely. Dr Singh, after he lost to VK Malhotra for the South Delhi seat in 1999, made not the slightest effort to enter the Lok Sabha again, even when the Akalis indicated they might not oppose him in a Punjab contest. When asked specifically at a large press conference about not entering the Lok Sabha, Dr Singh murmured words to the effect he had better uses of his time ~ a display, if anything, of the misplaced arrogance of many New Delhi academics and intellectuals. Dr Singh may be the first PM in any parliamentary democracy never to have won a seat in the lower house nor felt a need to do so.
Dr Singh’s bureaucratic expertise assisted him well in the first national crisis that came his way, which was the Tsunami of 26 December 2004. There appeared to be an air of efficiency about the Government’s response and he seemed in his element as commander of bureaucratic forces while working with Pranab Mukherjee in enlisting the military. George W. Bush (not a great geographer or historian) was apparently impressed to see on a map that India had naval forces deployed as far as the Andamans.
By 2005 though, Dr Singh’s bureaucratic mindset had its negative impact. Montek Ahluwalia had been his Finance Secretary when he was Finance Minister. Mr Ahluwalia’s spouse had been a main supporter of Dr Singh’s unsuccessful Lok Sabha attempt. During the Vajpayee Government, Mr Ahluwalia remained a Planning Commission Member for several years before moving to Washington. With Dr Singh as PM, Mr Ahluwalia returned from the USA in mid 2004 to become Deputy Chair at the Planning Commission. Simultaneously with his return, the idea that the American nuclear industry would like to sell “six to eight lightwater reactors” to India arose.
That is as much as is presently known in public. Dr Singh and Mr Ahluwalia may in the national interest want to frankly and precisely explain to the Indian people the full story of the sudden origins of this idea. Certainly, none of the lessons of the Dabhol fiasco a decade earlier seemed to have been learnt, and the Maharasthtra Government (and hence the Government of India) ended up paying some $300 million to General Electric and Bechtel Corporation for Dabhol before any nuclear talks with the USA could begin. Nor had any serious cost-benefit analysis been done or discussion taken place comparing nuclear energy with coal, hydro and other sources in the Indian case.
Indian foreign policy became frozen in its focus on nuclear negotiations with the USA, swirling around Dr Singh’s fife-and-drum welcome at the White House and President Bush’s return visit to India. At the same time arose the issue of Paul Volcker’s UN committee mentioning the name of India’s foreign minister. As The Statesman put it, regardless of the latter’s involvement, “the damage to India’s diplomatic reputation in the world” was done and it was inevitable a new foreign minister would be necessary. After dilly-dallying and much 10 Janpath to-and-fro, Dr Singh followed Nehru’s mistake of becoming his own foreign minister. The idea was that this would be temporary but it became almost a year.
Instead of transforming himself towards Indian political statesmanship, Dr Singh advanced other retired bureaucrats’ ambitions on similar career-paths. Foreign policy went out of the MEA’s control and seemingly into the control of the new “National Security Adviser”. Dr Singh, sometimes with MK Narayanan beside him, travelled a large number of countries from Brazil to Finland and Uzbekistan to South Africa and Japan. Dr Singh also found time and willingness to accept honorary degrees from British and Russian universities during these short months.
While Dr Singh seemed thus preoccupied, two of India’s main neighbours underwent massive democratic revolutions (leave aside magnificent Bhutan). Nepal’s people practically stormed their Bastille while Dr Singh and Mr Narayanan visited Germany to discuss BMWs. Pakistan’s democratic forces could hardly believe the cold indifference shown to them by a New Delhi merely following Bush’s support for Pervez Musharraf. While Pakistan and Nepal, and to lesser extent Bangladesh, saw movements towards better governance, Sri Lanka descended towards civil war ~ India’s PM remained obsessed with the magic wand that the nuclear deal was supposed to be.
Then suddenly the magic vanished ~ Dr Singh seemed to finally come to a silent private recognition that the economics of the nuclear deal simply did not add up if it meant India importing “six to eight lightwater reactors” on a turnkey basis from the USA or anywhere else. Dr Singh seemed to come out of his self-imposed trance and return a little better to reality. By the time he visited China, although he was as deferential to Hu Jintao in his body language as he had been to Bush and Musharraf and even accepted an indoor guard of honour, he also seemed willing to stand up for India. The Arunachal visit was a reality-check.
Now there is inflation ~ and one year left in the UPA’s term. What the country needs is tough sensible macroeconomics and clean public finance. A pandering profligate budget in February was not a healthy sign. Instructing Mr Ahluwalia to close down the Planning Commission and make it a minor R&D wing of the Finance Ministry would be instead a good step. Instructing the RBI to clean up its bureaucratic wastefulness and prepare itself for institutional independence from the Finance Ministry would be even better. Getting proper financial control over every Union and State government entity spending public money and resources would be most important of all. Such major institutional changes in the policy-making process are what an economist might expect of an economist prime minister who wishes to lead India in the 21st Century. India’s currency is at stake.
(See also: “The Politics of Dr Singh”, May 2006; “Mistaken Macroeconomics”, June 2009, etc.)
Congress, BJP, Communists, BSP, Sena Etc Reveal Equally Bad Traits
By Subroto Roy
First published in
The Statesman, March 4 2008,
Editorial Page Special Article
A “black” American, born of a black Kenyan father and white American mother, and having a Muslim middle name Hussein though Christian by faith, may become the freely elected President of the USA in January 2009. He has stood up himself and anyone who knows Western cultures will know how hard it would have been to overcome workplace prejudices. Martin Luther King Jr’s dream of America becoming a nation where people “will not be judged by the colour of their skin but by the content of their character” might start to be fulfilled.
Can the same be said of modern India, ever? When will Muslims, Dalits, tribals and whomever become well enough integrated with mainstream Hindu societies ~ and vice versa ~ that we have army generals, fighter pilots, submarine commanders, nuclear scientists, media moghuls, top executives, and yes, freely elected Prime Ministers of India from any externally identifiable group without batting an eyelid? The policies followed by the Congress, BJP, Communists, BSP etc., exemplified by Mr Chidambaram’s pandering Budget-Speech last week, suggest that the answer will be never.
Mr Chidambaram mentioned “Scheduled Caste” six times and “Minority” (meaning “Muslim”) five times in his speech~ if he or the Sonia-Manmohan Government genuinely felt any of the schemes mentioned were in the true interest of these groups, these schemes could have been simply and quietly implemented without fanfare or political advertisement. Making a big deal about them in Parliament during a Budget-Speech precisely reveals the actual underlying cynicism and hypocrisy. The fact may be it is not the schemes themselves that are important but the illusions created and sold about them, illusions that have electoral value because they deceive the purported beneficiaries into thinking that somebody powerful cares about them and controls their well-being.
A quarter-century ago in Pricing, Planning & Politics: A Study of Economic Distortions in India, I applied the arguments of the black American economist Thomas Sowell to the Indian case. I said: “the racial composition of contemporary American society is a complex mosaic, and no-one can say with certainty how it has come to be what it is today. In such circumstances, for the government to try to isolate a single contingent characteristic like “race”, partition society on the basis of census data according to this characteristic, and then construct public policies accordingly, is to introduce an enormous arbitrariness into economic life. By merely defining a group by reference to a single contingent characteristic, which all its members seem to possess, the intrinsic complexity of the individual person is lost or overlooked. Two members of the same race may be very different from each other in every relevant characteristic (income, education, political preference, and so on), and indeed resemble members of other races more closely in them. A policy which introduces a citizen’s race as a relevant factor in the assignment of jobs or college places partitions the citizenry into vague groups: members of groups who are very different from members of other groups in characteristics other than race rarely competing with each other anyway, while the burden and beneficence of the State’s policies fall on members of groups who are not very different from members of other groups in characteristics other than race”.
Sowell himself (in Knowledge and Decisions) put it like this: “costs are borne disproportionately by those members of the general population who meet standards with the least margin and are therefore most likely to be the ones displaced to make room for minority applicants. Those who meet the standards by the widest margin are not directly affected ~ that is, pay no costs. They are hired, admitted or promoted as if blacks did not exist. People from families with the most general ability to pay also have the most ability to pay for the kind of education and training that makes such performance possible. The costs of special standards are paid by those who do not. Among the black population, those most likely to benefit from the lower standards are those closest to meeting the normal standards. It is essentially an implicit transfer of wealth among people least different in non-racial characteristics. For the white population it is a regressively graduated tax in kind, imposed on those who are rising but not on those already on top.’”
What Sowell said about American blacks may well apply to India’s religious and caste minorities today. Problems of tribal India are more subtle requiring more technical sociological and anthropological study.
The Leftist idea common to the Congress, Communists, BSP etc has been to perpetuate dependency of Muslims, Dalits, OBCs etc upon the whims of State power (as wielded by such Leftists themselves). By contrast, the Rightist/Fascistic idea of the BJP, its RSS parent, the Sena etc has been to try to bludgeon Muslims, Dalits and everyone else into submission whereby they must adopt majority customs, habits or political beliefs or (in true Nazi fashion) come to be exiled or banned from mainstream society. Both Left and Right in India have also promoted new government-induced “Sex Wars” between males and females ~ passing laws drastically raising the risk and cost of maintaining marriages and family households, which then simply collapse as has happened elsewhere.
In general, the Congress, BJP, Communists, BSP etc have been united in being wholly incapable of seeing India’s people as individuals in their own right in all the diversity and complexity that entails ~ as free citizens who possess individual rights to belief, property, security, privacy etc. Instead the idea has been to politically categorize people as members of mass-groups that may be then manipulated as puppets using State power in one direction or another. The result has been a general failure in the country to develop the notion of responsible individual citizens (hundreds of millions in number) dealing with responsible public and civic institutions including the State.
Citizens and State
Even in nations that are heirs to a long history of democratic political development, the link often has not been made in the public mind between enjoyment or lack of enjoyment of public services, and costs upon individual citizens from whom resources must be ultimately raised. In a fiscal democracy “those who bear the costs of public services are also the beneficiaries” (JM Buchanan); conversely, those who demand public services must pay for them in real resources one way or another. If citizens feel they receive little or nothing of value from government, there is an obvious loss of incentive to be counted as responsible voting members of the same community, and instead reason to evade taxes or flee the country or cynically believe everything to be corrupt.
On the other hand, if citizens demand public services without expecting to contribute private resources for their production, this amounts to being no more than a wish to be free-riders on the general budget. While Indian citizens have been arbitrarilty partitioned by government according to religion, caste etc., widespread cynicism has prevailed about secular provision of public services by government at any level. At the same time the idea is far from understood that beneficiaries of public services must sooner or later expect to bear real resource-costs one way or another. Everyday politics thus becomes highly irresponsible. Political New Delhi has created such a state of affairs over decades and continues to contribute to it.
Once upon a time, not very long ago, there was something called “Brand Buddha”. The basic idea was that the CPI-M had quietly reformed itself, passing the baton from old unreconstructed communists like Jyoti Basu and Harkishan Surjeet to a new generation of pragmatists and modernists represented by Prakash Karat’s JNU coterie at the national level and the smartly dressed bhadralok persona of Buddhadeb Bhattacharjee in Kolkata itself.
Big businessmen and their foreign collaborators were no longer the “comprador bourgeoisie” but rather were allies to whom government subsidies and concessions, especially land, would be and should be granted. The “investment climate” and “work culture” under a CPI-M government would be among the best in India. High employment levels would be the hoped-for result, especially employment for those associated positively with the CPI-M and its friends. The usual set of academics, journalists, film and TV actors, dancers, sportsmen, singers, NRIs etc who were directly or indirectly recipients of the largesse of the West Bengal Government helped to contribute to the idea that a viable political brand had been identified and it represented the unique way forward for the State. “You are either with us or against us” has always been the brief philosophy of communist and fascist parties around the world ~ joining up with Brand Buddha meant you were part of the bandwagon of progress, if you did not join up you would be left behind. (No one thought Brand Buddha could be or would come to be actively opposed.)
At the national level, the old Indira Gandhi-Communist alliance was restored by way of a new one led by Sonia Gandhi. Jyoti Basu had frankly described Sonia as “a housewife” but now that the housewife was running the country and needed the Communists’ help in doing so, the opportunity was not to be missed to extract whatever price was possible. The main broker between 10 Janpath and West Bengal’s Communists was Pranab Mukherjee who was most familiar with the old Indira-style of opportunistic Indian politics, and who was given the mandate of appeasing the Communists with whatever they needed while also being the pointman to make a phone call to his friend Buddhadeb to see to it, e.g., that the CPI-M like everyone else enjoyed the American and Indian air force show at Kalaikunda.
The “enemy” (for, after all, every unholy alliance must have an identifiable enemy) was the wicked old BJP. Everyone from Sonia Gandhi via Pranab Mukherjee to Jyoti Basu would voice the fear that if they did not join hands in socialist secularist unity, the BJP Boogeyman was destined to return to power. And of course the BJP did nothing and had little positive in its record to dissipate those fears. It was indeed filled with old men and it had indeed behaved wickedly while in power. From negligence in the Graham Staines murder in Orissa to the pogrom in Gujarat, there was little to suggest the BJP’s leadership had any clear ideas or principles about right and wrong governance. In office from 1998-2004, its macroeconomic record was woeful, mainly because it knew no better than maintain the same economic bureaucrats as its predecessors, and allow its finance and other economic ministers to be wholly manipulated by big business lobbies. Now when those bureaucrats and big business lobbies created, endorsed and marketed Brand Buddha itself, the BJP found it had been successfully finessed and could hardly speak a word in opposition. If the BJP thinks it can win in 2009 by its discredited leaders merely recycling anti-Muslim or anti-Christian formulae as before, it may be in for a surprise and a disappointment.
Brand Buddha reached its pinnacle when Sonia Gandhi’s Prime Minister endorsed it personally at a big business meeting in Kolkata on 12 January 2005. But the contradiction involved in Sonia Gandhi then giving merely a perfunctory speech on behalf of the West Bengal Congress in the 2006 election campaign could not be covered up and did not escape the notice of her local partymen.
Brand Buddha started to unravel when Mamata Banerjee realized that all the CPI-M really had was a brand being marketed, not something based on any new and fresh political and economic reality. Mamata has never accepted Sonia’s right to lead the Congress which is what had led to the Trinamul breaking away ~ at the same time, even when she was allied to the BJP, no one could accuse her of being anti-Muslim or anything but secular in her political identity. Her three-week long fast over Singur blocked Metro Channel and riveted the country’s political attention while TV broadcasts of the police-behaviour at Singur acted as a signal to the people of Nandigram to prepare for the same or worse.
The fact the Nandigram peasants who feared losing their land were mostly Muslim caused the central Sonia-Pranab-Buddhadeb myth to explode that only they stood to protect Muslims from the BJP. Once that myth had exploded, the fact the emperor was naked came to be seen by all. There never had been a viable political or economic product behind the brand that was being so heavily advertised and endorsed. If Buddhadeb and his party had been genuinely confident of possessing a constructive new economic policy for West Bengal, they should have transparently and honestly discussed it in detail and gone to the people to ask for a mandate on it before the 2006 elections.
Or when the issue boiled over and Mamata went on her fast at the end of 2006, Buddhadeb could have dissolved the Assembly and gone for fresh elections asking for a specific mandate from Bengal’s voters. Instead, the Chief Minister or his senior ministers not once found the need or courage to address all of West Bengal’s people on television even though the State came to be rocked by violence, mayhem and tragedy – hardly a climate for investment and new employment.
2007 saw the CPI-M and its New Delhi Congress friends being revealed to be bunglers, who could not cope with things as small as Rizwanur’s love-marriage or Taslima’s writings except with heavy-handed repression. The CPI-M’s own unions had crippled their own Government and the State before with bandhs, but not until the Cooch Behar firings has the anarchy become complete. The Forward Bloc protesters were, after all, merely asking for implementation of Sonia Gandhi’s favourite scheme of rural employment guarantees! Anarchy is the absence of government and when a government is so divided that its members cannot decide if they are the government or the opposition, it has to be said there is an absence of government.
Recovery requires candour which in turn requires honesty and introspection, all of which may be qualities too difficult to find. What Brand Buddha could have and should have been about is this: the CPI-M cutting waste, fraud and abuse of publicly owned resources from all the organs, departments and projects of the West Bengal Government that they have controlled for decades, and drastically improving the productivity of all those receiving State government wages or contracts. Real governance does not require any phony advertising because success advertises itself.
Our Dismal Politics Will Independent India Survive Until 2047?
By SUBROTO ROY
First published in The Statesman Editorial Page, Special Article, Feb 1 2008
Mayawati and Narendra Modi are both in their 50s. So are the current leaders of Russia, Germany, Britain, France, the USA. No country, not even Communist Party China, is as pretentiously corrupt as ours in allowing a whole generation to be bred of “babalog” politicians among children of dead politicians or existing elderly politicians in their 70s and 80s. These babalog, Rahul Gandhi pre-eminent among them, are usually in their late 30s or early 40s. Having developed no useful marketable skills in life nor done anything worthwhile or creative, they have tended to arbitrage the political positions of their parents (whether departed or living) into gaining access and advantage in Delhi or the State capitals. Some nepotism is being seen in the USA with the Bush and Clinton families but nobody had heard of a Putin, Merkel or Sarkozy before they won their way into political power.
The Indian phenomenon of the inheritance of advantage is also seen in organised business, in Bollywood and in journalism, which, like our politics, tend to be sold via TV. Academic institutions and the civil and military services are not far behind although there the phenomenon more usually involves exporting adult children (and bank accounts) especially to the USA or UK or Australia, and then making annual trips abroad during the hot summer months to be able to tell the neighbours about later.
The idea that the future of Indian politics is in the hands of a babalog GenNext is sheer nonsense and fantasy. The victories of Mayawati and Modi were also defeats of the expectations raised by Rahul Gandhi’s Congress. There is a continuity of years between someone like Sonia Gandhi and her children which implies there can be no discontinuous jump from Sonia to Rahul in the leadership of the Congress. In between, as it were, are people like Kamal Nath among “Friends of Sanjay” or Mani Shankar Aiyar (a solitary Rajivist), both of whom have won seats in the Lok Sabha unlike Sonia’s current elderly PM. If Sonia Gandhi devolves political power to her son who then leads the Congress into another defeat, of which UP and Gujarat have been examples, there will be a revolt among senior middle-aged politicians in the Congress, and the Congress may splinter into a Right Faction and Left Faction leaving Rajiv Gandhi’s family to look after the Rajiv Gandhi Foundation which is what they should have been doing in the first place rather than playing at Indian politics.
A Congress disintegration may or may not finally cause a useful bipolarisation in Indian politics because Indian politics has not only an economic dimension, it has a social or communal dimension too. Besides being (ostensibly) pro-poor or anti-poor, you can be either “Islamophilic” or “Islamophobic” ~ i.e. either pro-Muslim “secularist” /”pseudo-secularist”/minorityist, or anti-Muslim “communalist”/ “fascist”/majority communitarian.
Narasimha Rao cleverly manipulated the median parliamentary vote along these two dimensions so as to maintain a weak Government in power for five years by seeming to ally with the BJP on economic issues and seeming to ally with Leftists on social issues. If the Congress splits after another major defeat caused by Sonia-Rahul incompetence, with the Right Faction joining hands with whatever the BJP morphs into, and the Left Faction joining hands with whatever the CPI-M and CPI morph into, the central question will become which side of the split along the economic dimension holds the median voter along the pro-Muslim/anti-Muslim social dimension.
The BJP remains as dreadful and unscientific a gathering as it has been always without displaying the slightest creative trace of being able to evolve into a serious Conservative Party that India remains in desperate need of. AB Vajpayee and LK Advani led it into electoral defeat but that was not enough for their patriarchy to be disturbed by competent new younger people. In any case, the BJPs more articulate better-educated members in their 50s and 60s are unable to command nation-wide respect nor, with the exception of Modi, are they able to win an election on their own steam. The idea that e.g. Pramode Mahajan’s son could “succeed” him on the 10 JanPath pattern fortunately self-exploded. The best the BJP could do was to choose an inarticulate member as its nominal head while the patriarchy continued unchanged in its backward communalised thinking. Its RSS parent occasionally shows a little savant-like intelligence but generally remains in mental and physical regression.
As for the so-called Left, its multi-dimensional hypocrisy and incompetence has been permanently exposed in the heartland of what passes for Indian communism, Bengal. After the demise of the USSR and transition of Communist China towards Capitalism/ Fascism, there has been no real reason why the CPI and CPI-M cannot merge into one and then renounce together their retrograde ideology in favour of becoming a genuine Social Democratic and Labour Party representing working people and the poor. But that, like any corporate merger, would mean administrative redundancies, retrenchment and new management, and the last thing Stalinist politburo members like is the idea of losing their Rajya Sabha sinecures (in Russia and China they lost their heads but Indian conditions are kinder, gentler, more non-violent).
Besides the Congress, BJP and “Left”, most other parties in India revolve around the whims, personality and IQ of some single local political warlord/warlady. The Naxals and other extremists, including Hindu and Muslim religious terrorists, at least make some pretence at representing political interests of some sections of the people; there is thus at least a slight authenticity about them, no matter how disengaged their thought processes may be from realities around them.
Endless deficit finance
The 2008 Budget or the 2009 General Election seem likely to remain in the grip of all such dramatis personae permanently on the Indian stage, and no new real creative constructive force seems likely to appear. Every political misdemeanour will be paid for by endless deficit finance and money-printing, the accounts and auditing of all public institutions shall remain in a shambles while private pockets of the heads of public institutions come to be lined with gold, the armed forces shall be ready to fight their Pakistani counterparts while deferring to any more formidable adversary, rich business people will continue with their grotesque conspicuous consumption, young people graduating from India’s pampered institutions of tertiary education will continue to line up outside foreign embassies to seek hope and escape.
Can India survive as an independent democratic republic for 100 years after 1947, let alone be a country where all citizens are reasonably free and comfortable? A worst-case scenario may see North India in endless conflict with a chaotic Pakistan, Eastern India hived off under Beijing’s influence, and peninsular India from Surat to Vizag being Western-dominated with “SEZs” on the pattern of pre-communist Coastal China. The failure of our elite classes to provide healthy creative governance over generations must inevitably result in the putrefaction of our body politic.
First published in two parts in The Sunday Statesman, September 23 2007, The Statesman September 24 2007
Manmohan and Sonia have violated Rajiv Gandhi’s intended reforms; the Communists have been appeased or bought; the BJP is incompetent
WASTE, fraud and abuse are inevitable in the use and allocation of public property and resources in India as elsewhere, but Government is supposed to fight and resist such tendencies. The Sonia-Manmohan Government have done the opposite, aiding and abetting a wasteful anti-economics ~ i.e., an economic quackery. Vajpayee-Advani and other Governments, including Narasimha-Manmohan in 1991-1996, were just as complicit in the perverse policy-making. So have been State Governments of all regional parties like the CPI-M in West Bengal, DMK/ AIADMK in Tamil Nadu, Congress/NCP/ BJP/Sena in Maharashtra, TDP /Congress in Andhra Pradesh, SP/BJP/BSP in Uttar Pradesh etc. Our dismal politics merely has the pot calling the kettle black while national self-delusion and superstition reign in the absence of reason.
The general pattern is one of well-informed, moneyed, mostly city-based special interest groups (especially including organised capital and organised labour) dominating government agendas at the cost of ill-informed, diffused anonymous individual citizens ~ peasants, small businessmen, non-unionized workers, old people, housewives, medical students etc. The extremely expensive “nuclear deal” with the USA is merely one example of such interest group politics.
Nuclear power is and shall always remain of tiny significance as a source of India’s electricity (compared to e.g. coal and hydro); hence the deal has practically nothing to do with the purported (and mendacious) aim of improving the country’s “energy security” in the long run. It has mostly to do with big business lobbies and senior bureaucrats and politicians making a grab, as they always have done, for India’s public purse, especially access to foreign currency assets. Some $300 million of India’s public money had to be paid to GE and Bechtel Corporation before any nuclear talks could begin in 2004-2005 ~ the reason was the Dabhol fiasco of the 1990s, a sheer waste for India’s ordinary people. Who was responsible for that loss? Pawar-Mahajan-Munde-Thackeray certainly but also India’s Finance Minister at the time, Manmohan Singh, and his top Finance Ministry bureaucrat, Montek Ahluwalia ~ who should never have let the fiasco get off the ground but instead actively promoted and approved it.
Cost-benefit analysis prior to any public project is textbook operating procedure for economists, and any half-competent economist would have accounted for the scenario of possible currency-depreciation which made Dabhol instantly unviable. Dr Singh and Mr Ahluwalia failed that test badly and it cost India dearly. The purchase of foreign nuclear reactors on a turnkey basis upon their recommendation now reflects similar financial dangers for the country on a vastly larger scale over decades.
Our Government seems to function most expeditiously in purchasing foreign arms, aircraft etc ~ not in improving the courts, prisons, police, public utilities, public debt. When the purchase of 43 Airbus aircraft surfaced, accusations of impropriety were made by Boeing ~ until the local Airbus representative said on TV that Boeing need not complain because they were going to be rewarded too and soon 68 aircraft were ordered from Boeing!
India imports all passenger and most military aircraft, besides spare parts and high-octane jet fuel. Domestic aviation generates near zero forex revenues and incurs large forex costs ~ a debit in India’s balance of payments. Domestic airline passengers act as importers subsidised by our meagre exporters of textiles, leather, handicrafts, tea, etc. What a managerially-minded PM and Aviation Minister needed to do before yielding to temptations of buying new aircraft was to get tough with the pampered managements and unions of the nationalized airlines and stand up on behalf of ordinary citizens and taxpayers, who, after all, are mostly rail or road-travellers not jet-setters.
The same pattern of negligent policy-behaviour led Finance Minister P. Chidambaram in an unprecedented step to mention in his 2007 Union Budget Speech the private American companies Blackstone and GE ~ endorsing the Ahluwalia/Deepak Parekh idea that India’s forex reserves may be made available to be lent out to favoured private businesses for purported “infrastructure” development. We may now see chunks of India’s foreign exchange reserves being “borrowed” and never returned ~ a monumental scam in front of the CBI’s noses.
The Reserve Bank’s highest echelons may have become complicit in all this, permitting and encouraging a large capital flight to take place among the few million Indians who read the English newspapers and have family-members abroad. Resident Indians have been officially permitted to open bank accounts of US $100,000 abroad, as well as transfer gifts of $50,000 per annum to their adult children already exported abroad ~ converting their largely untaxed paper rupees at an artificially favourable exchange-rate.
In particular, Mr Ratan Tata (under a misapprehension he may do whatever Lakshmi Mittal does) has been allowed to convert Indian rupees into some US$13,000,000,000 to make a cash purchase of a European steel company. The same has been allowed of the Birlas, Wipro, Dr Reddy’s and numerous other Indian corporations in the organised sector ~ three hundred million dollars here, five hundred million dollars there, etc. Western businessmen now know all they have to do is flatter the egos of Indian boxwallahs enough and they might have found a buyer for their otherwise bankrupt or sick local enterprise. Many newcomers to New York City have been sold the Brooklyn Bridge before. “There’s a sucker born every minute” is the classic saying of American capitalism.
The Sonia-Manmohan Government, instead of hobnobbing with business chambers, needed to get Indian corporations to improve their accounting, audit and governance, and reduce managerial pilfering and embezzlement, which is possible only if Government first set an example.
Why have Indian foreign currency reserves zoomed up in recent years? Not mainly because we are exporting more textiles, tea, software engineers, call centre services or new products to the world, but because Indian corporations have been allowed to borrow abroad, converting their hoards of paper rupees into foreign debt. Forex reserves are a residual in a country’s international balance of payments and are not like tax-resources available to be spent by Government; India’s reserves largely constitute foreign liabilities of Indian residents. This may bear endless repetition as the PM and his key acolytes seem impervious to normal postgraduate-level economics textbooks.
Other official fallacies include thinking India’s savings rate is near 32 per cent and that clever bureaucratic use of it can cause high growth. In fact, real growth arises not because of what politicians and bureaucrats do but because of spontaneous technological progress, improved productivity and learning-by-doing of the general population ~ mostly despite not because of an exploitative parasitic State. What has been mismeasured as high savings is actually expansion of bank-deposits in a fractional reserve banking system caused by runaway government deficit-spending.
Another fallacy has been that agriculture retards growth, leading to nationwide politically-backed attempts at land-grabbing by wily city industrialists and real estate developers. In a hyperinflation-prone economy with wild deficit-spending and runaway money-printing, cheating poor unorganised peasants of their land, when that land is an asset that is due to appreciate in value, has seemed like child’s play.
What of the Opposition? The BJP/RSS have no economists who are not quacks though opportunists were happy to say what pleased them to hear when they were in power; they also have much implicit support among organised business lobbies and the anti-Muslim senior bureaucracy. The official Communists have been appeased or bought, sometimes so cheaply as with a few airline tickets here and there. The nonsensical “Rural Employment Guarantee” is descending into the wasteland of corruption it was always going to be. The “Domestic Violence Act” as expected has started to destroy India’s families the way Western families have been destroyed. The Arjun-DMK OBC quota corrodes higher education further from its already dismal state. All these were schemes that Congress and Communist cabals created or wholeheartedly backed, and which the BJP were too scared or ignorant to resist.
And then came Singur and Nandigram ~ where the sheer greed driving the alliance between the Sonia-Manmohan-Pranab Congress and the CPI-M mask that is Buddhadeb, came to be exposed by a handful of brave women like Mamata and Medha.
A Fiscal U-Turn is Needed For India to Go in The Right Economic Direction
Rajiv Gandhi had a sense of noblesse oblige out of remembrance of his father and maternal grandfather. After his assassination, the comprador business press credited Narasimha Rao and Manmohan Singh with having originated the 1991 economic reform. In May 2002, however, the Congress Party itself passed a resolution proposed by Digvijay Singh explicitly stating Rajiv and not either of them was to be so credited. The resolution was intended to flatter Sonia Gandhi but there was truth in it too. Rajiv, a pilot who knew no political economy, was a quick learner with intelligence to know a good idea when he saw one and enough grace to acknowledge it.
Rule of Law
The first time Dr Manmohan Singh’s name arose in contemporary post-Indira politics was on 22 March 1991 when M K Rasgotra challenged the present author to answer how Dr Singh would respond to proposals being drafted for a planned economic liberalisation that had been authorised by Rajiv, as Congress President and Opposition Leader, since September 1990. It was replied that Dr Singh’s response was unknown and he had been heading the “South-South Commission” for Tanzania’s Julius Nyerere, while what needed to be done urgently was make a clear forceful statement to restore India’s credit-worthiness and the confidence of international markets, showing that the Congress at least knew its economics and was planning to take bold new steps in the direction of progress.
There is no evidence Dr Singh or his acolytes were committed to any economic liberalism prior to 1991 as that term is understood worldwide, and scant evidence they have originated liberal economic ideas for India afterwards. Precisely because they represented the decrepit old intellectual order of statist ”Ma-Bap Sarkari” policy-making, they were not asked in the mid-1980s to be part of a “perestroika-for-India” project done at a foreign university ~ the results of which were received, thanks to Siddhartha Shankar Ray, by Rajiv Gandhi in hand at 10 Janpath on 18 September 1990 and specifically sparked the change in the direction of his economic thinking.
India is a large, populous country with hundreds of millions of materially poor citizens, a weak tax-base, a vast internal and external public debt (i.e. debt owed by the Government to domestic and foreign creditors), massive annual fiscal deficits, an inconvertible currency, and runaway printing of paper-money. It is unsurprising Pakistan’s economy is similar, since it is born of the same land and people. Certainly there have been real political problems between India and Pakistan since the chaotic demobilisation and disintegration of the old British Indian Army caused the subcontinent to plunge into war-like or “cold peace” conditions for six decades beginning with a bloody Partition and civil war in J&K. High military expenditures have been necessitated due to mutual and foreign tensions, but this cannot be a permanent state if India and Pakistan wish for genuine mass economic well-being.
Even with the continuing mutual antagonism, there is vast scope for a critical review of Indian military expenditures towards greatly improving the “teeth-to-tail” ratio of its fighting forces. The abuse of public property and privilege by senior echelons of the armed forces (some of whom have been keen most of all to export their children preferably to America) is also no great secret.
On the domestic front, Rajiv was entirely convinced when the suggestion was made to him in September 1990 that an enormous infusion of public resources was needed into the judicial system for promotion and improvement of the Rule of Law in the country, a pre-requisite almost for a new market orientation. Capitalism without the Rule of Law can quickly degenerate into an illiberal hell of cronyism and anarchy which is what has tended to happen since 1991.
The Madhava Menon Committee on criminal justice policy in July proposed a Hong Kong model of “a single high-tech integrated Criminal Justice complex in every district headquarters which may be a multi-storied structure, devoting the ground floor for the police station including a video-installed interrogation room; the first floor for the police-lockups/sub-jail and the Magistrate’s Court; the second floor for the prosecutor’s office, witness rooms, crime laboratories and legal aid services; the third floor for the Sessions Court and the fourth for the administrative offices etc…. (Government of India) should take steps to evolve such an efficient model… and not only recommend it to the States but subsidize its construction…” The question arises: Why is this being proposed for the first time in 2007 after sixty years of Independence? Why was it not something designed and implemented starting in the 1950s?
The resources put since Independence to the proper working of our judiciary from the Supreme Court and High Courts downwards have been abysmal, while the state of prisons, borstals, mental asylums and other institutions of involuntary detention is nothing short of pathetic. Only police forces, like the military, paramilitary and bureaucracies, have bloated in size.
Neither Sonia-Manmohan nor the BJP or Communists have thought promotion of the Rule of Law in India to be worth much serious thought ~ certainly less important than attending bogus international conclaves and summits to sign expensive deals for arms, aircraft, reactors etc. Yet Rajiv Gandhi, at a 10 Janpath meeting on 23 March 1991 when he received the liberalisation proposals he had authorized, explicitly avowed the importance of greater resources towards the Judiciary. Dr Singh and his acolytes were not in that loop, indeed they precisely represented the bureaucratic ancien regime intended to be changed, and hence have seemed quite uncomprehending of the roots of the intended reforms ever since 1991.
Similarly, Rajiv comprehended when it was said to him that the primary fiscal problem faced by India is the vast and uncontrolled public debt, interest payments on which suck dry all public budgets leaving no room for provision of public goods.
Government has been routinely “rolling over” its domestic debt in the asset-portfolios of the nationalised banks while displaying and highlighting only its new additional borrowing in a year as the “Fiscal Deficit”. More than two dozen States have been doing the same and their liabilities ultimately accrue to the Union too. The stock of public debt in India is Rs 30 trillion (Rs 30 lakh crore) at least, and portends a hyperinflation in the future.
There has been no serious recognition of this since it is political and bureaucratic actions that have been causing the problem. Proper recognition would entail systematically cleaning up the budgets and accounts of every single governmental entity in the country: the Union, every State, every district and municipality, every publicly funded entity or organisation, and at the same time improving public decision-making capacity so that once budgets and accounts recover from grave sickness over decades, functioning institutions exist for their proper future management. All this would also stop corruption in its tracks, and release resources for valuable public goods and services like the Judiciary, School Education and Basic Health. Institutions for improved political and administrative decision-making are needed throughout the country if public preferences with respect to raising and allocating common resources are to be elicited and then translated into actual delivery of public goods and services. Our dysfunctional legislatures will have to do at least a little of what they are supposed to. When public budgets and accounts are healthy and we have functioning public goods and services, macroeconomic conditions would have been created for the paper-rupee to once more become a money as good as gold ~ a convertible world currency for all of India’s people, not merely the metropolitan special interest groups that have been controlling our governments and their agendas.
Saving Pakistan: A Physicist/Political Philosopher May Represent Iqbal’s “Spirit of Modern Times”
by Subroto Roy
First published in The Statesman, Editorial Page Special Article, August 13 2007,
Pakistan’s Nobel winning particle physicist Abdus Salam (1926-1996) was, like Pakistan’s most eminent jurist Zafrullah Khan (1893-1985), treated badly by his country and compatriots merely because of his religious beliefs as an Ahmadiya/Qadiani. This itself may be an adequate reason for secular thinking when it comes to identifying Pakistan’s or any country’s interests. Pakistan has had eminent poets and writers but there have been no dedicated first-rate technical economists ~ and no serious political philosophers other than, recently, Pervez Hoodbhoy who is a physicist. Most political economy by Pakistanis about Pakistan has tended to be at the level of World Bank bureaucratic reports or traveller’s tales, which have their uses but hardly amount to profound insight or significant scholarship. (We in India also have had numerous minor World Bank/UN bureaucrats, with or without PhDs about anything, passing themselves off as experts on India’s political economy.)
Yet during Pakistan’s present national crisis (and Pakistan has continually faced crises ever since 1947) people must go back to first principles of political economy and ask questions like “Who are we?”; “What are we doing to ourselves?”; “What is our future?” etc ~ questions about national identity and national viability and national purpose.
Abu Dhabi Pact
On 29-30 July, a deal was reportedly struck in Abu Dhabi after a secret face-to-face meeting between Pervez Musharraf and Benazir Bhutto: he would stay on as President for five years, she would be PM and Head of Government, have prosecutions against her dropped and get back her enormous frozen wealth. Such would be the intended outcome of the long-touted return to fair competitive elections later this year. The deal was brokered by British, American, Saudi and other go-betweens outside Pakistan, and is an overt way of keeping Musharraf in power while also seeming to allow a large concession by way of the return of a purported symbol of democracy like Benazir.
But Benazir seems out of touch with reality. When she returned two decades ago as a young unmarried woman confronting General Zia ul-Haq, she was a genuine popular hero. Her father’s judicial execution at Zia’s hands was still fresh in public memory, and Zulfiqar Ali Bhutto, no matter how misguided his ideologies, had some makings of a serious modern Pakistani nationalist politician.
Benazir as a middle aged matron is not her father and has lost almost all political credibility with her flip-flopping opportunism, and is now seen merely as a face agreeable to the West. Her good looks were discussed on American TV by the comedian Bill Maher while Musharraf’s publicity agent had him sharing jokes on a rival TV comedy – however, American TV audiences are or should not be a Pakistani constituency.
Benazir also forgets that Zia had set up Nawaz Sharif as an ally of the Pakistan military against her own populism in the late 1980s, just as she is being set up now as an ally of the same military against people like Sharif, Javed Hashmi, Maulana Fazlur Rahman and Imran Khan. Musharraf overthrew Sharif and jailed Hashmi and they are his declared foes; the other two have expressed opinions hostile to Western military presence in Pakistan and Afghanistan. The Maulana made a nationalistic overture towards India, while Imran has openly praised Indian democracy despite its faults. But Indian foreign policy has not responded and seems under manifest influence of the Western powers ~ had we felt and thought with genuine independence we could have, for example, easily declared and implemented large-scale humanitarian food-aid from the FCI’s wheat-stocks for the people of Afghanistan and Iraq as was suggested in these pages a year ago.
A Musharraf-Benazir alliance is hardly destined to save Pakistan and will be no more than a cynical example of short-term opportunism: we in India can expect them to use J&K as traditional rhetorical camouflage for their own continuing misgovernance and corruption. As in Iraq, Palestine and Afghanistan, the Western powers face the dilemma that any government they support in Pakistan will be perceived as lacking legitimacy while a genuine hands-off policy could result in legitimate popular governments which seem to Western Governments beyond their control and hence seemingly adverse to Western interests.
The West has long ill-understood Pakistan, partly because it has seen Pakistan merely to be used as a source of convenient military manpower and real-estate for itself as and when necessary. American diplomats were reporting as early as November 1951 that Maulana Maududi’s Jamaat were hostile to the “evils” of Western materialism which they wanted to “do away with root and branch” in the country. In January 1976, American diplomats were reporting Pakistan’s “crash program to develop nuclear weapons”, and by June 1983 that Pakistan was close to nuclear test capability, intended to deter aggression by India “which remains Pakistan’s greatest security concern”. For Islamic revivalism to coincide with nuclear weapons in the last decade has been something long-predictable if there had been adequate will to do so.
Right wing politicians and religious fundamentalists have come to power in countries with nuclear weapons without untoward results, e.g., Likud in Israel or the BJP/RSS in India. (It is America’s present leaders, as well as all main Democrat and Republican presidential candidates except Ron Paul, who have unilaterally threatened nuclear attacks on a non-nuclear country that has not committed aggression against anyone.) There is no obvious reason why an elected legitimate “conservative” or right wing government in Pakistan must come to pose a special nuclear danger to anyone. If it is serious about governance (which Musharraf-Benazir may not be), it may even succeed in finding enough sobriety and political honesty to start to face up to Pakistan’s real economic and social problems which are vast in size and scope.
Wali Allah vs Iqbal
“We are an Arab people whose fathers have fallen in exile in the country of Hindustan, and Arabic genealogy and Arabic language are our pride,” said Wali Allah (1703-1762). Two centuries later, Mohammad Iqbal (1877-1938), in his 1930 Presidential Speech to the Muslim League in Allahabad conceptualising today’s Pakistan, wished precisely to become free of that Arab influence: “I would like to see the Punjab, NWFP, Sind and Baluchistan amalgamated into a single state… The life of Islam as a cultural force in this living country very largely depends on its centralisation in a specified territory… For India it means security and peace resulting from an internal balance of power, for Islam an opportunity to rid itself of the stamp that Arabian Imperialism was forced to give it, to mobilise its law, its education, its culture, and to bring them into closer contact with its own original spirit and the spirit of modern times.”
That “spirit of modern times” is today represented most prominently in Pakistan by Pervez Hoodbhoy. In a December 2006 speech, Hoodbhoy suggested a new alternative to MA Jinnah’s ”Faith, Unity, Discipline” slogan: “First, I wish for minds that can deal with the complex nature of truth…. My second wish is for many more Pakistanis who accept diversity as a virtue… My third, and last, wish is that Pakistanis learn to value and nurture creativity.” And he has spoken of bringing “economic justice to Pakistan”, of the “fight to give Pakistan’s women the freedom which is their birthright”, and of people to “wake up” and engage politically. We shall witness a most engaging battle if Benazir and her new military friends all representing the jaded and corrupt old political power structures, come to face in the elections a new conservative alliance of people like Sharif, Hashmi, Fazlur Rahman and Imran all infused with Hoodbhoy’s scientific liberalism representing Iqbal’s ”spirit of modern times”.
“Stonewalling” has come to mean being continually evasive and misleading in politics by, for example, parroting a party line against fair public inquiry or criticism. “I want you to stonewall it”, was Richard Nixon’s infamous instruction during Watergate. (The original meaning was not ignoble: General T. J. “Stonewall” Jackson, during the US Civil War stayed on his horse under constant fire, taking all the bullets “like a stonewall” until he was killed.)
Stonewalling is what we are likely ever to receive from Pratibha Patil and the present day Congress Party. It is not as if India and the world will not survive if she becomes our President. Rashtrapati Bhavan has had undistinguished occupants before, even ones with clouds of disreputable or nefarious public deeds hanging over their heads. All that will happen is that our political institutions shall retrogress for five years; a pity but not something catastrophic in view of our long history ~ Nadir Shah’s brief stay set the standard for catastrophic behaviour in Delhi.
“Individuals may form communities, but it is institutions alone that can create a nation”, said Disraeli. Nation-building would become that much harder, our pessimism and disillusionment about whether we will ever succeed would become that much greater.
The corrosion of our political, financial, academic and other public institutions over decades has been something in which all our official political parties and religious formations are hand-in-glove complicit. In the case of Pratibha Patil, it is the PM and UPA Chair who are directly responsible for the institutional corrosion taking place in full view of all with respect to the highest office of the land.
But then Dr Manmohan Singh, despite his sojourns as a young social scientist in Britain, has not cared a hoot that the Prime Minister in a parliamentary democracy must seek to be an elected member of the House of the People. Also, ever since 1991, he has permitted the flattering fiction to develop that he or any of his acolytes had something to do with the origins of the economic reform. As for Sonia Gandhi, her list of naïve misjudgements only grows longer ~ cardinal among them being her having apparently retained as trusted advisers around her persons who had been warned about the vulnerability of her husband to assassination. Had Rajiv not been assassinated, Sonia would have been today merely a happy grandmother and not India’s purported ruler.
Stonewalling has become standard government practice in 21st century India across party-lines. The BJP stonewalled after the post-Godhra pogrom in 2002 and held none of its own responsible; the CPI-M has done precisely the same after the Nandigram pogrom a few months ago.
In October 2005, the Supreme Court ~ proving yet again that there are or can be institutions which do work in India ~ found the Union Government had behaved unconstitutionally. Lesson 101 of Constitutional Politics says: If you are uncertain whether a head of government commands confidence, ask him/her to prove his majority on the floor of the house. Instead the Sonia-Manmohan Government had launched a pre-emptive putsch against an aspirant for a democratic majority in a State assembly. What Sonia-Manmohan should have done in response to the Supreme Court’s finding was to recall or transfer the apparent culprit, and express regret to Parliament and the Court. That would have ended the matter and also engendered some moral growth in the polity. What they did instead was stonewall. Worse stonewalling was to follow from the whole of Parliament itself in the “office-for-profit” scandal.
Aristotle said politics was the supreme good because the ends of all other activities are subsumed in politics. This means that if the politics of a national society gets corroded, so does everything else. It is because India’s politics have become rotten, that our financial, academic and other institutions have followed.
The private American “equity group” Blackstone recently purchased Hilton Hotels for 26 thousand million American dollars cash. Why is that significant to Indians? Because India’s Finance Minister, P. Chidambaram, took the unprecedented step of naming Blackstone along with one private Indian citizen, Deepak Parekh in his February 2007 Budget Speech. He referred to a Government of India financial scheme by which favoured private businesses can “borrow” India’s foreign exchange reserves to pay for purchases of foreign assets. The same Reserve Bank of India which cracked down on Pratibha Patil’s dubious bank-dealings has now been bullied into allowing India’s foreign exchange reserves to be “borrowed” ~ and quite possibly never to be returned. Furthermore, foreign exchange reserves are not like tax-revenues but largely constitute already borrowed funds!
In academia, Mr Arjun Singh tyrannises defenceless medical students but presides (like his predecessor Dr Murli Manohar Joshi) over appointments at national institutes of full professors without postgraduate degrees or any experience of teaching or research. The Union Finance and Education Ministers report in the Government and their party to the PM and the UPA Chair. But neither Dr Singh nor Mrs Gandhi can have any effective control over the rot in India’s macroeconomic, financial, academic or other institutions when they are presiding over political rot themselves.
Stonewalling is the political behavour of the shameless. Shame used to be a cultural means of political self-control in traditional societies. Modern politics makes a distinction between private and public domains, and says that transmuting valuable public property of any kind into private wealth or advantage constitutes nefarious corruption. It is possible our subcontinent has not wished to or has not yet entered the world of modern politics. Instead we remain feudal in our political behaviour ~ where large rival clans perpetually battle over what is the ill-defined common property of the realm. In Pakistan and Bangladesh, the militaries predominate and participate in this feuding. In India the feuds take place within a framework which outwardly seems democratic with institutions of a free society like a free press and official civilian control of the military. Our feuds are between three large rival clans: the Indira-Sonia Patriarchal Matriarchs, the Hindu Patriarchs, and the Communist Matriarchal Patriarchs. The Congress, BJP and Communists are yet to become modern parties, and unless and until they do, our politics shall remain in retrogression.
THE theatrics surrounding the choice of presidential candidates refer to the highest and most dignified office of the land. Otherwise, India’s public would have been justified to think we were watching an absurd farce. Even so, lessons may be learnt about the nature of our polity, especially our purported Government and its purported Opposition.
Consider first how the name of the Congress’s candidate apparently arose. “Why don’t you think of Pratibha Patil?” was the rhetorical suggestion apparently made by Manmohan Singh to Sonia Gandhi at a joint meeting of the UPA and Left where no other person could be agreed upon. What could have been the emotional state of the Prime Minister of India in addressing such a question to its specific addressee? It had to be the same unconscious perplexity and mental contradiction he has experienced throughout the UPA Government, saying to himself: “I am the Prime Minister but I am not the Prime Minister, I am the Head of India’s Government but I am not the Head of India’s Government”.
Instead of leading the country as he was chosen to do in the belief he possessed some superior wisdom and capability for the job, Dr Singh has constantly deferred to and followed the person who chose him to lead. The Head of Government in our system recommends an appropriate Head of State. If Dr Singh truly felt himself India’s leader, not merely someone permitted for some time to enjoy the office and perquisites of India’s Prime Minister and being nominally referred to as such, he could have said: “I think we should consider Pratibha Patil, what say all of you?”
Such words would have displayed too much assertiveness in the presence of Sonia Gandhi, too much leadership from someone flatteringly described as mild and gentle but unflatteringly described as obsequious in the face of power. It is the same excess of deference displayed when he allows himself to be bullied or insulted by the DMK or receive the open contempt of his own Cabinet ministers. Dr Singh has just returned from the so-called “G-8 summit” where he was an invitee. In a group photo standing above and behind the American President, Dr Singh was seen gently touching George Bush on the shoulder as if Bush was a rich younger brother who needed a lift in spirits. Afterwards Dr Singh reportedly said the summit was useless ~ from his long bureaucratic experience he should have known that long beforehand, and declined to waste India’s time there. But then Europe is nice this time of year when Delhi is so hot. China is next on his itinerary, and he will surely not want to miss the Great Wall despite China’s continuing insults.
What the Pratibha episode reveals about Sonia Gandhi is her continuing bewilderment and confusion about the parameters of her life since her husband’s assassination sixteen years ago. There is a very simple candid explanation why, after her years in mourning, she entered politics following the Sitaram Kesri period: she and her children could not financially sustain a lifestyle to which they had become accustomed at 10 Janpath except as part of India’s politics via the Congress Party. Running the Rajiv Gandhi Foundation was not enough, and Rahul Gandhi’s income in a normal private sector career would have been unexceptional. Hence the lure of power has remained strong and cannot be walked away from even if walking away would be the right thing to do for sake of the political health of the Congress Party ~ which would finally have to grow up, find some political principles, and develop some normal processes of internal competition.
When Pratibha Patil’s name was mentioned for the first time in this manner, the rational course of action for the UPA Chair would have been to say, wait, if we are now thinking about a woman definitely, may we please have two or three such names to consider for a few days? But it was Dr Singh mentioning the name, and his supposed wisdom is what Sonia Gandhi believes, in her bewilderment, she should defer to, so she agreed at once in a parallel state of mental confusion as his: “I am India’s Leader but I am not India’s Leader”. Hence Pratibha Patil becomes the nominee. A little “game-theory” may help to explain the outcome (see table).
The paralysis and/or sclerosis of the Congress’s thinking processes is matched by the BJP and Communists. If Sonia Gandhi could bring herself to walk away from Indian politics, a genuine leadership contest in the Congress would have to occur for the first time in decades. Similarly, if Atal Behari Vajpayee and Lal Krishna Advani could bring themselves to honestly walk away from BJP politics, there would have to be a genuine leadership contest and some new principles emerging in their party. There is an excellent and very simple political reason for Vajpayee and Advani to go, which is not that they are too old (which they are) but that they led their party to electoral defeat. Had they walked away in May 2004, there might have been by now some viable conservative political philosophy in India and some recognisable new alternative leadership for 2009. Instead there is none and the BJP has not only failed very badly at being a responsible Opposition, it will go into the 2009 General Election looking exceptionally decrepit and incompetent.
Indeed, Vajpayee and Advani may not have walked away for the same reason as Sonia Gandhi, namely, the “10 Janpath Effect” or what may be generalised to the “Nice-New Delhi-Government-Housing-Effect”. Besides, like our ageing cricketers, cinema stars, playback singers and tons of ageing bureaucrats and corporate executives, where would they go, what would they do, how would they live, what do they know how to do if they were not doing what they have been doing for so long? Golf and grandchildren is the usual American formula.
In case of the Communists, it is not electoral but ideological defeat, indeed ideological annihilation, that their leaders have led them into. When was the last time we heard our Communist leaders extolling Marx, Engels, Lenin, Stalin, Mao, Zhou or even Fidel Castro? Not for a long time. The bankruptcy of official communism is obvious even to them, at least in their candid moments in front of the mirror every morning. Even for the CPI and CPI(M) to merge into a genuine modern socialist party is too creative and productive an outcome to be handled since top and middle management retrenchments would be inevitable. Also, the Cannot-Leave-Nice-Housing-Effect applies here too, and so the most we find by way of communist transformation is a perverse alliance with organised big business in trying to cheat very poor and unorganised peasants of their land in an economy where runaway paper money printing threatens a hyperinflation.
Nobody in power wants to address the rotten state of our public finances, since all of them have contributed to causing the stench. Our Finance Minister finds time to attend posh parties and publish books while presiding over an RBI-supported capital flight of India’s super-rich: “ultrahigh networth individuals are looking forward to buy overseas equities and real estate” Business Standard (25 April 2007) blithely said. The Finance Minister should have been instead burning the midnight candle getting public budgets and government accounting cleaned and healthy nationwide.
We in India have had more than enough time and democratic experience to have developed by now a set of normal conservative, liberal democrat, social democrat and socialist parties. That we have nothing of the kind speaks to the rot in the political culture we are witnessing in our capital and other major cities. Politically, we may be in for an especially ugly, unpleasant and incoherent few years starting with the presidential election currently underway.
When will normal political philosophy replace personality cults?
by Subroto Roy
First published in The Statesman, Editorial Page Special Article, June 11 2007,
A decade after Solzhenitsyn’s classic 1962 memoir One day in the life of Ivan Denisovitch, an ambitious young Delhi photographer published a hagiography called A life in the day of Indira Gandhi. Indira was shown gambolling with her little grandchildren, guiding her dutiful daughter-in-law, weeping for her father, greeting her loyal subjects from around India, reprimanding her ingratiating sycophants, imperiously silent during political meetings, smiling and scolding alternately at press conferences, and of course standing in victory at Shimla beside the defeated Bhutto. “Indira is India” the sycophantic slogan went, and the cult of her personality was one of showing her as omniscient and omnipotent in all earthly matters of Indian politics.
She had indeed fought that rarest of things in international law: the just war. Supported by the world’s strongest military, an evil enemy had made victims of his own people. Indira tried patiently on the international stage to avert war, but also chose her military generals well and took their professional judgement seriously as to when to fight if it was inevitable and how to win. Finally she was magnanimous (to a fault) towards the enemy ~ who was not some stranger to us but our own estranged brother and cousin.
It seemed to be her and independent India’s finest hour. A fevered nation was thus ready to forgive and forget her catastrophic misdeeds until that time, like bank-nationalization and the start of endless deficit-finance and unlimited money-printing, a possible cause of monetary collapse today four decades later under Manmohan Singh whose career as an economic bureaucrat began at that time.
Hitler, Stalin, Mao
Modern personality cults usually have had some basis in national heroism. In Indira’s case it was the 1971 war. Hitler, Stalin and Mao were seen or portrayed as war heroes too. Because there has been leadership in time of war or national crisis, nervous anxious masses extend their hopes and delusions to believe such a leader has answers to everything. The propaganda machinery available as part of modern state apparatus then takes over, and when it is met on behalf of the citizenry with no more than a compliant docile ingratiating mass media, the public image comes to be formed of a parental god-like figure who will protect and guide the community to its destiny.
Beneath this public image, the cunning play of self-interest by anonymous underlings in the allocation of public resources continues unabated, and so it is possible some truth attaches to the idea that an individual leader is not as responsible for evil misdeeds or depredations done by “the party” in his/her name.
In the Indian case, hero-worship and ancestor-worship are part of the culture of all our major religions. Hence we have parades of parliamentarians garlanding or throwing flowers and paying obeisance at this or that statue or oil-painting or photograph regularly ~ though as a people we have yet to produce rigorous intellectual biographies of any major figures of our own modern history, comparable to, say, Judith Brown’s work on Gandhi or Ayesha Jalal’s on Jinnah.
Indira continued to dominate our political culture until her assassination more than a decade later, but there was hardly a shred of political or economic good in what she left the country. Her elder son (leaving aside his blunders in Sri Lanka, J&K etc.) did have the sense to initiate fundamental change in his party’s economic thinking when he found a chance to do so in the months before his own assassination.
Rajiv was the son of Feroze Gandhi too and a happy family man; he seemed not to have psychological need for as much of the kind of personality cult his mother clearly loved to indulge in. It is not clear if his widow is today trying to follow his example or his mother’s ~ certainly, the party that goes by the name of Indian National Congress would like to relive for a second time the worst of the Indira personality cult around Sonia Gandhi. And Rahul Gandhi, instead of seeking to develop or display any talent as befits a young man, has shown disconcerting signs of longing for the days of his grandmother’s personality cult to return. He may have been more effective pursuing a normal career in the private sector.
The Congress’s perpetual tendency towards personality cults has extended by imitation to other political parties in New Delhi and the States. Atal Behari Vajpayee at his peak as PM did not find it at all uncomfortable to be portrayed by his sycophants as a wise, heroic and loving father-figure of the nation ~ an image shattered when, immediately after perfunctorily commiserating the Godhra and post-Godhra horrors, he was pictured fashionably on a Singapore golf-cart sporting designer sunglasses.
India’s organised communists make a great show of collective decision-making since they most intimately followed the details of Kruschev’s denunciation of Stalin’s personality cult. It has not stopped them routinely genuflecting to China’s communists. There also has been a communist tendency to deny individual merit and creativity at junior levels and instead appropriate all good things for the party bosses. New brilliant faces will never arise in the Left and we may be condemned to see the usual characters in perpetuity. If personality cults around Jyoti Basu or Buddhadeb Bhattacharya have failed to thrive it has not been through lack of trying on part of the publicly paid communist intelligentsia and their docile artists, but rather because of resistance from Bengal’s newspapers and a few clear-headed journalists and well known opposition politicians.
Tamil Nadu has seen grotesque rivalry between Karunanidhi and Jayalalitha as to whose personality cult can alternately outdo the other, supplanting all normal political economy or attempts at discovery of the public interest. In Andhra Pradesh, Maharashtra, J&K, Bihar and Uttar Pradesh (but not Gujarat or Rajasthan lately), two-party democratic politics has succeeded in limiting tendencies for personality cults to develop. The North Eastern States have had inadequate coverage by modern media, which, fortuitously, along with tribal traditions, may have restrained personality cults from developing.
Facts explode cults
Facts are the most reliable means by which to explode personality cults. It is not a coincidence that facts are also the source by which to develop modern political philosophies, whether conservative, classical liberal/ libertarian, or socialist. Facts have to be discovered, ferreted out, analysed, studied and reflected upon by those civil institutions that are supposed to be doing so, namely university social science, economics and related departments, as well as responsible newspapers, radio and other mass media. Julian Benda once titled a book The Treason of the Intellectuals. India will begin to have a normal political philosophy when the treason of its modern intellectual classes begins to be corrected.
It is not a treason in which the state has been betrayed to an enemy. Rather it is one in which the very purposes of public conversation, such as the discovery of the public interest, have been betrayed in the interests of immediate private gain. This may help to explain why there is so little coherent public discussion in India today, and certainly almost nothing on television, or in the business papers or what passes for academia.
Pakistan and Bangladesh, unlike ourselves in India, have yet to properly establish elementary constitutional institutions. “Individuals may form communities, but it is institutions alone that can create a nation”, said Benjamin Disraeli. The continual political chaos on the streets of Pakistan and Bangladesh ~ not just in recent weeks but in recent years and decades ~ indicate such institutions are still lacking or stillborn there. Tear gas, water cannon and hordes of armed policemen to charge at enraged stone-throwing crowds are not part of any solution but part of the political problem itself.
One main purpose of constitutional institutions has to do with peaceful transfer of power from one political party to its adversary. Mulayam Singh Yadav has just transferred political power to Mayawati in Uttar Pradesh, an Indian State more populous than either Pakistan or Bangladesh. Not long ago Lalu Prasad Yadav did the same to Nitish Kumar in Bihar, and Atal Behari Vajpayee to an appointee of Sonia Gandhi for all India itself. Modern democratic institutions are precisely about such peaceful transfers of power after voters have acted periodically to try to “throw the rascals out”.
It would be foolish to suppose an incoming Government of UP, Bihar or all India itself will be very much better than the one it displaces. But certainly in its first few “honeymoon” months or weeks at least, it will not be any worse. The tail-end of any scheduled democratic government, whether in India, Britain, the USA or elsewhere, is quite a disgusting sight, as those in their last days of power grab whatever they can from office before departure without any pretence of shame or embarrassment. Serious decision-making in the public interest would have long ago ceased. Almost anything new would be better.
At the same time, among those coming into power there will be some earnest wish at least to make some small difference for the better ~ a wish that will surely disappear within weeks of entering office after which the old cynicism and corruption will take hold again, and it will be the same ugly business as usual. But certainly, voters can expect slightly fresh air for a brief time after they have thrown one party out of power and chosen to bring in another. That is as about as good as democracy gets in modern practice.
Of India’s dozen or more larger States, we have, in the sixth decade of our Constitution, quite a few in which bipartisan democratic processes have been taking shape. UP was not one of them, and it is to Mayawati’s credit that she has broken the pattern of hung assemblies and now heads a majority government. Bihar too had seemed in the monolithic grip of Lalu Yadav until Nitish Kumar broke it, though the latter’s honeymoon period is now long over and it is business quite as usual there. Madhya Pradesh, Punjab, Maharashtra, Rajasthan, Haryana, Andhra Pradesh, Karnataka, Kerala and even J&K each have a noticeable bipartisan nature developing with at least one “national” party present to be counted. Tamil Nadu has been bipartisan but in an unhealthy way based on the personality cults of antagonistic leaders rather than any political principles or class-interests ~ which is a pity as the old Madras once had seemed a source of some new rationality in Indian politics. West Bengal’s voters have been definitely bipartisan, the communist vote being no more than that of the Congress and Trinamul combined. But for decades the local Congress has been notoriously sold down the river to its communist adversary by the Congress “leadership” in Delhi, and that has allowed an entrenched and wholly corrupted communist cultural and political mindset to rule in Kolkata. The Basu-Bhattacharjee Government was palpably bewildered over the Singur and Nandigram events because of their self-induced delusion about the economic and political realities of the State.
Throughout India though, periodic elections have acquired enough legitimacy to be accepted as the means of peaceful change of government. And with bipartisan politics there is a tendency for the median voter to be wooed at election-time.
We have of course many other continuing problems in our political economy ~ most notorious of which is the rotten state of our public finances and the continuous massive deficit finance that has ruined our paper currency and banking system ever since Indira Gandhi’s rule, coinciding with the start of Manmohan Singh’s career as an economic bureaucrat and Pranab Mukherjee’s as a politician in the early 1970s. Our acceptance of the democratic way has to an extent depended on our notoriously irresponsible macroeconomic policies ~ since every State and Union Government entity has been allowed to face no effective binding financial budget-constraint, and all its perverse decision-making can flow eventually into the swamp that is our Public Debt which constitutes the asset-side of the domestic banking system. India’s cardinal problem then becomes one of how to improve our macroeconomics without losing our democracy ~ something the Sonia-Manmohan-Pranab Congress, the BJP/RSS and the Communists are all equally clueless about.
Across our borders, our Pakistani and Bangladeshi cousins were cut from the same constitutional cloth as ourselves, namely the 1935 Government of India Act and the Montague-Chelmsford reforms before that. But after Jinnah’s death they refused to admit this and instead embarked on trying to write and implement a Constitution for a new Caliphate. The initial demand was “That the sovereignty in Pakistan belongs to God Almighty alone and that the Government of Pakistan shall administer the country as His agent”. In Rashid Rida and Maulana Maududi’s words, Islam becomes “the very antithesis of secular Western democracy. The philosophical foundation of Western democracy is the sovereignty of the people. Lawmaking is their prerogative and legislation must correspond to the mood and temper of their opinion… Islam… altogether repudiates the philosophy of popular sovereignty and rears its polity on the foundations of the sovereignty of God and the viceregency (Khilafat) of man.” (Rosenthal, Islam & the Modern National State, Cambridge 1965). Pakistan’s constitutionalists thus have faced an impossible battle to overcome the ontological error of assuming that any mundane government can be in communication with God Almighty.
Now Sheikh Mohammad Abdullah was as pious a Muslim as any but was far more modern in his 5 November 1951 speech to J&K’s Constituent Assembly: “You are the sovereign authority in this State of Jammu & Kashmir; what you decide has the irrevocable force of law”. Referring to the American and French Constitutions, he said the “basic democratic principle” was of the “sovereignty of the nation”. “We should be clear about the responsibilities that this power invests us with. In front of us lie decisions of the highest national importance which we shall be called upon to take. Upon the correctness of our decisions depends not only the happiness of our land and people now, but the fate as well of generations to come.”
Can a modern conclave of Pervez Musharraf, Nawaz Sharif, Benazir Bhutto and Chaudhry Iftikhar Ahmed decide or declare any better for Pakistan today? Or one of Khaleda, Hasina and whichever cabal of generals and bureaucrats happens to head Bangladesh at present?
If Pakistan and Bangladesh each chose to restart with the modern-minded constitutional example Sheikh Abdullah set more than a half century ago in J&K, they may find their political problems less severe in due course. It is a long road ahead.
Maharashtra’s Money: Those Who Are Part Of The Problem Are Unlikely To Be A Part Of Its Solution
first published in The Statesman April 24 2007, Editorial Page
by Subroto Roy
Mr Percy Mistry, according to the World Bank’s official chronology, worked there with Moeen Qureshi, and S Javed Burki. Mr Qureshi was doyen of Pakistani bureaucrats in Washington and something of a king-maker back home, briefly becoming Pakistan’s PM himself; Mr Burki briefly became Pakistan’s Finance Minister and is an author in the book Foundations of Pakistan’s Political Economy created by WE James and myself in the 1980s in the USA. Although Mr Mistry claims no special expertise about India’s monetary economy or public finances, he was appointed by Finance Minister P. Chidambaram to head an official committee that has given an opinion on a crucial monetary issue facing the country today, namely, the rupee’s convertibility. Mr Mistry apparently authored the report but resigned before its release, making it unclear who is responsible for its contents.
Mr Mistry has glossed over India’s present fiscal circumstances, said nothing of the limitless waste, fraud and abuse of the public purse the Sonia-Manmohan Government have been indulging in (like their Vajpayee-Advani predecessor) yet declared the rupee should be freed in 2008 ~ telling Business Standard a convertible rupee will allow people like “Ratan” and “Kumar” to raise capital in India for their foreign purchases, and not have to go to London as they must do now, poor things. All this in a report purporting to be a plan to make Mumbai an “international financial centre”, which is a different subject altogether.
Mr Mistry thus becomes a certifiable member of the “Dream Team” of Dr Singh, Mr Chidambaram, Mr Montek Ahluwalia, Mr Deepak Parekh and their big business/big labour/big media friends across political parties. Dreaming involves constructs in which normal logic and facts have no place. In the waking world, India is a labour-rich, capital-scarce country where wages are lower and interest-rates are higher respectively than in labour-scarce, capital-rich Western countries; hence India will be importing not exporting capital. In the real world too, Mumbai is not an off-shore island-resort outside India (like the so-called SEZs are going to be from a legal standpoint) but happens to be located in Maharashtra, whose public finances urgently require hard investigation and sober thought.
Now there used to be a “Bombay State” coinciding with the old Bombay Presidency plus “princely states” plus Marathi-majority districts of MP and Hyderabad and excluding Kannada-majority districts to Mysore. On May 1 1960, after much agitation, this became the new States of Gujarat and Maharashtra. There was talk of making Bombay city a Union Territory but the Marathis would have none of it. In fact, within a few weeks, Maharashtra reverted to calling itself “Bombay State” and it was not until the end of the year the Government of India officially declared it must be called Maharashtra.
The same quest for, or confusion about, cultural and political identity continues in recent times and may be at the root of the Shiv Sena’s erratic political behaviour which rocks Maharashtra politics so frequently. “Bombay” may be “Mumba Bai” or “Mumba Devi” but it had not been a Marathi town any more than Calcutta had been a Bengali town. Bombay’s traders and businessmen descended there while it developed after the decline of Surat, where the British initially came to trade in the 17th Century. Modern Bombay retains some of its “all-India” character and even today you cannot make money in its markets unless you speak Gujarati. Marathi-speakers have tended to wish Maharashtra was “Maratha-rashtra” reminiscent of the great Shivaji Bhonsla (1627-1680) but others have read the name only as “Great State”.
This continuing identity crisis had its most devastating costly impact through the Dabhol-Enron fiasco. As recently as March 4 2007, Chief Minister Vilasrao Deshmukh said frankly “We could not generate a single megawatt of electricity in the last 10 years due to the Enron issue”, adding demand for electric power had been growing in the State at 10% per annum.
Indeed, before the 2005-2006 nuclear or any other deal could be contemplated with the Americans, the US-India Business Council, the American business lobbyist (and recent guest and soon-to-be host of the CPI-M’s Buddhadeb Bhattacharya), insisted India pay up fully for the Dabhol-Enron fiasco. Maharashtra and its sovereign guarantor the Government of India, duly paid out at least $140-$160 million ($14-$16 crore) to each General Electric and Bechtel Corporation in “an amicable settlement”. It was only then that Dr Manmohan Singh could be hosted in the White House and in turn play host to President George W. Bush.
Without entering the intricacies of the fiasco, it may be still asked who was responsible. And in retrospect the finger must point both at the Mahajan-Munde BJP/ Thakeray-Joshi Shiv Sena, and at the Sharad Pawar Government and Manmohan-Montek Union Finance Ministry at the time. The BJP-Shiv Sena declared an intent to “throw Enron into the Arabian Sea” and thus vitiated the atmosphere with the Americans. Americans are shrewd and practical people in commercial matters and accounted for such contingencies in their deal-making, tidily earning their money anyway, winning the arbitration awards in due course. Maharashtra’s identity confusion was exemplified by Rebecca Mark having to visit Bal Thakeray before a policy flip-flop could be permitted.
If the basic technical cause Enron’s electricity became too expensive was that it was denominated in dollar prices and the rupee depreciated rapidly during and after the deal-making, then the financial responsibility for the fiasco must be ultimately traced to India’s Finance Minister in the early 1990s, namely Dr Singh, and his chief acolyte and Finance Secretary Mr Ahluwalia. Maharasthtra is not a sovereign country, and it was the Union Finance Ministry’s responsibility to oversee the necessary cost-benefit and project appraisal analyses, and these if properly done would have accounted for exchange-rate depreciation scenarios. It is no wonder the World Bank later refused to finance the project because they had done their studies better. The same kind of cavalier unprofessional attitude in spending scarce foreign moneys earned by India’s public has been displayed now more than a decade later by the Manmohan-Montek duo, though on a vastly larger scale, in regard to the planned purchase of nuclear reactors from Russia, the USA etc on a turnkey basis.
Maharashtra may be a Great State but its public finances are in as great a shambles as any other. The table for 2003-2004 (before the Enron payments were made) reveals the very high continuing public indebtedness, and the same pattern as the budgets of West Bengal and Uttar Pradesh described in these columns earlier. A closer look would reveal, e.g., that Rs 814.36 crore (Rs. 8.14 billion) were spent in collecting Rs1,205.97 crore. (Rs. 12.05 billion) of “Vehicle Tax”! There is much that Mumbai’s and Maharashtra’s and India’s citizens have to ponder over and act upon before serious thought can be put to restoring the integrity of India’s money. In that process, those who have been part of the problem are unlikely to be part of its solution.
Govt. of Maharashtra Finances 2003-04 EXPENDITURE ACTIVITIES: RsBn (Hundred Crore) governance & local governance 18.19 2.58% judiciary 2.96 0.42% police (including vigilance etc) 19.81 2.81% prisons 0.86 0.12% bureaucracy 27.97 3.97% collecting land revenue & taxes 42.25 6.00% government employee pensions 26.36 3.74% schools, colleges, universities, institutes 93.74 13.31% health, nutrition & family welfare 23.42 3.33% water supply & sanitation 10.22 1.45% roads, bridges, transport etc. 12.96 1.84% electricity 16.96 2.41% irrigation, flood control, environ, ecology 70.79 10.05% agricultural subsidies, rural development 41.30 5.86% industrial subsidies 2.60 0.37% capital city development 6.25 0.89% social security, SC, ST, OBC, lab.welfare 25.40 3.61% tourism 0.89 0.13% arts, archaeology, libraries, museums 0.75 0.11% miscellaneous -0.47 -0.07% debt amortization & debt servicing 261.03 37.07% total expenditure 704.22
INCOME SOURCES: tax revenue 285.52 operational income 35.49 grants from Union 22.70 loans recovered 4.82 total income 348.53
GOVT. BORROWING REQUIREMENT (total expenditure minus total income) 355.70
financed by: new public debt issued 317.02 use of Trust Funds etc 38.68 355.70 from author’s research and using C&AG data
First published in slightly abbreviated form as “A scam in the making” in The Sunday Statesman April 1 2007, Front page comment
A gigantic financial scheme is in the making. Will it come to be seen in future years as having been in fact a scam – indeed India’s scam of the 21st Century for which India’s unknowing masses will be made to pay for many generations? The scheme is mind-boggling in size as well as its sheer audacity. Bofors, Quattrochi etc amount to peanuts in comparison.
No less a personage than the Finance Minister of India, P Chidambaram, has openly praised the potential of this financial scheme. And he has done so in no less an open and transparent place than his latest Budget Speech to Parliament last February.
It is a scheme openly advocated and currently being developed by our Prime Minister Dr Manmohan Singh’s closest acolytes, Planning Commission head Mr Montek Singh Ahluwalia and HDFC head Mr Deepak Parekh, in collaboration with Reserve Bank Governor Dr YV Reddy and the Finance Ministry’s top bureaucrats. The PM himself has come close to endorsing it explicitly. And this PM is not an elected member of the Lok Sabha but holds office and acts as the executive agent of the UPA Chairperson and Lok Sabha Member from Rae Bareilly, Sonia Gandhi.
I hasten to add nobody in the BJP has objected to this financial scheme — in fact had the BJP been in power today instead of Congress, they would have been likely even more agreeable to the scheme given their close proximity to business lobbies and organized capital. As for the Communists, none of their JNU economics professors is technically competent enough to comprehend or recognize what is going on.
The scheme involves private companies “borrowing” India’s foreign exchange reserves from the Reserve Bank of India, allegedly for purpose of “infrastructure” creation — in collaboration with the American bank Citigroup, the American financial business, Blackstone Group, and possibly the American giant, GE Capital too. Mr Chidambaram took the unprecedented step of naming Mr Deepak Parekh as well as Citigroup and Blackstone in the text of his Budget Speech.
To begin to comprehend the nature of this scheme, we need to recall an earlier case.
Foreign exchange reserves of countries typically include foreign currency holdings as well as gold stocks. One of the biggest Wall Street scams of the 1980s-1990s involved private companies borrowing not countries’ foreign currency reserves but their gold reserves.
In that scam, it was not the Reserve Bank of India that was cheated but the Central Banks of Poland, Malaysia, Portugal and Yugoslavia. The New York financial company involved was a subsidiary of the Drexel Burnham Lambert Group. The Drexel parent went bankrupt on February 13 1990 and its subsidiary followed on May 9 1990.
A report on June 4 1990 by Leah J. Nathans (now Leah Nathans Spiro) in New York’s highly respected Business Week magazine said: “Central banks, those pillars of monetary virtue, lost $219 million ($21.9 crore) to an obscure commodities subsidiary called Drexel Burnham Lambert Trading Corporation”. The sum was small by American standards but it was “a big, big number” for the countries involved at the time.
What had these national central banks done? They had been lured into becoming greedy. They had been sitting on stocks of gold as part of their national reserves which they felt “just collect dust”. So they yielded to the temptation offered by the Drexel subsidiary of leasing the gold to private parties.
In Ms. Nathans’ words, “By leasing gold, a central bank earns a modest interest rate, ranging from less than 0.5% to 2.5%. Typically, the central bank consigns the gold to a dealer – say, for 90 days. The dealer can then lend the gold to a customer, at a higher interest rate. It may be a speculator, who hopes to repay the borrowed gold when the price falls, or a gold mine that wants to repay the broker with gold produced later.”
But the Drexel parent and subsidiary went bankrupt through bad financial decisions. Drexel’s Michael Milken went to jail. The Central Banks of Poland, Malaysia, Portugal and Yugoslavia were left empty-handed – and had to sue as creditors in New York’s courts trying desperately to get back the gold they had been lured into parting with. It would be unwise to take bets on how much of their gold they ever got back.
All the present PM’s men — Messrs Chidambaram, Ahluwalia, Parekh, Reddy et al in collaboration with one or two American financial companies – now have a scheme that will use not the RBI’s gold but its foreign currency reserves.
Mr Ahluwalia and Mr Parekh have made the outlandish claim that “India needs US$320 billion” (US 32,000 crore) by way of “investment for physical infrastructure” during the so-called “Eleventh Five-Year Plan”. (How many so-called “Five Year Plans” is India going to have incidentally? We had our “First Plan” when Manmohan Singh was a student at Punjab University. Stalin, who invented the “Five Year Plan”, died during that time, and even his old USSR has ceased to exist, let alone its “Five Year Plans”.)
That vast amount of “investment for physical infrastructure” is what Mr Ahluwalia says he knows India needs for his purported “9% growth rate” to be achieved. Where are the macroeconomic models and time-series data sets from him or his friends to back such assertions? There are none. None of the PM’s men, no one in the Finance Ministry or RBI or Planning Commission, nor any of their JNU economics professor friends or anyone else in Delhi, Mumbai, Kolkata etc have any such models or data with which to back such assertions. Nor do the World Bank etc. It is all sheer humbug – all a lie. It is part of the mendacity and self-delusion that our capital city has been floating upon.
In any event, the RBI reportedly has “opposed the idea of deploying forex reserves for infrastructure development on the grounds that it will create monetary expansion”. But Mr Chidambaram’s Finance Ministry owns the RBI, and the Ministry has said “the RBI’s concerns had been taken care of, as the investments would be deployed only through a structured mechanism”. (Business Standard 23 March 2007, p. 3)
What is a “structured mechanism”? Mr Chidambaram, mentioning Citigroup and Blackstone Group specifically, said in his Budget Speech that Mr Deepak Parekh has “suggested the establishment of two wholly-owned overseas subsidiaries of India Infrastructure Finance Company Ltd with the following objectives: (i) to borrow funds from the RBI and lend to Indian companies implementing infrastructure projects in India, or to co-finance their External Commercial Borrowings for such projects, solely for capital expenditure outside India; and (ii) to borrow funds from the RBI, invest such funds in highly rated collateral securities, and provide ‘credit wrap’ insurance to infrastructure projects in India for raising resources in international markets. The loans by RBI to these two subsidiary companies will be guaranteed by the Government of India and the RBI will be assured of a return higher than the average rate of return on its incremental investment.”
You do not understand? Well, no one is supposed to. The most exquisite thievery occurs after all not in darkness but in broad daylight with everyone watching but no one able to see or comprehend anything. So let us return to elementary first principles.
What are foreign exchange reserves and why do countries hold them? It is quite simply answered. Consider the USA and Canada, each with its own dollar. Canadians want to purchase American goods and services, give gifts and make loans to American residents, and make investments in the USA. Americans want to do the same in Canada. Each has to use the domestic money of the other when it does so. If an American wishes to lend money to a Canadian or to purchase something from him, he receives Canadian dollar notes from the Canadian Government to make his Canadian transactions, handing over his American dollar notes instead. The American dollar notes he hands over become part of Canada’s foreign exchange reserves, held by its Central Bank. Roughly speaking, a country’s foreign exchange reserves are the residual foreign currency assets its central bank holds after all these transactions are carried out on both sides of the border.
In the US-Canada case, neither Government prevents its citizens from exchanging domestic money for foreign money. In India, our rupee has been inconvertible since about 1940. The average Indian cannot freely exchange his/her rupee-denominated assets for foreign exchange denominated ones even if he/she wished to. There has been some import-liberalisation in recent years but only someone with the political access of Mr Tata or Mr Birla can purchase foreign assets and foreign companies using their Indian money – because the rupee is inconvertible, any bad financial decisions they make in using their foreign assets will be implicitly paid for by the Indian public.
Now a country’s central bank, such as our Reserve Bank, is the custodian of its foreign exchange reserves. India’s reserves are supposed to have reached $195.96 Billion ($19,596 Crore) as of March 16 2007. Keep in mind we do not know why they have risen: they can rise merely because foreigners (including NRIs) have lent us more of their money, not because foreigners have bought more of our goods and services. In fact Business Standard yesterday 31 March 2007 said on its front page “external commercial borrowing” was “a major source of accretion” of India’s reserves.
Also keep in mind that the Reserve Bank has the duty to manage these foreign-denominated assets against which it has already issued Indian rupees. It might receive a small conservative income from the cash-management aspect of this but it may not risk them or place them in any jeopardy!
Yet the whole idea behind the Chidambaram-Ahluwalia-Parekh-Reddy scheme under discussion by the Sonia-Manmohan Government is that the RBI will “lend” some of the billions of Americans dollars in its custody to overseas subsidiaries of Indian companies – say, for example, to the Tatas who have now bought foreign “capital assets” of some US$ 12 Billion ($1200 Crore) from Corus without having anything near that kind of foreign income.
Such favoured Indian companies might then use these “borrowed” funds as collateral for other borrowings. In exchange, they will go about undertaking purported “infrastructure” projects in India. So much for the “structured mechanisms” being touted by Messrs Chidambaram, Ahluwalia, Parekh et al.
Before India’s public understands it, the schemers will shout (as they have done with the SEZ Act) that Parliament has passed it. The BJP will applaud with envy. The Communists might uncomprehendingly complain a little, and then be bought off with a sop or two that they do understand, like a little pro-China rhetoric or being let off lightly on Nandigram.
Now international institutions like the International Monetary Fund and the Bank of International Settlements officially exist to advise central banks to stay along the straight and narrow and to avoid all such mischief. Here is what the IMF explicitly warned about such schemes in its Guidelines for Foreign Exchange Reserve Management dated September 20 2001:
“Liquidity risk. The pledging of reserves as collateral with foreign financial institutions as support for loans to either domestic entities, or foreign subsidiaries of the reserve management entity, has rendered reserves illiquid until the loans have been repaid. Liquidity risks have also arisen from the direct lending of reserves to such institutions when shocks to the domestic economy led to the borrowers’ inability to repay their liabilities, and impairment of the liquidity of the reserve assets. Credit risk. Losses have arisen from the investment of reserves in high-yielding assets that were made without due regard to the credit risk associated with the issuer of the asset. Lending of reserves to domestic banks, and overseas subsidiaries of reserve management entities, has also exposed reserve management entities to credit risk.”
Dostoevsky believed man could have evil intent. Socrates was more generous and said man does not do wrong knowingly. It is not impossible our Indian schemers have innocent intent and do not even realize how close they are to becoming scamsters, or are already in the grip of scamsters. But at least we are now forewarned: India faces a clear risk of being swindled of its foreign exchange reserves. Prevention is better than cure.
A Responsible New Govt May Want To Declare A Financial Emergency
First published in The Statesman Editorial Page, March 24 2007
Uttar Pradesh goes to the polls beginning April 7. Nothing may succeed better in focusing the minds of its citizens and political candidates than some hard macroeconomic realities. Discussing UP’s public finances may be the first step to bringing cool rationality to the cauldron of its politics ~ consisting as it does of seemingly deep and irreconcilable divisions of religion, caste and personality.
UP shared initials of the old British “United Provinces of Agra and Oudh”, and in 1947 was mostly the same territory. It deserves better than to be known merely as our “Northern State”: UP has been India’s fulcrum, deeply affecting our history, culture and politics. There could have been today not merely a new Uttarakhand but also perhaps Agra, Bareilly (Rohilkhand), Jhansi (Bundelkhand), Meerut, Avadh (Ayodhya, Oudh), Kanauj, Varanasi etc.
History and politics
Each has had its history. Oudh was seen by the British before Dalhousie as a northern buffer for their Bengal possessions. Bareilly was “an important centre of disaffection” of Muslim soldiers against the British in 1857 and also where Hindus after Aurangzeb’s death in 1707 had “thrown off the imperial yoke” refusing to pay tribute to Delhi. The very idea of “Pakistan” was mostly a UP-invention. Long before Iqbal and Jinnah, Sayyid Ahmad Barelvi (1786-1831) initiated a mass migration of Muslims and created a theocratic principality in the NWFP (Tariqah-i-Muhammadiyah) which collapsed due to conflict between his Pashtun and North Indian followers. Pervez Musharraf’s family were frankly nostalgic during their India-visit, and indeed Pakistan’s Mohajirs long for fertile UP more than the arid country they in fact possess ~ even more than for J&K on which Pakistanis since Liaquat (UP’s most prominent Muslim legislator between 1926-1940) became fixated instead.
In the 1980s and 1990s, the “Ram Janambhoomi/Babri Masjid” dispute may have been mostly a gigantic, inchoate, incoherent national exercise in defining our identity: “Who are we?” or perhaps “Who are we not?” as modern Indians, questions that remain unanswered. Certainly, in 1908 the Imperial Gazetteer of India Vol XIX pp 279-280 reported: “After Babar had gained a footing in Hindustan by his victory at Panipat in 1526, and had advanced to Agra, the defeated Afghan house of Lodhi still occupied the Central Doab, Oudh, and the eastern districts of the present United Provinces. In 1527, Babar, on his return from Central India, defeated his opponents in Southern Oudh near Kanauj, and passed on through the Province as far as Ajodhya where he built a mosque in 1528, on the site renowned as the birthplace of Rama. The Afghans remained in opposition after the death of Babar in 1530, but were defeated near Lucknow in the following year.”
History books and doctoral theses should have been perhaps where all such old facts deserved to remain in a modern self-confident, self-aware India.
Today’s UP at more than 166 million people exceeds in population France and Germany combined. One in every six or seven Indians is from UP. The State has become notorious for its chaotic politics, its “history-sheeters”, its corruption, crimes, badlands, astrology and other superstition. Its popular power gets divided between Mulayam, Mayawati and the BJP: each the self-appointed spokesman of Muslims, “Bahujans” and Hindu upper castes respectively. Congress, once India’s grand old secular national party, has been side-lined in UP politics.
Yet UP’s pivotal role remains such that the healthiest development for Indian democracy today may be for the Lok Sabha Member from Rae Bareilly to close down 10 Janpath as a residence and office for herself, and live instead as an exemplary parliamentarian among the common people of her constituency, setting the example too for her son to do the same in Amethi. Their permanent departure from New Delhi, becoming prominent UP politicians instead, would be the desperately needed “tough love” required by the Congress Party ~ which finally, after many decades, would be compelled to grow up and elect a leadership for itself based on some real political principles and not mere sycophancy.
Focussing on UP’s Public Finances is the first constructive step towards a rational political economy arising in the interests of its many citizens. As with other States of our Union, it is not impossible to understand what is going on with UP’s finances, though it does take some serious effort. The State receives tax revenues, income from State operations (like bus fares etc), and grants transferred from the Union. Of these revenues, more than 70% arise from taxation. Of those taxes, about 45% is collected by the Union on behalf of the State according to the Finance Commission’s formulae; 55% is collected by the State itself, and about 50% of what the State collects is Sales Tax. On the expenditure side, some 43% has been going to repay the State’s debts plus interest owed on that debt. The remainder gets distributed as summarily shown in the table.
Audit and restructuring
As with the Union of India, as well as with other States like West Bengal, the wide difference between income and expenditure implies the Government must then issue new public debt, which typically has been a larger and larger sum every year, greater than the maturing debt being amortised or extinguished. The grave consequences of this will be obvious to any householder, and makes it imperative that calm, sober thought and objective analysis occur about UP’s financial condition and budget constraint. E.g., what is revealed at a higher level of detail is that in 2003-2004, Rs. 5.43 Bn (Rs 543 crores) were spent to collect Rs. 1.18 Bn (Rs. 118 crores) of land revenue! UP has also spent extraordinarily vast public resources (and World Bank loans) on electricity ~ yet its power supply remains dismal.
These kinds of facts may be enough for any responsible new Government of UP (perhaps even a “Unity Government”) to declare a financial emergency under Article 360 of the Constitution, followed by ordering the most stringent of audits of all government departments and projects using public resources as well as recognition of public assets, followed in turn by a restructuring of the public budget over a few years with the aim of cutting all waste, fraud and abuse, and directing public resources instead to areas of highest social usefulness.
The author is Contributing Editor, The Statesman
UP Government Finance 2003-2004 EXPENDITURE ACTIVITIES : Rs Billion (Hundred Crore) government & local government judiciary police (including vigilance etc) prisons bureaucracy collecting land revenue & taxes government employee pensions schools, colleges, universities, institutes health, nutrition & family welfare water supply & sanitation roads, bridges, transport etc. electricity irrigation, flood cntrl., environ, ecology agricultural subsidies, rural development industrial subsidies capital city development social security, SC, ST, OBC, lab.welfare tourism arts, archaeology, libraries, museums miscellaneous debt amortization & debt servicing total expenditure
tax revenue operational income grants from Union loans recovered total income 268.74 22.82 24.82 124.98 Govt. Borrowing Requirement: (total expenditure minus total income) 420.67 financd by: new public debt issued use of Trust Funds etc.
385.41 35.26 420.67
From the author’s research based on latest available data published by the C&AG of India
Fallacious Finance: Congress, BJP, CPI-M et al may be leading India to hyperinflation
first published in The Statesman, 5 March 2007
Editorial Page Special Article
It seems the Dream Team of the PM, Finance Minister, Mr. Montek Ahluwalia and their acolytes may take India on a magical mystery tour of economic hallucinations, fantasies and perhaps nightmares. I hasten to add the BJP and CPI-M have nothing better to say, and criticism of the Government or of Mr Chidambaram’s Budget does not at all imply any sympathy for their political adversaries.
It may be best to outline a few of the main fallacies permeating the entire Governing Class in Delhi, and their media and businessman friends:
1. “India’s Savings Rate is near 32%”. This is factual nonsense. Savings is indeed normally measured by adding financial and non-financial savings. Financial savings include bank-deposits. But India is not a normal country in this. Nor is China. Both have seen massive exponential growth of bank-deposits in the last few decades. Does this mean Indians and Chinese are saving phenomenally high fractions of their incomes by assiduously putting money away into their shaky nationalized banks? Sadly, it does not. What has happened is government deficit-financing has grown explosively in both countries over decades. In a “fractional reserve” banking system (i.e. a system where your bank does not keep the money you deposited there but lends out almost all of it immediately), government expenditure causes bank-lending, and bank-lending causes bank-deposits to expand. Yes there has been massive expansion of bank-deposits in India but it is a nominal paper phenomenon and does not signify superhuman savings behaviour. Indians keep their assets mostly in metals, land, property, cattle, etc., and as cash, not as bank deposits.
2. “High economic growth in India is being caused by high savings and intelligently planned government investment”. This too is nonsense. Economic growth in India as elsewhere arises not because of what politicians and bureaucrats do in capital cities, but because of spontaneous technological progress, improved productivity and learning-by-doing on part of the general population. Technological progress is a very general notion, and applies to any and every production activity or commercial transaction that now can be accomplished more easily or using fewer inputs than before. New Delhi still believes in antiquated Soviet-era savings-investment models without technological progress, and some non-sycophant must tell our top Soviet-era bureaucrat that such growth models have been long superceded and need to be scrapped from India’s policy-making too. Can politicians and bureaucrats assist India’s progress? Indeed they can: the telecom revolution in recent years was something in which they participated. But the general presumption is against them. Progress, productivity gains and hence economic growth arise from enterprise and effort of ordinary people — mostly despite not because of an exploitative, parasitic State.
3. “Agriculture is a backward sector that has been retarding India’s recent economic growth”. This is not merely nonsense it is dangerous nonsense, because it has led to land-grabbing by India’s rulers at behest of their businessman friends in so-called “SEZ” schemes. The great farm economist Theodore W. Schultz once quoted Andre and Jean Mayer: “Few scientists think of agriculture as the chief, or the model science. Many, indeed, do not consider it a science at all. Yet it was the first science – Mother of all science; it remains the science which makes human life possible”. Centuries before Europe’s Industrial Revolution, there was an Agricultural Revolution led by monks and abbots who were the scientists of the day. Thanks partly to American help, India has witnessed a Green Revolution since the 1960s, and our agriculture has been generally a calm, mature, stable and productive industry. Our farmers are peaceful hardworking people who should be paying taxes and user-fees normally but should not be otherwise disturbed or needlessly provoked by outsiders. It is the businessmen wishing to attack our farm populations who need to look hard in the mirror – to improve their accounting, audit, corporate governance, to enforce anti-embezzlement and shareholder protection laws etc.
4. “India’s foreign exchange reserves may be used for ‘infrastructure’ financing”. Mr Ahluwalia promoted this idea and now the Budget Speech mentioned how Mr Deepak Parekh and American banks may be planning to get Indian businesses to “borrow” India’s forex reserves from the RBI so they can purchase foreign assets. It is a fallacy arising among those either innocent of all economics or who have quite forgotten the little they might have been mistaught in their youth. Forex reserves are a residual in a country’s balance of payments and are not akin to tax revenues, and thus are not available to be borrowed or spent by politicians, bureaucrats or their businessman friends — no matter how tricky and shady a way comes to be devised for doing so. If anything, the Government and RBI’s priority should have been to free the Rupee so any Indian could hold gold or forex at his/her local bank. India’s vast sterling balances after the Second World War vanished quickly within a few years, and the country plunged into decades of balance of payments crisis – that may now get repeated. The idea of “infrastructure” is in any case vague and inferior to the “public goods” Adam Smith knew to be vital. Serious economists recommend transparent cost-benefit analyses before spending any public resources on any project. E.g., analysis of airport/airline industry expansion would have found the vast bulk of domestic airline costs to be forex-denominated but revenues rupee-denominated – implying an obvious massive currency-risk to the industry and all its “infrastructure”. All the PM’s men tell us nothing of any of this.
5. “HIV-AIDS is a major Indian health problem”. Government doctors privately know the scare of an AIDS epidemic is based on false assumptions and analysis. Few if any of us have met, seen or heard of an actual incontrovertible AIDS victim in India (as opposed to someone infected by hepatitis-contaminated blood supplies). Syringe-exchange by intravenous drug users is not something widely prevalent in Indian society, while the practise that caused HIV to spread in California’s Bay Area in the 1980s is not something depicted even at Khajuraho. Numerous real diseases do afflict Indians – e.g. 11 children died from encephalitis in one UP hospital on a single day in July 2006, while thousands of children suffer from “cleft lip” deformity that can be solved surgically for 20,000 rupees, allowing the child a normal life. Without any objective survey being done of India’s real health needs, Mr Chidamabaram has promised more than Rs 9.6 Billion (Rs 960 crore) to the AIDS cottage industry.
6. “Fiscal consolidation & stabilization has been underway since 1991”. There is extremely little reason to believe this. If you or I borrow Rs. 100,000 for a year, and one year later repay the sum only to borrow the same again along with another Rs 40,000, we would be said to have today a debt of Rs. 140,000 at least. Our Government has been routinely “rolling over” its domestic debt in this manner (in the asset-portfolios of the nationalised banking system) but displaying and highlighting only its new additional borrowing in a year as the “ Fiscal Deficit” (see graph, also “Fiscal Instability”, The Sunday Statesman, 4 February 2007). More than two dozen State Governments have been doing the same though, unlike the Government of India, they have no money-creating powers and their liabilities ultimately accrue to the Union as well. The stock of public debt in India may be Rs 30 trillion (Rs 30 lakh crore) at least, and portends a hyperinflation in the future. Mr Chidambaram’s announcement of a “Debt Management Office” yet to be created is hardly going to suffice to avert macroeconomic turmoil and a possible monetary collapse. The Congress, BJP, CPI-M and all their friends shall be responsible.
First published in The Sunday Statesman February 25 2007, Editorial Page Special Article, www.thestatesman.net
There is urgent need for calm, sober thought, not self-delusion. Foreign trade, world politics are not what State Governments are constitutionally permitted to do.
By SUBROTO ROY
Mr Buddhadeb Bhattacharjee is fond of saying his hoped for industrialization plans will lead to jobs for “thousands” of unemployed young men and women emerging from West Bengal’s many schools, colleges and universities.
Now ever since JM Keynes’s time, economists have understood the phenomenon of unemployment quite well. Some unemployment is voluntary: where someone declines to accept a job at the prevailing wage or chooses leisure instead, e.g. withdraws from the labour-force in order to go to college or care for children or family or be involved in search for a better job. Some unemployment is seasonal, as in agriculture ~ where there often is “overfull” employment at harvest-time. Some unemployment may be frictional or structural, depending on dynamic unpredictable industrial or technological changes. In none of these cases is any large role defined for government investment using public resources, though there can be smaller roles like providing job-information, advice and training.
Keynes himself was concerned with systematic “involuntary” unemployment, where masses of people are willing but unable to find work at the going wage because there has been a general collapse of the market economy, as arguably happened in the 1930s in the Western countries. There has been no such situation in independent India.
And it is important to remember our labour markets are mostly unrestricted by State boundaries: unlike totalitarian China, we do not have internal passports in the country, and Indians are mostly free to work anywhere they wish to. Talk from CPI-M, Congress, BJP or other politicians of alleged Keynesian “multiplier” effects arising from government expenditure is mostly talk. And as for Sonia Gandhi’s “National Rural Employment Guarantee”, to the extent it was argued for at all by Amartya Sen’s disciples like Jean Drèze, the argument was not on Keynesian grounds but of a purportedly more equitable distribution of government expenditure.
What then is the Bhattacharjee Government supposed to be doing?
Chandrababu Naidu started a trend among Chief Ministers flying off to exotic foreign vistas, addressing international conferences and signing memoranda with foreign businessmen. But world politics, international relations and foreign trade are not what Indian State Governments are permitted by our Constitution to be engaged in doing. Nelson Mandela is a great man of history but Jyoti Basu’s Government had no constitutional right or business to gift him five million American dollars of West Bengal public money after he was released from jail in South Africa in 1990 by De Klerk.
Our Constitution is crystal clear that the legitimate agenda of India’s State Governments is something very mundane and wholly unglamorous: State Governments are supposed to be managing Courts of Law; the Police, Civil Order, Prisons; Water, Sanitation, Health; State Debt Service; Intra-State Infrastructure & Communications; Local Government; Liquor & Other Public Sector Industry; Trade, Local Banking & Finance; Land, Agriculture, Animal Husbandry; Libraries, Museums, Monuments; State Civil Service & Administration. In addition, “concurrent” with the Union Government are Criminal, Civil & Family Law, Contracts & Torts; Forests & Environmental Protection; Unemployment & Refugee Relief; Electricity; Education. It is relative to that explicit agenda that State Government performances around the country must be evaluated.
The finances of the West Bengal Government and those of every other State of the Union appear in a condition of Byzantine confusion. Even so, it is not impossible for any citizen to understand them with a little serious effort. The State receives tax revenues, income from State operations (like bus fares, lottery tickets etc), and grants transferred from the Union. Of the State’s total revenues, more than 80% arise from taxation. Of those taxes, about 30% is collected by the Union on behalf of the State in accordance with the Finance Commission’s formulae; 70% is collected by the State itself, and about 60% of whhat the State collects is Sales Tax. On the expenditure side, more than 60% goes in repaying the State’s debts as well as interest owed on that debt. The remainder gets distributed as summarily shown in the table. (What would be revealed at a higher level of detail is that e.g. Rs. 2.63 Bn is spent in collecting Rs. 9.93 Bn of land revenue!) The wide difference between the State’s income from all sources and its expenditures implies the State must then issue new public debt. That typically has been a larger and larger sum every year, greater than the amount of maturing debt being amortised or extinguished. The potentially grave consequence of this will be obvious to any householder, and makes it imperative that calm, sober thought and objective analysis occur about the State’s financial condition and budget constraint. There is no room for self-delusion, especially on the part of the Bhattacharjee Government. We are still paying interest on the money we borrowed to make Nelson Mandela a gift seventeen years ago.
Govt. of W. Bengal’s Finances 2003-2004
Rs Billion (Hundred Crore)
government & local government 8.68 1.68%
judiciary 1.27 0.25%
police (including home guard etc.) 13.47 2.61%
prisons 0.62 0.12%
bureaucracy 5.69 1.10%
collecting land revenue & taxes 4.32 0.84%
government employee pensions 26.11 5.05%
schools, colleges, universities, institutes 45.06 8.72%
health, nutrition & family welfare 14.70 2.84%
water supply & sanitation 3.53 0.68%
roads, bridges, transport, etc. 8.29 1.60%
electricity (mostly loans to power sector) 31.18 6.03%
irrigation, flood control, environment, ecology 10.78 2.09%
agricultural subsidies, rural development, etc. 7.97 1.54%
industrial subsidies 2.56 0.50%
capital city development 7.29 1.41%
social security, SC, ST, OBC, labour welfare 9.87 1.91%
tourism 0.09 0.02%
arts, archaeology, libraries, museums 0.16 0.03%
miscellaneous 0.52 0.10%
debt amortization & debt servicing 314.77 60.89%
total expenditure 516.92
tax revenue 141.10
operational income 6.06
grants from Union 18.93
loans recovered 0.91
total income 167.00
GOVT. BORROWING REQUIREMENT
minus total income ) 349.93
new public debt issued 339.48
use of Trust Funds etc 10.45
From the author’s research and based on latest available data published by the Comptroller & Auditor General of India
Dr Singh’s India, Buddhadeb’s Bengal, Modi’s Gujarat have notorious US, Soviet and Chinese examples to follow ~ distracting from the country’s real economic problems
By SUBROTO ROY
First published in The Sunday Statesman, Editorial Page Special Article, Jan 14 2007
AT a business meet on 12 January 2005, Dr Manmohan Singh showered fulsome praise on Buddhadeb Bhattacharjee as “dynamic”, “the Nation’s Best Chief Minister”, whose “wit and wisdom”, “qualities of head and heart”, “courage of conviction and passionate commitment to the cause of the working people of India” he admired, saying “with Buddhadeb Babu at the helm of affairs it appears Bengal is once again forging ahead… If today there is a meeting of minds between Delhi and Kolkata, it is because the ideas that I and Buddhadebji represent have captured the minds of the people of India. This is the idea of growth with equity and social justice, the idea that economic liberalization and modernization have to be mindful of the needs of the poor and the marginalized.”
With such support of a Congress Prime Minister (as well as proximity to Pranab Mukherjee), Mr Bhattacharjee could hardly have feared the local Congress and Trinamul would pose any threat in the 2006 Assembly Elections despite having more potential voters between them than the CPI-M.
Dr Singh returned to the “needs of the poor and the marginalized” at another business meet on 8 January 2007 promising to “unveil a new Rehabilitation Policy in three months to increase the pace of industrialisation” which would be “more progressive, humane and conducive to the long-term welfare of all stakeholders”, while his businessman host pointedly stated about Singur “land for industry must be made available to move the Indian manufacturing sector ahead”.
The “meeting of minds between Delhi and Kolkata” seems to be that agriculture allegedly has become a relatively backward slow-growing sector deserving to yield in the purported larger national interest to industry and services: what the PM means by “long-term welfare of all stakeholders” is the same as the new CPI-M party-line that the sons of farmers should not remain farmers (but become automobile technicians or IT workers or restaurant waiters instead).
It is a political viewpoint coinciding with interests of organised capital and industrial labour in India today, as represented by business lobbies like CII, FICCI and Assocham on one hand, and unions like CITU and INTUC on the other. Business Standard succinctly (and ominously) advocated this point of view in its lead editorial of 9 January as follows: “it has to be recognised that the world over capitalism has progressed only with the landed becoming landless and getting absorbed in the industrial/service sector labour force ~ indeed it is obvious that if people don’t get off the land, their incomes will rise only slowly”.
Land is the first and ultimate means of production, and the attack of the powerful on land-holdings or land-rights of the unorganised or powerless has been a worldwide phenomenon ~ across both capitalism and communism.
In the mid-19th Century, white North America decimated hundreds of thousands of natives in the most gargantuan land-grab of history. Defeated, Chief Red Cloud of the Sioux spoke in 1868 for the Apache, Navajo, Comanche, Cheyenne, Iroquois and hundreds of other tribes: “They made us many promises, more than I can remember, but they never kept any except one: they promised to take our land, and they took it.”
Half a century later, while the collapse of grain prices contributed to the Great Depression and pauperisation of thousands of small farmers in capitalist America in the same lands that had been taken from the native tribes, Stalin’s Russia embarked on the most infamous state-sponsored land-grab in modern history: “The mass collectivisation of Soviet agriculture (was) probably the most warlike operation ever conducted by a state against its own citizens…. Hundreds of thousands and finally millions of peasants… were deported… desperate revolts in the villages were bloodily suppressed by the army and police, and the country sank into chaos, starvation and misery… The object of destroying the peasants’ independence…was to create a population of slaves, the benefit of whose labour would accrue to industry. The immediate effect was to reduce Soviet agriculture to a state of decline from which it has not yet recovered… The destruction of the Soviet peasantry, who formed three quarters of the population, was not only an economic but a moral disaster for the entire country. Tens of millions were driven into semi-servitude, and millions more were employed as executants…” (Kolakowski, Main Currents of Marxism).
Why did Stalin destroy the peasants? Lenin’s wishful “alliance between the proletariat and the peasantry” in reality could lead only to the peasants being pauperised into proletarians. At least five million peasants died and (Stalin told Churchill at Yalta) another ten million in the resultant famine of 1932-1933. “Certainly it involved a struggle ~ but chiefly one between urban Communists and villagers… it enabled the regime to obtain much of the capital desired for industrialization from the defeated village… it was the decisive step in the building of Soviet totalitarianism, for it imposed on the majority of the people a subjection which only force could maintain” (Treadgold, 20th Century Russia).
Mr Bhattacharjee’s CPI-M is fond of extolling Chinese communism, and the current New Delhi establishment have made Beijing and Shanghai holiday destinations of choice. Dr Singh’s Government has been eager to create hundreds of “Special Economic Zones” run by organised capital and unionised labour, and economically privileged by the State. In fact, the Singur and Nandigram experiences of police sealing off villages where protests occur are modelled on creation of “Special Economic Zones” in China in recent years.
For example, Chinese police on 6 December 2005 cracked down on farmers and fishermen in the seaside village of Dongzhou, 125 miles North East of Hong Kong. Thousands of Dongzhou villagers clashed with troops and armed police protesting confiscation of their lands and corruption among officials. The police immediately sealed off the village and arrested protesters. China’s Public Security Ministry admitted the number of riots over land had risen sharply, reaching more than seventy thousand across China in 2004; police usually suppressed peasant riots without resort to firing but in Dongzhou, police firing killed 20 protesters. Such is the reality of the “emergence” of China, a totalitarian police-state since the Communist takeover in 1949, from its period of mad tyranny until Mao’s death in 1976, followed by its ideological confusion ever since.
Modern India’s political economy today remains in the tight grip of metropolitan “Big Business” and “Big Labour”. Ordinary anonymous individual citizens ~ whether housewife, consumer, student, peasant, non-union worker or small businessman ~ have no real voice or representation in Indian politics. We have no normal conservative, liberal or social democratic party in this country, as found in West European democracies where the era of land-grabbing has long-ceased. If our polity had been normal, it would have known that economic development does not require business or government to pauperise the peasantry but instead to define and secure individual property rights and the Rule of Law, and establish proper conditions for the market economy. The Congress and BJP in Delhi and CPI-M in Kolkata would not have been able to distract attention from their macroeconomic misdeeds over the decades ~ indicated, for example, by increasing interest-expenditure paid annually on Government debt as a fraction of tax revenues (see Table). This macroeconomic rot originated with the Indira Gandhi-PN Haksar capriciousness and mismanagement, which coincided with the start of Dr Singh’s career as India’s best known economic bureaucrat.
By SUBROTO ROY First published in The Sunday Statesman October 22 2006, Editorial Page Special Article Communists, socialists and fascists exist in the Left, Congress and BJP-RSS ~ but there is a conservative/”classical liberal” party missing in Indian democracy today
We in India have sorely needed for many years a serious “classical liberal” or “conservative” political party. Major democratic countries used to have such parties which paid lip-service at least to “classical liberal” principles. But the 2003 attack on Iraq caused Bush/McCain-Republicans to merge with Hilary-Democrats, and Blair-Labour with Tory neocons, all united in a cause of collective mendacity, self-delusion and jingoism over the so-called “war on terror”. The “classical liberal” or “libertarian” elements among the Republicans and Tories find themselves isolated today, just as do pacifist communitarian elements among the Democrats and Labour. There are no obvious international models that a new Indian Liberal Party could look at ~ any models that exist would be very hard to find, perhaps in New Zealand or somewhere in Canada or North Eastern Europe like Estonia. There have been notable individual Indian Liberals though whom it may be still possible to look to for some insight: Gokhale, Sapru, Rajagopalachari and Masani among politicians, Shenoy among economists, as well as many jurists in years and decades gone by.
What domestic political principles would a “classical liberal” or conservative party believe in and want to implement in India today? First of all, the “Rule of Law” and an “Efficient Judiciary”. Secondly, “Family Values” and “Freedom of Religious Belief”. Thirdly, “Limited Government” and a “Responsible Citizenry”. Fourthly, “Sound Money” and “Free Competitive Markets”. Fifthly, “Compassion” and a “Safety Net”. Sixthly, “Education and Health for All”. Seventhly, “Science, not Superstition”. There may be many more items but this in itself would be quite a full agenda for a new Liberal Party to define for India’s electorate of more than a half billion voters, and then win enough of a Parliamentary majority to govern with at the Union-level, besides our more than two dozen States.
The practical policies entailed by these sorts of political slogans would involve first and foremost cleaning up the budgets and accounts of every single governmental entity in the country, namely, the Union, every State, every district and municipality, every publicly funded entity or organisation. Secondly, improving public decision-making capacity so that once budgets and accounts recover from having been gravely sick for decades, there are functioning institutions for their proper future management. Thirdly, resolving J&K in the most lawful and just manner as well as military problems with Pakistan in as practical and efficacious a way as possible today. This is necessary if military budgets are ever going to be drawn down to peacetime levels from levels they have been at ever since the Second World War. How to resolve J&K justly and lawfully has been described in these pages before (The Statesman, “Solving Kashmir” 1-3 December 2005, “Law, Justice and J&K”, 2-3 July 2006).
Cleaning up public budgets and accounts would pari passu stop corruption in its tracks, as well as release resources for valuable public goods and services. A beginning may be made by, for example, tripling the resources every year for three years that are allocated to the Judiciary, School Education and Basic Health, subject to tight systems of performance-audit. Institutions for improved political and administrative decision-making are necessary throughout the country if public preferences with respect to raising and allocating common resources are to be elicited and then translated into actual delivery of public goods and services.
This means inter alia that our often dysfunctional Parliament and State Legislatures have to be inspired by political statesmen (if any such may be found to be encouraged or engendered) to do at least a little of what they have been supposed to be doing. If the Legislative Branch and the Executive it elects are to lead this country, performance-audit will have to begin with them.
The result of healthy public budgets and accounts, and an economy with functioning public goods and services, would be a macroeconomic condition for the paper-rupee to once more become a money that is as good as gold, namely, a convertible world currency again after having suffered sixty years of abuse via endless deficit finance at the hands of first the British and then numerous Governments of free India that have followed.
It may be noticed the domestic aspects of such an agenda oppose almost everything the present Sonia-Manmohan Congress and Jyoti Basu “Left” stand for — whose “politically correct” thoughts and deeds have ruined India’s money and public budgets, bloated India’s Government especially the bureaucracy and the military, starved the Judiciary and damaged the Rule of Law, and gone about overturning Family Values. While there has been endless talk from them about being “pro-poor”, the actual results of their politicization of India’s economy are available to be seen with the naked eye everywhere.
One hundred years from now if our souls returned to visit the areas known today as India, Pakistan, Bangladesh etc, we may well find 500+ million inhabitants still below the same poverty-line despite all the gaseous prime ministerial or governmental rhetoric today and projections about alleged growth-rates.
If the Congress and “Left” must oppose any real “classical liberal” or conservative agenda, we may ask if the BJP-RSS could be conceivably for it. The answer is clearly not. The BJP-RSS may pontificate much about being patriotic to the motherland and about past real or imagined glories of Indian culture and religion, but that hardly ever has translated concretely into anything besides anti-Muslim or anti-Christian rhetoric, or breeding superstitions like astrology even at supposedly top technological institutes in the country. (Why all astrology is humbug, and a pre-Copernican Western import at that, is because all horoscopes assume the Sun rotates around the Earth in a geocentric solar system; the modern West’s scientific outlook arose only after astrology had declined there thanks to Copernicus and Galileo establishing the solar system as heliocentric.)
As for a “classical liberal” economic agenda, the BJP in Government transpired to be as bad if not worse than their adversaries in fiscal and monetary profligacy, except they flattered and were flattered by the organised capital of the big business lobbies whereas their adversaries flatter and are flattered by the organised power of the big labour unions (covering a tiny privileged class among India’s massive workforce). Neither has had the slightest interest in the anonymous powerless individual Indian citizen or household. The BJP in Opposition, instead of seeking to train and educate a new modern principled conservative leadership, appear to wish to regress even further back towards their very own brand of coarse fascism. “Family Values” are why Indian school-children have become the envy of the world in their keen discipline and anxiety to learn – yet even there the BJP had nothing to say on Sonia Gandhi’s pet bill on women’s property rights, whose inevitable result will be further conflict between daughters and daughters-in-law of normal Indian families.
At the root of the malaise of our political parties may be the fact we have never had any kind of grassroots “orange” revolution. There has been also an underlying national anxiety of disintegration and disorder from which the idea of a “strong Centre” follows, which has effectively meant a Delhi bloated with power and swimming in self-delusion. The BJP and Left are prisoners of their geriatric leaderships and rather unpleasant ideologies and interest-groups, while the Congress has failed to invent or adopt any ideology besides sycophancy. Let it be remembered Sonia Gandhi had been genuinely disdainful of the idea of leading that party at Rajiv’s death; today she has allowed herself to become its necessary glue. The most salubrious thing she could do for the party (and hence for India) is to do a Michael Howard: namely, preside over a genuine leadership contest between a half-dozen ambitious people, and then withdraw with her family permanently from India’s politics, focusing instead on the legacy of her late husband. Without that happening, the Congress cannot be made a healthy political entity, and hence the other parties have no role-model to imitate. Meanwhile, a liberal political party, which necessarily would be non-geriatric and non-sycophantic, is still missing in India.
Seven phases of Indian foreign policy may be identifiable since Nehru; the current phase seems to involve subservience to the strong, jingoism otherwise
by Subroto Roy
First published in The Sunday Statesman 8 Oct 2006, The Statesman 9 Oct 2006 Editorial Page Special Article
The outlines of a new tri-partisan Indian foreign policy may be becoming discernible. That it is “new” or that it commands near unanimity among the Congress, BJP and “Left” and their respective friends in the Indian media and political classes, does not make it sound or robust in any way. In fact, its basis in the history, geography and economics of India is wholly inadequate, and it is also entirely divorced from any clearly enunciated new Indian political ethics for the modern world.
The new policy, which may be fairly dubbed the Jaswant-Manmohan policy after the BJP and Congress politicians who have been its putative authors and leading practitioners, is as likely as not to lead to an India that is no longer a free decision-maker in any meaningful way in world affairs by 2047, one hundred years after Independence. Our great grandchildren may well be taught that for some decades in Indian history a sovereign unitary republic actually existed which then came to be effectively lost.
Indeed the new policy may amount to being less a coherent new doctrine of India’s role in international relations than a mere change in attitude on the part of politicians, bureaucrats and their intelligentsia friends: from seeming universally arrogant in the world to becoming pliant and subservient towards those world powers perceived (accurately or inaccurately) as strong, combined with a vainglorious jingoism towards all others. It is an application to international diplomacy and politics of the classic bureaucratic principle of “kiss up, kick down” in an organisation, and may reflect the fact the two main institutions the Mughals and British used to run their empires were the bureaucracy and military ~ both of which have grown and continued to run New Delhi (and Islamabad) afterwards, co-opting whatever domestic political development that has arisen. There is plenty of wishful waffling too about India becoming a “great power” or being a “swing state in the global balance of power”, and about how well the economy is supposedly doing ~ as if what Government spokesmen say about the economy is to be believed at face-value. Indian Leftists and their fellow-travellers ~ as great lovers themselves of bureaucracy, collectivist groupthink and propaganda on the USSR or PRC pattern, and fearful or envious of all individual criticism, creativity and achievement – have taken to the same principle like fish to water.
The first phase of Indian foreign policy was Nehruvian in that it began with Nehru’s Fabian misperception of Stalin’s USSR, and ended with the military debacle he led the country into at the hands of Zhou’s “human wave” armies in the mountains of Ladakh and NEFA.
A second phase was Kashmir-centric, overlapping with the first insofar as it may be traced to Karan Singh’s iniquitous dismissal of Sheikh Abdullah’s first Government, but really beginning after Nehru’s death with the Ayub-Abdullah summit, and being marked by Ayub’s 1965 attack in J&K ~ Shastri’s riposte reaching the Ichogil Canal signalled that no longer would war over J&K be confined to J&K.
A third phase was forced on India by the Pakistani civil war that led to Bangladesh’s creation, and was marked by the Indira/ Haksar alliance with Brezhnev’s USSR, as well as by Pokhran-I.
A fourth phase of Indian foreign policy may be identified in the late 1970s and 1980s, marked by rebellion of the fundamentalist Sikhs whom Indira and Sanjay Gandhi had provoked, which led in due course to her assassination. The turmoil that followed in Punjab and North India was financed by anti-Indian Sikhs from Vancouver,California and Britain, with gleeful help from the Pakistanis, and Indian diplomats had their hands full in trying to counter that phenomenon. It was during this phase of domestic Indian turmoil that New Delhi wholly missed the seismic changes occurring in the USSR, East Europe and international relations generally, and completely failed to predict its consequences for India.
The phase came to end when the Narasimha Rao Government (upon advice of a well-known communist cabal in the IFS and JNU) instantly showered praise on the anti-Yeltsin coup in August 1991. When Yeltsin returned to power, the new anti-communist Russians took their revenge on New Delhi, exacting hard dollars for the soft rouble-trade of friendlier times.
A fifth phase may be seen in retrospect as one of relative success.The main plank of Indian foreign policy in the late 1980s and early 1990s was to get Pakistan designated a “terrorist state” in American eyes, as well as to warn of the dangers of a Pakistani nuclear bomb. It had been prompted by the end of American involvement in the Afghan war, which caused the ISI to shift the jihadis to J&K, and the Indian policy was destined not to succeed. No matter how hard Kanwal Sibal tried in 1992-1993 as Minister-Political in the Washington Embassy to tell the Americans that their Pakistani friends were dangerous, he was destined to fail as the MEA had entirely failed to realise how far ahead the Pakistanis were in their lobbying power in Washington ~ the Pakistani super-elite has been entrenched among the K-Street lobbyists and in expensive real-estate along the Potomac River for more than two generations. Yet after the 9/11 attacks several years later, the Indians were able to look back at that fifth phase and say to the Americans, “We told you so”.
In the late 1990s came a short-lived sixth phase of Pokhran-II and the Lahore bus-trip, which may be credited as Vajpayee successes, and also contained the Kargil War and Kandahar hijacking, which were more dubious. This overlapped with the last and currently continuing seventh phase of Indian foreign policy with Jaswant Singh breaking the ice with the Americans when they had recovered from the fact the CIA’s failures included not foreseeing Pokhran-II; it coincided too with Osama bin Laden’s declarations of jihad against the USA. The Americans enlisting themselves on the side of the Northern Alliance to defeat the Taliban after 9/11 was beneficial from an Indian standpoint since Afghanistan had been effectively lost to secular Indian influence for two decades, and the Taliban had shown themselves no friends of India during the Kandahar hijacking.
But the BJP’s anti-Muslim thought processes quickly took over, as did its proximity to organised business lobbies. When Iraq was attacked and occupied in 2003, there was hardly a whimper from the BJP leadership, and instead their businessmen friends started to fly to Amman hopeful of “reconstruction” contracts. The Sonia/ Manmohan Congress/Leftist combine has effectively continued and expanded that trend, though now the business lobbies have been much more muted and subtle, especially in their backroom dealings and payoffs with respect to the nuclear deal. There is also an occasional burst of anti-Americanism from leftists though it is hard of course to beg for American foreign investment in Marxist-run areas while also being sincere in quaint street demos or agitprop.
Running through the new foreign policy is a fiction that it is driven by a new economic motivation to improve development and mass well-being in India. The bizarre idea of creating hundreds of so-called “Special Economic Zones” (reminiscent of 17th and 18th Century colonial fortifications) illustrates this. India’s ordinary anonymous masses ~ certainly the 850 million people entirely outside the organised sector ~ have little or nothing to do with any of this. Benefits will accrue only to the ten million Indian nomenclatura controlling or having access to the gaping exit holes to the outside world in the new semi-closed economy with its endless deficit finance paid for by unlimited printing of an inconvertible domestic currency.
It is as fallacious to think private investment from foreign or domestic businessmen will support public “infrastructure” creation as it is to think foreign exchange reserves are like tax revenues in being available for Government expenditure on “infrastructure”. Such fallacies are intellectual products of either those who know no economics at all or those who have forgotten whatever little they might have been once mistaught in their youth. What serious economics does say is that Government should generally have nothing to do with any kind of private business, and instead should focus on properly providing public goods and services, encourage competition in all avenues of economic activity and prevent or regulate monopoly, and see to it all firms pay taxes they are due to pay.
That is it. It is as bad for Government to be pampering organised foreign or domestic business or organised labour with innumerable subsidies, as has been happening in India for decades, as it is to make enterprise difficult with red tape and hurdles. Businessmen are grown ups and should be allowed to freely risk their capital and make their profits or their losses without public intervention.
An economics-based policy would have single-mindedly sought to improve the financial condition of every governmental entity in the country, with the aim of improving the provision of public goods and services to all 1,000 million Indians. If and when budgets of all governmental entities become sound, foreign creditors would automatically line up before them with loans to sell, and ambitious development goals can be accomplished. As long as public budgets (and public accounts) remain in an outrageous shambles, nothing can be in fact achieved and only propaganda, corruption and paper-money creation results instead. Whatever economic growth does occur is due to new enterprise and normal technological progress, and is mostly despite and not because of New Delhi’s bureaucrats (see “The Dream Team: A Critique”, The Statesman 6-8 January 2006).
The first aspect of the new Indian foreign policy has been for Government to become wholly ingratiating towards any and all “First World” members visiting India who may deign to consider any kind of collaboration whatsoever. The long line of foreign businessmen and heads of government having photo-ops with the Indian PM began with Vajpayee and has continued with Manmohan, especially when there is a large weapons’ or commercial aircraft or other purchase to be signed. The flip-side has been ministerial and especially Prime Ministerial trips abroad ~ from Vajpayee’s to a Singapore golf-cart immediately after commiserating Gujarat, to Manmohan receiving foreign honorary doctorates while still holding public office.
Subservience to foreign business interests in the name of economic policy extends very easily to Indian naval, military or diplomatic assets being used to provide policing or support services for the great powers as and when they may ask for it. Hence, Indian naval forces may be asked by the Americans to help fight pirates in the Indian Ocean, or escort this vessel or that, or India may be asked to provide refuelling or base facilities, or India may be requested to vote against Iran, Venezuela or whomever here or there. But there would be absolutely no question of India’s role in international politics being anything greater than that of a subaltern or comprador whose response must be an instant “Ji, Huzoor”. The official backing of the Tharoor candidacy was as futile and ridiculous as the quest for UN veto-power or the willingness to attend G-8 summits as an observer.
While subservience towards the First World’s business and military interests is the “kiss up” aspect of the new foreign policy, an aggressive jingoism towards others is the “kick down” aspect. One influential voice among the media friends of the new foreign policy states it as follows: “The search for `equity oil’ has been the single most important new element of Indian economic diplomacy in recent years… Equity oil raises India’s stakes in the stability of regimes or even individuals who preside over these resources… the big question is how far would India go in defence of `regime stability’ elsewhere? And if it’s assets fall into hostile hands, would India be prepared to consider promoting `regime change’?” Just as surely as a pacifist Fabian socialist Nehru misperceived Stalin’s USSR, New Delhi’s new capitalistic jingoists have misperceived the Cheney-Rumsfeld grab for “equity oil” and have even defined Bush-Blair adventurism as being “the side of the angels”. How they must love to want to project Indian military force ~ paratroopers in the Maldives perhaps, though they need to recall what happened with the LTTE too!
Multiple Jallianwalla Bagh massacres may have been occurring in front of us in Iraq, Afghanistan and Balochistan, and there may soon be an attack on Iran too. New Delhi’s new “kiss up, kick down” attitude has rendered India’s once-dignified and sober voice silent, our eyes closed or our face turned away.
The obvious alternative to bureaucratic “kiss up, kick down” would be “kick up, kiss down” loved by all individualists and anti-bureaucrats. In other words, it would be for India to take each case and circumstance in international politics on its merits; be seen to stand up seriously to the powerful in world politics wherever and whenever necessary; seek to protect those who may be vulnerable to international or other brutality in world affairs, while getting on properly with the mundane business of ordinary government and commerce at all other times. That mundane business may call for a gradual withdrawal of India from all or most of the fancy, corrupt international bureaucracies in New York, Washington, Geneva etc, focussing calmly but determinedly instead on improved administration and governance at home. Such was what Rajiv Gandhi was advised in January 1991 (see “Memos to Rajiv,” The Statesman 31 July-2 August 1991; Freedom First October 2001), when for one futile moment he even formed a peaceful bridge between the Americans and Saddam during the first Gulf War. The New Delhi establishment may be too intoxicated with power and insecure intellectually to be able to reflect on such sober alternatives.
Indian Money & Credit by
First published in The Sunday Statesman, August 6 2006, Editorial Page Special Article
One rural household may lend another rural household 10 kg or 100 kg of grain or seed for a short time. When it does, it expects to receive back a little more than the amount lent ~ even if that little amount is in services or in plain goodwill among friends or neighbours. That extra amount is “real interest”, and the percentage of its value relative to the whole is the “real rate of interest”. So if 10 kg of grain are lent for two weeks and 11 kg are returned, an implicit real rate of interest of 10 per cent has been paid over that short period. The future is always less valuable than the present in the sense that 10 kg of grain today is worth something more than the prospect of the same 10 kg of grain tomorrow.
But loans may be made in terms of money rather than real units of grain, thus the change in the value of money over the period of the loan becomes relevant. If a loan of Rs 100,000 is made by a bank to a borrower for one year at a simple interest rate of 13 per cent per annum, and the value of money then declines at 8 per cent over the year, the debtor is paying real interest of just about 13 per cent-8 per cent = 5 per cent. The Yale economist Irving Fisher described how this monetary rate of interest equals the real rate of interest plus the rate of monetary inflation, while the great Swedish economist Knut Wicksell predicted inflation if the monetary rate fell below the real rate, and vice versa.
And there is another consideration too. A new cycle-rickshaw costs about Rs 5,000. A rickshaw driver who does not own his own machine has to pay the owner of the rickshaw a fixed rental of about Rs 15 per day. Now a government policy may want to see more cycle-rickshaw drivers owning their own machines, and allocate bank-credit accordingly. But some fraction of the drivers are alcoholics and hence are bad credit-risks, while others are industrious, have strong family lives and are good credit-risks. If a creditor is unable to distinguish between who is an alcoholic and who is not, credit terms will tend towards subsidising the alcoholic and taxing the industrious.
On the other hand, a creditor who knows each debtor individually will also know their credit-risks, and price individual loans to them accordingly. India’s credit markets, both rural and urban, have been segmented always into “formal” and “informal”, and remain so despite (or perhaps because of) much government intervention in recent decades.
Banks and the Reserve Bank of India operate in formal financial markets, but the informal credit market is where the real action is. For example, a mosaic-machine used in the construction business costs Rs 15,000 brand new and gets to be rented out at the rate of Rs 150 per day.
Someone with access to formal sector bank loans at say 13 per cent per annum, might borrow the Rs 15,000, buy a machine, rent it out, break-even within a few months and make a whopping profit afterwards. Everyone would thus hunger after subsidised formal sector bank loans, and these would be rationed quickly and then come to be allocated to people known to bank officials (like their own friends and relatives).
Rates of return on capital, i.e. real profits, are and always have been massively high in India, and that is what is to be expected because capital, both machinery and finance, is relatively scarce as a factor of production. Rates of return on labour, i.e. real wages, are on the other hand relatively low in India thanks to our vast population. For these reasons we have had for three centuries foreigners coming to India to invest their capital in enterprise and make a profit, while Indians have emigrated all over the world from Fiji to Britain to America in search of higher wages.
Now all of this is very elementary reasoning well known to serious monetary economists, yet it seems to have always escaped India’s monetary and fiscal decision-makers. For example, just the other day, the Finance Minister said in Parliament that all rural banks had been instructed to lend farmers credit at a 7 per cent (monetary) rate of interest, and failure to do so would lead to punishment. By the rickshaw example (in fact many cycle-rickshaw drivers are also marginal farmers), the FM did not wish to, and of course cannot in practice, distinguish between good and bad credit-risks among the recipients of such loans. If the value of money is declining by, say, 8 per cent per annum, a 7 per cent monetary rate is equivalent to a minus 1 per cent real rate. i.e., the FM would have done some Humpty Dumpty economics and caused the future prospect of holding Rs 1,000 tomorrow to be more and not less valuable than the certainty of holding Rs 1,000 today. It is inevitable there will be credit-rationing when credit is so massively subsidised, so the typical borrowing farmer will get some little fraction of his credit-needs at the official government price of 7 per cent per annum and then have to get the bulk of his credit-needs fulfilled in the informal market ~ at a price perhaps of 1 per cent-5 per cent PER DAY! The FM promising in his Budget to subsidise farm credit sounds nice on TV but may be wholly futile as a way of stopping farmers’ suicides.
The same kind of Humpty Dumpty monetary economics has been religiously pursued by the Reserve Bank of India for decades upon directions from its owner and master, the Finance Ministry ~ which in turn has always meekly followed the dictates of India’s unreasonable politicians of all parties. Formal sector interest rates in India have been for decades so artificially lowered that even if we use official figures measuring inflation, this leads to real interest rates being lower in capital-scarce India than in the capital-rich West! (See graphs). Negative or near-zero real interest rates in India’s formal financial sector coexisting with massively high profit rates in informal credit markets point to continuous processes of low risk profits being made by arbitrage between the two. That is why the organised private and public sectors seem so pleased with official credit policies ~ while every borrower in the informal credit markets always has suicide not far from his/her mind.
Other than Dr Rangarajan who once mentioned it, we have never had an RBI Governor who has wished to see the Reserve Bank of India constitutionally independent of the Government of the day, and hence dedicated to restoring the integrity of India’s money. Playing with the repo rate or other short term monetary rates is fun and makes the RBI think it is doing something as important as the US or UK central banks. Certainly the upward trend in such short term rates over the last few months is better than the nonsensical flip-flops previously. But it is small potatoes compared to the really giant variables which are all fiscal and not monetary in India. For example, Sonia Gandhi (as advised by another naturalized Indian, Jean Drèze, disciple of the Non-Resident Amartya Sen) insisted on a massive “Rural Employment Guarantee”; Manmohan Singh and Pranab Mukherjee have insisted on massive foreign weapons’ purchases and government wage increases; Praful Patel on massive foreign aircraft purchases; Arjun Sengupta on Scandinavian welfare benefits; Montek Ahluwalia on nuclear reactor purchases (so South Delhi will be able at least to run its ACs in 20 years’ time). All this adds endlessly to the stock of government paper being held as bank-assets, while the currency remains inconvertible (See e.g. The Statesman 30 October 2005, 6-8 January, 23 April 2006).The RSS/BJP and JNU/Left have been equally bereft of serious thought.
Tell any suicidal farmer that the Government of India has been borrowing larger and larger amounts every year just to pay interest on previously incurred debts; it may make him realise there are famous and powerful people who are even more unwise than himself and amount to effective suicide-prevention therapy. But do not tell him that they unlike himself have been playing with public money ~ or you may have the opposite effect.
Preface April 25 2009: This article of mine has become a victim of bowdlerization on the Internet by someone who seems to support Dr Singh’s political adversaries. I should say, therefore, as I have said before that there is nothing personal in my critical assessment of Dr Singh’s economics and politics. To the contrary, he has been in decades past a friend or at least a colleague of my father’s, and in the autumn of 1973 visited our then-home in Paris at the request of my father to advise me, then aged 18, before I embarked on my undergraduate studies at the London School of Economics. My assessments in recent years like “The Politics of Dr Singh” or “Assessing Manmohan” etc need to be seen along with my “Assessing Vajpayee: Hindutva True and False”, “The Hypocrisy of the CPI-M”, “Against Quackery”, “Our Dismal Politics”, “Political Paralysis” etc. (Also “Mistaken Macroeconomics”, June 2009). Nothing personal is intended in any of these; the purpose at hand has been to contribute to a full and vigorous discussion of the public interest in India.
First published in The Sunday Statesman Editorial Page Special Article, May 21 2006
Manmohan Singh matriculated during Partition, and earned bachelor’s and master’s degrees in economics from Punjab University in 1952 and 1954. He then went to Cambridge to read for the BA over two years. The pro-communist Joan Robinson and Nicholas Kaldor were dominant influences in Cambridge economics at the time. Mark Tully reports Dr Singh saying in 2005 he fell under their influence. “At university I first became conscious of the creative role of politics in shaping human affairs, and I owe that mostly to my teachers Joan Robinson and Nicholas Kaldor. Joan Robinson was a brilliant teacher, but she also sought to awaken the inner conscience of her students in a manner that very few others were able to achieve. She questioned me a great deal and made me think the unthinkable. She propounded the left wing interpretation of Keynes, maintaining that the state has to play more of a role if you really want to combine development with social equity. Kaldor influenced me even more; I found him pragmatic, scintillating, stimulating. Joan Robinson was a great admirer of what was going on in China, but Kaldor used the Keynesian analysis to demonstrate that capitalism could be made to work.”
Now, in fact, what was going on in China at that time was the notorious catastrophe caused by Mao Zedong known initially as the “Little Leap Forward” (with a Stalin-like collectivization of agriculture) and then as the “Great Leap Forward”. Mao later apologised to China’s people for his ignorance of microeconomic principles, admitting he “had not realised coal and steel do not move of their own accord but have to be transported”. If what Robinson was extolling to young Indians at Cambridge like Amartya Sen and Manmohan Singh in the mid 1950s was Mao’s China, it was manifest error.
As for Kaldor, the Canadian economist Harry Johnson independently reported that “being a man who rolls with the times fairly fast”, Kaldor “decided early on that capitalism actually was working. So for him the problem was, given that it works, it cannot possibly work because the theory of it is right. It must work for some quite unsuspected reason which only people as intelligent as himself can see.” Like Robinson, Kaldor made a handful of fine contributions to economic theory. But in policy-making he exemplified the worst leftist intellectual vanity and “technocratic” arrogance.
Returning to India, Manmohan Singh was required to spend three years at Chandigarh. In 1960, he left for Nuffield College to work for an Oxford DPhil on the subject of Indian exports. He returned to Chandigarh as required by government rules for another three years, and in 1966 left again until 1969, this time as a bureaucrat at the new UNCTAD in New York run by Raul Prebisch. A book deriving from his doctoral thesis was published by Clarendon Press in 1964.
In 1969, Dr Singh returned to India becoming Professor of International Trade at the Delhi School of Economics. A technical survey of mainstream Indian economic thinking done by his colleagues Jagdish Bhagwati and Sukhamoy Chakravarty published in the American Economic Review of 1969, made footnote references to his book in context of planning and protectionism, but not in the main discussion of Indian exports which at the time had to do with exchange-rate overvaluation.
After Indira Gandhi’s March 1971 election victory, Dr Singh came to the attention of Parameshwar Narain Haksar, who launched his career in bureaucracy after inviting him to write a political paper “What to do with the victory”. Haksar had been an Allahabad lawyer married into the Sapru family. In London as a student he was a protégé of R. Palme Dutt and Krishna Menon, and openly pro-USSR. He was close to the Nehrus, and Jawaharlal placed him in the new Foreign Service. He was four years older than Indira and later knew her husband Feroze Gandhi who died in 1960. By May 1967 Haksar was Indira’s adviser, and became “probably the most influential and powerful person in the Government” until 1974, when there was a conflict with her younger son. But Haksar’s influence continued well into the 1990s. His deeds include nationalization of India’s banks, the Congress split and creation of the Congress(I), and politicisation of the bureaucracy including the intelligence services. High quality independent civil servants became politically committed pro-USSR bureaucrats instead. Professionalism ended and the “courtier culture” and “durbar” politics began.
Haksar and T. N. Kaul were key figures negotiating the August 1971 “Treaty of Peace, Friendship and Cooperation” with the USSR, which was to run 25 years except the USSR collapsed before then. Indira had hosted Richard Nixon two years previously, and the Nixon-Kissinger attempt to get close to Zhou En Lai’s China using Pakistan’s Z. A. Bhutto and Yahya Khan (coinciding with Pakistan’s civil war) were undoubtedly factors contributing to India’s Soviet alliance.
As Haksar’s protégé, Dr Singh’s rise in the economic bureaucracy was meteoric. By 1972 he was Chief Economic Adviser and by 1976 Secretary in the Finance Ministry. The newly published history of the Reserve Bank shows him conveying the Ministry’s dictates to the RBI. In 1980-1982 he was at the Planning Commission, and in 1982-1985 he was Reserve Bank Governor (when Pranab Mukherjee was Finance Minister), followed by becoming Planning Commission head, until taking his final post before retirement heading the “South-South Commission” invented by Julius Nyerere of Tanzania, from August 1987 until November 1990 in Geneva.
Dr Singh joined Chandrashekhar’s Government on 10 December 1990, when Rajiv Gandhi was Leader of the Opposition yet supporting Chandrashekhar “from the outside”, and left when new elections were announced in March 1991. The first time his name arose in context of contemporary post-Indira Congress Party politics was on 22 March 1991 when M K Rasgotra challenged the present author to answer how Manmohan Singh would respond to proposals being drafted for a planned economic liberalisation of India by the Congress Party authorised by Rajiv since September 1990 (viz., “Memos to Rajiv” The Statesman 31 July-2 August 1991 republished here as “Three Memoranda to Rajiv Gandhi”; “The Dream Team: A Critique” The Statesman 6-8 January 2006 also republished here; see also “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform” published elsewhere here, and in abbreviated form in Freedom First, October 2001).
Rajiv was assassinated on 21 May 1991, resulting in Narasimha Rao (who had been ill and due to retire) becoming PM in June 1991. Dr Singh told Tully: “On the day (Rao) was formulating his cabinet, he sent his Principal Secretary to me saying, `The PM would like you to become the Minister of Finance’. I didn’t take it seriously. He eventually tracked me down the next morning, rather angry, and demanded that I get dressed up and come to Rashtrapati Bhavan for the swearing in. So that’s how I started in politics”. In the same conversation, however, Dr Singh also said he learnt of “the creative role of politics” from Robinson, and hence he must have realised he actually became politically committed when he began to be mentored by Haksar — Indira Gandhi’s most powerful pro-communist bureaucrat. Before 1991, Dr Singh may be fairly described as a statist anti-liberal who travelled comfortably along with the tides of the pro-USSR New Delhi political and academic establishment, following every rule in the bureaucratic book and being obedient in face of arbitrary exercise of political and economic power. There is no evidence whatsoever of him having been a liberal economist before 1991, nor indeed of having originated any liberal economic idea afterwards. The Congress Party itself in May 2002 passed a resolution saying the ideas of India’s liberalisation had originated with neither him nor Narasimha Rao.
Indeed, the 1970s and 1980s saw onset of the worst macroeconomic policies with ruination and politicisation of India’s banking system, origins of the Rs 30 trillion (Rs 30 lakh crore) public debt we have today, and the start of exponential money supply growth and inflation. Along with Pranab Mukherjee, Dr Singh, as the exemplary Haksarian bureaucrat, must accept responsibility for having presided over much of that. If they are to do anything positive for India now, it has to be first of all to undo such grave macroeconomic damage. This would inevitably mean unravelling the post-Indira New Delhi structure of power and privilege by halting deficit finance and corruption, and enforcing clean accounting and audit methods in all government organisations and institutions. Even the BJP’s Vajpayee and Advani lacked courage and understanding to begin to know how to do this, allowing themselves to be nicely co-opted by the system instead. Rajiv might have done things in a second term; but his widow and her coalition government led by Dr Singh, who exemplified India’s political economy of the 1970s and 1980s, appear clueless as to the macroeconomic facts, and more likely to enhance rather than reverse unhealthy fiscal and monetary trends.
Note: This article may have initiated the public debate on the economics of the Indo-US nuclear deal. It was published as a Special Article on the Editorial Page of The Sunday Statesman of April 2 2006 but it failed to be uploaded at the website http://www.thestatesman.net because there had been a fire on March 31 2006. The politicians who led the parliamentary debate in 2006 subsequently made reference to it.
See also republished elsewhere here e.g. “India’s Energy Interests”, “India and Energy Security”, “Need for Clarity”/”From Confusion to Clarity”, “Against Quackery”, “Jimmy Carter and the Indo-US Nuclear Deal””, NuksaanFaida Analysis”.
“Towards an Energy Policy”
by Subroto Roy
First published in
The Sunday Statesman, Editorial Page Special Article 2 April 2006
When was the last time we heard a thorough, well informed debate in Parliament about India’s long-term energy needs and policy-alternatives? The answer is never. Just as Pakistan tends to be run by Islamabad’s generals, we tend to be run by New Delhi’s bureaucrats; both are a legacy of the Raj which was run by small numbers of pompous civil servants and soldiers. Bureaucrats keep as much decision-making information as they can to themselves, give it to Parliament only under duress and then too in garbled opaque form, and share it voluntarily with the public never at all. A bureaucrat of conscience who shares vital information transparently becomes a “whistleblower”, and may risk his/her life and career because assorted mafias invariably surround all government contracting, and, like vampire bats, cannot stand the light of day shed upon them.
The problem with the Manmohan/Montek deal-making with the USA on behalf of India’s people has less to do with rational assessments not having been made of the relative costs and benefits of e.g. nuclear/fossil fuel/renewable energy, as it has to do with the fact it reflects the same lack of transparency (and is accompanied by the same politically correct propaganda) as has existed in other policy-making – like the $12 billion worth of commercial aircraft from Boeing and Airbus bought for our bankrupt nationalized airlines, or spending untold billions of borrowed dollars on new weapons from France, Russia, Britain or whomever to fight unknown enemies in unimagined wars, or throwing newly printed paper-money at every government project that any fool or knave cares to mention.
To be fair, the UPA/Communist dispensation of the public’s largesse is no worse than that of the NDA/RSS. Both are part of New Delhi’s own “Inside-the-Beltway” syndrome, and turn up at the same celebrity wedding-receptions and iftehar parties. Neither minds too much when the other is in power so long as they can keep their government accommodation. Our fundamental political problem may be the absence of any serious party of Left or of Right which is secular, scientific, liberal, nationalist, clean, law-abiding, and fiscally prudent.
Since no national debate on energy-policy has been offered by New Delhi, ordinary citizens will have to create such a debate for themselves. What follows constitutes a few of the barest facts needed to start such an analysis of India’s alternative energy scenarios and their respective costs.
Hydroelectric power does not involve burning any fuels. Instead, the gravitational force of the movement of water from the mountains to the oceans is harnessed to generate electricity. But hydroelectric projects (like the Narmada Dam) can displace people, who must be then compensated and resettled. Burning of organic “fossil fuels” like coal, gas and oil, causes atmospheric oxygen to turn into carbon dioxide, which may affect climate in unknown ways. In 2004, the International Energy Agency’s estimated the new energy capacity worldwide required by rising economic growth in the year 2020 will derive 1400 GW from burning coal (half of it in China and India), 470 GW from burning oil, 430GW from hydro, and 400 GW from renewable sources (like solar or wind power). On the Agency’s assumptions, gas prices will remain low, making construction of new nuclear plants for electricity uneconomical. By 2030, new energy expected to be required worldwide is 4700GW, of which only 150GW is expected from new nuclear plants — which will be replacing existing nuclear plants due to be retired. (Such is the scenario before any new nuclear plants were going to be exported by e.g. USA to India).
Now the fission of an atom of uranium produces perhaps 10 million times the energy produced by combustion of an atom of carbon from coal. Gas and fossil fuels may be cheap and in plentiful supply worldwide for generations to come but the potential for cheap energy from nuclear sources seems practically infinite. Nuclear power can arise from fission of radioactive uranium, plutonium or thorium. India has perhaps 8 million tonnes of monazite deposits along the seacoast of which half may be mined, to yield 225,000 tonnes of thorium metal; we have one innovatively designed thorium reactor under construction. But almost all nuclear energy worldwide today arises from uranium, and there are practically unlimited reserves of that. There is so much uranium in sea water that mankind’s total electricity needs can be satisfied for 7 million years. There is more energy in the uranium impurity present in coal than can arise from actually burning the coal. There is plenty of uranium in granite. None of these sources will become profitable for centuries because there is so much cheap uranium possible to be extracted from conventional ores. In 2001, uranium cost about US$20 per kg or so, translating to US$0.0004 per kwh of electricity. The known reserves of uranium that can be profitably sold at $120 per kg are enough for at least a hundred years. Design improvements in reactors will also improve productivity; e.g. “fast breeder” reactors “breed” more fissile material than they use, and may get 100 times as much energy from a kilogram of uranium as existing reactors do. India has about 95,000 tonnes of uranium metal which may be mined to yield about 61,000 tonnes net for power generation.
Natural uranium is 99.3 percent of the U-238 isotope and 0.7 percent of the radioactive U-235 isotope. Nuclear power requires “enriched uranium” or “yellow cake” in which U-235 has been increased from 0.7 percent to 4 to 5 percent, and that “separation” process is expensive. (Nuclear bombs require highly enriched uranium with more than 90% of U-235). Yellow cake is broken into small pieces, put in metal rods placed in bundles, which are then bombarded by neutrons causing fission. In nuclear bombs, the fission occurs in a small space, and the blast that results kills all life for miles around it by sucking up all the atmospheric oxygen, besides causing firestorms, shock waves and radioactivity. In a civilian reactor, the energy released turns water into steam, which moves turbines powering the generation of electricity. However, while there is no carbon dioxide “waste” as in burning fossil fuels, the “spent” rods of nuclear fuel and other products constitute grave radioactive waste, which is hard if not impossible to dispose of. Many countries like the USA just bury their nuclear waste in remote thinly populated desert areas.
Rational choice between energy sources depends on costs determined by history and geography. France has 59 of the 441 or so civilian nuclear reactors in the world, and generates 78% of its electricity from them, 22% from hydroelectricity. Japan has 54 reactors and generates 34% of its electricity from them. The USA has 104 reactors but generates only 20% of its electricity from them, principally because it has vast alternative sources of energy. In India, installed power generating capacity as of 2003 was 107,533.3MW, of which 71% was from burning fossil fuels. Hydroelectric potential is 150,000MWe. In 2003, total installed hydro capacity with utilities was 26,910MWe (about 18% of the potential). More than 70% of India’s hydroelectric potential is in the North and NorthEast regions put together.
India’s 14 nuclear reactors produce less than 4% of the total electricity being consumed in the country. Even if all other sources of electricity remained constant, and our civilian nuclear capacity alone was made to grow by 100% under the Manmohan-Montek deal with the USA, that would mean less than 8% of total Indian electricity produced. So the first question India’s citizens must ask is why such a fuss has been created about the Manmohan-Montek deal with America. Clearly, the Government of India must come wholly clean with all the facts and analysis it has available on the whole problem of India’s energy future in all its complexity and detail. If and when it does so, we may simply find that the fault lies not in the stars but in ourselves. Whether the US-India nuclear deal stands or falls, it will have scant effect in satisfying the country’s energy needs.
By SUBROTO ROY
first published in The Sunday Statesman, Editorial Page, Special Article,
January 22, 2006
Constitutions and communists do not go together. The most glaring example comes from Russia — the Motherland not only of modern communism but also of great brave individual souls like Aleksandr Solzhenitsyn and Andrei Sakharov, and the many other men and women who struggled to defeat communism there over seven decades. Before Russia managed to liberate herself from communism — i.e. before the Communist Party of the Soviet Union began under Mikhail Gorbachev and Boris Yeltsin to liberate itself from itself in the late 1980s — the only genuine elections that ever occurred in the country were to the Constituent Assembly of November 1917.
That Constituent Assembly was a multiparty legislative body and it happened to have a large anti-Bolshevik majority. It met only once in January 1918 and was destroyed under Lenin immediately because it quite naturally refused to adopt Bolshevik proposals. Under the Czar, the “Constitutional Democratic Party” (the “Cadets”), formed in 1905, “constituted the most dangerous ranks of revolution”. Under the government of the proletariat, the very same Cadet Party represented “the most dangerous ranks of reaction” (Solzhenitsyn). Constitutionalists inevitably end up battling both the Fascists of the Right and the Communists of the Left. As Hannah Arendt made clear, the organisation of totalitarian governments whether of Hitler’s Germany or Stalin’s USSR or Mao’s China were remarkably similar in nature. Upon seizing power in November 1917, Russia’s Bolsheviks attacked the constitutionalists first, outlawing the Cadet Party and arresting its members, and doing the same to students, workers and soldiers associated with the “Alliance for the Constituent Assembly”.
This is not a coincidence. Communists and fascists are powered by instincts of grabbing State political power for themselves any which way they can, in order to impose by brute force on everyone else the rather shoddy obsolete ideologies they subscribe to themselves. Karl Marx himself most famously said the words “I am not a Marxist”. Communists and fascists cannot stand the idea of the anonymous individual citizen standing up on his or her own; their instinct is one which cannot attribute credit to the individual person for any good that may be done, instead purloining it into a fake “collective” effort. Similarly, errors cannot be simply acknowledged, and instead responsibility is diffused all around until nobody remembers who said or did what or when, and all history becomes a jumble.
Every great scientific and artistic achievement has been an expression of individual genius, often against the reactionary collective will. And constitutions from Magna Carta onwards have been built on the idea of protecting the anonymous, powerless individual citizen against the violent arbitrary power of the established State and its comprador organisations. Britain and America may have contributed their share of evil to world history but they have made up for at least some of it by pioneering Anglo-Saxon constitutional jurisprudence. It may be no coincidence Britain and America have been home to the greatest outpourings of human creativity and invention in modern times, from the steam engine to the Internet.
In fact it has been a singularly American contribution to pioneer the very idea that parliamentary majorities themselves need to be restrained from their own baser proclivities. In 1767, before America had herself become free from British rule, the British Parliament once issued a declaration that a parliamentary majority could pass any law it saw fit. It was greeted with an outcry of horror in Britain’s American colonies. Patrick Henry of Virginia — later famous for his cry “Give me Liberty or give me Death” — led the battle for the anonymous free individual citizen against the arbitrary power that comes to be represented by the herd or mob instincts even of elected parliamentary majorities. Constitutions are written to protect parliaments and peoples from themselves.
The philosopher John Wisdom, who translated the subtle work of Wittgenstein and Freud into normal idioms, once said: “Sometimes a society acts as if all power lay in the hands of the most babyish and animal members, and sometimes as if all power lay in the hands of strict old men, and sometimes it acts more as a whole — mostly when there’s a war on. Sometimes a man is not himself and acts as if a babyish or cunning animal had gained control — that’s the id — sometimes as if an exacting parent, a sarcastic schoolmaster, or an implacable deity possessed him — that’s the super-ego. Sometimes a man is more himself and acts more as a whole, a new whole which is not a combination but a synthesis of the id and the super-ego. Some are constantly at the mercy of the id, some are slaves to the super-ego, and in some first one and then the other gains an unhappy victory in a continual struggle, and in some conflict and control have vanished into cooperation…”
Similarly, we may say that political processes in any country appear to often give play to the most “babyish” and “cunning animal” instincts of the society, while at other times the “strict old men” or “exacting parent” take over. The constant struggle of political reasonableness is to find the rational, normal national self that rests in between.
India at present has been set upon an unproductive and pointless course of inevitable Constitutional collision between Parliament and the Supreme Court. That course has been singly set by the present Speaker even though every attempt is being made now to diffuse his responsibility for the situation that has arisen, so that soon nobody will be able to remember exactly what happened or why. The incumbent Speaker, instead of being wholly self-effacing as called for by the job-requirements of the high and grave office he holds, has remained too much of a normal parliamentary advocate. Before grave irreparable damage comes to be done to India’s Parliamentary and Constitutional traditions, he needs to return at once to the Front Benches of the Communist Party of India (Marxist) as a distinguished senior Member of the House, and from there make whatever arguments he wishes about Parliament’s rights under the Constitution. The high self-effacing office of the Speaker is not from where such arguments as he has been making should be made — unless India’s Parliament and Constitution are soon to be thrown into the dustbin for ever (as has similarly happened for half a century across the border with our Pakistani cousins).
The incumbent Speaker is right that the Supreme Court does not oversee Parliament. The Supreme Court oversees something greater than Parliament, namely, India’s Constitution. Parliament, its Speaker, its Prime Minister, the President of India, and the Supreme Court itself are all creatures of the Constitution. However, the Constitution of India that was adopted on 26 January 1950 is not sui generis a creature of itself. It is the outcome of a clear and well-known constitutional history which has among its modern milestones the Government of India Act of 1935, and thence all the ancient milestones of Anglo-American constitutional jurisprudence going back to Magna Carta. And India’s Supreme Court — sitting not in any of its normal division benches but as a Constitutional Bench — does indeed have jurisdiction, indeed it has sole jurisdiction, over whether India’s Constitution is being made to suffer crimes or misdemeanours at the hands of India’s Government or Parliament of the day. For the Speaker to decline to receive a notice from the High Court is an irrelevancy; many people who are served notices ignore them; it does not reduce jurisdiction by an iota. An “All-Party” meeting of MPs can rail all it wants against the Supreme Court — even the whole of the present Parliament can pass as many unanimous resolutions as they want against the Supreme Court. They will only make themselves look silly and petulant in the eyes of history. As for the BJP Opposition in particular, the present situation may make it perfectly clear that there is not among them a single, principled, liberal constitutionalist hidden in their proto-fascistic ranks.
First published in The Statesman and The Sunday Statesman, Editorial Page Special Article, January 6,7,8, 2006
(Author’s Note: Within a few weeks of this article appearing, the Dream Team’s leaders appointed the so-called Tarapore 2 committee to look into convertibility — which ended up recommending what I have since called the “false convertibility” the RBI is presently engaged in. This article may be most profitably read along with other work republished here: “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform”, “Three Memoranda to Rajiv Gandhi”, “”Indian Money & Banking”, “Indian Money & Credit” , “India’s Macroeconomics”, “Fiscal Instability”, “Fallacious Finance”, “India’s Trade and Payments”, “Our Policy Process”, “Against Quackery”, “Indian Inflation”, etc)
1. New Delhi’s Consensus: Manmohantekidambaromics
Dr Manmohan Singh has spoken of how pleasantly surprised he was to be made Finance Minister in July 1991 by PV Narasimha Rao. Dr Singh was an academic before becoming a government economic official in the late 1960s, rising to the high office of Reserve Bank Governor in the 1980s. Mr Montek Singh Ahluwalia now refers to him as “my boss” and had been his Finance Secretary earlier. Mr Ahluwalia was a notable official in the MacNamara World Bank before being inducted a senior government official in 1984. Mr P Chidambaram was PVNR’s Commerce Minister, and later became Finance Minister in the Deve Gowda and Gujral Governments. Mr Chidamabaram is a Supreme Court advocate with an MBA from Harvard’s Business School. During 1998-2004, Dr Singh and Mr Chidambaram were in Opposition but Mr Ahluwalia was Member-Secretary of the Vajpayee Planning Commission. Since coming together again in Sonia Gandhi’s United Progressive Alliance, they have been flatteringly named the “Dream Team” by India’s pink business newspapers, a term originally referring to some top American basketball players.
Based on pronouncements, publications and positions held, other members or associates of the “Dream Team” include Reserve Bank Governor Dr YV Reddy; his predecessor Dr Bimal Jalan; former PMO official Mr NK Singh, IAS; Chief Economic Advisers Dr Shankar Acharya and Dr Ashok Lahiri; RBI Deputy Governor Dr Rakesh Mohan; and others like Dr Arvind Virmani, Dr Isher Ahluwalia, Dr Parthasarathi Shome, Dr Vijay Khelkar, Dr Ashok Desai, Dr Suman Bery, Dr Surjit Bhalla, Dr Amaresh Bagchi, Dr Govind Rao. Honorary members include Mr Jaswant Singh, Mr Yashwant Sinha, Mr KC Pant and Dr Arun Shourie, all economic ministers during the Vajpayee premiership. Institutional members include industry chambers like CII and FICCI representing “Big Business”, and unionised “Big Labour” represented by the CPI, CPI(M) and prominent academics of JNU. Mr Mani Shankar Aiyar joins the Dream Team with his opinion that a gas pipeline is “necessary for the eradication of poverty in India”. Mr Jairam Ramesh explicitly claimed authoring the 1991 reform with Mr Pranab Mukherjee and both must be members (indeed the latter as Finance Minister once had been Dr Singh’s boss). Dr Arjun Sengupta has claimed Indira Gandhi started the reforms, and he may be a member too. External members include Dr Jagdish Bhagwati, Dr. TN Srinivasan, Dr Meghnad Desai, Dr Vijay Joshi, Mr Ian Little, Dr Anne O. Krueger, Dr John Williamson, IMF Head Dr R Rato, and many foreign bank analysts who deal in Bombay’s markets. Harvard’s Dr Larry Summers joins with his statement while US Treasury Secretary in January 2000 that a 10% economic growth rate for India was feasible. His Harvard colleague Dr Amartya Sen — through disciples like Dr Jean Dreze (adviser to Sonia Gandhi on rural employment) — must be an ex officio member; as an old friend, the Prime Minister launched Dr Sen’s recent book while the latter has marked Dr Singh at 80% as PM. Media associates of the Dream Team include editors like Mr Aroon Purie, Mr Vinod Mehta, Dr Prannoy Roy, Mr TN Ninan, Mr Vir Sanghvi and Mr Shekhar Gupta, as well as the giddy young anchors of what passes for news and financial analysis on cable TV.
This illustrious set of politicians, government officials, economists, journalists and many others have come to define what may be called the “New Delhi Consensus” on contemporary India’s economic policy. While it is unnecessary everyone agree to the same extent on every aspect — indeed on economic policy the differences between the Sonia UPA and Vajpayee NDA have had to do with emphasis on different aspects, each side urging “consensus” upon the other — the main factual and evaluative claims and policy-prescriptions of the New Delhi Consensus may be summarised as follows:
A: “The Narasimha Rao Government in July 1991 found India facing a grave balance of payments crisis with foreign exchange reserves being very low.”
B: “A major cause was the 1990-1991 Gulf War, in its impact as an exogenous shock on Indian migrant workers and oil prices.”
C: “The Dream Team averted a macroeconomic crisis through “structural adjustment” carried out with help of the IMF and World Bank; hence too, India was unaffected by the 1997 ‘Asian crisis'”.
D: “The PVNR, Deve Gowda, Gujral and Vajpayee Governments removed the notorious license-quota-permit Raj.”
E: “India’s measurable real economic growth per capita has been raised from 3% or lower to 7% or more.”
F: “Foreign direct investment has been, relative to earlier times, flooding into India, attracted by lower wages and rents, especially in new industries using information technology.”
G: “Foreign financial investment has been flooding into India too, attracted by India’s increasingly liberalised capital markets, especially a liberalised current account of the balance of payments.”
H: “The apparent boom in Bombay’s stock market and relatively large foreign exchange reserves bear witness to the confidence foreign and domestic investors place in India’s prospects.”
I: “The critical constraint to India’s future prosperity is its “infrastructure” which is far below what foreign investors are used to in other countries elsewhere in Asia.”
J: “It follows that massive, indeed gargantuan, investments in highways, ports, airports, aircraft, city-flyovers, housing-estates, power-projects, energy exploration, gas pipelines, etc, out of government and private resources, domestic and foreign, is necessary to remove remaining “bottlenecks” to further prosperity for India’s masses, and these physical constructions will cause India’s economy to finally ‘take off’.”
K: “India’s savings rate (like China’s) is exceptionally high as is observable from vast expansion of bank-deposits, and these high (presumed) savings, along with foreign savings, will absorb the gargantuan investment in “infrastructure” without inflation.”
L: “Before the gargantuan macroeconomic investments bear the fruits of prosperity, equally large direct transfer payments also must be made from the Government to prevent mass hunger and/or raise nominal incomes across rural India, while existing input or other subsidies to producers, especially farmers, also must continue.”
M: “While private sector participants may increasingly compete via imports or as new entrants in industries where the public sector has been dominant, no bankruptcy or privatisation must be allowed to occur or be seen to occur which does not provide public sector workers and officials with golden parachutes.”
Overall, the New Delhi Consensus paints a picture of India’s economy on an immensely productive trajectory as led by Government partnered by Big Business and Big Labour, with the English-speaking intellectuals of the Dream Team in the vanguard as they fly between exotic conferences and international commercial deals. An endless flow of foreign businessmen and politicians streaming through Bangalore, Hyderabad, five-star hotels or photo-opportunities with the PM, followed by official visits abroad to sign big-ticket purchases like arms or aircraft, reinforce an impression that all is fine economically, and modern India is on the move. Previously rare foreign products have become commonplace in India’s markets, streets and television-channels, and a new materialist spirit, supposedly of capitalism, is captured by the smug slogan yeh dil mange more (this heart craves more) as well as the more plaintive cry pardesi jana nahin, mujhe chhorke (foreigner, please don’t leave me).
India’s Rupee became inconvertible in 1942 when the British imposed exchange controls over the Sterling-Area. After 1947 independent India and Pakistan, in name of “planned” economic development, greatly widened this war-time regime – despite the fact they were at war now only with one another over Jammu & Kashmir and, oddly enough, formed an economic union until 1951 with their currencies remaining freely convertible with each other.
On May 29 1984, the present author’s Pricing, Planning and Politics: A Study of Economic Distortions in India proposed in London that the Indian Rupee become a convertible hard currency again — the first time liberal economics had been suggested for India since BR Shenoy’s critique of the Second Five Year Plan (a fact attracting an editorial of The Times). The simple litmus test whether believers in the New Delhi Consensus have or have not the courage of their stated convictions – i.e., whether what they have been saying is, in its empirical fundamentals, more signal or noise, more reality or rhetorical propaganda – would be to carry through that proposal made 21 years ago. The Dream Team have had more than enough political power to undertake this, and it remains the one measure necessary for them to demonstrate to India’s people and the world that the exuberant confidence they have been promoting in their model of India’s economy and its prospects is not spurious.
What does convertibility entail? For a decade now, India has had limited ease of availability of foreign exchange for traders, students and tourists. Indeed some senior Government monetary economists believe there is convertibility already except forex dealers are being allowed “one-way” and not “two-way” quotes! That is wrong. The Government since 1942 has requisitioned at the border all foreign exchange earned by exporters or received as loans or investment — allocating these first to pay interest and amortisation on the country’s foreign debt, then to make its own weapons and other purchases abroad, then to release by ration what remains to private traders, students, tourists et al. Current account liberalisation has meant the last of these categories has been relaxed, especially by removal of some import quotas. What a convertible Rupee would mean is far more profound. It would allow any citizen to hold and save an Indian money that was exchangeable freely (i.e. without Government hindrance) into moneys of other countries. Full convertibility would mean all the paper money, bank deposits and rupee-denominated nominal assets held by ordinary people in India becomes, overnight, exchangeable without hindrance into dollars, yens, pounds or euros held anywhere (although not of course at the “one-way” rates quoted today).
Now money is a most peculiar human institution. Paper money is intrinsically worthless but all of India’s 1,000 million people (from street children onwards) have need to hold it temporarily to expedite their individual transactions of buying and selling real goods and services. Money also acts as a repository of value over time and unit of account or measure of economic value. While demand to hold such intrinsically worthless paper is universal, its supply is a Government monopoly. Because Government accepts obligations owed to it in terms of the fiat money it has itself issued, the otherwise worthless paper comes to possess value in exchange. Because Government controls its supply, money also can be abused easily enough as a technique of invisible taxation via inflation.
With convertibility in India, the quantity of currency and other paper assets like public debt instruments representing fiscal decisions of India’s Union and State Governments, will have to start to compete with those produced by other governments. Just as India’s long-jumpers and tennis-players must compete with the world’s best if they are to establish and sustain their athletic reputations, so India’s fiscal and monetary decisions (i.e. about government spending and revenues, interest-rates and money supply growth) will have to start competing in the world’s financial markets with those of the EU, USA, Japan, Switzerland, ASEAN etc.
The average family in rural Madhya Pradesh who may wish, for whatever personal reason, to liquidate rupee-denominated assets and buy instead Canadian, Swiss or Japanese Government debt, or mutual fund shares in New York, Frankfurt or Singapore, would not be hindered by India’s Government from doing so. They would become as free as the swankiest NRI jet-setters have been for years (like many members of the New Delhi Consensus and their grown children abroad). Scores of millions of ordinary Indians unconnected with Big Business or Big Labour, neither among the 18 million people in government nor the 12 million in the organised private sector, would become free to hold any portfolio of assets they chose in global markets (small as any given individual portfolio may be in value). Like all those glamorous NRIs, every Indian would be able to hold dollar or Swiss Franc deposit accounts at the local neighbourhood bank. Hawala operators worldwide would become redundant. Ordinary citizens could choose to hold foreign shares, real-estate or travellers’ cheques as assets just as they now choose jewellery before a wedding. The Indian Rupee, after more than 65 years, would once again become as good as all the proverbial gold in Fort Knox.
When added up, the new demand of India’s anonymous masses to hold foreign rather than Rupee-denominated assets will certainly make the Rupee decline in price in world markets. But — if the implicit model of India’s economy promoted by the Dream Team is based on correctly ascertained empirical facts — foreign and domestic investor confidence should suffice for countervailing tendencies to keep India’s financial and banking system stable under convertibility. Not only would India’s people be able to use and save a currency of integrity, the allocation of real resources would also improve in efficiency as distortions would be reduced in the signalling function of domestic relative prices compared to world relative prices. An honest Rupee freely priced in world markets at, say, 90 per dollar, would cause very different real microeconomic decisions of Government and private producers and consumers (e.g., with respect to weapons’ purchases or domestic transportation, given petroleum and jet fuel imports) than a semi-artificial Rupee at 45 per dollar which forcibly an inconvertible asset in global markets. A fully convertible Rupee will cause economic and political decisions in the country more consistent with word realities.
Why the Rupee is not going to be made convertible in the foreseeable future – or why, in India’s present fiscal circumstances if it was, it would be imprudent to do so – is because, contrary to the immense optimism promoted by the Dream Team about their own deeds since 1991, they have in fact been causing India’s monetary economy to skate on the thinnest of thin ice. Put another way, a house of cards has been constructed whose cornerstone constitutes that most unscientific anti-economic of assumptions, the “free lunch”: that something can be had for nothing, that real growth in average consumption levels of the masses of ordinary households of rural and urban India can meaningfully come about by nominal paper-money creation accompanied by verbal exhortation, hocus-pocus or abracadabra from policy-makers and their friends in Big Business, Big Labour and the media. (Lest half-remembered inanities about “orthodox economics” come to be mouthed, Maynard Keynes’s 1936 book was about specific circumstances in Western economies during the Depression and it is unwise to extend its presumptions to unintended situations.)
3. Rajiv Gandhi and Perestroika Project
On 25 May 2002, India’s newspapers reported “PV Narasimha Rao and Manmohan Singh lost their place in Congress history as architects of economic reforms as the Congress High Command sponsored an amendment to a resolution that had laid credit at the duo’s door. The motion was moved by…. Digvijay Singh asserting that the reforms were a brainchild of the late Rajiv Gandhi and that the Rao-Singh combine had simply nudged the process forward.”
Now Rajiv Gandhi was an airline-pilot and knew no economics. But the origins of the 1991 reform did come about because of an encounter he had, as Opposition Leader and Congress President from September 1990 onwards, with a “perestroika” project for India’s political economy occurring at an American university since 1986 (viz., The Statesman Editorial Page July 31-August 2 1991, now republished here; Freedom First October 2001). In being less than candid in acknowledging the origins of the reform, the Dream Team may have failed to describe accurately the main symptoms of illness that afflicted India before 1991, and have consequently failed to diagnose and prescribe for it correctly ever since.
The Government of India, like many others, has been sorely tempted to finance its extravagant expenditures by abusing its monopoly over paper-money creation. The British taught us how to do this, and in 1941-43 caused the highest inflation rates ever seen in India as a result. Fig. 1 shows this, and also that real growth in India follows as expected the trend-rate of technological progress (having little to do with government policy). Independent India has continually financed budget- deficits by money creation in a process similar to what the British and Americans did in wartime. This became most conspicuous after Indira Gandhi’s bank and insurance nationalisations of 1969-1970. Indeed, among current policy-makers, Pranab Mukherjee, Manmohan Singh, Arjun Sengupta, Montek Singh Ahluwalia, Bimal Jalan, NK Singh, Amaresh Bagchi and Shankar Acharya, were among those governing such macroeconomic processes before 1991 — albeit in absence of the equations that illustrate their nature. Why the Rupee cannot be made an honest, internationally convertible, stable money held with confidence by all Indians today, is because the Dream Team have continued with the same macroeconomics ever since. The personal and political ambitions of the tiniest super-elite that the New Delhi Consensus represent (both personal and political) have depended precisely on gargantuan unending deficit-financing backed by unlimited printing of paper-money, and hence the continuing destruction of the integrity of India’s banking system. A convertible Rupee would allow India’s ordinary people to choose to hold other stores of value available in the world today, like gold or monies issued by foreign governments, and thus force an end to such processes.
Two recent articles in The Statesman (Perspective Page 30 October 2005, Front Page 29 November 2005) outlined India’s financial repression and negative real interest rates (which suffice to explain the present stock market boom the way athletes perform better on steroids), and also how deficits get financed by money creation accompanied by wishful projections of economic growth in an upside down imitation of how macroeconomic policy gets done in the West.
“Narrow Money” consists mostly of hand-to-hand currency. “Broad Money” consists of Narrow Money plus bank-deposits. Modern banking is built on “fractional reserves”, i.e. a system of trust where your bank does not literally hold onto deposits you place there but lends these out again – which causes further deposit expansion because no individual banker can tell whether a new deposit received by it is being caused by the depositor having himself borrowed. As a general rule, bank lending causes further deposit expansion. Why India’s (and China’s) bank deposits have been expanding is not because Indians (or Chinese) are superhuman savers of financial assets in banks but because the Government of India (and China) has for decades compelled (the mostly nationalised) banks to hold vast sums of Government debt on the asset side of their balance-sheets. Thus there has been humongous lending by the banking system to pay for Government expenditures. The Dream Team’s macroeconomics relies entirely on this kind of unending recourse to deficit finance and money creation, causing dry rot to set into banks’ balance sheets (Figs. 2,3, 4). If the Rupee became convertible, those vast holdings of Government debt by banks would become valued at world prices. The crucial question would be how heavily New York, London and Hong Kong financial markets discounted Indian sovereign debt. If upon convertibility, the asset sides of domestic Indian banks get discounted very heavily by world financial markets, their insolvency upon being valued at international prices could trigger catastrophic repercussions throughout India’s economy. Hence the Rupee cannot be made convertible — and all our present inefficiencies and inequities will continue for ever with New Delhi’s rhetorical propaganda alongside. The capital flight of 10 out of 1000 million Indians will continue, leaving everyone else with the internal and foreign public debts to pay.
4. A Different Strategy had Rajiv Not Been Assassinated
Had Rajiv Gandhi not been assassinated and the perestroika project allowed to take its course, a different strategy would have been chosen. Honest money first demands honest Government and political leadership. It would at the outset have been recognised by Government (and through Government by all India’s people) that the asset-liability, income-expenditure and cash-flow positions of every public entity in the country without exception — of the Union Government, every State and local Government, every public undertaking and project – is abysmal. Due to entanglement with government financial loans, labour regulations, subsidies, price controls, protection and favouritism, the same holds for the financial positions of vast numbers of firms in the organised private sector. Superimpose on this dismal scene, the bleak situation of the Rule of Law in the country today – where Courts of Justice from highest to lowest suffer terrible abuse receiving pitiable amounts of public resources despite constituting a third and independent branch of India’s Government (while police forces, despite massive expenditure, remain incompetent, high-handed and brutal). What India has needed ever since 1991 is the Rule of Law, total transparency of public information, and the fiercest enforcement of rigorous accounting and audit standards in every government entity and public institution. It is only when budgets and financial positions become sound that ambitious goals can be achieved.
The Dream Team have instead made a fetish of physical construction of “infrastructure”, in some grandiose make-believe dreamworld which says the people of India wish the country to be a superpower. The Dream Team have failed to properly redefine for India’s masses the appropriate fiscal and monetary relationship between State and citizen – i.e. to demarcate public from private domains, and so enhance citizens’ sense of individual responsibility for their own futures, as well as explain and define what government and public institutions can and cannot do to help people’s lives. Grotesque corruption and inefficiency have thus continued to corrode practically all organs, institutions and undertakings of government. Corruption is the transmutation of publicly owned things into private property, while its mirror image, pollution, is the disposal of private wastes into the public domain. Both become vastly more prevalent where property rights between private and public domains remain ill demarcated. What belongs to the individual citizen and what to sovereign India –their rights and obligations to one another – remains fuzzy. Hence corruption and pollution run amuck. The irrational obsession with “infrastructure” is based on bad economics, and has led to profoundly wrong political and financial directions. The Rupee cannot be made an honest stable money because India’s fiscal and monetary situation remains not merely out of control but beyond New Delhi’s proper comprehension and grasp. If and when the Dream Team choose to wake up to India’s macroeconomic realities, a great deal of serious work will need to be done.
First published in The Sunday Statesman, Nov 13 2005 and The Statesman, Nov 14 2005, Editorial Page Special Article
Atal Behari Vajpayee, mentored by Shyama Prasad Mookerjee himself, became Prime Minister of India for less than a fortnight in 1996, then again in 1998 and again in 1999 and remained so until he was voted out in 2004.
He became PM holding the trust of India’s 120 million Muslims. He was supposed to be the genial, avuncular “good cop” who would keep at bay the harsh forces represented by the unpredictable “bad cop”, his Deputy PM and long-time colleague LK Advani. It was the first time RSS members had come to lead India’s government. How is the Vajpayee-Advani duumvirate to be candidly assessed? The question is important not only for the RSS and BJP engaged in their own introspection and petty politics but for the country as a whole. India needs both a competent Government and a competent Opposition in Parliament, and it is not clear we have ever had either.
Overall, Vajpayee-Advani, as the chief public symbols of the RSS-BJP, earned relatively high marks in office handling India’s strategic and security interests, including the nuclear issue and Pakistan. Equally, they failed badly in their treatment of India’s Muslims and religious minorities in general. This is a paradox that can be explained by the general failure of putative Hindutvadis to acquire an objective understanding of the processes that had led to Independence, Partition, and Pakistan’s creation.
Roughly, their comprehension of these processes has been one which sees all Muslims everywhere as cut from the same communal cloth, regardless of the beliefs or actions of individual Muslims. In such prejudiced eyes, there is no conceptual or ultimate difference between a Jinnah and an Azad, between a Salauddin who attacks India at Kargil and a Lt Hanifuddin who dies for India at Kargil. This is the product of a sloppy and erroneous philosophy of history, which in turn is an outcome of an attitude towards modern science and modes of rigorous reasoning that can only be called backward and retrograde.
It has been signalled most conspicuously by the extremely public adherence of many putative Hindutvadis (and millions of other Indians) to astrology — in apparent ignorance of the fact that all horoscopes assume the Sun rotates around Earth. Astrology, a European invention, came to decline in Europe after the discoveries of Copernicus and Galileo became widely understood there.
Like Indian Communists, Hindutvadi ideologues with rare exceptions played no role in the movement that led to Indian independence in 1947 and creation of the modern Indian Republic in 1950. They remained to their credit constantly suspicious of and hostile towards the foreign phenomena that were Bolshevism, Stalinism and Maoism. They remained to their discredit constantly suspicious of and hostile towards Indian Muslims, even at one point seeing virtuous lessons in Hitler’s attitude towards the Jews. They have in their own way subscribed to Ein Reich, Ein Volk but fortunately have always failed to find Ein Fuhrer (on a pattern e.g. of a modern “Netaji”).
Where Nazis saw communists and Jews in conspiracies everywhere, Hindutvadi ideologues have tended to see communists and Muslims, and also Christians and “Macaulayite” Hindus, in conspiracies everywhere. (An equal methodological admiration for Nazism occurred on the part of Muslims in the 1930s led by Rahmat Ali, the Pakistani ideologue — who saw “caste Hindus” as the root of all evil and in conspiracies everywhere.) The paradox of the RSS-BJP success in handling nuclear and security issues quite well and domestic issues of secular governance badly, is explained by this ideology of double hostility towards communism and Muslims.
On the positive side, Vajpayee-Advani advocated a tough clear-headed realpolitik on the issue of Indian’s security. “We should go nuclear and sign the Non-Proliferation Treaty as a nuclear weapons’ state. The whole world will recognise us by our power. We don’t want to be blackmailed and treated as oriental blackies. Nuclear weapons will give us prestige, power, standing. An Indian will talk straight and walk straight when we have the bomb”. That is what the BJP told the New York Times in 1993.
Three years later, the moment Vajpayee first entered office as PM in May 1996, the government’s scientists who had already secretly assembled the bomb for testing, were instructed to stand by for orders to go ahead. Vajpayee did not know if his Government would survive the vote of confidence required of them. When it was pointed out that if he tested the bomb and lost the vote, a successor Government would have to cope with the consequences, Vajpayee, to his credit and reflecting his political experience and maturity, cancelled the test. When he lost the vote, the public demonstration of Indian nuclear weapons capability was also postponed until May 1998, after he had returned as PM a second time. The bomb was a celebration of Hindu, or more generally, Indian independence in the world. India had nominally freed herself from the British but not from Western culture, according to the RSS. Where the Congress had been in the grip of world communism, the RSS-BJP led India to nuclear freedom – such was their propaganda.
In reality, a long line of prime ministers including Jawaharlal Nehru, Indira Gandhi, Rajiv Gandhi, VP Singh and IK Gujral had authorised India’s bomb, and a long line of scientists starting with Homi Bhabha had developed it over several decades.
Vajpayee’s decision finally flushed out Pakistan’s clandestine nuclear weapons developed with North Korea and China. Pakistan is an overtly Islamist state where liberal democracy shows no signs of starting even 65 years after the Lahore Resolution. Its nuclear bombs remain a far greater threat to the world than anyone else’s. Moreover, while India has renounced first use of such weapons, Pakistan has not only not done so, its Foreign Minister Gohar Ayub Khan boasted in 1998-1999 that the next war would be over in two hours with an Indian surrender.
Such glib talk about nuclear war is beyond contempt in its irresponsibility. A study by medical doctors estimated that a Hiroshima-sized bombing of Mumbai would cause 9 million deaths from blast, firestorms, radiation and fallout. An Indian retaliation would end Pakistan’s existence (though the Pakistani super-elite has long ago fled with its assets to Britain and America). An India-Pakistan nuclear exchange would leave a vast wasteland, finally ending all intellectual controversies about Partition and Jinnah’s theory. In reality, each is hardly able to cope with natural calamities like earthquakes, cyclones and floods, and also has very grave macroeconomic crises brewing because of unending deficit-finance and unlimited printing of paper money. For either to imagine itself a major power is a vain boast regardless of the polite flattery from visiting foreign businessmen. Of course, while each remains the principal enemy of the other, neither is a serious military force in the world.
After the exchange of nuclear tests in 1998, Vajpayee took the bus across the Wagah border to meet Nawaz Sharif in February 1999. He claimed it was a diplomatic and psychological breakthrough as indeed it was for a moment. But it had not been his original idea. AM Khusro, who accompanied him on the bus, had worked with Rajiv Gandhi in 1990-1991 when Rajiv was advised to make such a Sadat-like move. Furthermore, Vajpayee failed to see the significance of the Pakistani military chiefs led by Pervez Musharraf refusing to meet him formally, which would have entailed saluting him when he was their enemy.
Vajpayee also may not have known the Pakistani monument he visited was later “purified” with rose water by orthodox Muslim believers. So much for Indian diplomatic triumphs or Pakistan’s diplomatic niceties towards their kaffir guest. BJP foreign ministers later ingratiated themselves with Ariel Sharon because he was an enemy of Muslims — though again the BJP seemed unaware that “a single hair” shorn from idol-worshipping Hindu women at Tirupathi was enough for orthodox rabbis to declare as “impure” the wigs worn by Jewish women made from such hair. The evil of “untouchability” has not been a “caste Hindu” monopoly.
According to the Sharif-Musharraf plan secretly brewing during Vajpayee’s Pakistan visit, the Kargil infiltration followed. India’s Army and Air Force gamely fought back in the initial weeks suffering relatively severe losses, but the country seemed mesmerised by World Cup cricket and there was no significant political leadership from Vajpayee’s Government until the second week of June 1999. It was only after Brajesh Mishra was provoked by an analysis of how Pakistan might actually succeed (with the possibility of hidden Pakistani plans of a blitzkrieg and missile attacks), that Vajpayee’s Government seemed to wake up from its stupor, mobilised forces rapidly and threatened Pakistan with direst consequences, a threat made credible because it was conveyed by Mishra via the Americans. The Pakistanis backed down, which led soon to Musharraf’s coup détat against Sharif, and the world has had to deal with a Pakistani state synonymous with Musharraf ever since. The Vajpayee-Advani military triumph at Kargil was short-lived, as it was followed within months by an abject surrender to the Taliban’s terrorists at Kandahar airport.
In the meantime, on 23 January 1999, the Australian missionary Graham Staines and his two young sons were murdered by a savage anti-Christian mob as they slept in their car in rural Orissa. Vajpayee, the agreeable face of the RSS-BJP with allegedly impeccable secular credentials, responded without the moral strength that was necessary from a leader of all of India’s people. It was a model of weakness of political will and comprehension that would be followed in the larger catastrophe to occur in Gujarat.
On 27 February 2002, a train approaching Godhra station had a bunch of travelling rowdies bullying ticketed passengers, ticket-collectors and local tea-vendors. The vendors belonged to a lowly Muslim caste whose members were entrenched around Godhra and the nearby Signal Falia. During an extended stop at Godhra station, the altercations grew fiercer — the rowdies forcing people to shout slogans and roughing them up when they did not. False rumours flew that the rowdies had molested a Muslim woman and her two daughters who had been waiting on the platform. As the train left Godhra, a gang of rioters led by one tea-shop owner and other tea-vendors gathered before Signal Falia, stopped the train and assaulted it with stones and petrol-bombs.
One whole compartment was completely burnt, scores of passengers, including 26 women and 12 children, were incinerated, many of whom remain unidentified. (Some of those supposed to be in the compartment according to Railway lists were later found alive and well, as they had moved due to the rowdyism.) Throughout the day, Godhra District Collector Jayanthi Ravi stated on television and radio that a riot had occurred and appealed for calm. But after 7 pm, the State’s political executive called it a “pre-planned violent act of terrorism”, and an organised pogrom began against Muslims across the State. Over several weeks, thousands were killed and raped and turned into refugees inside their own country.
Gujarat’s chief political executive, a Vajpayee-Advani protégé, should have been immediately held accountable; instead he continued to receive their political patronage. Vajpayee, en route to a planned business trip abroad, made a perfunctory visit to the scene of the civil horror, then proceeded to Singapore, where he was shown moving around on a golf-cart wearing designer goggles. He had clearly failed to grasp the dimensions or the gravity of the nature of the office he held. Vajpayee thus came to lose the trust of India’s Muslims and minorities in general which he had earned by his moderation and maturity over many decades in the Opposition. The RSS-BJP had lost, perhaps permanently, the last opportunity to make their actions tally with their sweet words about a united Indian people living in bliss in a common sacred Motherland.
Vajpayee’s finance and economic planning ministers were as ignorant of the reality of India’s macroeconomics as the Stalinist New Delhi bureaucrats pampered by Congress and its Communist friends. These bureaucrats continued in power under Vajpayee. Plus the RSS’s pseudo-economists were enough to scare away all except a minor econometrician and a shallow economic historian. The latter led the BJP up the garden path in 2003-2004 with talk about India’s economy being on the point of “take off” (based on defunct American theory from the 1960s), which misled them into the “India Shining” campaign and electoral defeat. The BJP finance minister, thus misled, revealed his own ignorance of his job-requirements when he happily spoke on TV of how much he sympathised with businessmen who had told him CBI, CVC and CAG were the initials holding India back from this (bogus) “take off”. Equally innocent of economics, the BJP’s planning chief went about promising vast government subsidies to already-rich Indians abroad to become “venture capitalists” in India! Instead of reversing the woeful Stalinism of the Congress decades overall, Vajpayee’s Government super-imposed a crony capitalism upon it. Budgetary discipline was not even begun to be sought — another BJP finance minister revelling publicly in his ignorance of Maynard Keynes.
The signal of monetary crisis that was the UTI fiasco was papered over with more paper money printing. Privatisation was briefly made a fetish — despite there being sound conservative reasons not to privatise in India until the fiscal and monetary haemorrhaging is stopped. Liquidating real assets prior to a likely massive inflation of paper assets caused by deficit-financing, is not a public good.
RSS members and protégés appointed to government posts and placed in charge of government moneys revealed themselves as corrupt and nepotistic as anyone else. The overall failure of the management of India’s public institutions and organs of State continued under Vajpayee-Advani just as it had done for decades earlier. Vajpayee-Advani evinced no vision of a modern political economy as reformers of other major countries have done, such as Thatcher, Reagan, Gorbachev-Yeltsin, Adenauer-Erhardt, De Gaulle, even Deng Tsiaoping.
The overall explanation of the ideological and practical failure of the putative Hindutvadis must have to do with their irrational obsession over two decades with the masjid-mandir issue. Ramayana and Mahabharata are magnificent mythological epics yet they are incidental aspects of the faith and culture deriving from the Vedas and Upanishads. The motive force of a true Hindutva is already contained in the simple Upanishadic motto of the Indian Republic, Satyameva jayathe (let truth prevail) which is almost all the religion that anyone may need. The search for all truth necessarily requires individual freedom, and taking its first steps would require the RSS-BJP denouncing all their backward pseudo-science and anti-science. Who among them will liberate them from the clutches of astrology, and bring instead the fresh air and light of modern science since Copernicus and Galileo? Without rigorous modern reasoning, the RSS and BJP are condemned to their misunderstanding of themselves and of India, just as surely as their supposed enemies — literalist Muslim believers — are committed to a flat earth and an implacably stern heaven placed above it. Pakistan’s finest academic has reported how his colleagues pass off as physics the measurement of earth receding from heaven if Einstein and The Qúran could be amalgamated. The RSS and BJP need to free themselves from similar irrational backwardness in all fields, including politics and economics. It is plain Vajpayee, Advani or any of their existing political progeny cannot lead themselves, or Indians in general, to that promised land.